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Re: Arbn. Seth Kerorimal Adwani Vs. Union of India (Uoi) - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAward Case No. 384 of 1954
Judge
Reported inAIR1959Cal430
ActsEvidence Act, 1872 - Section 93; ;Arbitration Act, 1940 - Sections 2, 13 and 33; ;Contract Act, 1872 - Sections 55 and 74
AppellantRe: Arbn. Seth Kerorimal Adwani
RespondentUnion of India (Uoi)
Appellant AdvocateU.C. Law, Adv.
Respondent AdvocateG.P. Kar, Adv.
Cases ReferredBharat Construction Co. Ltd. v. Union of India
Excerpt:
- .....by a tender submitted by him and accepted on behalf of the president, indian union by the chief engineer, c.p.w.d., aviation wing, on or about october 28, 1950. time allowed for completion of the work was six months from the date of the written order: to commence the work, which, in the instant case, is november 15, 1950. work of construction was not completed within time and it is alleged in the petition that not only the petitioner cannot be held responsible for this delay but that it has been recognised in writing by the senior government officials-that this delay is not attributable to any fault of laches on the part of the contractor.the construction work was actually completed on october 29, 1951. on april 25, 1952, the contractor by his letter to the executive engineer.....
Judgment:
ORDER

P.C. Mallick, J.

1. This is an application under Section 33 of the Indian Arbitration Act challenging the validity of an arbitration agreement and an award passed thereunder. The petitioner undertook the construction of a runway at Gauhati Airfield under a contract with the Government evidenced by a tender submitted by him and accepted on behalf of the President, Indian Union by the Chief Engineer, C.P.W.D., Aviation Wing, on or about October 28, 1950. Time allowed for completion of the work was six months from the date of the written order: to commence the work, which, in the instant case, is November 15, 1950. Work of construction was not completed within time and it is alleged in the petition that not only the petitioner cannot be held responsible for this delay but that it has been recognised in writing by the senior Government officials-that this delay is not attributable to any fault OF laches on the part of the contractor.

The construction work was actually completed on October 29, 1951. On April 25, 1952, the contractor by his letter to the Executive Engineer claimed refund of the security deposit including the earnest money deposited by the contractor. It is alleged by the Government that by an order dated August 30, 1952, the Chief Engineer directed that the security deposit may he refunded after deducting 3 per cent of the cost of the work as penalty. On October 9, 1952, the security deposit was actually refunded to the petitioner after deducting Rs. 16,512/- and the amount was received by the petitioner under protest.

The said sum of Rs. 16,512/- represents 3 per cent of the total cost. The petitioner's case is that he was never told that the deduction had been made as and by way of penalty. In fact the petitioner does not admit the imposition of the penalty at all. The petitioner repeatedly demanded the refund, of the amount and also wanted to know on what account the said sum had been deducted but to no effect, according to this petitioner. By a letter dated May 5, 1954 addressed by the petitioner's Advocate, the Government was requested to refer the dispute to arbitration in terms of the arbitration clause in the contract.

By a letter dated July 23, 1954, the Additional Chief Engineer referred the dispute to arbitration. The petitioner did not attend the arbitration proceedings. In due course, an award was published by the Superintending Engineer who was appointed arbitrator. Thereupon the present proceedings have been started by the petitioner.

2. It is convenient at this stage to state the two clauses in the agreement which are relevant for the purpose of this application. Clause 25 of the agreement is the arbitration; Clause 2 is the penalty clause which read as follows:--

Clause 25: 'Except where otherwise provided-in the contract all questions and disputes * * * in any way arising out of or relating to the contract * * * shall be referred to the sole arbitration of the Chief Engineer/Additional Chief Engineer, Central Public Works Department and if the Chief Engineer/Additional Chief Engineer is unable or unwilling to act to the sole arbitration of some other person appointed by the Chief Engineer/ Additional Chief Engineer willing to act as arbitrator * * *

Clause 2 : The time allowed for carrying- out the-work as entered in the tender shall be strictly observed by the contractor * * * * and the-contractor shall pay as compensation an amount equal to 1 per cent or such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide, on the amount of estimated cost of the whole work as shown by the tender for every day that the work remains uncommenced or unfinished after the proper dates. * * * Provided always that the entire amount of compensation to be paid under the provisions of this clause shall not exceed 10 per cent on the estimated cost of the work as shown in the tender.'

3. Mr. U.C. Law, the learned Counsel for the petitioner urged the following points in support of this application:

(1) The arbitration agreement is void for uncertainty and cannot be enforced. It is not certain who is to act as arbitrator, the Chief Engineer or the Additional Chief Engineer.

