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Sikand Construction Co. Vs. State Bank of India - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberSuit No. 171A of 1975
Judge
Reported inILR1979Delhi364
ActsArbitration Act, 1940 - Sections 20
AppellantSikand Construction Co.
RespondentState Bank of India
Advocates: G.T. Gajaria,; J.P. Gupta,; B.B. Kishore,;
Cases ReferredIn Aries Tanker Corporation v. Total Transport Ltd.
Excerpt:
.....agreement to be filed in court, the dispute must be referred to the arbitrator.; (2) there is no clause in the contract restricting the period within which the petitioner was bound to approach the arbitrators or the court. thus the right of the petitioner to demand arbitration had not extinguished as was the case in the cases referred to by the respondent.; (3) the arbitrators have power to override architects in all matters except in certain matters mentioned in the conditions of the contract. the arbitrator has also wide jurisdiction over all the disputes and he can himself decide the matters which ought to have been decided by the architects. the petitioner thus under clause 37 of the contract can invoke arbitration. - section 13: [altamas kabir & cyriac joseph,jj] custody of child..........for the time being.(8) besides the articles there are various clauses as conditions of the contract. clauses nos. 35 and 37 relating to decision by the architects and reference of disputes to arbitrators are as under:(35)disputes be finally determined by architects. the decision, pinion, direction, certificate or valuation with respect to all or any of the matters under clauses 2,4,8,14, 20, (a, b, c, d, f, & h) 28, 32 & 33 hereof (which matters are herein referred to as excepted matters) shall be final and conclusive and binding on the parties hereto and shall be without appeal. any other decision, opinion, direction, certificate or valuation of the architects or any refusal of the architects, to give any of the same shall be subject to the right of arbitration and review in the.....
Judgment:

Sultan Singh, J.

(1) This is a petition pending since April, 1975 under Section 20 of the Arbitration Act, 1940 for filing of the arbitration agreement contained in Contract dated 27th April, 1965, relating to construction of State Bank of India Building at Parliament Street, New Delhi, for appointment of arbitrator and reference of disputes mentioned in Annexure A to the petition, to him.

(2) The petitioner, is alleged, to have completed the construction work but the State Bank of India, respondent did not make payment. He claims Rs. 7,25,228.31 p. besides interest on account of the following items of work:

1.Claim for increase in labour cost on account of increase in wages of labour on and from 19-5-1969. ............ ........Rs. 27,195.00 p. 2. Increase in rates for the work carried out at Pent House ..........Rs. 31,470.00 p. 3. Claim for refund of deduction of 21/2% on the value of Rs. 97,531.00 for the Pent House Work............ ........Rs. 2,438.00 p. 4. 7% increase payable on the value of the work done in D' Block...............Rs. 24,616.00. 5. Claim for M. S. Reinforcement fixed in the underground storage tank....................Rs. 21,709.00. 6. Refund of wrongful deduction made in the final bill of petitioners for cement and steel at higher rates than the rates stipulated in the contract : (i) Cement ..........Rs. 27,553.07 (ii) Steel ..........Rs. 1,326.71 Rs. 28,879.78 7. Claim for refund of Rs. 15,902.53 for the cement supplied by silos instead of bags..........Rs. 15,902.53 p. 8. Refund of wrongful deduction made by the respondent for the alleged defective work from the final bill.......... .........Rs. 42,870.00 p. 9. Claim for payment of the refund on the recommendation of the architect on certain extra items arbitrarily. ....... .........Rs. 11,439.00 p. 10. Claim for increase of 25% due to rise in the market prices of materials, additional overheads, reduced profitability etc., on account of delay in the commencement of work on 'D' Block, caused by the respondent............ .........Rs. 5,36.709.00 p. 11. Interest claimed at 12% per annum on the amounts viz. Rs. 7,25,228.31 p. from 12-3-1973.

