Full Judgment
Deepak Gupta, J.
1. Two agreements dated 21.3.1986 were entered into between the parties which contained an arbitration clause. By these agreements, the present objector-petitioner had entrusted some construction work to the respondent. The work was done by the respondent and disputes arose between the parties with regard to the payment for the work done by the respondent.
2. The respondent thereafter filed a petition before this Court under Sections 8 and 20 of the Arbitration Act, 1940 for appointment of an Arbitrator. This petition was registered as Civil Suit No. 33 of 1992. By an order dated 5.3.1993 the petition was allowed and this Court directed the parties to appoint their respective Arbitrators in terms of the agreement. Pursuant to the directions of this Court the petitioner appointed Shri CM. Kaushal as its Arbitrator. The respondent appointed Shri S.K. Sawhney as its Arbitrator. Soon after his appointment, Shri C.M. Kaushal, the Arbitrator appointed on behalf of the petitioner, sent a communication dated 8.10.1993 that he as unable to perform his duties as Arbitrator and resigned from the office of the Arbitrator. On 19.10.1993 Shri S.K. Sawhney wrote a letter to both the parties that an Umpire should be appointed by the Court and stated that he could not enter into agreement unless Umpire was appointed. It appears that even Shri Sawhney did not take any further action in the matter and did not enter into reference.
3. Thereafter for almost 3 years nothing happened. In June, 1996 the Advocate of the respondent sent a letter by registered post to the present petitioner. In this letter it was stated that Arbitration Act, 1940 stands repealed by Section 85 of the Arbitration and Conciliation Ordinance, 1996 and, therefore, the prior actions taken under the Arbitration Act, 1940 stood automatically annulled. In this letter it was further stated that the Arbitral Tribunal had to be reconstituted under Sections 10 and 11 of the Arbitration and Conciliation Ordinance and it was suggested that a sole Arbitrator be appointed with mutual consent. It was also stated in this letter that in case the appointment of sole Arbitrator is not acceptable to the present petitioner, then each party may appoint its Arbitrator.
4. In reply to this letter the present petitioner sent a letter dated 22.7.1996. Reference was made to the resignation of Shri CM. Kaushal and finally the present petitioner proposed the name of one Shri Ramesh Malhotra as its Arbitrator. Thereupon the respondent sent another letter dated 5.8.1992 appointing Shri A.K. Ummat as its Arbitrator under Section 11 of the Arbitration and Conciliation Ordinance, 1996.
5. Thereafter the two Arbitrators did not agree upon the names of third Arbitrator and the respondent approached this Court by filing Arbitration Petition No. 18 of 1997 and under the Arbitration and Conciliation Act, 1996 with a request that a third Arbitrator be appointed. This petition was contested by the present petitioner firstly on the ground that the application was barred by limitation and it was also contended that the proceedings were governed by the Arbitration Act, 1940 and not Arbitration and Conciliation Act, 1996. It was also urged that the claim itself was barred by limitation. This matter was disposed of vide judgment dated 1st August, 1997 reported in M/s. Himachal Builders v. Cosmo Ferrites Ltd. 1997 (2) Sim.L.C.430. This Court rejected the first contention of the present petitioner on the following grounds:
9. The provision in Section 85 clearly shows that normally the provisions of the repealed Acts could apply to the proceedings which commenced before the present Act came into force. But there could be an agreement between the parties otherwise. That means that parties could agree that the proceedings should be governed by the present Act. I have already referred to Section 21 under which the arbitration proceedings shall be deemed to have commenced when a request was made for referring to arbitration. In the present case no doubt the proceeding commenced under the earlier Act and the arbitrators were also appointed pursuant to the order of this Court, but neither of the Arbitrators entered upon the reference and one of the arbitrators had expressly resigned. The other Arbitrator had expressed his inability to proceed further with the matter as no third arbitrator could be appointed. In that situation Annexure P-6 was written by the petitioner to the respondent drawing its attention to the provisions of the new Arbitration Ordinance which at that stage was Ordinance and which later became the Act. It may be noted that the Act has come into force with effect from the date of the Ordinance itself. Thus when the petitioner drew the attention of the respondent expressly to the provisions of the new Act it was the duty of the respondent to demur and say that it was not agreeable either to continue the arbitration proceeding or to the applicability of the new Act to the proceedings. The respondent ought to have informed the petitioner that the new Act could not apply under the provisions of the old Act the proceedings had become time barred and nothing could be done further. Instead of doing so, the respondent chose to appoint the Arbitrator of its own, one Ramesh Malhotra. That conduct of the respondent shows that it was agreeable to the applicability of the provisions of the new Act and consequently appointed arbitrator. When a new arbitrator has been appointed by respondent under the provisions of the new Act it was certainly open to the petitioner to appoint its own arbitrator under the provisions of the new Act inasmuch as the arbitrator appointed earlier had not entered upon the reference and had not done anything pursuant to his appointment as arbitrator. Hence it follows that the two arbitrators appointed by the respective parties were to proceed under the provisions of the new Act. They did so and one of the arbitrators suggested the name of the third arbitrator and sent a communication to the other arbitrator. The other arbitrator had not accepted that name and requested for suggesting other names. At that stage the arbitrator appointed by the petitioner informed the petitioner that the matter must be moved before the Court. Consequently the provisions of Section 11 have been invoked by the petitioner herein.
