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Union of India (Uoi) Vs. B.M. Sen - Court Judgment

LegalCrystal Citation
SubjectArbitration;Contract
CourtKolkata High Court
Decided On
Case NumberAward Case No. 228 of 1952
Judge
Reported inAIR1963Cal456
ActsConstitution of India - Article 299(1); ;Arbitration Act, 1940 - Section 33
AppellantUnion of India (Uoi)
RespondentB.M. Sen
Appellant AdvocateA.C. Bhabra and ;R.N. Dutt, Advs.
Respondent AdvocateArun Mukherjee, Adv.
DispositionApplication dismissed
Cases ReferredUnion of India v. K.P. Mondal
Excerpt:
- orderp.c. mallick, j.1. this is an application challenging the existence and validity of an arbitration agreement and an award made thereunder.2. the respondent is a contractor who was entrusted with certain construction works to be done in ghuskara, bolepur, rampurhat and madhaiganj. the contract is evidenced by the acceptance of a tender in the usual term. all the works done under this contract were done sometime in the year 1944/45. the contract contains the usual arbitration clause whereby 'all disputes and differences between the parties under the contract shall be referred to the arbitration of the superintending engineer of the circle for the time being .....'3. disputes and differences arose between the parties in respect to and in connection with the contract and one c. s......
Judgment:
ORDER

P.C. Mallick, J.

1. This is an application challenging the existence and validity of an arbitration agreement and an award made thereunder.

2. The Respondent is a Contractor who was entrusted with certain construction works to be done in Ghuskara, Bolepur, Rampurhat and Madhaiganj. The contract is evidenced by the acceptance of a tender in the usual term. All the works done under this contract were done sometime in the year 1944/45. The contract contains the usual arbitration clause whereby 'all disputes and differences between the parties under the contract shall be referred to the arbitration of the Superintending Engineer of the Circle for the time being .....'

3. Disputes and differences arose between the parties in respect to and in connection with the contract and one C. S. Mathur, Chief Engineer, referred the disputes to the arbitration of Mr. B.K. Guha, Superintending Engineer, Delhi Aviation and Planning Circle, New Delhi. The latter ot reference is dated May 11, 1951. It appears that altogether there were five disputes referred to the arbitration of the said Mr. B.K. Guha.

4. Shortly thereafter Mr. B.K. Guha as such arbitra-tor entered upon the reference and pursuant to his direec-tions the parties filed their respective State of Facts and Counter State of Facts. Subsequently on November 12, 1952 the parties entered into an agreement in respect to the five disputes referred to arbitration as stated above. This agree-ment modified and amended the arbitration clause in the contract. The operative part of the agreement reads as follows :

1. That the disputes and differences between the parties in respect of the recovery made from the contractors bills for materials supplied and servicererdered by the C. P. W. D. in connection with thesaid agreements and work orders be referred tothe arbitration of Mr. B.K. Guha, SuperintendingEngineer, Calcutta Aviation Circle C. P. W. D. andthat his award shall be final, conclusive and binding on the parties and the provision of the Indian: Arbitration Act of 1940 shall apply to said arbitration.

2. That the respective arbitration clauses and the said agreements be read and construed as if there was inserted therein the words 'Mr. B.K. Guha, Superintending Engineer, Calcutta Aviation Circle C.P.W.D. Calcutta Aviation Circle' in place of 'Superintending Engineer of the Circle for the time being.'

This agreement is signed by N. V. Rao, Executive Engineer, Calcutta Aviation Division No. 111 Calcutta 'for and on he-half of the President of India.'

5. The arbitration proceedings then went on before Mr. B.K. Guha. The parties tendered their respective statements and evidence and there were a number of sittings held. Under the direction of the arbitrator the parties prepared a joint statement of recoveries which were actually disputed and this joint statement as to the disputed items with respect to recoveries was placed before the arbitrator. The arbitrator finally published his award on June 21, 1960, whereby he allowed some of the recoveries but disallowed most of them. It should, incidentally, be noted that apart from this award, four other disputes were referred to the same arbitrator under the same arbitration clause in the contract and the arbitrator made four other awards. These four awards have been accepted fay the Government and it is stated in paragraph 8 of the petition that they have been satisfied. The award in due course was filed by the arbitrator and a notice under Section 14(2) of the Indian Arbitration Act was served on the Government on August 17, 1960. The present notice was taken out by the Government on September 17, 1960.