(3) The petitioner completed part of construction in April, 1968 and finally completed the work in October, 1970. On or about 14th July, 1970, the petitioner had submitted a bill for Rs. 5,29,498.38 p. to the respondent bank for the work actually done up-to that date. M/s. Master, Sathe and Kothari were the architects with respect to the said contract in terms of Article 3 of the Articles of Agreement dated 27th April, 1965. between the petitioner and the respondent bank. Mr. Sathe, one of the architects, died on 14th September, 1965. The said bill dated 14th July, 1970, although submitted by the petitioner to the respondent bank, was recommended by Shri Kothari, one of the architects, for payment of Rs. 1,15,734.00 p. only as per his letter dated 31-8-1971 and out of this amount a sum of Rs. 40.000.00 was further directed to be retained by the bank for some defects in the building. The respondent bank made payment of Rs. 48,355.29 p. as per its letter No. 583, dated 11th July, 1972 to the petitioner who is alleged to have accepted the same under protest. On 12th March, 1973, the petitioner through his counsel required the respondent bank to refer the disputes referred to above to arbitration and suggested four names fur appointment of an arbitrator. he respondent hank by reply dated 29th March, 1973 denied the petitioner's claim. On 4111 January. 1974 the respondent bank, through M/s. B. C. Das Gupta and Co.. Solicitors and Advocates, ew Delhi. further informed that the petitioner's claim was without any substance and the bank did not agree to any of the names proposed by him to act as arbitrator.

(4) On 3rd April, 1975 the petitioner filed the present application under Section 20 of the Arbitration Act, on the allegations that Master, Sathe and Kothari, mentioned as architects in the contract, were a body of persons and on their disintegration and dissolution as a body and on the death of one of them, others could not perform any of the duties or functions under the contract, much less those specified in clause 37 of the contract; that under clause 37 of the contract the said architects are not the arbitrators: that Shri Kothari. one of the three architects is not entitled io act as an architect

(5) The respondent bank in its written statement dated 27th March, 1976 alleged that the architects issued their certificate dated 31st August, 1971 certifying payment of Rs. 1,15,734.00 and deducting Rs. 40,000.00 on account of defects etc.; that the petitioner having failed to take steps under clause 37 within 28 days from the date of the certificate i.e. 31st August, 1971; his right, if any, to have the matter referred to arbitration, has been extinguished; and he is also not entitled to file any application under section 20 of the Arbitration Act, that the claim of the petitioner is barred by time and, as such, the same cannot be the subject matter of arbitration; that the said disputes mentioned in Annexure 'A' are outside the purview of clause 37 of the contract; that the petitioner is estopped from claiming any amount because the petitioner has accepted the amount as certified by the architects as per certificate dated 31st August, 1971; that the petitioner has not completed the entire work under the contract; that no disintegration of the firm of the architects ever occurred; that the petitioner by his conduct and action accepted Shri Kothari as an architect and is estopped from pleading or attempting to act to the contrary.

(6) The petitioner in his replication pleaded that the payment of Rs. 48,355.29 p. was received on 11th July, 1972, under protest; that claim was not barred by time and in any case the same is a matter to be decided by the arbitrator; that the right to invoke arbitration was not extinguished: that all the disputes mentioned in the application under section 20 of the Arbitration Act were within the purview of clause 37 of the contract: that Shri Kothari was never accepted as the architect; that M/s Master, Sathe and Kothari disintegrated and dissolved on account of the death of Shri Sathe: and as such. no other person could perform the functions of an architect under clause 37 and that Shri Kothari alone was not the architect. On 18th March, 1977, T. P. S. Chawla, .1. framed the follo.ving issues:

1. Whether the Architects issued a final certificate in respect of the bills submitted by the petitioner Opr 2. If issue No. 1 be found in favor of the respondent then was such a final certificate a decision within the meaning of clause 37 of the contract between the parties? 3. Whether the right, if any, of the petitioner to demand arbitration s extinguished due to the fact that it was not sought to be exercised within 28 days of the date of the final certificate issued by the Alchit.ects? 4. Whether the Architects contemplated by clause 37 of the contract between the parties was the firm known as M/s Master, Sathe and Kothari, or the three individuals of, that name acting jointly? 5. Whether the petitioner is estopped from contending that Mr. Kothari was not the Architect for the purpose of clause 37 of the contract between the parties? 6. Relief.