10. The above discussion will clearly show that the first two contentions put forward by the respondent are unsustainable. The proceedings are governed by the provisions of the new Act and they are not barred by the limitation inasmuch as the petitioner has come to this Court within one year from the date of the appointment of arbitrator under Annexures P-7 and P-8.
6. Finally, Shri Roop Singh Thakur, a retired Judge of this Court, was appointed as third Arbitrator. The Arbitrators delivered their awards by a majority of 2:1. The third Arbitrator appointed by this Court and the Arbitrator appointed by the respondent allowed the claim of the respondent and awarded Rs. 6,25,203/- in favour of the respondent and also ordered refund of Rs. 2,38,200/- which had been deposited as security amount and in addition thereto ordered payment of interest and costs as detailed in the award.
7. Aggrieved against the said award the petitioner filed objections under Section 34 of the Arbitration and Conciliation Act, 1996 which objections were registered as OMP(M) No. 8 of 2000 and were rejected on March 17, 2003 on the ground that they were not accompanied by a signed copy of the award. The Umpire/Arbitrators were directed to supply signed copy of the award. Thereafter the petitioner obtained the signed copy of the award and the present objections have been filed.
8. I have heard Shri G.D. Verma, learned Senior Advocate, appearing on behalf of the petitioner and Shri N.K. Sood, learned Counsel for the respondent.
9. On behalf of the petitioner the main contentions raised are (i) that the proceedings are governed by the Arbitration Act, 1940 and not by the Arbitration and Conciliation Act, 1996; (ii) that the Arbitral Tribunal was not properly constituted inasmuch as the Arbitrator appointed by the respondent was not an Architect as provided for in the Arbitration Agreement; (iii) that the Arbitrators had gone beyond the scope of reference inasmuch as they had passed the claim in terms of the subsequent agreement dated 14th July, 1987 which had no Arbitration Clause; (iv) lastly, the submission was that the original claim itself was barred by limitation.
10. As far as the first argument is concerned, detailed arguments were heard in the matter. Shri G.D. Verma, learned Senior Advocate, placed reliance on a number of judgments of the apex Court and submitted that since the proceedings had commenced under the old Act, the entire Arbitration proceedings have to be governed by the old Act and not under the new Act. I need not cite all the judgments since the law stands crystallized in the judgment of the apex Court reported in Milkfood Ltd. v. GMC Ice Cream (P) Ltd. : (2004)7SCC288 , wherein the Court held that if proceedings have commenced under the Arbitration Act of 1940 then the 1996 Act will not apply. In the present case there can be no manner of doubt that the proceedings had commenced under the old Act in terms of Section 37(3) of the said Act which reads as follows:
37(3) For the purposes of this Section and of the Indian Limitation Act, 1908 an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto a notice requiring the appointment of an arbitrator, or where the arbitration agreement provides that the reference shall be to a person named, or designated in the agreement, requiring that the difference be submitted to the person so named or designated.
11. In the present case not only had the parties served notice requiring the appointment of Arbitrators, but had also appointed the Arbitrators and as such there can be no dispute with regard to the fact that the arbitration proceedings had commenced under the old Act. However, the matter does not end here. Section 85 of the Arbitration and Conciliation Act, 1996 reads as follows:
85. Repeal and saving.-{1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed.
(2) Notwithstanding such repeal,-
(a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force;
(b) all rules made and notifications published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act.
A bare perusal of Clause (a) of Sub-section (2) clearly shows that the old Act will apply unless otherwise agreed to between the parties.
In the present case, as held by M. Srinivasan, C.J. (as he then was) in the earlier proceedings between the parties which have already been quoted above, that the parties agreed to be governed under the new Act. When the respondent sent notice of appointment of Arbitrator under the new Act and in its letter unequivocally stated that the proceedings would be governed by the Arbitration Ordinance, the present petitioner raised no objection to the same. On the other hand, the present petitioner appointed its own Arbitrator and did not raise any objection that the proceedings would be under the old Act. The conduct of the parties shows that they had agreed that the provisions of the new Act would apply.
In fact, in my view, in view of the earlier judgment, the petitioner is estopped from raising this plea. Further more, the petitioner itself has filed both the present objections as well as the earlier objections under the Act of 1996 and, therefore, it does not lie in its mouth to claim that the proceedings are governed under the 1996 Act. Even the Arbitrators had proceeded to decide the matter under the Act of 1996. This contention is, therefore, rejected.
