P. Jyothimani, J.@mdashThe Original Petition is filed u/s 34 of the Arbitration and Conciliation Act, 1996 by the Municipality, the Respondent before the Arbitral Tribunal against the award passed by the Arbitral Tribunal dated 30.4.2007.
2. For the purpose of construction of an underground sewerage system in the municipal area, the Petitioner-Municipality invited tenders, in which the First Respondent herein also participated, whose tender was accepted on 3.2.2000. Accordingly, an agreement was entered into on 3.2.2000 for the value of Rs. 2,700 lakhs and the work was to start in two phases and the same was to be completed in 60 months reckoned from 1.3.2000 to 1 3.2005.
(a). As per the provisions of the contract, to sort out the issues, there was a named Adjudicator. When certain disputes arose which could not be amicably settled, the named Adjudicator refused to act due to ill-health. It is stated that the First Respondent/claimant called upon the Petitioner-Municipality to name an Adjudicator and when the Petitioner failed to name, as per the Arbitration clause in the contract, the First Respondent/claimant approached the Institution of Engineers and a retired Engineer, by name, Mr. M. Ponnambalam was suggested.
(b). It is stated that the Petitioner did not appear before the Adjudicator, who gave a decision on 24.11.2004 for an amount of Rs. 4,13,01,550/-against the Petitioner-Municipality, a copy of which is stated to have been delivered to the Petitioner on 24.11.2004. As per the Clause in the contract, if a party decides not to implement the Adjudicator''s decision, it can challenge the same before the Arbitral Tribunal within 28 days from the date of receipt of copy of the decision of the Adjudicator.
(c). It is stated that the Petitioner-Municipality has not challenged the decision of the Adjudicator and hence, the Adjudicator''s decision has become final. In spite of the request, the Petitioner-Municipality has not implemented the decision of the Adjudicator and therefore, as per the dispute resolution clause in the contract, the First Respondent/claimant named its Arbitrator, calling upon the Petitioner-Municipality to name its nominee.
(d). Since the Petitioner-Municipality has not nominated its; Arbitrator, it is seen that the First Respondent approached the Institution of Engineers, Kolkotta which named the 4th Respondent, Mr. Patel, Consulting Engineer of Mumbai as the Petitioner/Municipality''s nominee and the said nominees selected the Second Respondent as the Presiding Officer. As it is seen in the award, there was some stalemate since the Petitioner-Municipality did not actively participate before the Arbitral Tribunal even though some amounts were stated to have been paid and there was possibility of amicable settlement, and the Arbitral Tribunal considered the reason for failure to implement the Adjudicator''s decision and ultimately passed the award by referring to and evaluating the Adjudicator''s decision and directed the Petitioner-Municipality to pay an amount of Rs. 1,95,01,881/- towards claims, apart from Rs. 1,61,02,878/-towards interest up to 30.4.2007, totaling a sum of Rs. 3,56,04,759/- within three months and thereafter, with penal interest at 15% p.a., additionally directing the Petitioner to reimburse an amount of Rs. 1,28,186/- towards Arbitrators'' fees and expenses.
3. It is against the said award of the Arbitrators, the Petitioner-Municipality filed the present Original Petition on various grounds including that the award is against the terms of contract and documents; that there are legal infirmities and legal misconduct on the part of the Arbitral Tribunal; that the Arbitral Tribunal has gone beyond its jurisdiction especially in respect of the claim of the Petitioner that the First Respondent bypassed the terms of agreement in relation to further payments; that the Arbitral Tribunal having directed the parties to amicably settle the dispute, has made irrelevant comments as if the Petitioner has not actively participated; that the restriction of time limit in the contract is opposed to Section 28 of the Indian Contracts Act, 1872, and that has not been considered by the Arbitral Tribunal; and that the Arbitral Tribunal has failed to give personal hearing to demonstrate the case. In fact, it is the contention of the Petitioner that the award of the Arbitral Tribunal is opposed to public policy and against the terms of contract and the decision has been given based on surmises and assumptions.