(7) Article 3 of the Articles of Agreement dated 27th April, 1965. between the petitioner and the respondent is as under:

(3)The term 'the Architects' in the said Conditions shall mean the said Messrs Master, Sathe and Kothari or in the event of their death or ceasing to bg the Architects for that purpose of this Contract, such other person as shall be nominated for that purpose by the Employer, not being a person to whom the Contractor shall object for reasons considered to be sufficient by the Employer. Provided always that no persons subsequently appointed to be Architects under this Contract shall be entitled to disregard or over rule any decision or approval or direction given or expressed in writing by the Architects for the time being.

(8) Besides the Articles there are various clauses as conditions of the contract. Clauses Nos. 35 and 37 relating to decision by the Architects and reference of disputes to arbitrators are as under:

(35)Disputes be finally determined by Architects. The decision, pinion, direction, certificate or valuation with respect to all or any of the matters under clauses 2,4,8,14, 20, (a, b, c, d, f, & h) 28, 32 & 33 hereof (which matters are herein referred to as excepted matters) shall be final and conclusive and binding on the parties hereto and shall be without Appeal. Any other decision, opinion, direction, certificate or valuation of the Architects or any refusal of the Architects, to give any of the same shall be subject to the right of Arbitration and review in the same way in all respects (including the provision as to opening the Reference) as if it were a decision of the Architect under Clause No. 37.' (37) Settlement of Disputes, Arbitration; All disputes and differences of any kind whatever arising out of or in connection with the Contract or the carrying out of the works (whether during the progress of the works or after their completion, and whether before or after the determination, abandonment or breach of the Contract) shall be referred to and settled by the Architects who shall state their decision in writing. Such decision may be in the form of a final certificate or otherwise. The decision of the Architects with respect to any of the excepted matters shall be final and without Appeal as stated in Clause No. 35. But if either the Employer or the Contractor be dissatisfied with the decision of the Architects or any matter, question of the dispute of any kind (except any of the excepted matters) or as to the withholding by the Architect of any certificate to which the Contractor may claim to be entitled, then and in any such case either party (the Employer or the Contractor) may within twenty eight days after receiving notice of such decision give a written notice to the other party through the Architects requiring that such matters in dispute be arbitrated upon. Such written notice shall specify the matters which are in dispute and such dispute or difference of which such written notice has been given and no other shall be and is hereby referred to the arbitration and final decision of a single Arbitrator being a Fellow of the Indian Institute of Architects to be agreed upon and appointed by both parties or in case of disagreement as to the appointment of a single Arbitration of two Arbitrators being both Fellows of the Indian Institute of Architects one to be appointed by each party, which Arbitrators shall before taking upon themselves the burden of Reference appoint an Umpire. The Arbitrator, the Arbitrators or the Umpire shall have power to open up, review and revise any certificate, opinion, decision, requisition, or notice, save in regard to the excepted matters referred to in clause No. 35 and to determine all matters in dispute which shall be submitted to him or them and of which notice shall have been given as aforesaid. Upon every or any such reference the cost of and incidental to the Reference and Award respectively shall be in the discretion of the Arbitrator, or Arbitrators or the Umpire who may determine the amount thereof, or direct the same to be taxed as between Attorney and Client or as between party and party, and shall direct by whom and paid. The submission shall be deemed to be a submission to Arbitration within the meaning of the Indian Arbitration Act Statutory 1940 or any modification thereof. Tile award of the Arbitrator's or Arbitrators or the Umpire shall be final and binding on the parties. Such Reference except as to the withholding by the Architects of any Certificates under Clause 32 to which the Contractor claims to be entitled, shall not be opened or entered upon until after the completion or alleged completion of tile works or until after the practical cessation of the works arising from any cause unless with the written consent of the Employer and the Contractor. Provided always that the Employer shall not withhold the payment of the Interim Certificate nor the Contractor except with the consent in writing of the Architects in any way delay the carrying out of the works by reason of any such matter, question or dispute being referred to Arbitration but shall proceed with the work with all due diligence and shall until the decision of the Arbitrator or Arbitrators or the Umpire he given abide by the decision of the Architects and no Award of the Arbitrator or the Arbitrators or the Umpire shall relieve the Contractor of his obligations to adhere strictly to the Architects' Instructions ith regard to the actual carrying out of the works, The Employer and the Contractor hereby also agree that Arbitration under this clause shall be a condition precedent o any right of action under the Contract.