12. The next contention raised on behalf of the petitioner is that the Arbitral Tribunal was not properly constituted inasmuch as the Arbitrator appointed by the respondent was neither a Fellow nor an Associate of the Indian Institute of Architects. There can be no manner of doubt that the Arbitration agreement did envisage that the Arbitrators appointed by the parties should be a Fellow or Associate of the Indian Institute of Architects. The petitioner, however, did not raise this objection at any stage during the course of arbitral proceedings. Under Section 12(3) (b) of the Arbitration and Conciliation Act, 1996 the appointment of an Arbitrator can definitely be challenged, if he does not possess the qualification agreed to between the parties. Section 13 clearly lays down the challenge procedure and the challenge must be laid within 15 days of the party becoming aware of the constitution of the Arbitral Tribunal. In case no challenge is laid before the Arbitral Tribunal, then obviously the party acquiesces in the matter and forfeits its right to raise the challenge at a later stage.
13. Section 4 of the Arbitration and Conciliation Act, 1996 reads as follows:
Waiver of right to object.-A party who knows that-
(a) any provision of this Part from which the parties may derogate, or
(b) any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.
14. This Section clearly provides that if a party despite knowing that any requirement under the Arbitration agreement has not been complied with proceeds with the arbitration without demur and without raising any objection within the time provided under law or without undue delay, then it shall have deemed to have waived its right to raise such objection at a later stage. The petitioner has not placed on record any material to show as to when it became aware of the fact that the Arbitrator appointed by the respondent was not an Architect. No evidence in this regard has been led. The petitioner did not raise any objection before the Arbitral Tribunal that it was not properly constituted. Even when the earlier proceedings were pending in this Court, both the Arbitrators had already been appointed. When this Court appointed the third Arbitrator, no objection was raised that Shri Ummat was not qualified to be appointed as an Arbitrator. The arbitration proceedings continued for many years and now after the completion of the arbitration proceedings, I am of the considered view that in view of the provisions of Section 4 read with Sections 12 and 13 of the Arbitration and Conciliation Act, the petitioner has waived its right to raise such an objection. This contention is accordingly rejected.
15. The next objection raised is that the Arbitral Tribunal has gone beyond the scope of reference. In this behalf the submission made is that the Arbitrator could only decide the matters as envisaged under the agreements dated 21.3.1986, but they have made the award on the basis of an agreement dated 14.7.1986 which was not the subject-matter of any arbitration agreement. This contention is totally devoid of any merit. In fact the so called agreement dated 14.7.1986 is not an individual agreement. All that this document dated 14.7.1988 does is to increase the rate of certain items and all the other work had to be done in terms of the earlier agreements. This was only a change of rate and not a fresh agreement. Therefore, this contention is also rejected.
16. The last contention raised on behalf of the petitioner is that the claim itself was highly belated and time barred and, therefore, deserves to be rejected. According to Shri Verma, learned Senior Counsel, the cause of action arose on 9th July, 1987 when the work was completed and the suit, if any, could have been filed latest by 9th June, 1990. He, therefore, submits that the claim itself was barred by time and this aspect has not been properly appreciated by the Arbitrators. On the other hand, Mr. N.K. Sood, learned Counsel for the respondent, submitted that the Arbitrators were well within their jurisdiction to decide the question of limitation and even if the decision of the Arbitrator is wrong, then also the same cannot be set aside. It is well settled law that this Court cannot replace the award of the Arbitrator(s). If the award of the Arbitrator is based on evidence and is not opposed to public policy of India, the same cannot be set aside even if it is erroneous. He also submits that the cause of action in fact arose on 23.8.1990 and hence the claim is within limitation.
17. At the outset I may sate that as per the terms of the arbitration agreement the payment to the contractor, i.e. the respondent was only to be made after the Architect appointed by the petitioner had satisfied and approved the work done by the Contractor. It is not a case where the Contractor was entitled to the amount immediately on the work being done. The petitioner had retained the option of getting the work inspected from its Architect and only after the Architect was satisfied that the work had been done properly and had issued a certificate in this regard the Contractor was entitled to such a claim. Admittedly, the final bill which was submitted on 15th June, 1987 was sent to the Architects, but was neither approved by them nor rejected by them. There was a lot of correspondence between the parties with regard to the payment of the amount and it was only on 23.8.1990 that the petitioner returned the 15th running bill in a mutilated condition and claimed that the petitioner had made over payments to the respondent company to the extent of Rs. 9,58,857.80. The Arbitrators have held that the cause of action started from the date of this letter. It cannot be said that their awards is perverse or against the public policy of India. This contention is also rejected.
18. Lastly, Mr. G.D. Verma, learned Senior Advocate, also raised a contention that the interest awarded is excessive. In my opinion, the interest awarded is just and reasonable and was within the scope and jurisdiction of the arbitration agreement and hence calls for no interference.
19. In view of the above discussion, the petition is dismissed with costs assessed at Rs 5,000/-.