M/S. Sathyanarayana
Brothers (P) Ltd. Vs. Tamil Nadu Water Supply & Drainage Board [2003] Insc
574 (18 November 2003)
Brijesh
Kumar & Arun Kumar.Brijesh Kumar,J
Special Leave Petition (civil) 2096-2097 of 2002
Leave
granted.
These
appeals are the outcome of an arbitration proceedings initiated at the instance
of the appellant M/s.Sathyanarayana Brothers (P) Ltd. raising certain claims
against the respondent Tamil Nadu Water Supply & Drainage Board (for short
'the Board'). The claim was ultimately partly allowed by the Umpire. The
objections against the Award preferred by the appellant were allowed by the
learned single Judge but the Division Bench set aside the order of the learned
single Judge. Hence, this appeal by M/s.Sathyanarayana Brothers (P) Ltd.
In
view of the acute scarcity of water in the State of Tamil Nadu a project known
as Veeranam project was undertaken by the State Government after its clearance
by the Planning Commission for bringing the water from the left bank of the Coleroon
at Lower Anicut to the city of Madras covering a distance of 155 miles through
the pipelines to be laid for the purpose. The work required to be done was for
manufacturing, supplying, delivering 1676 mm. (66") Diameter Prestressed
Concrete Pipes and fittings including transporting to site, laying, jointing
and testing for raw water and clear water conveying mains from Veeranam Tank to
Madras city.
The
tenders submitted by the appellant M/s.Sathyanarayana Brothers (P) Ltd. for
carrying on the job detailed above was accepted for a lump sum amount of
Rs.16,55,87,300/- subject to clearance of the foreign collaboration arrangement
and release of necessary foreign exchange and also subject to other conditions
and issued G.O.Ms.No.1607 Public (TWAD) Department dated 13.7.1970. While
submitting the tender the petitioner had also written a letter dated 22.1.1970
to the Chief Engineer (Buildings) and City Water Supply, Veeranam Project,
Public Works Department, Chepauk, Madras with a request for foreign exchange requirement for import of
equipments from foreign manufacturers. The contractor had requested the
government to give all assistance in procurement of foreign exchange and other
necessary central government clearances. Articles of agreement was executed
between the State of Tamil
Nadu and M/s.Sathyanaraya
Brothers specifying the terms and conditions of the contract. The work was
required to be completed within 36 months from the date of the entrustment of
the site which was to be done within 30 days after the date of acceptance of
the tender. It also provided that if there was any delay in handing over the
site there should be extension of time for completion of the contract.
The
time for completion was liable to be extended on the request of the contractor
for justifiable reasons.
The
contractor required Rs.1.2 crores of foreign exchange for importing necessary
equipments for manufacture of Prestressed Concrete Pipes from Switzerland since the exporters insisted on
payment in Doutecha Marks.
The
contractor was advised to approach the Integral Credit and Investment
Corporation of India (ICICI) who insisted that the contractor should be in the
form of an incorporated company so as to be able to avail facilities of foreign
exchange instead of a partnership firm. The contractor, therefore, converted
into a private limited company as per the advise on 24.2.1971. The imported
equipment landed in Madras in February 1972 whereafter a
factory at Thirukalikundram and another factory at Panruti were commissioned by
June 1972 and January 1973 respectively.
There
was thus already a delay of one year four months in commencing production of prestressed
concrete pipes. The contractor therefore, requested for extension of time up to
31.12.1975. It was, however, extended up to 30.06.1975 by the Chief Engineer.
The contractor wrote a letter dated 11.11.1974 refusing to accept the offer and
further indicated that he would be prepared to work on the condition that
contractor would be paid at the rate to be worked out taking into account the
increase in the cost and which may further increase during the course of the
work. It was also indicated that necessary time may be given for completion of
the work keeping in mind the capacity of equipment and the rate of production.
He also wanted to be compensated for the losses resulting from the delay and
default on the part of the government. The contractor stopped the work with
effect from June 30,
1975. The Chief
Engineer extended time for completion of the work by 31.12.1975 and again upto
31.3.1976 but did not agree to the other conditions as indicated in the letter
of the contractor dated 11.11.1974.
The
dispute thus arose and the work stood stopped with effect from 30.06.1975. The
contractor invoked the arbitration clause and appointed one Mr.P.S.Subramaniam,
a Chartered Engineer as its Arbitrator. After some litigation at the instance
of the Board it also nominated its arbitrator.