(9) The disputed items, referred to above, are admittedly not matters under clauses (2), (4), (8), (14), (20) (a) (b) (c) (d) (f) and (h), (28), (32) and (33) of the conditions of the contract and as such the decision, if any, given by the architects is not final. Any decision, opinion, direction, certificate or valuation of the architects etc. if given with respect to disputed items would be thereforee subject to right of arbitration and review. All the disputes, mentioned above, prima fade arc matters arising out of the contract and arc thereforee covered under clause (37) of the conditions of contract.

(10) There is no indication of a judicial hearing by the architects referred to in clause (37). The architects under this clause are to decide the disputes in writing but if either the employer or the con tractor, i.e., the respondent bank and the petitioner respectively, is dissatisfied with the decision of the architects, either party may within 28 days after receiving the notice oF decision of the architects give ill writing notice to the other party through the architects requiring hat much matters in dispute be arbitrated upon. It is further required by this clause that such written notice shall specify the matters in dispute. The disputes are required to be referred to a Fellow of the Indian Institute of Architects. The arbitrators have been conferred absolute power to open up, review and revise any decision of the architects and to determine all matters in dispute which may be submitted to them. Thus, clause (37) confers absolute power upon the arbitrators without any restriction. The arbitrators by their decision may override any one and all the decisions of the architects. Moreover, if a matter is not placed before the architects for decision in accordance with first part of clause (37) consequences for not following this procedure have not been provided for either in clause (37) or in any other clause of the contract', and. as such, the first part of clause (37) of the conditions of contract is only directory and not mandatory. Even in a case where the employer .e. the bank or the contractor i.e. the petitioner has not followed the procedure for getting the decision of the architects for any reason whatsoever, the employer or the contractor is not debarred from invoking arbitration. The employer and the contractor in all circumstances can invoke the arbitration referred to in clause (37). The intention of the parties to the contract is to get settled disputes of any nature whatsoever through the architects or the arbitrators. Clauses (35) and (37) of the conditions of contract provide the machinery for settlement of the various disputes between the employer and the contractor. Some of the disputes which come under clauses (2), (4), (8), (14), (20). (a), (b), (d), (f) and (h), (28), (32) and (38) a're finally decided by the architects and ars not open to review before the arbitrators but all other disputes of any nature whatsoever are subject to final decision and review of the arbitrators. Tf for any reason the architects do not take initiative or do not decide a matter when referred to by any of the parties or no reference is made to architects for 'decision, it does not mean that the arbitrators have no power to decide the dispute.

(11) Issue No. 4 : The architects, referred to in the Articles of Agreement are M/s. Master, Sathe and Kothari. The petitioner alleges that this body of architects has disintegrated or dissolved and, thereforee, it was not possible for him to approach the architects. It is contended by the petitioner that M/s. Master. Sathe and Kothari are three individuals, while according to respondent it is a partnership firm. The respondent bank has not placed on record any partnership deed of the firm M/s. Master, Sathe and Kothari as on 27th April, 1965 when the contract was executed and as such it would be presumed' that the architect referred in the contract is not a partnership firm but in any case I am of the view that it is not necessary to decide whether the said architect named in the contract are a body of the architects or a firm. If the architects mentioned in the contract were a body of architects and one of them has died the other architects are not entitled to act as architects, When two or more architects are required to decide a matter then a decision by one of them will not comply with the terms of the contract. Under Article 3 of the Articles of Agreement M/s. Master, Sathe and Kothari admittedly refer to more than one person. As and when one person is removed from the scene the remaining persons who may be described as body of architects are not entitled to act as such. In case the architects referred to in the contract is a partnership firm it is deemed to have been dissolved under Section 42 of the Partnership Act on the death of one of the partners. It is admitted that Mr. Sathe architect died after the execution of the contract in question. It is also contended that Mr. Sathe was one of the partners of the firm M^s. Master, Sathe and Kothari. Thus whether M/s. Master, Sathe and Kothari was a firm or three individuals of that name acting jointly, it was not possible for the petitioner to approach them to give any decision when admittedly one of them has died. Moreover, it is a question of interpretation of the Articles of Agreement dated 27th April, 1965 between the parties. Different contentions have been raised by the petitioner and the respondent and this itself is a dispute or difference arising out of or in connection with the said contract and thereforee the same is to be decided by the Arbitrator. For purposes of proceedings, under Section 20 of the Arbitration Act, it is not at all necessary to decide if the said architects were a firm or not.

