M/s. Devdatta P. Shirodkar Vs. The Chief Engineer, Western Zone II, Central Public Works Department and Another - Court Judgment

Excerpt:
arbitration and conciliation act, 1996 - section 11(6) - construction agreement - breach of contract – appointment of arbitrator sought -applicant/proprietary concern and a building contractor was awarded work of construction to respondent no. 2 – a formal agreement was executed between applicant and respondent no. 2 - on account of a fundamental breach of contract committed by respondent no. 2, applicant terminated said agreement -  respondent no. 2 refuted claim raised by applicant and stated that nothing was payable to applicant - disputes and differences thus arose between applicant and respondent no. 2 - applicant, therefore, as per clause of agreement, requested respondent no. 1/superintending engineer to give his decision in the matter which was not replied – so, applicant requested respondent no.1 to appoint an arbitrator for adjudication of disputes between applicant and respondent no. 2 - hence instant petition issue is – whether application filed by applicant under section 11(6) of the act, 1996 for appointment of an arbitrator is maintainable court held - applicant ought to have filed appeal before dispute redressal committee (drc) which then within 90 days had to give its decision and thereafter within 30 days, he applicant ought to have taken further steps - applicant approached this court which by itself has stated that since official formalities for approaching drc were not specified in agreement which speaks about constitution of drc, applicant could not apply to drc - it is pertinent to note that respondent no. 1 requested applicant to exhaust the complete channel including drc in accordance with the contract clause – so, in the interest of justice, applicant should be given an opportunity to approach said drc with appeal against decision of respondent no. 1 and take further action after decision of drc - prayer to appoint an arbitrator is therefore rejected, being premature - applicant shall approach drc, with appeal against decision of respondent no. 1 within 30 days of this order and after decision of drc, shall take appropriate steps within prescribed time - application disposed of. para 14, 15 cases referred: b. t. patil and sons belgaum (construction) pvt. ltd. v/s. konkan railway corporation ltd. and another - [1998 (suppl.) arb. lr 189] datar switchgears limited v/s. tata finance ltd. and another - (2000)8 scc 151 punj lloyd limited v/s. petronet mhb ltd. - (2006) 2 scc 638 union of india v/s. pent ocean steam ships pvt. ltd. - [air 2004 gujarat 44] 1. heard mr. kholkar, learned counsel appearing on behalf of the applicant and mr. amonkar, learned counsel appearing on behalf of the respondents. 2. by this application, filed under section 11(6) of the arbitration and conciliation act, 1996 (the act, for short) the applicant has prayed for appointment of an arbitrator and to make an order of reference of disputes listed in exhibit – b. 3. facts as stated by the applicant are as under: the applicant is a proprietary concern and a building contractor. by tender acceptance letter dated 25/05/2012, the respondent no. 2 awarded to the applicant the work of “construction of two nos. additional floors over the existing office building for registrar of companies at edc complex, patto, panaji, internal electrical installations and fans, etc.” a formal agreement no. 7/se/gcd/2012-13 was executed between the applicant and the respondent no. 2. clause 25 of the said agreement is the arbitration clause. on account of a fundamental breach of contract committed by the respondent no. 2, the applicant terminated the said agreement. by letter dated 14/08/2013, the applicant raised certain claims against the respondent no. 2. by letter dated 17/09/2013, the respondent no. 2 refuted the claim raised by the applicant and stated that nothing was payable to the applicant. disputes and differences thus arose between the applicant and the respondent no. 2. the applicant, therefore, as per clause 25 of the agreement, by letter dated 24/09/2013 requested the superintending engineer to give his decision in the matter. the superintending engineer by his letter dated 23/10/2013 rejected the claims raised by the applicant. the applicant, therefore, as per the said clause 25, by letter dated 06/11/2013 requested the respondent no.1(chief engineer) to give his decision in the matter. by letter dated 09/12/2013, the respondent no.1 informed the applicant that the claims raised by the applicant were not in accordance with the provisions of the contract agreement and were not tenable. hence by letter dated 28/12/2013, the applicant requested the respondent no.1 to appoint an arbitrator for adjudication of the disputes between the applicant and the respondent no. 2. the respondent no.1 by letter dated 06/01/2014 informed the applicant to apply in the prescribed format by obtaining it from the executive engineer, gcd, cpwd, goa. along with the said letter the respondent no.1 also sent to the applicant a copy of the proforma to apply for appointment of an arbitrator. as requested by the respondent no.1, vide letter dated 28/12/2013, the applicant resubmitted to the respondent no. 1 an application for appointment of the arbitrator in the prescribed format along with the forwarding letter dated 05/02/2014. the respondent no.1 received the said letter dated 05/02/2014 along with the prescribed format but failed and neglected to appoint an arbitrator. hence, the application. 