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FAO (OS) No597-598/2006 HIGH COURT OF DELHI
M/S NATIONAL THERMAL POWER CORPORATION …. Appellant
Through: Mr.S.K.Taneja, Sr.Adv. with Mr.Puneet
Taneja and Mr.Amrit Anand, Advocates.
Through: Mr. Narender Sharma and Mr.Sachin Mittal, Advocates for R-1.
HON‟BLE MR. JUSTICE RAJIV SHAKDHER
SANJAY KISHAN KAUL, J.
JUDGMENT
1. A contract was entered into between the parties on 12.05.1977 for laying and termination of power/control/excitation and communication cable, installation of cable trays, support, pipes and accessories etc. by the respondent. The agreement inter se the parties contained an arbitration clause i.e. Clause 25 which inter alia provided that “no person other than a person appointed by the Chairman, Central Electricity Authority or member (Thermal) Central Electricity Authority should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all.” 2012:DHC:2974-DB
2. In view of the disputes arising inter se the parties, the respondent filed an application under Section 20 of the Arbitration Act, 1940 („the said Act‟ for short) which was registered as Suit No.28- A/1979. The appellant also had certain counter claims. The matter was directed to be referred to arbitration in terms of the order dated 09.05.1979 which called upon the designated authority to do the needful within 2 months.
3. The Chairman, Central Electricity Authority claims to have appointed Sh.C.S.Sreenivasan as the sole arbitrator to adjudicate the disputes vide an order dated 05.07.1979 and this fact is stated to have been communicated to the Registrar, High Court of Delhi on 13.07.1979. The respondent, however, denies knowledge of any such order being brought to its notice.
4. It appears that the respondent was engaged as a contractor in two other contracts with the appellant where also disputes had arisen inter se the parties and the respondent had requested for appointment of an arbitrator in all the three contracts including the one in dispute. Some correspondence is stated to have been exchanged for settlement of disputes in relation to all the three contracts which resulted in the appellant issuing a letter dated 23.07.1980 qua the three contracts. The letter specifies that in view of the earlier correspondence exchanged qua settlement of disputes in connection with the three contracts, as per request of the respondent and without prejudice to the legal rights of the appellant, the Chairman and Managing Director of the appellant had nominated Sh.C.K.Varughese as the sole arbitrator in the disputes arising out of the aforesaid contracts subject to the respondent withdrawing all court cases from the court within 15 days from the date of issue of this letter and to also arrange for extension of validity of all bank guarantees for a period of 5 months from the date of withdrawal of the cases. The letter also sought confirmation from the respondent. It, however, emerges that no finalization in this behalf could take place and thus as per the appellant vide letter dated 12.03.1981 a quietus was put to the issue of an overall settlement. The appellant then addressed a letter dated 08.05.1981 to Mr.C.S.Sreenivasan with reference to his earlier appointment as an arbitrator and requested him to enter upon reference at his immediate convenience. A copy of this letter was sent to the respondent. This letter was responded to by the respondent on 13.05.1981 alleging that there was a contradiction between the earlier letter dated 23.07.1980 and the subsequent letter dated 08.05.1981 since as per the letter of 23.07.1980 Mr.C.K.Varughese had been appointed as a sole arbitrator whereas in the subsequent letter dated 08.05.1981, the reference was to Mr.C.S.Sreenivasan as the sole arbitrator. The appellant then issued a letter dated 22.05.1981 stating that there was no contradiction as the letter dated 23.07.1980 was without prejudice to the legal rights of the appellant and that issue had been brought to an end vide the letter dated 12.03.1981. Since the respondent had not withdrawn the court cases, it was presumed that they were not interested in the settlement of disputes outside the Court and that chapter had been closed. The dispute qua the contract in question was alleged to have resulted in appointment of Mr.C.S.Sreenivasan as the sole arbitrator.