(12) Issue No. 1 : The petitioner submitted a bill dated 14th July, 1970 to the respondent bank. Mr. Kothari one of the architects issued a letter dated 31st August, 1971 certifying that a sum of Rs. 1,15,734 be paid in full and final settlement to the contractor. A sum of Rs. 40,000 was further directed to be retained by the bank on account of defects etc. The bank admittedly made payment of Rs. 48,354.29 p. on 11th July, 1972 which according to the petitioner was received by him under protest. On the basis of this letter dated 31st August, 1971 it is contended, by the learned counsel for the respondent bank that it is a final certificate in respect of the bills submitted by the petitioner and as such no amount is due to the petitioner from the respondent bank. It is true that a bill was submitted by the petitioner to the respondent and that the bill has been reduced by the architects, but the payment was made on 11th July, 1972 and as such it may be said that the disputes arose between the petitioner and the respondent bank on 11th July, 1972. Under clause 37 of the Conditions of the Contract the contractor or the employer i.e. petitioner or the respondent bank could have approached the architects for decision of their disputes but the petitioner admittedly did not approach them on the plea that they have disintegrated or dissolved. The intention of the contract is that the arbitrators have power to override the architects in all respects except in certain excepted matters. Under these circumstances, the arbitrator is competently his decision or award to do that which the architects ought to have done. Moreover, whether this certificate or letter dated 31st August, 1971 is a final certificate or not is a question for the decision of the arbitrator. This is a dispute arising out of or in connection with the contract and as such it is for the arbitrator to decide whether the certificate or letter dated 31st August, 1971 issued by Mr. Kothari is a final certificate and what is the effect of issuing such a certificate.

(13) Issue No. 2 : Under issue No. 1, I have already observed that the certificate or letter dated 31st August, 1971 is a matter for decision by the arbitrator but in any case as there were no disputes before the issuance of the letter dated 31st August, 1971 there was no occasion for the petitioner to refer any such item for settlement by the architects within the meaning of First Part of Clause 37 of the Conditions of the Contract. If the matter was not referred to architects then it cannot be said that the certificate or letter dated 31st August, 1971 is a decision of the architects within the meaning of First part of Clause 37 of the Contract.

(14) Issue No. 3 : I have already held that the certificate or letter dated 31st August, 1971 issued by Mr. Kothari is not a final certificate and is not a decision within the meaning of First Part of Clause 37 of the Conditions of the Contract and thereforee it was not obligatory upon the petitioner to give a written notice to the respondent bank through the architects within 28 days from the date of the said letter dated 31st August, 1971. I have also observed that the arbitrators have power to override the architects in all matters except in certain excepted matters mentioned in Clause 35 of the Conditions of the Contract. The arbitrator has also wide jurisdiction over all the disputes and he can himself decide the matters which ought to have been decided by the architects. Under these circumstances, it cannot be said that the right of the petitioner to demand arbitration has extinguished. the petitioner can under all circumstances invoke arbitration.

