Sri Swaminathan Construction, a Regd. Partnership Firm, Rep. by Its Managing Partner K. Mathiyalagan Vs. Sri Thirunavukkarasu Dhanalakshmi Eduction and Charitable Trust, Rep. by Its Founder R. Thirunavukkarasu and ors. - Court Judgment

F.M. Ibrahim Kalifulla, J.

1. The Civil Miscellaneous Appeal has been preferred by the appellantagainst the order of the Principal District Judge, Thanjavur, dated 30.06.2003 in Arbitration Original Petition No. 71/2003 (in short 'AOP No. 71/2003'). The Civil Revision Petition has been preferred by the same appellant as against the order of the same court passed in Execution Petition No. 43/2003 (in short 'EP No. 43/2003') in an Arbitration Award on 01.08.2003.

2. The brief facts which are required to be stated are:

(a) The appellant undertook a contract for construction of an Engineering College for the 1st respondent under Agreement dated 07.02.2001. One Mr. M.N. Mohammed Rafi of M/s. Rafi Associates of Kumbakonam was appointed as the Architech and Consultant of the 1st respondent. The conditions of the contract contained a paragraph under the caption 'General', as per which, according to the appellant, in the event of any dispute or difference between the appellant and the 1st respondent, as contractor and owner, the same should be referred to the Consultant whose award would be final and binding on all parties concerned.

(b) According to the appellant, a sum of Rs. 27,32,067.25 was due from the 1st respondent as per the Bill dated 21.05.2001 and that the Architect certified for payment of a sum of Rs. 24,00,000/-. It is the case of the appellant that since the said amount and certain other sums were due and payable by the 1st respondent in pursuance of the execution of the contract as per the Agreement dated 07.02.2001, a claim petition was made by the appellant before the Arbitrator seeking for an award in its favour. The said claim statement was filed on 05.01.2002 for a sum of Rs. 35,15,522.40, along with annexures.

(c) On behalf of the 1st respondent, the founder addressed a letter to the Arbitrator on 15.02.2002 seeking for sufficient time to place the facts before him. Subsequently, a counter petition was filed by the 1st respondent before the Arbitrator. In the said counter petition, it was inter alia contended that the Arbitrator was not appointed in its true sense, that he was only an Architect and Consultant and that he has not attained the status of an Arbitrator. On merits also, it was contended that nothing was payable.

(d) Thereafter, the Arbitrator passed an Award on 08.03.2002. The preliminary objection as to the status of the Arbitrator, as raised by the 1st respondent, was rejected by the Arbitrator and he proceeded and passed the award. Ultimately, the Arbitrator held that the appellant was entitled for a sum of Rs. 27,23,214.97 on four different heads. He also directed the 1st respondent to pay the said sum to the appellant on or before 31.03.2002, failing which the said sum would carry interest at the rate of 18% per annum from the date of award till its realisation. The said award has become final, since neither the 1st respondent nor the appellant challenged the same in the manner known to law.

(e) The 1st respondent, however, failed to comply with the direction of the Arbitrator in the award dated 08.03.2002 by making the payment as awarded therein. The appellant, therefore, preferred the present AOP No. 71/2002 on the file of the Principal District Judge, Thanjavur (Designated Court under the Arbitration and Conciliation Act, 1996 - Act No. 26/1996). The said petition was filed on 27.08.2002. The appellant also moved the very same court in EP No. 43/2003 seeking for an order of attachment under O.21 R.11(2) CPC for a sum of Rs. 32,53,682.31 out of the amount which was payable to the 1st respondent by the 3rd respondent/garnishee and forward the same to the Execution Court.

(f) In AOP No. 71/2002 filed under Section 9(ii)(d) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'Act 26/96'), the appellant prayed for a prohibitory order as against the 2nd and 5th respondents/garnishees from paying the amount lying to the credit of the 1st respondent as per their accounts as found in the scheduled to the said AOP till the amount due as per the award dated 08.03.2002 is fully discharged and for costs. The said AOP was resisted by the 1st respondent contending that under the Agreement dated 07.02.2001 the parties did not agree for the named Arbitrator, namely the Architect and the Consultant and therefore the award passed by him cannot be held to be an award passed under the Arbitration Act. An objection was also raised as regards the jurisdiction of the Principal District Judge, Thanjavur, to deal with the said AOP.