The
arbitrators entered upon the reference on 18.3.1978.
The
arbitrators disagreed. Mr.P.S.Subramaniam, the arbitrator appointed by the
appellant partially awarded the claim to the extent of about Rs.7.00 crores
whereas the arbitrator appointed by the Board only said that he did not agree
with the award. Since there was no agreement between the two arbitrators hence
the matter was referred to the Umpire - Justice Palaniswamy, a retired Judge of
the High Court who started the proceedings on 2.4.979. The Umpire gave its
award on 10.9.1979 and filed it in the court on 26.11.1979. The appellant
contractor filed objections for setting aside of the Award given by the Umpire
and challenged the conclusions and findings arrived at by him to the effect
that it was not obligatory upon the State Government to get foreign exchange
cleared from Government of India for the contractor and that the contractor had
abandoned the work on June 30, 1975 despite the extension of time up to March,
1976 as well as the finding that non-production of inter-departmental
correspondence and documents as requested by the contractor would not vitiate
the award. The Board, on the other hand supported the findings of the Umpire
and prayed for making the award a rule of the court.
The
matter was considered by the learned single Judge of the High Court. According
to the decision of the learned single Judge the State Government was obliged to
get foreign exchange clearance for the contractor for import of equipment from Switzerland for the purposes of manufacturing prestressed
concrete pipes. Due to delay in clearance for foreign exchange the time should
have been extended by the Board as requested by the contractor. The learned
single Judge also found that extension of time after stoppage of the work was
of no avail, thus there was no breach on the part of the contractor.
Non-production of the documents by the Board as requested by the appellant had
the effect of vitiating the award given by the Umpire. The award was thus set
aside by the learned single Judge.
In the
appeal preferred by the Board, the Division Bench, found that the following
points fell for its consideration:
"(1)
Whether there is any obligation on the part of the Government of Tamilnadu to
get foreign exchange clearance from Government of India as per the terms of
contract entered into between the Contractor and the State Government?
(2)
Whether the contractor has not committed breach of contract by abandoning the
work with effect from 30.06.1975?
(3)
Whether the non-production of inter departmental correspondence of confidential
nature as required by the contractor will vitiate the Award passed by the Umpire?
(4) To
what relief?"
The
Division Bench held that no such clause in the agreement has been disclosed to
indicate that it was the obligation on the part of the State Government to get
clearance of Government of India for foreign exchange for the purpose of import
of equipment by the contractor from Switzerland. The acceptance of the tender was subject to Government of
India clearance of foreign collaboration arrangement and release of necessary
foreign exchange.
While
arriving at this finding the Division Bench quoted an extract from one of the
letter of the contractor dated 22.1.1970 Exh.D-557 to the following effect :
"We
understand that the Government should give us all assistance in the procurement
of foreign exchange and necessary Central Government clearance".
The
Division Bench further observed that the Umpire was right in coming to a
conclusion that Government of Tamilnadu had rendered all possible assistance to
the contractor for getting the foreign exchange clearance as the Government of Tamilnadu
had approached the I.C.I.C.I. for that purpose, whom the contractor had
approached on the advise of Government of India. Thus the state shall not be
responsible for the delay in getting the foreign exchange.
On the
other two points the Division Bench held that time cannot be said to be the
essence of the contract since the agreement contained a clause for extension of
time for justifiable reasons. It has also been found that the contractor could
not carry on the work in accordance with its commitment of manufacturing 28 prestressed
concrete pipes per day and laying of 72 pipes per day. Whereas according to the
contractor the target could not be achieved due to frequent failures of
electricity and dropping of voltage. The Division Bench ultimately came to the
conclusion that the contractor alone had committed the breach of contract in
executing the work of Veeranam project. In so far it related to non-production
of the file containing inter-departmental correspondence including the handing
over note by former Chief Engineer, Veeranam project Exh.D-660, it was observed
by the learned single Judge that it was a secret document which was not
available on the record of the Board. The case of the Board was that the note
of the former Chief Engineer while handing over the charge to his successor
would not bind the Board in any respect and other inter-departmental
correspondence may not be admissible in evidence and it would also not advance
the case of the contractor. The Division Bench seems to have agreed with the
submissions made on behalf of the Board. The Division Bench, after discussing
the case law, came to the conclusion that the Award given by the Umpire cannot
be set aside except on the ground that the arbitrator or the umpire had mis-conducted
himself or the arbitration proceedings having become invalid or the Award was
procured improperly.