(2) In any event, the appointment of the Additional Chief Engineer's nominee as arbitrator is invalid, having regard to the fact that there is no evidence that the Chief Engineer or the Additional Chief Engineer is unable or unwilling to act as arbitrator.

(3) There was no dispute between the parties prior to the date of submission. The Government no doubt deducted 3 per cent of the total cost, but the petitioner was never informed that such deduction was as and by way of penalty. Not having known it, the petitioner, prior to reference, did not as he could not, dispute the Government's claim to impose penalty. Hence there was no dispute which can be referred to arbitration.

(4) A dispute with respect to the imposition of penalty is outside the arbitration clause. The opening clause of the arbitration agreement indicates that not all disputes can be referred to arbitration. The question of penalty having been dealt with in Clause 2 of the contract is outside the arbitration clause and all disputes as to whether the penalty should be imposed in the circumstances of the case or its quantum can only be decided in a suit and not by an arbitration under the arbitration clause.

(5) Whenever any 'penalty' is sought to be imposed under a contract, it must be governed by Sections 74 and 55 of the Indian Contract Act. The question therefore becomes a pure question of Jaw and unless a question of law is specifically referred to arbitration under the Arbitration Agreement, it cannot be the subject-matter of a submission.

4. Taking the first point first, it has to be considered whether the arbitration agreement is void for uncertainty. It is contended by Mr. Law that it is not clear who is to act as arbitrator. The agreement refers to 'Chief Engineer/Additional Chief Engineer'. It is submitted that an element of uncertainty has been introduced in the clause and it is not certain whether the Chief Engineer or the Additional Chief Engineer was intended to act as arbitrator under the arbitration clause. Mr. Kar appearing for the Government submitted that the clause means that 'the Chief Engineer and failing him the Additional Chief Engineer is to act as arbitrator' and on this construction the arbitration agreement becomes definite and not void for uncertainty. Inspiration of this argument is derived from an observation made by Banerjee, J. in the case of Dwarkadas and Co. v. Daluram Goganmull decided by a Full Bench of this Court and : AIR1951Cal10 . The arbitration agreement in the cited case reads as follows:

'If any dispute shall arise in respect of the goods or in reference to any conditions thereof such dispute shall be referred to the survey or arbitration of two merchants, one to be appointed by you and one by me/us, and in the event of such surveyors or arbitrators being unable to agree, the dispute shall be referred to the Bengal or Indian Chamber of Commerce for umpirage.'

The observation relied on by Mr. Kar is to be found at pp. 567 and 568 of the report (Cal WN): (at p. 24 of AIR) and reads as follows:

'Counsel said that the word 'or' between the words 'the Bengal' and 'Indian Chamber of commerce for umpirage' introduced an element of uncertainty into the arbitration clause, for it could not be said with certainty whether the Bengal Chamber of Commerce or the Indian Chamber of Commerce was to be the umpire.

I am not sure whether any uncertainty is introduced. 'Or' after a primary statement appends of secondary alternative. The 'umpire clause' may be read to mean failing Bengal Chamber of Commerce, the Indian Chamber of Commerce is to act as umpire.

It is a rule of construction that between different meanings that is to be preferred which tends to support the contract; according to the maxim 'verbs it a sunt intelligenda, ut res magis vatert quam pereat.'

But it is not necessary for me to express any final opinion on this point in this case.'

The opinion of Banerjee, J. is clearly tentative and is not final. In any event, the observation is an obiter. It is to be conceded, however, that Banerjee, J. was inclined to accept the contention urged by Mr. Kar. The opinion of an experienced Judge of this Court is entitled to very respectful consideration. It is however, necessary to remember that the arbitration clause in the cited case is not the same as in the instant case and there are important points of difference. In the first place, there is no 'or' between the Chief Engineer and the Additional Chief Engineer in the arbitration clause we are considering, but there is a stroke ('/') in between the Chief Engineer and Additional Chief Engineer. In order to make the observation of Banerjee J. applicable to the instant case, the stroke ('/') should be read as 'or'. The arbitration clause is to be found in the printed form of the Government contracts and I am apt to think that it was intended that at the time of execution of each contract either the 'Chief Engineer' or the 'Additional Chief Engineer' is intended to be retained by striking off the other. The second point of difference to be noted is that in the instant case it has been provided in express terms what would happen if the Chief Engineer/Additional Chief Engineer is unable or unwilling to act, namely, the appointee of the Chief Engineer/Additional Chief Engineer to act as the sole arbitrator. If, it was the intention of the parties that the Chief Engineer would act in the first place and if he is unable or unwilling to act, then the Additional Chief Engineer would act, as such I would expect the same phrase being used as has been used subsequently. I am, therefore, unable to read the stroke ('/') in between the Chief Engineer and the Additional Chief Engineer to mean 'or if he is unable or unwilling to act.' In my judgment, it is not permissible, specially having regard to the language immediately following that the stroke ('/') in between Chief Engineer and Additional Chief Engineer should be read in the manner indicated by Mr. Kar and lo hold by way of construction that the stroke ('/') means 'or' and then to construe 'or' after the Chief Engineer as appending a secondary alternative. The arbitration Agreement in the instant case shows on it, face that the authors have expressed alternative intentions without deciding in favour of either. Through inadvertence or negligence the parties have not struck out either the 'Chief Engineer' or 'Additional Chief Engineer' from the standard clause which is absolutely necessary to give the clause a definite meaning. Ambiguity is therefore patent and Clause 25 of the contract must be Held to be void for uncertainty, unless the ambiguity can be cured by election. Words used however, do not give any indication that either of the parties or even the Chief Engineer as the first named arbitrator has been given the election to resolve the ambiguity. In my judgment, the arbitration agreement is void for uncertainty.