(g) By order impugned in this appeal dated 30.06.2003 passed in AOP No. 71/2002, the learned Principal District Judge, Thanjavur, rejected the contention of the 1st respondent as regards the lack of jurisdiction. Ultimately, the learned Principal District Judge held that Ex.P-2 (Award dated 08.03.2002) ceased to be an award, since it did not fall within the ambit of Section 9(ii)(d) of Act 26/96. While dismissing the Original Petition, the learned Principal District Judge has held as under in paragraph No. 29 of his order.

29. ...At the outset, I would like to point out that when viewing the terms of Ex.P1 and Ex.P2, I am of the opinion that Mr.M.N.Mohamed Rafi is neither clothed nor conferred that any legal status of being an Arbitrator in passing the award dated 8.3.2002. For the simple reason that in as much as he is happened tobe a party in the said agreement under Ex.P1 and when viewing the elaborate arguments putforth on the side of first respondent and viewing the aforestated well agitated reasons on legal aspects emphasised on the side of the first respondent and the same are found to be applicable to the factors of the nature of controversial issue arisen under this petition, I am of the concrete opinion that Ex.P2 is ceased to be an Award since it does not fall within the ambit of Section 9(ii)(d) of the Arbitration and Conciliation Act. Since the Architect/Consultant who passed the alleged award under Ex.P2 is found to be a party to the proceedings as referred in Ex.P1 in certain unambiguous terms, I inclined to accept and approve the well agitated reasons emphasised in course of arguments on the side of the 1st respondent challenging the validity and binding nature of the alleged Award under Ex.P2.

(h) In the light of the dismissal of AOP No. 71/2002, the learned Principal District Judge by his order dated 01.08.2003 dismissed EP No. 43/2002 as unnecessary.

3. Assailing the order of the learned Principal District Judge, Thanjavur, Mr. S. Parthasarathy, learned senior Counsel appearing for the appellant, after referring to the salient features of the provisions of Act 26/96, contended that the 1st respondent, having failed to challenge the award of the Arbitrator in the manner known to law under the provisions of the Act, had no right to question the same in an application preferred by the appellant under Section 9 of Act 26/96. Learned Senior Counsel then contended that the clause contained under the caption 'General' in the conditions of contract and the words contained therein empower the Arbitrator to entertain the dispute between the appellant and the 1st respondent and therefore his Award dated 08.03.2002 was unassailable when the 1st respondent did not choose to challenge the same under Section 34 of the Act. The learned Senior Counsel relied upon the following decisions in support of his submissions.

(i) : AIR1981SC479 Rukmanibai v. Collector, Jabalpur;

(ii) : AIR2002Mad462 Bhatia International v. Bulk Trading S.A.;

(iii) 999 (2) SCC 479 Sundaram Finance Ltd. v. NEPC India Ltd.;

(iv) : AIR2003SC3011 FCI v. Indian Council of Arbitration;

(v) : (2006)11SCC181 McDermott International Inc. v. Burn Standard Co. Ltd. and Ors.;

(vi) : AIR2007SC2157 Punjab State v. Dina Nath;

(vii) (2007) 6 MLJ SC 346 ACE Pipeline Contracts and (P) Ltd. v. Bharat Petroleum Corporation Limited; and

(viii) CDJ 2007 SC 1124 The empire Jute Co. Ltd. and Ors. v. the Jute Corporation of India Ltd. and Anr.

4. As against the above submissions, Mr. S. Silambanan, learned senior Counsel appearing for the 1st respondent, contended that under Section 9 of Act 26/96, there was every scope for the Principal District Judge to examine as to whether there was an enforceable award in order to grant any relief under the said provision and therefore the conclusion of the learned Principal District Judge as regards the competency of the Arbitrator in having entertained the arbitration proceedings was fully justified. Learned Senior Counsel would therefore contend that where there was patent illegality in the arbitral proceedings, as entertained by the Arbitrator, no fault can be found with the order of the learned Principal District Judge in having rejected AOP on the ground of lack of jurisdiction in the Arbitrator himself in passing the award. The learned Senior Counsel relied upon the following decisions in support of his submissions.