4. Mr. S. Ramasamy, learned Additional Advocate General appearing for the Petitioner-Municipality, by referring to Clause 8.1 of the Agreement which relates to adjudication and by also referring to the further Clauses, would submit that the Adjudicator himself has decided the issue ex-parte and in such circumstances, the Arbitral Tribunal cannot refuse to go into the merits of the matter. It is his submission that the dispute arose under three stages, and first stage is relating to the release of passage of sewerage flow which should have been done between 19.9.2002 and 30.9.2004 and that was not done by the Contractor and the claim was made after the period. The next stage is relating to extra-work done as claimed by the First Respondent for the deviation and the last stage is relating to excavated earth. It is his submission that the award is opposed to Section 24 of the Arbitration and Conciliation Act, 1996 since oral enquiry has not been conducted. He would also refer to Section 28 of the Indian Contracts Act, 1872. He would submit that as per the terms of agreement, the Adjudicator''s decision cannot be stated to have come into existence and the Adjudicator''s decision is only a recommendatory in nature and cannot be given the jurisdictional status. He would also submit that the arbitral award itself is without any reason u/s 31 of the Arbitration and Conciliation Act, 1996 and the said award is liable to be set aside. It is his submission that fixing of period of 14 days or 28 days as against the period of limitation, is opposed to Section 28 of the Arbitration and Conciliation Act, 1996 and against the public policy and he would rely upon the judgment in
5. On the other hand, it is the contention of Mr. R. Murari, learned Counsel appearing for the First Respondent/Contractor that when the Municipality has accepted the terms of contract, the non-performance as per the terms of contract certainly will make the Adjudicator''s decision as final, as per the Clause in the contract. He would submit that when as per the terms of the contract the Adjudicator''s decision is final, there is no issue required to be considered and thereafter, as per the terms of contract, the Arbitral Tribunal can only go into the reasons for failure and it cannot go into the decision of the Adjudicator.
6. The Clause 8 of the contract entered into between the Petitioner and the First Respondent relating to disputes is the core point to be considered in this Original Petition and therefore, it is necessary to extract Clause 8 which is as follows:
8. Disputes:
8.1. Engineer''s Decision:
The Contractor believes that a decision taken by the Engineer was either outside the authority given to the Engineer by the contract or that the decision was wrongly taken, the decision shall be referred to the Adjudicator within fourteen (14) days of the notification of the Engineer''s decision.
8.2. Adjudicator to Decide:
The Adjudicator shall give a decision in writing, within twenty eight (28) days of receipt of a notification of a dispute.
7. The term ''Adjudicator'' is defined in Clause 2.3 as follows:
Adjudicator" is the person appointed jointly by the Owner and the Contractor to resolve disputes in the first instance, as provided in Clause 8 of the Contract Covenants.
8. The term ''Engineer'' is defined under Clause 2.26 which is as follows:
Engineer'''' is the Person or Persons appointed by Owner and notified to the Contractor, who shall be responsible for supervising the Contractor, administering the Contract, certifying payments due to the Contractor issuing and valuing variations to the Contract, awarding extensions of time, and valuing the Compensation Events. The Owner may also appoint any Person or Persons to assist the Engineer and provide project management services for this Contract.
makes it clear that Engineer is appointed by the Municipality, termed as owner in the agreement and notified to the Contractor, viz., the First Respondent.
9. On the other hand, the Adjudicator is a person appointed jointly by the parties to resolve the disputes at the first instance. As per Clause 8.1 of the Agreement, a reference to the Adjudicator would come only as against the decision of the Engineer. Therefore, on a reading of the agreement, it is clear that there are three stages viz., (i) the decision by Engineer; (ii) the decision by Adjudicator; and (iii) the decision by arbitration. The dispute starts on the decision taken by the Engineer and as per the definition of the term, ''Engineer'', he is a person appointed by the owner viz., the Municipality and notified to the Contractor.
10. It is, after a decision is taken by the Engineer, if the Contractor believes that such decision by the Engineer of the owner is outside the authority given to him under the contract or the decision is taken wrongly, it is only then, the reference to the Adjudicator comes in. The Adjudicator is a person jointly appointed by the owner and the Contractor and if such Adjudicator makes a decision on merit on an issue, either of the parties can refer the decision of Adjudicator to the arbitration and the arbitration proceeds as per Clause 8.6 and as per the provisions of the Arbitration and Conciliation Act, 1996. Of course, at every stage, time limit has been prescribed viz., for the Contractor for referring to the Adjudicator, it must be within 14 days from the date of Engineer''s decision. After the matter is referred to the Adjudicator, he has to decide it within 21 days of the receipt of dispute and within 28 days of Adjudicator''s decision, either of the parties has a right to appoint an Arbitrator. If neither of the parties refer the dispute to the arbitration within 28 days of the Adjudicator''s decision, the Adjudicator''s decision becomes final. The mechanism, thus, provides a method of settlement of disputes by adjudication before referring to the Arbitrators. A reading of the terms of various Sub-clauses of Clause-8 of the agreement shows that the adjudication is distinct from arbitration, while it is true that even after the Adjudicator''s decision, if the parties are not satisfied, they can go for arbitration.
11. But the fact remains that for the adjudication proceedings to become final, it must start from the decision of Engineer. Therefore, at the first instance, in the absence of any decision by the Engineer on an issue, there can be no question of adjudication at all. It is equally true that even in the absence of a decision of Engineer or decision of Adjudicator, the parties are entitled to independently refer the issue for arbitration. The finality of the decision of the Adjudicator can also be possible, after the Engineer''s decision, if it is referred to the Adjudicator, but not referred to arbitration within 28 days of the decision of the Adjudicator. If within 28 days of the decision of the Adjudicator, either of the parties invokes Arbitration Clause 8.6 in the contract, there is no question of treating the Adjudicator''s decision as final in which event, certainly the Arbitral Tribunal is bound to act as per the provisions of the Arbitration and Conciliation Act, 1996.