The
Court would not re-appraise the evidence. The Award of the Umpire awarding only
a sum of Rs.2,67,41,079 has been upheld by the Division Bench. Thus it set aside
the order passed by the learned single Judge.
Shri Deepankar
Gupta, learned senior counsel appearing for the appellant has first tried to
submit that the Arbitration Tribunal has not been constituted in accordance
with the arbitration clause. In that connection he has drawn our attention to
Clause 70 of the agreement which provides that the dispute shall be referred to
the arbitration of three persons, one of whom shall be nominated by the
contractor, the second by the Governor and the third shall be an independent
person selected by other two persons so nominated and this provision shall be
deemed to be a submission to the arbitration within the meaning of Indian
Arbitration Act 1940. It is therefore submitted that there should have been
three arbitrators instead of two arbitrators and an umpire chosen by the
arbitrators, in the present case.
It
appears that this point was never raised by the appellant before any forum
earlier as pointed out by Shri Nageshwar Rao, learned senior counsel appearing
for the respondent. It is submitted that such a question cannot be allowed to
be raised in this Court for the first time after the appellant had himself
submitted to the jurisdiction of the arbitrators and the umpire. There is no
dispute about the appointment of two arbitrators and the umpire having been
appointed by the arbitrators. The arbitration proceedings concluded before the
two arbitrators in which both parties participated without any objection.
Thereafter all matters having been referred to the umpire, there too parties
submitted to the proceedings before the umpire. No such objection was raised in
the objections filed against the award nor before the High Court.
That
being the position, it is submitted that it is too late in the day to say that
the dispute should have been decided by three arbitrators and not by two and
then by umpire in the event of difference between the two arbitrators. No good
reason could be indicated on behalf of the appellant for having kept silent on
this point all throughout the proceedings. They still rely upon the award given
by the arbitrator Shri Subramaniam in their favour. It is still their stand
that the order passed by the learned Single Judge of the High Court records the
correct finding. We find that the stage to have raised such an objection as to
whether the dispute was liable to be decided by two arbitrators or a Board of
three arbitrators had passed long before. The two arbitrators were appointed in
accordance with the provisions of arbitration clause as well as the third
arbitrator called umpire. The mode of hearing was adopted in the manner that
the dispute was heard by two arbitrators appointed by the respective parties.
The matter was referred to umpire since there was no agreement between the two
arbitrators.
There is
no justification now at this stage to raise such an objection that Board of
three arbitrators should have decided the matter. Such a plea contradicts their
own action, and it seems to be taken now to wriggle out of the award ultimately
given by the umpire, but it would not be permissible at this stage. Shri Nageshwar
Rao, learned senior counsel, has placed reliance upon Russel on Arbitration
"Loss of right to object". It states as under:
"A
party who objects to the award on the ground that the tribunal lacks
substantive jurisdiction, should not only act promptly, but should also take
care not to lose his right to object. A party who takes part or continues to
take part in the proceedings is in a different position from someone who takes
no part in the proceedings. The latter cannot lose his right to object as long
as he acts promptly to challenge the award once it is published. The former
must, however, state his objection to the tribunal's jurisdiction "either
forthwith or within such time as is allowed by the arbitration agreement or the
tribunal". That statement, which should be recorded in writing and sent to
the tribunal and the other parties, should not only mention the jurisdiction
objection but also make clear that any further participation in the arbitration
will be without prejudice to the objection. If that is not done, the party
concerned may not be able to raise that objection before the court "unless
he shows that, at the time he took part or continued to take part in the
proceedings, he did not know or could not with reasonable diligence have
discovered the grounds for the objection". A person alleged to be a party
to arbitral proceedings but who takes no part in those proceedings may at any
time apply to the court for a declaration, an injunction or other relief
concerning the validity of the arbitration agreement, the proper constitution
of the arbitral tribunal and any matter submitted to arbitration in accordance
with the arbitration agreement." In view of the above position, we repel
the contention raised on behalf of the appellant pertaining to the jurisdiction
of the arbitrators and the umpire to decide the matter.
It is
next submitted on behalf of the appellant that it is no doubt that period of
contract was specified to be 36 months in the agreement itself but it has been
rightly held by the learned Single Judge that time was not essence of the
contract for the reason that as per the terms of the contract time could be
extended for justifiable reasons and it is for this reason that the time was
extended by the respondent but they initially extended the time in an
unreasonable manner.