5. Mr.C.S.Sreenivasan thereafter issued the first letter as an arbitrator on 01.10.1981. Since this letter is of some importance and much of the dispute flows from what this letter intends, it would be appropriate to reproduce the contents of the said letter: “No.1/11/81-Arb./745 Dated Ist October, 1981 Before Shri C.S.Sreenivasan, Chief Engineer, Chief Engineer, HCM, Central Electricity Authority, West Block II, Wing 6, R.K.Puram, New Delhi IN THE MATTER OF ARBITRATION BETWEEN MS/ TECHNO ELECTRIC AND ENGINEERING CO.LTD. P-46A, RADHA BAZAR LANE, CALCUTTA-
700001. ……CLAIMANTS AND NATIONAL TEHRMAL POWER CORPORATION BADARPUR THERMAL POWER PROJECT BADARPUR DIVISION NEW DELHI – 110044 …. RESPONDENT NAME OF WORK: LAYING OF POWER CABLES IN BADARPUR THERMAL POWER PROJECT (CONTRACT AGREEMENT NO.1-A/77-78 DATED 12.05.1977) Whereas, I Sreenivasan, Chief Engineer have been appointed as arbitrator in the above case by Chairman, CEA, as per the orders of the Hon‟ble Delhi High Court dated 9th May, 1979 passed in Suit No.28A/79. And whereas, I accept the said appointment and issue the following directions to the parties to the dispute:-
1. That M/s Techno Electric & Engineering.Co.Ltd., the claimants shall deliver their statement of claims to me and to Badarpur Thermal Power Project NTPC within 15 days of the receipt of this letter.
2. That Badarpur Thermal Power Project, NTPC shall deliver their reply in defence and counter claims if any, to me and to the claimants within 15 days from the receipt of the statement of the claims.
3. If there is counter claim by the respondent, the claimants shall deliver their reply to the counter claims within 15 days of the receipt of the counter claims.
4. The parties shall exchange the list of documents relied upon the list of witnesses etc. which they intend to produce at the hearing in support of their cases under intimation to me within 15 days after the receipt of the reply from the claimant to the counter claim by the respondent.
5. The respondent is directed to submit the authentic copy of the agreement immediately.
6. After the receipt of said documents I will enter upon the reference. Thereafter, the parties will have to present themselves at the hearing on the date, time and place which will be notified to them.
7. Both the parties shall note that whenever they send nay communication either to the arbitrator or to the other party, copies of such communications should invariably be endorsed to the opposite party/arbitrator respectively. If, either parties intend to be represented at the hearing in the above case by a counsel, notice of such intention shall be given to the other party immediately on receipt of this notice to enable him to be similarly represented by a counsel should he so desire. If no documents are received by the arbitrator before or on the due dates specified hereinabove, it will be presumed that the party concerned does not intend to produce the documents and the case will be decided accordingly. Further as the arbitration has been pending since long both the parties are directed to extend the time for making the award by 4 months from the issue of this notice. Sd/- ARBITRATOR CHIEF ENGINEER, HCM, CENTRAL ELECTRICITY AUTHORITY, WEST BLOCK II, WING 6, R.K.PURAM, NEW DELHI-22”
6. The legal principle is really not in dispute that the arbitrator can enter upon reference vide his communication or even specify an effective date from which he would be entering upon reference. This letter, however, appears to have some contradiction since after laying down the schedule for filing of the pleadings, in para 6, it was stated that the arbitrator would enter upon reference “after the receipt of the documents.” However, in the last paragraph of the letter, the factum of there being considerable delay and the arbitration being pending since long has been noticed with a direction to the parties to extend the time for making the award by 4 months from the issue of the notice. The second communication has emanated from the arbitrator on 22.01.1982 which notices that the respondent has not lodged any claim but that the appellant has filed a statement of claim. The respondent was called upon to file the reply and statement of claim positively by 09.02.1982 and to appear before the arbitrator on 23.02.1982. Once again, the letter records “the parties are also directed to extend the time for making the award by 4 months from the issue of this notice.”
7. The aforesaid communication became crucial because one of the major controversies in the present case is as to whether the arbitrator can be said to have entered upon reference on 01.10.1981 or 23.02.1982 when the respondent was proceeded ex parte as it did not participate in the proceedings and ultimately an ex parte award was passed on 11.03.1982. If the subsequent date is the relevant date, then the award is within the specified period of 4 months while if the relevant date is 01.10.1981, then the award is beyond the stipulated time of 4 months. The award rendered by the arbitrator on 11.03.1982 awarded a sum of Rs.13,07,660.70 along with interest at the rate of 10% per annum from the date mentioned in the claims till realization.