5. I have my doubt whether the dictum relied on by Banerjee, J. is at all applicable to this case. If the intention of the parties can be ascertained, the Court will give effect to that intention, notwithstanding ambiguities in the words used or defects in the operation of the instrument. In the case of patent ambiguities when the intention of the parties cannot be definitely ascertained, the dictum has no application. Further, I have very great doubt that the dictum can have application to an arbitration agreement. An Arbitration agreement ousts the jurisdiction of the Court and must be treated on a footing different from ordinary commercial agreements. In my judgment, such an arbitration agreement should be strictly construed. Clear language should be used in arbitration agreements which will have the effect of ousting the jurisdiction of the Court. If the language of the agreement is not sufficiently clear, it is not permissible to strain the language and supply words to make an indefinite agreement definite, so that the jurisdiction of the Court may be ousted and the disputes adjudicated by arbitration. In the instant case the language has to be strained and words must be supplied to give the agreement a definite meaning and make the arbitration agreement effective. In my judgment, the Court is not empowered to do it.

6. I have already referred to the observation of Banerjee J. on which reliance has been placed by Mr. Kar on behalf of the Government. I should refer to two other decisions referred to by Mr. Law. In the case of Luxmi Chand Baijnath v. Kishanlal Sohanlal, : AIR1955Cal588 , Bachawat, J, has held that an agreement to refer to either X or Y is not an agreement to a named arbitrator because it is not certain who the arbitrator is. It has been pointed out by my Lord that uncertainties in certain cases can be cured by election, but not in all cases. It is not curable by election where there is nothing to indicate who is to have the option. With this view I respectfully agree. Following the above decision of Bachawat, J. in the cited case and other decisions of this Court Falshaw, J. of the E.P. High Court held in the case of Delhi and Finance Housing and Construction Ltd v. Brij Mohan Shah, , that an arbitration agreement wherebv the disputes are to be referred to the sole arbitration of X/Y is void for uncertainty in the absence of any provision as to how the choice was to be made between the two arbitrators. Judicial opinion, therefore, is in support of the view that such an agreement in an arbitration clause is void for uncertainty. This finding really disposes of the application, Nevertheless, I will shortly deal with the other points raised by Mr. Law.

7. The second point challenges the appointment of Sri O. Mathachen as arbitrator. Sri Mathachen is the Superintending Engineer and he purported to act as arbitrator in terms of the arbitration agreement as having been appointed by the Additional Chief Engineer. Mr. Laws argument is that there is no evidence that the Chief Engineer or Additional Chief Engineer has expressed his unwillingness or inability to act as arbitrator. Hence the appointment of Sri Mathachen is not in accordance with the arbitration agreement. The point has not been taken in the petition. The determination of this point involves a question of fact, namely, whether the Chief Engineer or the Additional Chief Engineer was unable or unwilling to act as arbitrator or not. It was for the petitioner to raise the point in his petition and challenge the appointment on the ground that the Chief Engineer or Additional Chief Engineer was not unable or unwilling to act as arbitrator. The point not having been raised in the petition, the Government was not called upon to set out facts in the affidavit rebutting the petitioner's contention. There is, therefore, no evidence before me one way or the other. In the case of Bharat Construction Co. Ltd. v. Union of India decided by the Appeal Court and : AIR1954Cal606 , Chakravartti, C. J. observed that 'the pleadings have got to be scanned with extreme rigour in cases under the Arbitration Act and net party should be allowed to raise a point, if he has not given sufficient notice of it in his pleadings.' In the instant case, the point sought to be raised by Mr. Law has not been taken in the petition. The petitioner in consequence has disentitled himself from canvassing the point. Mr. Law cited the case of Fateh Chand Murlidhar v Juggilal Kamalapat, : AIR1955Cal465 where Chakravartti, CJ. observed that 'however strictly the pleadings in arbitration cases may have to be scanned and however firmly the parties may have to be held to them, it cannot be reasonable to require that even argument should be incorporated in the petition.' This observation of Chakravartti, CJ. is of no assistance to Mr. Law, because in the instant case the point has not been taken at all. It is not' a case of not setting out the argument but the petition in the instant case does not indicate the point sought to be canvassed.