12. Applying the said interpretation of the Clauses in the agreement regarding dispute and settlement mechanism contained therein, there are few points which can be culminated viz.,--
(i). adjudicatory mechanism under the agreement is possible only from the decision of Engineer as defined under the agreement and appointed by the owner and notified to the Contractor;
(ii). if the Adjudicator decides after the decision of Engineer, such decision is binding on the parties, if either of the parties has not chosen to approach the Arbitral Tribunal as per Clause 8.6 of the Agreement within 28 days from the date of decision of the Adjudicator;
(iii). even if the Adjudicator decides on the Engineer''s decision at the instance of Contractor, and on such decision, if either of the parties to the agreement chooses to refer it to arbitration under Clause 8.6 of the agreement, there is no finality of Adjudicator''s decision. In such event, the Arbitral Tribunal has to independently decide the dispute; and
(iv). independent of adjudication process, the parties can approach for arbitration under Clause 8.6 of the Agreement.
13. Again, on the appreciation of the entire matter in issue, it is clear that the reference to adjudication is at the instance of the Contractor on the basis that the Engineer has taken the decision which is outside the authority given to him under the contract or the decision has been taken wrongly, while the right to refer the dispute to the arbitration under Clause 8.6 is available to both the parties to the contract.
14. In such a situation, applying the same to the facts of the present case, there is absolutely nothing to show that there has been any decision taken by the Engineer regarding any of the three disputes mentioned therein. On the other hand, the First Respondent seems to have straightaway resorted to adjudication process and when the Petitioner-Municipality has not responded, the First Respondent has approached the Institute of Engineers for appointment of Adjudicator which cannot be said to be within the purview of contract. In the absence of a decision by the Engineer, which is not available anywhere, there is no right on the part of the First Respondent to go to the adjudication at all.
15. When the matter was referred to the Arbitral Tribunal as per Clause 8.6 of the Agreement, after such decision of the Adjudicator, it should be, in my considered view, treated as a reference to the Arbitral Tribunal afresh and the Tribunal cannot proceed to decide only about the correctness of such adjudication. On the facts of the present case, on a reference to the award passed by the Arbitral Tribunal, it is clear that the Arbitral Tribunal has not even referred or gone into the merits of the case at all and has only chosen to consider as to whether there is justification in the decision of the Adjudicator, which, in my considered view, cannot be said to be the scope of the Arbitral Tribunal.
16. In the context of Section 24 of the Arbitration and Conciliation Act, 1996 which is as follows:
Section 24. Hearings and written proceedings.-- 1. Unless otherwise agreed by the parties, the Arbitral Tribunal shall decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials:
Provided that the Arbitral Tribunal shall hold oral hearings, at an appropriate stage of the proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall be held.
2. The parties shall be given sufficient advance notice of any hearing and of any meeting of the Arbitral Tribunal for the purposes of inspection of documents, goods or other property.
3. All statements, documents or other information supplied to, or Applications made to the Arbitral Tribunal by one party shall be communicated to the other party, and any expert report or evidentiary document on which the Arbitral Tribunal may rely in making its decision shall be communicated to the parties.
the Arbitral Tribunal has no jurisdiction to hold that it is not necessary to have any oral hearing, especially when that has been required by the Petitioner.
17. u/s 31(3) of the Arbitration and Conciliation Act, 1996 which is as follows:
Section 31. Form and contents of arbitral award--
(1) and (2) xxxx
(3) The arbitral award shall state the reasons upon which it is based, unless--
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms u/s 30.
makes the parties have agreed that no reason need be given, it is the duty of the Arbitral Tribunal to give reasons for the findings.
18. For the above said reasons, this Court is of the view that there is no need to traverse into the validity or otherwise of the period of limitation fixed for the purpose of referring to adjudication and thereafter, from the date of adjudication to the date of reference to the Arbitral Tribunal, as to whether it offends Section 28 of the Indian Contracts Act as it is restricting the period of limitation. It is true that the law is well settled in that regard as it was held by the Supreme Court in
19. Be that as it may, as I have found, since though the Arbitral Tribunal has entertained the dispute even after the so-called adjudication process, it is the duty of the Arbitral Tribunal to refer to the merits of the matter by giving due opportunity to the parties as provided under the Arbitration and Conciliation Act, 1996.
20. In such view of the matter, I have no hesitation to hold that the arbitral award in this regard is not valid in law and is opposed to the terms of contract as the Arbitral Tribunal has failed to enter into the merits of the dispute. Therefore the award stands set aside with direction to the Arbitral Tribunal to resume the Arbitral proceedings and decide the same after giving opportunity to the parties, in accordance with the provisions of the Arbitration and Conciliation Act, 1996.
The O.P. stands allowed in the above terms. No costs.