8. In view of the award being rendered in favour of the appellant, the appellant filed an application under Section 14 of the said Act which was registered as Suit No.569A/1982 and the award was filed in those proceedings. On the award being filed, the respondent filed objections under Section 30 & 33 of the said Act registered as IA No.4174/1982. There appears to have been another suit filed being Suit No.545A/1982 by the appellant which purports to be an application under Section 14 of the said Act for making the award Rule of the Court while SuitNo.569A/1982 was for filing the award in the Court along with the relevant documents. This subsequent suit was disposed of on 07.11.2005 as there appears to be an overlapping. The appellant filed an application under Section 28 of the said Act in Suit No.28A/1979, but the same was rightly registered separately as OMP No.58/1982. This OMP was disposed of on 13.07.1993 with the following order: “I am informed that this OMP calls for no further orders since the award has already been published and the matter is proceeding in respect of the said award in Suit No.569A/1982. In the circumstances, this OMP stands disposed of without any further orders.”
9. Thus the question of enlargement of time for making the award, post the award being rendered, was still at large.
10. In the objections filed by the respondent, a plea was taken that the designated person i.e. the Chairman, Central Electricity Authority had failed to nominate the arbitrator within the time specified by the learned single Judge in the order dated 09.05.1979 in Suit No.28A/1979 i.e. within 2 months and thus the authority did not remain with the designated authority to appoint the arbitrator, but would exclusively vest with the Court.
11. This plea is predicated on the fact that the order dated 05.07.1979 was never communicated to the respondent (No copy is marked to the respondent). It has been further alleged that as per the own stand of the arbitrator, time had to be extended for making the award by 4 months from the issue of its notice dated 01.10.1981, yet the arbitrator proceeded to make the award which was beyond the period of 4 months from entering upon reference.
12. It has been further alleged that the confusion was created by the first appointment of Mr.C.K.Varughese and thereafter the appointment of Mr.C.S.Sreenivsan. and this fact had been brought to the notice of the appellant in the communication referred to aforesaid. The reason given for the non appearance of the respondent was that the arbitrator had already become functus officio and there being a confusion created in view of there being two arbitrators. On the other hand, the appellant alleges that till the arbitrator had not entered upon reference, the period of 4 months would not start to run and thus the award was not beyond time. Even if, there was some delay, the learned single Judge would be well within its rights to extend the time for making of the award. The alleged confusion is denied as the appointment of Mr.C.K.Varughese as an arbitrator was only to settle the disputes qua all the three contracts which did not bear any fruits and the chapter was closed.
13. The learned single Judge in terms of the impugned order dated 06.09.2006 has, however, set aside the award with a direction to the Chairman, Central Electricity Authority to appoint a fresh arbitrator within 30 days of the receipt of the order and for the arbitrator to complete the proceedings within four months of entering upon reference. The learned single Judge, while coming to this conclusion, has noticed that no doubt the court could extend the time for making of the award ex post facto under Section 28 of the said Act, but that in the facts of the present case, the power was firstly invoked by filing OMP No.58/1982 but the counsel for the appellant was somehow satisfied with the disposal of the OMP on account of the award being filed in the suit No.569A/1982 without there being an order passed for extension of time. This order has been observed to be neither here nor there as it did not grant the prayer made by the appellant. Learned counsel for the appellant had urged before the learned single Judge that there was no need to move the application under Section 28 of the said Act for the reason that the period of 4 months commenced from the date of entering upon reference. This was so as the appellant does not accept that the arbitrator had entered upon reference on 01.10.1981.
14. Another aspect which has weighed with the learned single Judge is that it was an ex parte award where a confusion may have been caused on account of conflicting letters of the NTPC qua the nomination of Sh.C.K.Varughese as an arbitrator while simultaneously claiming that it was Mr.C.S.Sreenivsan who was the arbitrator. This was apart from the fact that Mr.C.S.Sreenivasan had done nothing in the matter for over two years starting from 05.07.1979. There were only two aspects which were urged before us by the learned counsel for the appellant. i) The arbitral award is not without jurisdiction as it is not beyond the period of 4 months from the date of entering upon reference. ii) There was no misconduct of the arbitrator in proceeding ex parte against the respondent as there could not have been any confusion as to who is the arbitrator.
FIRST ISSUE THE ARBITRAL AWARD IS NOT WITHOUT JURISDICTION AS IT IS NOT BEYOND THE PERIOD OF 4 MONTHS FROM THE DATE OF ENTERING UPON REFERENCE.
15. It would be necessary to look to the various legal pronouncements on the issue as to when the arbitrator is stated to have entered upon reference.