4. the superintending engineer, goa central division, cpwd, bambolim, goa has filed affidavit-in-reply on behalf of the respondents. he has, inter alia, stated that in terms of contract agreement executed between the applicant and the respondent, this court has no jurisdiction to entertain the application since the applicant has not exhausted all the remedies available to him under the contract agreement and hence, the application is premature and is liable to be dismissed. he stated that in terms of clause 25 of the agreement no. 7/se/gcd/2012-13, a dispute redressal committee (drc, for short) has been incorporated and the applicant has not appealed to the drc. it is further stated that before receipt of the notice of this court, the respondent no.1 by letter no. wz-ii-canda/54 (162) 2014/89 dated 24/04/2014, had duly informed the applicant that the applicant has to exhaust the complete channel for redressal of his grievance including the appeal to drc. in view of the above, the respondents alleged that this court has no jurisdiction to entertain the application and the same is liable to be dismissed. 5. by way of affidavit-in-rejoinder, filed on behalf of the applicant, the proprietor of the applicant stated that “correction slips no.1 and 3” have not been attached to the agreement of which the certified copy was furnished to him. the applicant further stated that the certified copy of the agreement given to him does not contain the said booklet styled as “correction slip no.1 and 3”. therefore, the said correction slips are not binding on the applicant. the applicant further stated that both the parties have not signed the said correction slip no.1 and correction slip no. 3 and even otherwise office memorandum is not a law of the land and, therefore, the same is not binding. it was alleged that the modified clause 25(i) which has been communicated to the applicant vide letter dated 24/04/2014 does not form part of the contract signed by the applicant and the superintending engineer. it was further stated that though drc has been constituted, however, official formalities for the same have not been specified and in the absence of the formalities the applicant could not apply to drc. 6. mr. kholkar, learned counsel appearing on behalf of the applicant submitted that there is no doubt that the dispute has arisen between the parties and admittedly arbitration clause exists in the contract. he contended that both the parties had signed the agreement after agreeing to the terms contained therein and there was no modified clause 25 in the same. he submitted that the applicant has complied with all the formalities that are mentioned in the said contract and that at no point of time the respondent informed the applicant about existence of drc. he pointed out that the respondents even asked the applicant to apply for appointment of arbitrator in prescribed format and forwarded a copy of the prescribed format to the applicant. he submitted that the signed copy of the agreement furnished to the applicant did not contain any clause of drc and for the first time in this petition the respondents have disclosed about the existence of drc. he submitted that the reply of the respondents vide letter dated 24/04/2014 to approach the drc came after filing of the application. according to the learned counsel, on the date when the agreement was signed, clause 25 thereof was not modified. he pointed out that one of the members of the drc is superintending engineer and thus the said superintending engineer, being aware of the constitution of drc, could have informed the applicant about the same while rejecting the claim of the applicant vide communication dated 23/10/2013. he further pointed out that even after the applicant addressed letter to the chief engineer for appointment of arbitrator, the chief engineer, in stead of informing the applicant about drc, asked to apply in the prescribed form. he, therefore, submitted that the question of the applicant approaching the drc does not arise and, hence, a sole arbitrator as per the contract be appointed. 