6. It is contended in the petition that at the time when the disputes were referred to arbitration, Sri B.K. Guha was the Superintending Engineer of the Delhi Aviation and Planning Circle, New Delhi and not the proper Superintending Engineer competent to act as arbitrator under the-arbitration clause in the contract. Then it is contended that agreement dated November 12, 1952 is of no effect inasmuch as N. V. Rao who signed the agreement on benalf of the President had no authority to enter into the agreement. This is the fact on which the present application is founded and made in paragraph 12 of the petition which reads as follows :

'Your petitioner states and submits that the said Shri N. V. Rao who purported to sign and/or execute the said agreement on behalf of the President of India had no authority to sign or to execute the said agreement as he has purported to do. The said purported agreement dated 12th November 1952 was invalid, inoperative and void and or no effect and as such the said arbitrator Shri B.K. Guha had no jurisdiction to proceed with the said reference.'

On this averment the Court is asked to hold that there was no valid arbitration agreement in existence and the award published by the arbitrator Mr. B.K. Guha in the said arbitration proceedings is invalid and void.

7. The case of the respondent Contractor as made out in his affidavit in opposition is that there was no defect in the appointment of B.K. Guha and that in and event, the defect, if any, in the said appointment was cured by a subsequent variation and/or modification of the arbitration agreement by the agreement dated November 12, 1952, It Is also contended that the defect, if any, in the appointment of Sri B.K. Guha as arbitrator was all along known to the Government and the Government did not raise any objection on this or on any other ground until the Government discovered that the award made by Sri B. K Guha on June 21, 1960 was adverse to the Union of India. The Government with full knowledge of all tha facts and circumstances suggested the name of Sri B.K. Guha as arbitrator and submitted to the jurisdiction cf the said arbitrator. Having accepted the said B.K. Guha as a validiy appointed arbitrator the Government filed its counter-State of Facts, complied with all directions given by the arbitrator and took every step contesting the contractor's claim in the arbitration proceedings. It is, therefore, submitted that the Government by its act and conduct waived and/or acquiesced in the irregularity, if any, and is therefore estopped from asserting the same.

8. The contractor further contended that the same arbitrator was appointed under tha same arbitration clause as modified by the November agreement to adjudicate four other disputes and he made four other awards which said awards have been accepted by the Government. lit paragraph 7 of the affidavit it is pleaded that by accepting the four awards the Government has admitted that the said arbitrator was validiy appointed and Government is therefore precluded from challenging the validity of the award dated June 21, 1960, made by the same arbitrator. Paragraph 12 of the petition is dealt with in paragraph 11 of the affidavit in-oppositbn affirmed by Sri B. M. Sen which reads as follows:

'I deny that the said N. V. Rao had no authority to sign or execute the agreement on behalf of the President of India as alleged. I say that the said agreement dated the 12th November 1952 is valid and that the said Sri B.K. Guha had jurisdiction to proceed with the said reference ..... In any event the act of the said N. V.Rao in signing or executing the said agreement dated the12th November 1952 on behalf of the President of Indiaeven if done in excess of the authority conferred on him,was subsequently ratified by the conduct of the petitioner.'

It is also pleaded that in the arbitration proceedingsseveral applications had been made to the court for extension of time and for filing the award on the footing that there was in existence a valid arbitration agreement. That this conduct of the Government also precludes it fromquestioning the authority of the arbitrator of the validity of the arbitiation proceedings.