(i) : [1999]1SCR89 Sundaram Finance Ltd. v. NEPC India Ltd.; and

(ii) : [1955]1SCR117 Kiran Singh v. Chaman Paswan.

5. Having heard the learned Counsel for either parties, the questions to be decided in the civil miscellaneous appeal as well as the civil revision petition boils down to two aspects, namely

(i) Whether in an Application under Section 9(ii)(d) of Act 26/1996, the learned Principal District Judge had jurisdiction to go into the question as to the competence of the Arbitrator in having held the arbitral proceedings and set aside the award passed by him.

(ii) Incidentally, to state whether there is an arbitration clause at all in the Agreement dated 07.02.2001.

6. We wish to delve into the second question in the first instance as that would throw more light for deciding the first question by referring to the various provisions of the Act 26/1996.

7. For deciding the question No. 2, the relevant clause in the Agreement dated 07.02.2001 requires extraction. The said clause has been mentioned in the conditions attached to the Agreement. The clause has been mentioned under the caption 'General', which reads as under:

The Contractor shall abide by the instructions that may be issued by consultant from time to time during the period of agreement.

In the event of any dispute or difference between the contractor and employer, the same shall be referred to the Consultant whose award shall be final and binding on all parties concerned.

The Consultant has also been named in the very preamble to the Agreement, wherein Thiru M.N. Mohamed Rafi of M/s. Rafi Associates, has been appointed as Architect and Consultant. In the preamble it is also stated that while the owner is desirous of the construction of Arasu College of Engineering, Chennai Main Road, Kumbakonam, the Contractor has agreed to execute and complete the work as per the drawings and specifications to the entire satisfaction of the owner/architect and consultant.

8. By virtue of the Arbitration Clause, as provided in the conditions of the contract, the appellant moved before the Arbitrator by filing his claim petition. In fact, the 1st respondent filed a reply letter dated 15.02.2002 in response to a notice said to have been issued by the Arbitrator fixing the hearing on 24.01.2002. In the said petition, the 1st respondent wanted sufficient time to appear and place the facts before the Arbitrator and therefore he should fix a date and communicate the same by RPAD. The Arbitrator was thus requested to follow the procedure. However, in the counter statement filed subsequently, the 1st respondent took the stand that the said Mohamed Rafi was only an Architect and Consultant and as per the Agreement he was not named as an Arbitrator. The counter also dealt with the merits of the claim made by the appellant.

9. The Arbitrator in his Award dated 08.03.2002 considered the preliminary objection raised by the 1st respondent about his status and ruled that the Agreement provided for the Arbitration Clause and that he was specifically named as an Arbitrator. Thereafter, the Arbitrator determined the amount due and payable by the 1st respondent in a sum of Rs. 27,23,214.97 under different heads. Admittedly, the said award was not challenged in the manner known to law under the provisions of Act 26/1996. Therefore, there can be no two opinion that the award dated 08.03.2002 has become final and conclusive and is unassailable as on date.

10. When we examine the arbitration clause, which has been extracted in the earlier part of this judgment, a reading of the said clause makes it abundantly clear that it was nothing but an arbitration clause and that though Mr. Mohamed Rafi was appointed as a Consultant and Architect under the Agreement, nevertheless he was named as an Arbitrator to deal with any dispute or difference between the contractor and the employer and that his award would be final and binding on all parties concerned. Merely because the word 'Arbitrator' has not been specifically mentioned, it cannot be held that it is not an Arbitration Clause. Further, there is no prohibition that the Consultant or the Architect or the Principal to act as an Arbitrator.

11. In this context, the decision relied upon by the learned Senior Counsel Mr. S. Parthasarathy reported in : AIR2007SC2157 Punjab State v. Dina Nath, is apposite on this point. In that case also, the relevant clause in the Work Order was to the following effect:

Any dispute arising between the department and the contractor/society shall be referred to the Superintending Engineer, Anandpur Sahib, Hydel Circle No. 1, Chandigarh for orders and his decision will be final and acceptable/binding on both the parties.