It is
submitted that despite the best efforts made, the equipment could not be
imported prior to February 1972 at the first instance. The result was that there
was a delay of one year and 4 months as found by the courts also, in starting
the work itself. It is submitted that there was clear understanding that the
State Government would get the clearance from the Central Government for
foreign exchange necessary for import of the equipment. The State Government
did not provide proper assistance in the matter and the appellant was referred
to ICICI by the Central Government for foreign exchange. As per conditions of
ICICI, the appellant had to change its constitution converting into a company
as desired. After the clearance of the foreign exchange, due to other
intervening factors of Pak war etc., the import could not be possible.
Therefore, the appellant was not responsible for the delay caused. It is then
further submitted that after the factories were installed on receipt of foreign
exchange, equipment were installed promptly. There have been problems of
availability of electrical energy and low voltage which was so necessary for
carrying on the work in the factory. For such difficulties the appellant could
not be held responsible. It is also submitted that according to the agreement,
trenches etc.
were
also to be dug out by the Board. It is submitted that the finding as recorded
by the umpire and the Division Bench that the Board was not responsible for the
delay, it will not necessarily lead to the inference that the appellant was
responsible for it. For good reasons time was liable to be extended reasonably.
It could not be cut short unreasonably. It is further submitted that the Board
itself later on extended the time beyond 31.3.1975 but initially it was
refused. It indicates that partial extension given by the Board was
insufficient and not justified. Time was even thereafter extended but by that
time the appellant was compelled to stop the work. The effort therefore which
has been made before us by the appellant is that it was not a case of
abandonment of contract on the part of the appellant rather the delay occurred
for justifiable reasons on account whereof extension of reasonable time as
prayed for by the contractor was not allowed by the respondent.
Shri Nageshwar
Rao, learned counsel for the respondent submits that the Board had extended all
possible assistance which was needed for the foreign exchange to import the
machinery by the appellant but so far electricity is concerned it was to be
arranged by the contractor himself.
In
this connection learned counsel for the appellant has drawn our attention to
the observations made by the umpire in his award where it has been observed
that no doubt failure of electricity or low voltage would have caused some
dislocation but that cannot absolve the contractors from their contractual
liability and certainly the failure of electricity cannot be the sole reason
for the dismally poor performance of the contractors. It is submitted that the
case of the appellant is not that the Board failed to arrange for the
electricity but there is no denial of the fact that due to interrupted electric
supply and low voltage the progress of the work got slowed down, may be Board
is not responsible for it but it also cannot be said to be the responsibility
of the contractor. Such a reason would be a justifiable reason to be considered
for appropriate extension of time to complete the job.
Learned
counsel for the appellant then submitted that the arbitrator failed to summon
the document, namely the inter-departmental correspondence of the Board and the
"handing over note" of the Chief Engineer of the Project to his
successor. It is submitted that these documents contained relevant and
authentic material and facts and provide proper background to correctly
appreciate the points regarding obligation of the State Government to get the
foreign exchange, late arrival of equipments imported, the interrupted electric
supply , digging of trenches etc. by looking into which alone the question
could properly be decided as to whether the appellant had abandoned the work or
how far the appellant was responsible for the delay and stoppage of the work. It
is submitted that there could not be any confidentiality about such documents
which related to the work of the project. So far the "handing over
note" is concerned, it is a document written by none else but the Chief
Engineer of the Project who had first hand knowledge of all that was going on
pertaining to the work and he was competent to prepare a record of the same in
official discharge of his duties. It is submitted that the arbitrator erred in
not allowing the application moved before him for summoning of the
"handing over note" and the learned Single Judge, it is submitted,
rightly held that it vitiated the award of the arbitrator. It may be mentioned
here that the Umpire also refused to get the "handing over note" and
place it on record and peruse the same so as to realize the relevance of the
note for the purposes of arriving at a just and correct finding on the
questions involved. It was necessary to have the proper background as contained
in the note prepared by the Chief Engineer of the Project.
The
learned counsel for the appellant has taken us through some of the parts of the
"handover note" just with a view to emphasize the relevance and
importance of the said note which is document D-660. A copy of the same has
been filed in this Court. In Paragraph 6.1.7 and 6.1.7.1.
it is
indicated that Department had to carry out the work of trench excavation, the
service roads, river, rail and road crossings besides many other things
enumerated therein.