9. In paragraph 14 the plea of limitation is taken.

10. Mr. Arun Mukerji appearing for the respondenttook two preliminary points which may be disposed of now. The first is the point of limitation as stated above. It Is contended that the period within which an application toset aside an award can be made is 30 days from the date of service of the notice under Section 14(2) of the ArbitrationAct. In the instant case the Notice under Section 14(2) hasbeen served on August 16, 1960 as alleged In the petition while the Notice of Motion is dated September 17, 1960 is, it has been taken out on the 31st day from the data of the service of the notice. The petition is therefore out of time by one day. It appears, however from an endorsement in the petition itself that the application was noted as made on the 16th'September 1960. That being theposition, t must hold that the application is within time.

11. The second point taken by Mr. Mukherjee is that the petition has been signed and verified by one Romal Das Bhatia. According to Mr. Mukerlee Remaldas Bhatia has neither the authority to sign the petition nor to verify thefacts stated therein. Remaldas Bhatia however In his affi-davit ef fitness states that he is the Executive Engineer, Calcutta Central Division No. Ill, C. P. W. D. in the employ of the Government of India and that he has been authorised and is competent to sign and verify the foregoing petitionunder Government of India Notification No. SRO 1651 dated 1st September 1953 on behalf of the Union of India. Mr. Mukherjee has placed before me a copy of the Notification No. SRO 1651 dated September 1953 published in the Gazette. According to this notification authority is given to the officers specified in the schedule annexed as thepersons by whom plaints, written statements etc., in suits in any civil court can be signed and verified on behalf ofthe Government. In respect to works of the Central Public Works Department and claims arising therefrom, the persons authorised are the Chief Engineer, the Administrative Officer,Superintending Engineers, all Divisional Officers, all Electrical Engineers and Superintendent Horticultural Operation. In the submission of Mr. Mukherjee, Remal Das Bhatia is only on Executive Engineer and an Executive Engineer is not authorised to sign and verify this petition. Mr. Bhabra however contended that the Executive Engineer might also be the Divisional Officer and it cannot be said that Remal Das Bhatia who is stated to be an Executive Engineer is also not a Divisional Engineer as well. Mr. Mukherjee's answer to the argument is that in the affidavit of competence it was necessary for Remal Das Bhatia to state that he was the Divisional Officer and as such was competent to sign this agreement and in the absence of such an averment the petition is not in order and should be thrown out in limini. Mr. Bhabra has contended that this point has not been taken in the affidavit in opposition. Had It been dona this defect would have been cured. I am inclined to agree with Mr. Mukheriee that for Remal Das Bhatia should have stated in his affidavit of competence that he was not only the Executive Engineer but also the Divisional Engineer aswell. But this point has not been specifically taken and Itmight well be that Remal Das Bhatia was not merely the Executive Engineer but a Divisional Officer as well. In tha absence of any such plea having been taken in the affidavit of opposition I will stretch a point in favour of the petitioner and will not reject the application on the finding, that Bhatia has not the necessary competence to sign and verify the petition. I therefore overrule this preliminary point taken by Mr. Mukheriee as well.

12. As indicated before the foundation of this application is the averment made in paragraph 12 of the petition to the effect that N. V. Rao had no authority to entei into the agreement dated November 12, 1952 and therefore the agreement is void not being In compliance with tha provisions of Article 299(1) of the Constitution. The requirements of Article 299(1) of the Constitution is (1) that the contract shall be expressed to be made by the President and (2) that it shall be executed by the President by such person in such manner as he may direct. Mr. Bhabra contends that in the instant case the agreement dated November 12, 1952 satisfied the first requirement, namely, that It is expressed to be made by the President but that it does not satisfy the other requirement. His case is that Mr. N. V. Rac who has signed this agreement was not authorised by the President to execute this contract. It is a contract, therefore which is contrary to law and as such void. It has also been held in a number of cases that the provisions of Articld 299(1) of the Constitution are mandatory. The non-compliance of Article 299(1) in the case of the instant contract makes it void ab initio. The arbitration proceedings thereunder including the award are also void. This Is Mr. Bhabra's contention.

