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Union of India (Uoi) Vs. Bharat Charcoal Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAward No. 11 of 1962
Judge
Reported inAIR1962Cal510
ActsArbitration Act, 1940 - Section 34; ;Code of Civil Procedure (CPC) , 1908 - Section 80
AppellantUnion of India (Uoi)
RespondentBharat Charcoal Co. Ltd.
Appellant AdvocateR.N. Dutt, Adv.
Respondent AdvocateS.B. Mukherji, Adv.
DispositionApplication allowed
Cases ReferredMatter of Ramjiban Saraogi v. Riversine Beg and Burlap Corporation
Excerpt:
- .....no dispute also in respect to the remaining other contract as well. in respect to this contract a final bill has been tendered by the contractor and the government has accepted it and made an 'on account payment'. the contractor has also submitted a no claim 'certificate'. liability to pay has not been disputed. apart from the government's failure to pay, there is no dispute between the parties. mere failure to pay is not however such a dispute that can be adjusted by arbitration under the arbitration clause in the contract. 5. the government's case is that there has been a wrong classification of works in all the running bills and because of this wrong classification, the contractor has been overpaid to the tune of more than rs. 30,000/-. no final bit! has been made up in the instant.....
Judgment:
ORDER

P.C. Mallick, J.

1. This is an application for stay of a suit under Section 34 of the Indian Arbitration Act. The respondentis a contractor. There are three contracts subsisting between the respondent and the Government. They are (1)Contract No. 22/CKP/56-57, (2) Contract No. 5/CKP/57-58and (3) Contract No. 6/CKP/57-58. The Government enteredinto the contracts with the contractor for certain works tobe done for the South Eastern Railway. The suit has beeninstituted by the contractor for three several sums allegedto be due and payable by the Government under the threesaid contracts.

2. It is contended in the petition that the dispute in suit is covered by the arbitration clause in the contract and that the conditions laid down in Section 34 of the Indian Arbitration Act have been complied with in the instant case.

3. Mr. Mukherjee appearing to oppose the application contended that the conditions laid down in Section 34 have not been complied with and even if they have been complied with, the Court in its discretion should not grant a stay, in the facts of the instant case.

4. The first point urged by Mr. Mukherjee is that there is no dispute to be adjusted by arbitration. In respect to the two contracts, namely, Contracts Nos. 5 and 6/CKP/57-58, there is no dispute and it Is admitted that a substantial sum of money is due and payable to the contractor by the Government. There is no dispute also in respect to the remaining other contract as well. In respect to this contract a final bill has been tendered by the contractor and the Government has accepted it and made an 'on account payment'. The contractor has also submitted a no claim 'certificate'. Liability to pay has not been disputed. Apart from the Government's failure to pay, there is no dispute between the parties. Mere failure to pay is not however such a dispute that can be adjusted by arbitration under the arbitration clause in the contract.

5. The Government's case is that there has been a wrong classification of works in all the running bills and because of this wrong classification, the contractor has been overpaid to the tune of more than Rs. 30,000/-. No final bit! has been made up in the instant case. There is some discrepancy in the amount of the claim made by the Government in the petition and in the affidavit-in-reply and some explanation has been given as to how this mistake in the petition has crept in. Mr. Mukherjee is entitled to and did comment on this discrepancy. It is contended by Mr. Mukherjee that the question of classification cannot be the subject-matter of arbitration. It has been provided in other clauses of the contract that the classification by the District Engineer would be final. In the instant case, classification has been made by the District Engineer at the time when the running bills were prepared and it is not open to the Government now to effect a new classification. Whatever has been done previously is final. In any event, this is not subject to arbitration. Reference is made to Clause 21 of the contract which reads as follows:

'Running bills will be prepared at tender rates except in the case of earthwork where the rates shall be approximate only until a final classification is made as provided in Clause (3) of the special conditions for earthwork. * *** These interim payments are only made for the purpose of helping contractors financially and rates, and classification of the final bills may be either more or less than those shown in the interim bills.'

It is contended by Mr. R.N. Dutt, learned Counsel appearing for the Government, that the payments on account of running bills are tentative payments and cannot be considered: to be conclusive and final and do not shut out a redetermination of the question of classification of theearhtworks. In the instant case, the final classification hasbeen made by the appropriate officer named in Clause 21and on the basis of the determination of this officer it hasbeen found that there has been an overpayment to thecontractor.