8. The third point raised by Mr. Law is that there was no dispute before submission. By the letter of his Advocate dated May 5, 1954 to the Government the petitioner asked the Government to refer the subsisting dispute between the parties to arbitration. The letter states:

'A sum of Rs. 16512/- has, however, been withheld from the final bill in this respect without any justification or lawful excuse. No reason has been assigned for such action * * * This is therefore to request you to refer the said matter to arbitration as provided for in the terms of the contract. Please note that if this requisition is not complied with my client may take such legal step in the matter as he may be advised without any further reference to you and you will be held liable for all costs and consequences.'

9. Thereupon the Government complied with the requisition made by the petitioner's Advocate and referred the matter to arbitration. In the letter of reference the deduction has been referred to as and by way of penalty under Clause (2) of the contract and the propriety of this deduction is the dispute that has been referred to arbitration. In view of the above, it is not open to Mr. Law to contend that there was no dispute before the reference to arbitration. There has been in fact a deduction made by the Government amounting to 3 per cent of the cost out of the security money of the petitioner lying with the Government and though called upon the Government had refused to refund the said sum of Rs. 16512/- representing 3 per cent of the cost. Even if the petitioner's case is accepted that he was not told that such deduction was as and by way of penalty, the dispute was in existence (before the submission was made by the Government. The order imposing penalty has been disputed and Mr. Law has strenuously argued that no such order was made because he was not informed of it in spite of repeated reminder. It follows that the factum of imposition of penalty is itself a dispute and it is absurd to contend that prior to the reference there was no dispute between the parties that can be referred to arbitration.

10. The fourth point taken by Mr. Law is that the question of penalty is not covered by the arbitration clause. Clause 2 of the contract provides that the Superintending Engineer is to determine the amount of compensation to be paid by way of penalty and his decision in writing would be final. But even though the decision of the Superintending Engineer fixing the quantum of compensation to be paid as penalty may be final and binding on the contractor, the contractor is nevertheless entitled to dispute the right to impose penalty in the circumstances o the case. In such event there would be a dispute between the parties relating to the imposition of penalty and such a dispute cannot be adjudicated by the Superintending Engineer under Clause 2 of the contract. No other clause in the contract has been referred to as providing for the adjudication of such a dispute. In my judgment such a dispute therefore is covered by the arbitration agreement and the opening words of the arbitration agreement in Clause 25 would not prevent the adjudication of such disputed by arbitration. Mr. Law's argument leads to this result that whereas every other dispute is to be adjusted by arbitration, the parties intended that if any dispute arises regarding the imposition of penalty or its quantum, that must be adjudicated in Court. This is palpably absurd.

11. The last point taken by Mr. Law is that penalty is always a question of law and is governed by Sections 74 and 55 of the Indian Contract Act and cannot be adjudicated by arbitration unless the point is specifically referred. In the contract the parties have expressly agreed that the quantum of damages to be paid by way of penalty is to be determined by the Superintending Engineer. I do not find anything wrong in such a provision. But the question that the arbitrator had to decide in the instant case is whether on the facts and circumstances of this case the petitioner can be held to be responsible for the admitted delay in completing the works and whether in terms of the contract the petitioner is liable to pay the penalty. Once the liability is determined, the arbitrator has to accept the quantum determined by the Superintending Engineer which under Clause 2 of the contract is final. There is nothing to prevent the question as to the propriety of the imposition of penalty to be determined under Clause 25 of the contract. Even if the question involves determination of a question of law in the instant case, the arbitrator in my judgment is competent to entertain such a dispute. It has not been argued that the question of law involved is so difficult that a lay arbitrator is not competent to decide the question and the point should be adjudicated by the Court. The argument addressed is that whenever a dispute involves the determination of a question of law either directly or indirectly, the dispute cannot be decided by arbitration unless the point of law is specifically referred.

I do not find any reason or authority for such a wide proposition. No authority has in fact been cited by Mr. Law. In my judgment this argument of Mr. Law should fail. In the result Mr. Law succeeds on the first point and fails on the remaining four.

12. For the reasons given above the arbitration agreement and the award passed thereunder are void and I make an order accordingly. Should the petitioner file a suit to enforce his claim, the costs of this application will be costs in the suit. Otherwise each party will pay and bear his or its own costs.


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