13. The first point to be considered is whether Mr. N. V. Rao had authority to sign the contract. I have set out before paragraph 12 of the petition wherein the case is made out by the Government. This most important paragraph which constitutes the foundation of this application has not been verified as being true to the knowledge of the deponent. Nor has it been verified as being based on any record which the deponent believes to be true. It Is verified as a submission. There is therefore no evidence before me that N. V. Rao had no authority to enter into the contract. On this ground the application is liable to be dismissed In limini. Mr. Bhabra however submitted that apart from the petition there are other evidence in the other affidavits which should be looked into for the purpose of the determination of this question and the Court has further power, if necessary, to have this particular question to be tried on evidence. I should note here that on the last date of tha hearing of this application Mr. Bhabra asked for an adjournment In order to re-verify the petition and/or to use further affidavits. Alternately, he suggested that the matter be set down for trial on evidence. Neither of tha suggestions of Mr. Bhabra was acceptable to me, in the facts and circumstances of the instant case.

14. Ignoring the infirmity noted above, let me consider the evidence available in order to determine whether N. V. Rao had authority or not. tt is to be noted that there is no affidavit of Mr. N. V. Rao stating that he had no authority and that through mistake he has signed this petition. Nor is there any affidavit by a competent officer of the Gov-ernment to the effect that the proper person authorised to sign this contract on behalf of the President is some other officer. Nor have I before me any other affidavit of a competent officer stating that through Inadvertence in the instant case no officer was properly authorised to execute the contract on behalf of the President. Mr. Bhabra submitted thathe, relies on a negative fact and the only way to do it is to deny it. If the negative fact construes the foundation of an application, without which an application wouldnot lie, the negative fact would have to be proved. In the instant case, the negative fact could have been proved by an affidavit of a competent officer that some other officer was authcrised to sign this agreement on behalf of the President or that through Inadvertence no officer was authorised to enier into this agreement or that Mr. N. V. Raohimself could have come before the Court and steted on affidivit that he had never been authorised to enter into this agreement. In the absence of an iota of evidence it can-not but be held that the government has failed to prove that N. V. Rao had no authority to enter into the contract. It is to be remembered that the government does not dispute that there is in fact an arbitration agreement entered into on November 12, 1952 and pursuant to that arbitration agreement proceedings have been going on for years, and that the government throughout took part In the proceedings. The presumption of regularity of official acts can be taken recourse to in support of the contention that Mr. N. V. Rao had authority to enter into this agreement. It is to be further noted that in these proceeding a number of applications have been made for extension of time for the arbitrator to make the award. I am not called upon now to consider what Is the effect of these orders but this conduct of the Government In making applications in Court does suggest the arbitration proceeding is valid and it cannot be valid unless N. V. Rao had the necessary authority to sign and execute the agreement on behalf of the President. The evidence of conduct of the parties strongly support the case that Mr. N. V. Rao had the authority. On the materials before me I am bound to hold that Mr. N. V. Rao had the authority to enter into the arbitration agreement.

15. Assuming however that I am wrong and N. V. Rao had no authority as alleged in the petition to enter into the contract. In such event, according to Mr. Bhabra the arbitration contract is void ab initio and all proceedings thereunder including the award must be held to be equally void. If the contract is void ab Initio, then the principles of waiver, acquiescence, estoppel and ratification cannot be taken recourse to save the said contract.

16. Mr. Mukherjee, on the other hand, contended that a contract not in compliance with Article 299(1) of the Con-stitution is not void ab Initio as is contended by Mr. Bhabra. In support of this argument he relies on the case of Chattur-bhuj Vithaldas v. Moreshwar Parashram decided by the Supreme Court and reported in : [1954]1SCR817 . This decision is an authority for the proposition that an agreement not in compliance with Article 299(1) of the Constitution is not a void contract though it may be unenforceable against the government. Further such a contract is capable of ratification. The passage relied on by Mr. Mukheriee is to be found at p. 243 and set out hereunder in extenso :

'In the present case, there can be no doubt that the Chairman of the Board Administration acted on behalf of the Union Government and his authority to contract in that capacity was not questioned. There can equally be no doubt that both sides acted In the belief and on the assumption, which was aiso the fact that the poods were intended for Government purposes, namely, amenities for the troops. The only flaw is that the contracts were not In proper form and so, because of this technical defect, the principal could not have been sued. But that is just the kind of case that Section 230(3), Contract Act is designed to meet. It would, in our opinion, be disastrous to hold that the hundreds of Government Officers who have daily to enter into variety of ccntracts, often of a petty nature and sometimes In anemergency cannot orally or through correspondence and that every petty contract must be effected by a ponderous legal document couched in a particular form. It may be that Government will not be bound by the contract in that case, but that is a very different thing from saying that the contracts as such are void and of no effect. It only means that the principal cannot be sued; but we take it there would be nothing to prevent ratification, especially, if that was for the benefit of Government.