7. learned counsel for the applicant relied upon following judgments: (i). b. t. patil and sons belgaum (construction) pvt. ltd. v/s. konkan railway corporation ltd. and another - [1998 (suppl.) arb. lr 189] (ii). datar switchgears limited v/s. tata finance ltd. and another - (2000)8 scc 151 (iii). punj lloyd limited v/s. petronet mhb ltd. - (2006) 2 scc 638 (iv). union of india v/s. pent ocean steam ships pvt. ltd. - [air 2004 gujarat 44] 8. on the other hand, mr. amonkar, learned counsel appearing on behalf of the respondents, submitted that in terms of definition of “standard cpwd contract form” mentioned on page of the agreement duly signed by the applicant, the same includes form “gcc 2010 cpwd form 8 modified and corrected up to 24/02/2012. he further submitted that the correction slip no. 3 specifically mentions about constitution of drc which is added to clause no. 25 and this correction is dated 29/03/2010. he, therefore, submitted that the applicant had full knowledge of the constitution of drc. he further submitted that since the applicant did not approach drc within the prescribed time, the applicant cannot now ask for appointment of arbitrator. he, therefore, urged that the application be rejected. 9. i have gone through the material on record. i have also considered the arguments advanced by the learned counsel for the parties and the judgments relied upon by the learned counsel for the applicant. 10. in the case of “b. t. patil and sons belgaum (construction) pvt. ltd.“ (supra), it has been held that once the parties fail to act in accordance with the agreed procedure of appointing arbitrators, the chief justice is required to appoint arbitrator after taking into consideration the provisions of sub-section (8) of section 11. 11. in the case of “datar switchgears limited” (supra), it has been held that when the parties have entered into a contract and settled on a procedure, due importance has to be given to such procedure and when the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause. 12. in the case of “pent ocean steam ships pvt. ltd.” (supra), the respondent, in special civil suit no. 8/2002, had filed an application, inter alia, for appointment of a retired judge of the high court or the supreme court as an arbitrator and for reference to be made to the chief justice of gujarat high court for appointment of an arbitrator. the petitioner filed reply wherein without prejudice to the right of the petitioner to proceed with the suit, it declared that it was not agreeable to the appointment of retired judge and/or a reference to the chief justice of the high court of gujarat. the petitioner stated that it had no objection against the appointment of an arbitrator. however, the petitioner put a condition to the effect that the arbitrator/arbitrators may be appointed only by the general manager, western railway in accordance with the standard conditions of contract with special reference to clause 2900. it was found that the arbitration agreement did not make any reference to any specific qualification of an arbitrator and that the standard conditions of contract did nor form part of the said contract. the hon'ble supreme court held that the claim of the petitioner cannot be accepted. 13. it is seen that the agreement signed by the applicant, on all the pages, in clause no. 9 (ii) at page no. 21, gives the definition of “standard cpwd contract form” to include “gcc 2010 cpwd form 8 modified and corrected up to 24/02/2012. again, at page no. 25, the agreement specifically mentions about clause no. 25 to include constitution of drc. it states that for claim below rs. 25,00,000/- the drc will have se (tlcqa), mumbai as chairman, ee, ncd, nasik as one member and se, gcd, goa, as the other member who shall present the case but shall not have any part in decision making. for claim above rs. 25,00,000/-, the said committee shall have ce (wz-i) as chairman, superintending engineer (tlc and qa), mumbai as one member and se, gcd, goa as the other member who shall present the case but shall not have any part in decision making. these pages no. 21 and 25 have been admittedly signed by the contractor i.e. the applicant and, therefore, whatever amendments and corrections are made to the gcc 2010 are binding on the applicant and even the applicant was well aware of the constitution of drc. by correction slip no. 3 bearing no. dg/con/255 dated 23/05/2011, a new provision of integrity pact has been introduced in gcc 2010 and cpwd-7/8 and by schedule – f, a new paragraph has been added to clause no. 25 which speaks about constitution of drc consisting of chairman and two members. the said modified provision of clause 25(i) of the contract reads as under: “if the superintending engineer fails to give his instructions or decision in writing within the aforesaid period (i.e. the period of one month from the receipt of the contractor's