(15) The learned counsel for the respondent has cited various authorities herein it has been observed that the right of the contractor stands extinguished in the facts and circumstances of those cases. It is not necessary to refer to all such authorities except a few but I may mention that all the authorities have no bearing to the facts of the present case. The arbitration clause in the present case is entirely different from the clauses contained in the authorities referred to by the learned counsel for the respondent bank. In Union of India v. M/s, Rishi Raj and Co., Delhi, : AIR1973Delhi15 , there is the following proviso to the arbitration clause : - 'Provided further that any demand for arbitration in respect of any claim/claims of the contractors, under the contract, shall be in writing and made within one year of the date of termination or completion (expiry of the period) of the contract and where this provision is not complied with. the claim/claims of the contractors shall be deemed to have been waived and absolutely barred and the Government shall be discharged and released of liabilities under the contract. Under this proviso to the Arbitration Clause it was held that the restriction of one year by mutual consent of the parties was valid. In the present case there is no such restriction.

(16) In Vulcan Insurance Co. Ltd. v. Maharaj Singh and another, : [1976]2SCR62 , the clause in the insurance policy was to the following effect : -

In no case whatever shall the Company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration.

Under this clause it was held that it was not hit by section 23 of the Contract Act and was valid. It was further observed that such a clause had not prescribed a period of 12 months for filing of an application under Section 20 of the Arbitration Act. As a matter of fact, ill this case it was held that there was no limitation prescribed for the filing of an application under Section 20 of the Arbitration Act.

(17) In Pearl Insurance Co. v. Atma Ram, there was a similar clause in the insurance policy limiting right to enforce within one year and .it was held that the Clause was valid. In Aries Tanker Corporation v. Total Transport Ltd. 1977 All Fr 398 the liability Clause was to the following effect:

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the. date when the goods should have been delivered.

Under this clause it was held by the House of Lords that the charters were not entitled to assert their claim as they had not instituted the suit within 12 months of delivery in accordance with the said clause. In the present case before me there is no such clause restricting he period within which the pe'itioner was bound to approach the arbitrators or the Court. The architects referred to in clause (37) admittedly arc not arbitrators and thereforee the ratio of these judgments is not applicable.

(18) Issue No. 5 : The respondent bank has contended that Mr. Kothari became an architect after the death of Mr. Sathe, It is also contended that the petitioner has been dealing with Mr. Kothari of M/s. Master, Sathe and Kothari and as such the petitioners is estopped from contending that Mr. Kothari was not the architect for purposes of clause 37 of the contract between the parties. I have already held that on the death oi' Mr. Sahe the archi'eets M/s. Master, Sathe and Kothari ceased to exist under both the circumstances, i.e., if the said architects were a body of architects, they were not entitled to act as such on the death of one of them and if it was a firm, it stood dissolved on the death of one of its partners and as such ceased to exist. It 's animated that no new architects were appointed within the meaning of Article 3 of the Articles of Agreement dated 27th April, 1965. I do not appreciate how the petitioner is estopped from contending that Mr. Kothari was not an architect. In any case I am of the opinion. that this question relates to the contract itself and it is for the, arbitrators to decide whether Mr. Kothari was the architect.

(19) Under Section 20 of the Arbitration Act Court has to consider whether the parties have entered into an arbitration agreement before the institution of a suit concerning the subject matter of the agreement. and that a difference has arisen. If these conditions are satisfied and no sufficient cause is shown as to why the court should not order the agreement to be filed in court, the disputes must be referred to the arbitrator. In the present case, I find that there is an agreement dated 27th April, 1965 containing the arbitration clause which was entered into between the parties and that the disputes referred to above can be referred to the arbitration within the meaning of the arbitration clause 37 of the contract.

(20) I hold that the petitioner satisfies all the requirements of Sec- lion 20 Arbitration Act and as such he is entitled to an order requiring the respondent to file the agreement containing the arbitration clause in court and to get the matter referred to the arbitrator. I thereforee direct the petitioner and the respondent to agree and appoint a single arbitrator who is Fellow of the Indian Institute of Architects within one month from today and in case the petitioner and the respondent do not agree upon the appointment of a single arbitrator, they are directed to appoint to arbitrators both being Fellows of the Indian Institute of Architects, one to be appointed by the petitioner and the other by the respondent within two months from today and the arbitrators so appointed shall appoint an umpire. If any party does not appoint an arbitrator in terms of this order.. the arbitrator who may be appointed by the other party shall be the sole Arbitrator to decide all disputes mentioned above and detailed in Annexure 'A' to the petition. There is no order as to costs.


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