6. Mr. Mukherjee however submits that there is a final bill in the instant case which was made on the basis of old classification sought to be reviewed now. It is therefore not a case of reviewing the classification works in a running bill but a case of reopening a final bill made, on the basis of a classification of earthwork. No new classification of earthwork is permissible after the final bill is accepted by the Government and an 'on account payment' made thereof. In the instant case the Government is seeking to reopen the contractor's claim after everything is finalised by the submission of the final bill by the contractor and acceptance thereof by the Government. The contractor has given a no claim certificate on the basis of the final bill tendered and accepted by the Government

7. This argument of Mr. Mukherjee would be of great force if I can hold that in the instant case there is a 'final bill'. It is true that there is a 'final bill' on record, but the Government's case is that this 'final bill' after its preparation was found to be inaccurate and wrong and the, mistake in the bill was corrected by striking out the old amount and replacing the same by Rs. 15,000/- and odd in its place. The original bill which was placed before me showed that it contained the usual 'no claim certificate' which every 'final bill' contains; so also it shows that the amount that has been taken by the contractor on account of this bill is the sum of Rs. 15,000/- and odd and not the original amount; and, thirdly, the payment received by the contractor does not show, on the face of the bill, that it is 'on account' payment. The most important dispute between the parties on this point is whether the bill which ex facie, is a 'final bill' is really a 'final bill', if it is a final bill, then the argument of Mr. Mukherjee is of great force. If, on the contrary, it cannot be, considered to be a final bill, then it must be held that a final bill has yet to be drawn up and in that event there cannot be a 'no claim certificate'. Whether, therefore, the so-called 'final bill' is the real 'final bill' is the real dispute in the instant case. It cannot therefore be said that there is no dispute apart from the failure of the Government to pay the contractor's claim.

8. The arbitration clause in the contract is in the widest possible terms. It covers all disputes arising under or in connection with the contract or in any way attaching or, relating to or concerning, the construction, meaning or effect of the conditions, of the contract. In my judgment, the arbitration clause does cover this dispute as to whether the so-called final bill is the real final bill in this case.

9. The second ground on which Mr. Mukherjee contends that there cannot be a stay is that prior to the institution of the suit, the Government did not raise the disputes as they are raising now. It is submitted that the Government not only did, not dispute its liability to the contractor but has also admitted the contractor's claim. In support of this contention, Mr. Mukherjee relies on a letter addressed by the Chief Engineer to the contractor on August 27, 1960, The letter is short and is set out hereunder:

'..... Sub: Payment for works done under his zonal contract and Bahalda Reservoir etc.

Your No. BCC/407 D/- 28-4-60.

The details of these works are under investigation. As soon as the same will be completed, arrangement will be made for quick payment of your outstanding dues...'

The subject-matter of the letter is the payment for works done under zonal contract Bahalda Reservoir etc. i.e. Contract No. 22/CKP/56-57. It is an answer to the letter of the contractor dated April 28, 1960. The letter of the contractor, however, in answer to which this letter was written by the Chief Engineer is not placed before me. The letter itself shows that the matter has not been finalised and the details of work done were still under investigation. It isstated that after investigation is completed, arrangement may be made for quick payment of the outstanding dues. At its highest, this letter is only an admission that money may be due and payable to the contractor and does not amount to any admission of liability to pay a specified sum to the contractor. Reliance is also placed on the Notice under Section 80 of the Code of Civil Procedure served on the Government, to which no reply has been given by the Government. It is contended by Mr. Mukherjee that this amounts to an admission of liability. I think that neither the letter nor the failure on the part of the Government to reply to the Notice under Section 80 amounts to an admission of liability on the part of the Government, in spite of these facts, in my judgment, the Government is entitled to dispute its liability. Again, whether this conduct in the part of the Government amounts to an admission of liability in respect of and in relation to the contract is to be determined by the arbitration clause. In my judgment, therefore, this dispute also is covered by the arbitration clause.

10. The strongest argument addressed by Mr. Mukherjee, however, is the argument of law. He has contended that prior to the institution of the suit no dispute has been raised by the Government. They have no doubt not paid the amount of the bill to the contractor, but they have not raised the point that the final bill is not the real final bill and the amount due on the final bill is not what was stated originally in the final bill but an amount subsequently reduced or that there has been an over-payment to the contractor. Failure to raise this dispute before the institution of the suit is an absolute impediment to the grant of a stay order. The leading case relied on in support of the above contention is the decision of the House of Lords in the case of London and Northwestern and Great Western Joint Rly Cos. v. J. H. Billington Ltd., 1899 AC 79. It is contended that law laid down is that the existence of a dispute gives jurisdiction to the arbitrator and if no such dispute is raised before the suit is instituted, the Court cannot stay the suit. This is an application for stay of an action instituted by the Railway company against the respondent to recover a certain sum of money, the provision for arbitration in the Railway Act is in these terms:

'Any difference arising under this section shall be determined by the arbitrator to be appointed by the Board of Trade at the instance of either party.'