Para 6.1.10 deals with requirement of
foreign exchange and the details thereof. In Paragraph 6.1.10.3 the delay in
arrival of the machinery imported due to Indo-Pakistan war is also indicated.
Paragraph 6.11 deals with the factors that contributed to delay in execution of
the project. Thereunder it is mentioned about the availability of power. Some
problem relating to trench excavation by the Board also finds mention in Para 7 onwards. A bare look of some of the parts of the
note indicates that it may have some material bearing on the merits relating to
the question of delay in execution of the project, and throwing some light on
the share of responsibility of the parties to the contract and extent of their
responsibility as well.
Learned
counsel for the appellant has placed reliance upon a decision reported in
(1975) 2 S.C.C. 236 that where it is a speaking award and the arbitrator fails
to take note of the relevant documents or ignores the same, it vitiates the
award. It was observed such documents which were ignored were material
documents to arrive at a just and fair decision to resolve the controversy
between the parties.
Our
attention has particularly been drawn to the observations made in Paragraph 4
which reads as under:
"We
have been taken through all the relevant documents by the learned counsel for both
sides and we are satisfied that Ex.P- 11 and Ex.P-16 are material documents to
arrive at a just and fair decision to resolve the controversy between the
Department and the contractor. In the background of the controversy in this
case even if the Department did not produce these documents before the
Arbitrator it was incumbent upon him to get hold of all the relevant documents
including Ex.P-11 and P-16 for the purpose of a just decision.
Ex.P-11
dated September 8, 1966, is a communication from the Superintending
Engineer to the Chief Engineer with regard to the objections raised by audit in
connection with the construction of the reservoirs." (emphasis supplied by
us) Reliance has also been placed upon a decision reported in of Sikkim, particularly to the observations
made in Paragraph 12 of the decision that an award, ignoring very material and
relevant documents throwing light on the controversy to have a just and fair
decision would vitiate the award as it amounts to misconduct on the part of the
arbitrator. The case of K.P. Poulose (supra) has also been referred to. Yet
another decision on the point referred to is reported in 2003 (7) Scale Page 20
Bharat Cocking Coal been held that passing award ignoring the material
document would amount to mis-conduct in law, In such circumstances the matter
was remitted to a retired Judge of the Jharkhand High Court instead of to the
named arbitrator since only the question of law was involved and the parties
had also agreed for the same.
In so
far the case in hand is concerned, learned counsel appearing for the respondent
first made a submission that no application was moved by the appellant before
the arbitrator for summoning the document, namely, the "handing over"
note prepared by the Chief Engineer while handing over the charge as Project
in-charge to his successor but after verification he conceded that such an
application was moved before the Arbitrator but no orders had been passed on
it. The learned Single Judge has given it as one of the reasons to hold that it
vitiated the award. We again find that before the umpire also effort was made
to get the document on record for perusal of the same but the request was not
accepted. We find that there is no question of secrecy or confidentiality so
far the "handing over note" of the Chief Engineer is concerned. It is
a note prepared by the Chief Engineer of the project in official discharge of
his duties. It contains relevant facts and information regarding questions
involved in the case. The appreciation of the contents of the 'note' and its
effect would of course be a matter to be decided by the appropriate
authority/arbitrator/umpire but its perusal or consideration could not be shut
out on the meek ground that the department was not bound by it or on the ground
of confidentiality in the times when more stress is rather on transparency. In
our view, the learned Single Judge was right in inferring that such an
infirmity would vitiate the award. That being the position, in our view the
order of the Division Bench, reversing the decision of the Single Judge is not
sustainable and the matter may be required to be remitted to be considered in
the light of the "handing over note" of the Chief Engineer in respect
whereof an application was moved by the appellant before the arbitrator as well
as before the Umpire which remained unattended to by the forum and later did
not accede to the request.
Considering
the fact that it is an old matter and it being a speaking award the matter
having also been considered by the learned single Judge, it would better serve
ends of justice to ensure expeditious disposal of the matter, therefore, the
Division Bench of the High Court may consider the matter afresh, taking into
account the "handing over note" of the Chief Engineer of the Project
and other relevant documents in respect of which request may have been made but
refused.
In the
result, these appeals are allowed. The order of the Division Bench of the High
Court is set aside and the matter is remitted to the High Court for being decided
afresh by the Division Bench in the light of the observations made above.
Costs
easy.
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