16. In Iossifoglu v. Coumantaros; (1941) 1 K.B.396 it was held by the court of appeal that the arbitrators enter upon reference as soon as they accept the appointment and communicate with each other about the reference. In this behalf, the contentions of the appellant was repelled that: i) There could not be any disagreement on the principle that the arbitrator cannot be said to have entered upon reference unless they have met and discussed the matter. ii) The endeavour to fix a date for entering upon a reference is a preliminary step to the reference, and is not an entering upon a reference. iii) Thus, there is a distinction between an arbitrator accepting office and his entering upon reference and an arbitrator does not enter upon reference when he accepts the office of the arbitrator. The aforesaid view was contrary to the view in Baker v. Stephens; (1866-67) L.R.2.Q.B. 523 that the arbitrator can be said to have entered upon reference not from the time he merely takes upon himself the office of the arbitrator by accepting the reference, but from the time he takes upon himself and exercises the functions of arbitrator. The entering upon reference was also held to mean something else than merely accepting the office and could bear the meaning of beginning to hear the parties. This, judgment, however, was not brought to the notice of the court which expressed its views in Iossifoglu v. Coumantaros‟s case (supra).
17. A Division Bench of the Calcutta High Court in Bajranglal Laduram V. Ganesh Commercial Co.; AIR 1951 Calcutta 78 opined that the law laid down in Iossifoglu v. Coumantaros‟s case (supra) should be followed and thus the arbitrators entered upon reference when they accepted their appointment and took steps in concert to obtain from the parties necessary statements and papers to enable them to decide the matter and make the award.
18. A learned single Judge of the Bombay High Court in Dr. Babubhai Vanmalidas Mehta Vs. Prabhod Pranshankar Joshi; AIR 1956 Bom 146, however, held that an arbitrator cannot be said to have entered upon reference only when he starts hearing the case, but simultaneously, was hesitant in holding that the moment the arbitrator accepts an appointment, he enters upon reference. The exercise of a function does not necessarily mean hearing the matter on merits and where an arbitrator holds a preliminary meeting and gives directions to the parties as to the progress of arbitration proceedings before him, he was said to have assumed the office of an arbitrator and exercised the functions of an arbitrator because in no other capacity would he be entitled to give any directions with regard to the progress of the arbitration proceedings.
19. To the same effect are the observations in M/s S.D. Ghai & Co. Vs. Punjabi University, Patiala; AIR 1973 P&H 410 concluding that an arbitrator enters upon the reference when he accepts the office and exercises some functions as an arbitrator by applying his mind i.e. fixes the date for hearing or issues directions regarding pleadings.
20. A Full Bench of the Calcutta High Court of five Hon‟ble Judges had the occasion to consider the matter in Ramnath Aggarwal Vs. Messrs. Goenka & Co & Others; AIR 1973 Cal 253. A slightly divergent view was taken from the view taken in Bajranglal Laduram V. Ganesh Commercial Co.‟s case (supra) by concluding that an arbitrator does not enter upon reference as soon as he assumes office of an arbitrator nor when he does any of the ministerial acts connected with his office nor does he enter upon reference when he actually commences the decision of the matter in the presence of both the parties or ex parte, but an arbitrator enters upon reference when he first applies his mind to the dispute or controversy before him which depends on the facts and circumstances of each case.
21. A Division Bench of the Bombay High Court in M/s Jolly Steel Industries Pvt. Ltd, Poona v. Union of India; AIR 1979 Bom 214 held that the arbitration proceedings consist of two stages – i)Ministerial acts and ii) Effective adjudicative acts in furtherance of the arbitration. The arbitrator cannot be said to have entered upon reference until the second stage is reached where proceedings are held to decide controversies between the parties whether arising out of the main dispute or procedural aspects in the disposal thereof.
22. A single Judge of this Court in National Research Development Corporation of India vs. Synthite Industrial Chemicals Pvt. Ltd & Anr; 69 (1997) DLT 1005, while considering the divergent views in England and in India, held that the arbitrator does not enter upon reference when he accepts his office nor when he sends notices calling upon the parties or does any other ministerial acts. The arbitrator enters upon reference on the date when he applies his mind towards the adjudicative part of his function as an arbitrator in the presence of the parties or ex parte after due notice to them.
23. The Andhra Pradesh High Court in A.P.S.R.T.C. vs. P. Vankata Reddy & Ors; AIR 1999 AP 110 held that an arbitrator can be said