It was held in the case that no dispute having been raised prior to the institution of the suit, there was no dispute which the arbitrator will have jurisdiction to decide and the Court was therefore competent to decide it. The speeches of Lord Halsbury and Lord Ludlow do suggest that such is the proposition of law laid down by the House of lords in that case. Following this decision a Division Bench of this Court consisting of R.C. Mitter and Latifur Rahaman, JJ. held in the case of Ladha Singh v. Jyoti Prosad : AIR1940Cal105 held

'that the Arbitration Act presupposes a difference which arose between the parties before the suit was brought. It is not the principle of the sections that after the institution of the suit a party may raise a difference for the first time and then insist on this being referred to arbitration and the suit being stayed. Where therefore the plaintiff is not aware before the institution of the suit that there is a difference between him and the defendant or of the nature of the difference the Court in the exercise of its discretion will refuse to stay the suit.'

R.C. Mitter, J. who delivered the judgment in this case considered that the case reported in 1899 AC 79 laid down the above proposition of law. What exactly has been laid down by the House of Lords in the decision reported in 1899 AC 79 has been very elaborately considered by S.R. Das, J. as he then was in the case of Governor General in Council v. Associated Live Stock Farm (India) Ltd. : AIR1948Cal230 . This was also an application for stay under Section 34 of the Indian Arbitration Act. Before him the same point was urged that the dispute not having been raised prior to the Institution of the suit no stay can be granted. The two cases noted before as also other cases were cited. In a well considered judgment Das, J. held that that is not the law laid down by the House of Lords and the decision of the House of Lords has not been properly appreciated. Das, J. however pointed out that the decision of the Division Bench can be read otherwise. Das, J. recorded his concurrence with the view expressed by Rowlat and Sherman, JJ. in the case of London and North Western Railway, Co. v. Jones, (1915) 2 KB 35. The observation of Rowlatt, J. approved by Das, J. is set out in p. 295 of 52 Cal WN: (at p. 235 of AIR) and reads as follows:

'It seems to me that we are bound to hold, firstly, that the only case in which the Court can be appealed to before arbitration is where the defendant has agreed the demand and merely refuses to pay; secondly, that wherever this cannot be shown as he has not paid, the case must be treated as one in which a difference has arisen, and, thirdly, that the decision in the House of Lords in Billington's case 1899 AC 79 is no authority to the contrary.'

Then Das, J. recorded his own view in the following terms:

'I respectfully agree with the above explanation of the decision of the House of Lords in Billington's case, 1899 AC 79. The speeches of the Lord Chancellor and Lord Ludlow must be read with reference to and in the light of the particular facts of that case. That decision, as I have said, went entirely on the findings of the fact by the County Court. Those findings must have been regarded as implying and amounting to a finding that the defendant had agreed to the reasonableness of the charges. The charges having been thus agreed there was no dispute which could go to the arbitrator and there could be no question of the Court adjudicating upon them. The findings being so regarded the case became a simple case of failure or refusal to pay the just dues about which there was controversy which was required to be referred to arbitration under the statute. It is only in this view of the findings that the Court assume jurisdiction and enter judgment for the Railway company for the entire amount which was claimed and which was regarded as the agreed amount. I do not read this decision as implying that a mere omission to raise disputes before action, which is not tantamount to an agreement to give up the disputes, precludes a party from at all raising such disputes after action or authorises the Court to adjudicate upon such disputes although its jurisdiction is taken away by a statute. A mere omission to raise dispute, short of an agreement, cannot re-invest in the court a jurisdiction which the statute has taken away from it and conferred on the arbitrator. The principle laid down by the Court of Appeal in Billington's case, 1899 AC 79, namely, that the arbitrator was the only tribunal to adjudicate upon disputes arising under the statute was not touched by the House of Lords in Billington's case, 1899 AC 79 and indeed that principle was expressly approved by the House of Lords in Midland Rly. Co. v. Loseby, 1899 AC 133 and later on by the Court of Appeal in Norwich Corporation v. Norwitch Electric Tramways, Co., 1906-2 KB 119 and by the King's Bench Division in 1915-2 KB 35. The decision of the House of Lords in Billington's case, 1899 AC 79, when properly understood, does not militate against or in any way impair that principle.'

There is another passage in the judgment of Das, J. at p. 294 of the Report (Cal WN): (at p. 234 of AIR) which shows the untenability of the contrary proposition. With respect I agree with this observation of Das, J. and hold that though at first sight the speech of Lord Harshel, L. C. and Ludlow, J. appear to lay down the proposition on which Mr. Mookerjee relies nevertheless on closer scrutiny it will be found that no such inflexible rule has been laid down by the House of Lords. Mr. Mookerjee has drawn my attention to a decision of the Appeal Court in the case of Mathuradas Goverdhandas v. Khusiram Benarshilal, 53 Cal WN 873 in which Chatterjee, J., who delivered judgment held that

'In order to make out the jurisdiction of the tribunal of arbitration it must be shown that the subject-matter ofthe reference was some dispute between the parties and that particular dispute had arisen actually before the matter went before the arbitrators.'