There is authority for the view that when a Government Officer acts in excess of authority Government is bound If it ratifies the excess (see Collector of Muslipattam v. Cavalry Venkata Narainappah, 8 Moo Ind App 529 at page 554). We accordingly hold that the contracts in question here are not void simply because the Union Government could not have been sued on them by reason of Article 299(1).'

17. It is clear from what is quoted above that in the opinion of the Supreme Court such a contract is not void and is capable of being ratified. A contract void ab liutio cannot be ratified in law. Mr. Bhabra however relies on Section 2(g) of the Indian Contract Act in support ef his contention that the contract is void. If according to Section 2(g) of the Contract Act, an agreement not enforceable in law is void and a contract not in compliance with Article 299(1) of the Constitution is not enforceable against the Government then such a contract not in conformity with the Article 299(1) of the Constitution must be void, according to Mr. Bhabra. The fallacy of the argument has been pointed out by the Supreme Court. The contract not in conformity with Article 299(1) might not be enforceable against the Government, but it is enforceable against the particular officer who purported to sign on behalf of the President without authority. If it is enforceable against somebody though not against the Government it cannot be said to be a void contract. Such a contract has been equated by the Supreme Court to a contract entered Into by an agent on behalf of a disclosed principal without the principal's authority. A contract by an agent without the authority of his principal though not enforceable against the principal Is always enforceable against the agent. It also becomes enforceable against the principal, if the principal ratifies the act of agent.

18. If as laid down by the Supreme Court a contract not in conformity with the provisions of Article 299(1) of the Constitution is capable of being ratified, how such ratification is to be effected Mr. Bhabra contended that the only way of ratifying such a contract is by executing a fresh agreement in conformity with Article 299(1) of the Constitution. In that event, that would not be an act ot ratification, but it would be a new contract. Ratification is an unilateral act whereby the principal ratifies the conduct of his agent. Ratification must be a unilateral act of the Union Government. This can be done in express terms by a formal order of the Union Government. I do not see why it cannot be ratified by the conduct of the Government. If as in the instant case the Government takes part in the arbitration proceeding, makes application to court for extension-of time to file the award, the Government must be taken to have ratified the contract by Its own act and conduct. As noted by the Supreme Court In Chaturbhuj's case, : [1954]1SCR817 the formalities prescribed in Article 299(1) of the Constitution ate to safeguard the Interest of the Government and if the principle of ratification is made applicable to Government contracts not in conformity with Article 299(1), there Is no danger of the Government interest being prejudiced.