letter) or if the contractor is dissatisfied with the instructions or decision of the superintending engineer, the contractor may, within 15 days of the receipt of superintending engineer's decision, appeal to the chief engineer who shall afford an opportunity to the contractor to be heard, if the latter so desires, and to offer evidence in support of the appeal. the chief engineer shall give his decision within 30 days of receipt of contractor's appeal. if the contractor is dissatisfied with the decision of the chief engineer, the contractor may within 30 days from the receipt of the chief engineer's decision, appeal before the dispute redressal committee (drc) along with a list of disputes with amounts claimed in respect of such dispute and giving reference to the rejection of his disputes by chief engineer. the dispute redressal committee (drc) shall give its decision within a period of 90 days from the receipt of contractor's appeal. the constitution of dispute redressal committee (drc) shall be as indicated in schedule 'f'. if the dispute redressal committee (drc) fails to give decision within the aforesaid period or if any of the parties is dissatisfied with the decision of the dispute redressal committee, then either party may within a period of 30 days from the receipt of the decision of the dispute redressal committee (drc) give notice to the chief engineer for appointment of arbitrator on prescribed proforma as per appendix xv, failing which the said decision shall be final, binding and conclusive and not referable to adjudication by the arbitrator. it is a term of contract that each party invoking arbitration must exhaust the aforesaid mechanism of settlement of claims/disputes prior to invoking arbitration.” 14. it appears that though the definition of “standard cpwd contract form” included modification and correction up to 24/02/2012, however the said correction slips and more particularly the correction slip no. dg/con/255 dated 23/05/2011, were not annexed to the agreement signed by the applicant and therefore the applicant's grievance is that the applicant was not aware of the said modified clause. however since the applicant had agreed for corrections made up to 24/02/2012, the said corrections are binding on the applicant. the applicant ought to have enquired with the respondents about the procedure of drc, if the same was not known to it. however, the fact remains that by letter dated 09/12/2013, the respondent no. 1 i.e. the chief engineer informed the applicant his decision that the claims of the applicant were not in accordance with the agreement but he did not inform the applicant to approach the drc with appeal as per the modified clause no. 25(i). even after the applicant, by letter dated 28/12/2013 requested the respondent no. 1 to appoint an arbitrator, the respondent no. 1, by letter dated 06/012/2014, in stead of rejecting the request on the ground that the applicant did not file appeal before the drc, informed the applicant to apply in the prescribed format and even forwarded a copy of the prescribed format to the applicant. the applicant, then by forwarding letter dated 05/02/2014, re-submitted the application for appointment of arbitrator, to the respondent no. 1, in the prescribed format. be that as it may, as per the modified clause no. 25(i), it is a term of the contract that each party invoking arbitration must exhaust the mechanism of settlement of claims/disputes prior to invoking arbitration. the applicant on or before 09/01/2014 ought to have filed appeal before the drc and the drc then within 90 days had to give its decision and thereafter within 30 days, the applicant ought to have taken further steps. the applicant approached this court on 14/03/2014. the applicant itself, in the affidavit-in-rejoinder, has stated that since the official formalities for approaching the drc were not specified on page no. 25 of the agreement which speaks about the constitution of drc, the applicant could not apply to drc. it is pertinent to note that by letter dated 24/04/2014 the respondent no. 1 requested the applicant to exhaust the complete channel including the drc in accordance with the contract clause. in the facts and circumstances of the case and in the interest of justice, i am of the view that the applicant should be given an opportunity to approach the said drc with appeal against the decision of the respondent no. 1 and take further action after the decision of drc. 15. in the result, the application stands disposed of with the following: order (a) the prayer to appoint an arbitrator at this stage is rejected, being premature. (b) the applicant shall approach the drc, with appeal against the decision of the respondent no. 1 dated 09/12/2013 within 30 days of this order and after the decision of drc, shall take appropriate steps within prescribed time.