The decision of the House of Lords in (1899) AC 79 as also the decision of the Division Bench in 43 Cal WN 879: (AIR 1940 Cal 105) were relied on and followed by Chatterjee, J. It is to be noted that the case dealt with by the Appeal Court was not a case of stay under Section 34 of the Arbitration Act, but a case of setting aside an award. The award of the Bengal Chamber of Commerce was challenged before Sinha, J., the trial Judge on two grounds--(i) misconduct of the arbitration, (ii) there was no dispute before the reference to arbitration. Sinha, J. dismissed the application on the finding that there was misconduct but he negatived the other contention, namely, there having been no dispute prior to reference, the arbitrator had no jurisdiction. It is to be noticed that in this case the decision of Das, J., reported in 52 Cal WN 288: (AIR 1948 Cal 230) is not noticed and dissented from. In any event, this decision not being a decision on Section 34 of the Indian Arbitration Act does not directly cover the case I am called upon to decide. This decision of the Appeal Court was considered subsequently by the Appeal Court in the case of Satyanarayan and Co. v. Sakhi Charan Roy. The Bench consisted of Harries, C. J. and Banerjee, J. The judgment was delivered by Harries, C. J. on November 28, 1950. The case of Mathuradas Goverdhandas v. Khusiram Benarashilal, 53 Cal WN 873 was brought to the notice of the Appeal Court and Harries, C. J. makes the following observation:

'Reliance was placed on an unreported decision of this Court in (A. F. O. O. No. 100 of 1948) now reported in 53 Cal WN p. 873. In that case a Bench of which I was a member held that where no dispute existed between the parties before the reference the arbitrators had no jurisdiction to enter into the matter. This decision may have gone too far and may have to be reconsidered, but it is unnecessary to discuss the question any further because on the appellants' own showing there was a serious dispute in this case before the matter was referred.'

In an unreported decision delivered by G.K. Mitter, J. in the Matter of Ramjiban Saraogi v. Riversine Beg and Burlap Corporation, Mitter, J., pointed out that by reason of the observation of Harries, C. J. noticed before the authority of 53 Cal WN p. 873 has been substantially shaken. As I stated before the decision of the Appeal Court reported in 53 Cal WN 873 is not a decision on Section 34 of the Indian Arbitration Act and further having regard to the observation made by Harries, C. J., in the subsequent decision of the Appeal Court, I do not think that I must hold that in the absence of a dispute having been raised prior to the Institution of the suit in the instant case, the Government is not entitled to stay under Section 34 of the Indian Arbitration Act.

11. In my judgment it is not essential for the defendant for the purpose of obtaining a stay of the suit under Section 34 to prove that prior to the institution of the suit not merely a dispute subsisted between the parties which is covered by the arbitration agreement but also that, the dispute was brought to the notice of the plaintiff. The object of Section 34 is to enforce the arbitration agreement between the parties and to prevent any party to the agreement committing a breach of that agreement, it operates by way of an injunction to prevent the plaintiff who, contrary to the arbitration agreement, has instituted a suit. In my judgment, once it is shown that the dispute is covered by an arbitration clause, no matter whether the dispute was brought to the notice of the plaintiff, who instituted the suit in breach of the arbitration agreement the defendant is entitled to a stay provided the otherconditions are satisfied. !

12. Mr. Mukharji has contended that, in any event, with respect to the two contracts for which the claim of the respondent is admitted, the suit should proceed. So far as those two contracts are concerned the liability of the Government is admitted and mere failure on the part of the Government to pay does not amount to a dispute. I entirely agree with this contention of Mr. Mukharji. But Clause 22 of the contract inter alia provides

'That the railway administration will also be at liberty to deduct from the said security deposit or from any sum due or to become due hereunder or under any other contract from the contractor or may otherwise recover from the contractor all sums that may become due to the railway administration by virtue of any of the terms hereof.'

The Government, therefore, is entitled to claim in terms of this contract to appropriate the amounts due to the contractor on account of the other two contracts in satisfaction of its claim under the other contract. That is the claim made by the Government. This claim is denied by the contractor. There is therefore a dispute and the arbitration clause is wide enough to cover this dispute as well.

13. Mr. Mukharji further contended that even though all the conditions have been satisfied, nevertheless, in the facts of this case, I ought not to exercise my discretion in favour of stay. The facts relied on being the socalled admissions as contained in the letter of August 27, 1960 and the failure of the Government to reply to the notice under Section 80 of the Civil Procedure Code. These facts are not enough to persuade me to exercise my discretion against stay.

14. For reasons stated above there must be a stayand I make an order accordingly. The parties will bear andpay their own costs of this application.


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