Assuming the agreement dated November 12, 1952 is void, as is contended by Mr. Bhabra, what would be the position? The position would be that the original arbitration clause in the agreement will remain unaffected. All that the agreement dated November 12, 1952 purports to do is to amend and modify the arbitration agreement in the contract. What the subsequent agreement purports to do is to name Mr. B.K. Guha as the arbitrator and not the incumbent of an office as in the original contract. This is the amendment effected by the agreement dated November 12, 1952. I do not agree with Mr. Bhabra that the second agreement is a complete substitution of the old agreement. It does nothing more than to amend the old agreement, as it expressly states. If the agreement dated November 12, 1952 is held to be invalid in law, then the original arbitration agreement remains and the award made by the arbitrator must be held to have been made in terms of and under the original arbitration clause in the agreement. It is clear that both the parties apprehended that B.K. Guha may not answer to the description of the officer to whom reference could be made under the arbitration clause in the contract. Government at least knew that B.K. Guha was not the proper officer. With full knowledge of Mr. Guha's incapacity the Government as well as the contractor allowed the arbitration proceedings to go on, each representing to the other that the award that may be made by such an arbitrator would be accepted by both the parties, Either party would be estopped from challenging the competence of Mr. Guha. This is strongly urged by Mr. Arun Mukherjee on the strength of a decision of this court in the case of Union of India v. K.P. Mondal, decided by the Appeal Court consisting of Chakravartti, C. J. and Lahiri, J. and reported in : AIR1958Cal415 . In this case also both the parties knew that the arbitrator did not answer to the description of the officer referred to in the arbitration agreement and was not competent to make the award. Nevertheless, the parties with full knowledge that the officer had no authority appeared before the said officer, filed their respective states of fact and counter states of fact, led their own evidence and made applications to the court for extension of time, as in the instant case. It has ken held by the Appeal Court that the parties would be estopped from challenging the award, even though the arbitrator had no authority to make the award. Sarkar, J., who originally heard the application, dismissed the application on the finding that the rule of estoppel would not apply, having regard to the fact that both the parties had knowledge of the incompetence. The Appeal Court, however, reversed the decision of Sarkar, J. It was held by Chakravartti, C. J. that -

'A representation in order to attract the rule of estoppel need not always be a representation of a physical fact but may as well be the representation of an attitude or a state of mind, inasmuch as, the state of a man's mind is as much a matter of fact as the state of his digestion. If a man either by words or by conduct has intimated that he consents to an act which has been done and that he will offer no opposition to it, although it could not have been lawfully done without his consent and he thereby induces others to do that from which they otherwise might hava abstained, he cannot question the legality of the act he had so sanctioned, to the prejudice of those who have so given faith to his words, or to the fair inference to be drawn from his conduct.'

In the cited case the contractor was prevented by estoppel from questioning the validity of the arbitration proceeding. Mr. Mirkberjee has contended that our case isstronger. In our case, Government itself has appointed B.K. Guha as arbitrator and it is not open to the Government to question the validity of appointment now. Mr Bhabra was at great pains to distinguish this case from the instant case, but I do not think that the facts in the instant case and the facts in the other case could properly be distinguished. I must hold, therefore, on the basis of this decision of the Appeal Court that the award made by Mr. B.K. Guha is a valid award, even though it may be that Mr. Guha was not the officer competent to arbitrate under the arbitration clause in the original agreement.

19. In order to get out of this decision of the Appeal Court, Mr. Bhabra submitted that the case of estoppel as required by law has not been properly pleaded. He has referred me to Bulled and Leaks as also to Atkin's Forms which lays down how estoppel should be pleaded. It is true that estoppel has not been pleaded, as is pleaded in the book by Bullen and LeaKe or in Atkin's Forms. Nevertheless, the facts pleaded in the affidavit make the plea of estoppel clear enough and it would be sheer pedantry to disallow the plea of estoppel on the present pleadings.

20. In the result, the application fails and is dismissed with costs. Certified for two counsel.

21. Recently I find that certain pleas are being taken by the Government, which, in my judgment, ought not to be taken by the Government. The instant case is a case in point. The arbitrator was a government officer appointed by the government itself. The dispute is with reference to work that took place in 1944-45. Arbitration began in 1951; it terminated in 1960. There are five awards, four of which the Government accepted and the fifth has been challenged on the sole ground that the arbitrator was not competent to act. The same arbitrator however made the four other awards which the Government has accepted. I felt the impropriety of this act and asked Mr. Bhabra, when the application was first moved before me, to ask the government officer concerned to reconsider his decision. I take it that the desire expressed by me was duly forwarded to the Government officer. Unfortunately, the Government officer did not think it fit to reconsider his decision, with the result that the application had to be fought out in court. The Government is not an ordinary litigant and in my opinion it is not proper for Government to do certain things though it may be permissible in law. The attitude taken up by the Government in the instant case has lowered the Government in the esteem of all. I think it my duty to bring this to the notice of the Government in its highest level with the hope that such things may be avoided in future. With that object in view, I direct the Registrar to send a copy of this judgment both to the Law Minister, Centrat Government and to the Judicial Minister, State Government.


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