While dealing with the said clause, the Hon'ble Supreme Court has laid down the law as under in paragraph 10 of its judgment.

10. We have already noted Clause 4 of the Work Order as discussed herein above. It is true that in the aforesaid Clause 4 of the Work Order, the words 'arbitration' and 'arbitrator' are not indicated; but in our view, omission to mention the words 'arbitration' and 'arbitrator' as noted herein earlier cannot be a ground to hold that the said clause was not an arbitration agreement within the meaning of Section 2(a) of the Act. The essential requirements as pointed out herein earlier are that the parties have intended to make a reference to an arbitration and treat the decision of the arbitrator as final. As the conditions to constitute an 'arbitration agreement' have been satisfied, we hold that Clause 4 of the Work Order must be construed to be an arbitration agreement and dispute raised by the parties must be referred to the arbitrator. In K.K. Modi v. K.N. Modi : [1997]2SCR389 this Court had laid down the test as to when a clause can be construed to be an arbitration agreement when it appears from the same that there was an agreement between the parties that any dispute shall be referred to the arbitrator. This would be clear when we read para 17 of the said judgment and Points 5 and 6 of the same which read as under: (SCC p.584)

(5) that the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law, and lastly

(6) the agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.

12. The said decision is the last word on the issue and therefore, we need not dilate much on this question, except to state that the essential requirements (viz.) that the parties intended to make a reference to an Arbitrator and treat the decision of the Arbitrator as final are satisfied and therefore the clause under the head 'General' contained in the conditions annexed to the Agreement dated 07.02.2001 is nothing but an arbitration clause and the consultant, namely Mr. Mohamed Rafi having been named as an Arbitrator, the reference made by the appellant while making the claim before him as an Arbitrator was perfectly in order and the conclusion of the Arbitrator in stating that the said clause is nothing but an arbitration clause authorising him to act as an Arbitrator was fully justified.

13. Once we steer clear of the said position, the next question for consideration is whether the Principal District Judge had the jurisdiction to go behind the Award dated 08.03.2002 and set at naught the same in an Application under Section 9(ii)(d) of Act 26/1996. When once we reached the conclusion that the award was validly passed by the Arbitrator by virtue of the powers vested in him under the provisions of the Agreement dated 07.02.2001, on that sole ground we hold that the learned Principal District Judge had no authority to go behind the said award and reject the application of the appellant filed under Section 9(ii)(d) of Act 26/1996. We are also fortified by our stand by virtue of the various provisions contained in Act 26/1996.

14. The provisions of Act 26/1996 have been compartmentalised into four Parts. Under Part-I, Sections 2 to 43 have been set out under 10 different Chapters. The relevant provisions are Sections 5, 9, 12, 13, 15, 16, 21, 31, 34, 35, 36 and 37. Under Section 5, it is mandatorily stipulated that in relation to matters governed by Part-I of the Act, no judicial authority can intervene, except in the manner provided in the said Part. It is a nonobstante clause. Section 9 is the provision by which a party can either before or during the arbitrarl proceedings or at any time after making an arbitral award and before its enforcement, as contemplated under Section 36, apply to the court seeking for various interim orders, such as appointment of guardian for a minor or a person of unsound mind or for an interim measure of protection, such as interim custody of sale of any goods which are subject matter of the arbitration agreement or for securing the amount in dispute in the arbitration and such other matters which are incidental and connected with the main issue, i.e. referred for arbitration.

15. As regards the appointment of a person as an arbitrator, any challenge to his appointment can be made under Section 12 mainly on the ground of his justifiable doubts as to his independence and impartiality. Section 13 provides the procedure of challenge to be made under Section 12. Section 16 of the Act prescribes the competence of the Arbitral Tribunal to rule its own jurisdiction, such as the one in the case on hand, the very existence of the arbitration clause and the name of the arbitrator was raised as a preliminary issue by the 1st respondent herein. Under Section 21, unless and otherwise agreed to by the parties, the arbitral proceedings in respect of a particular dispute commences on the date on which a request for that dispute to be referred to arbitration is received by the respondent. The arbitral proceedings would terminate on the passing of the award or in the circumstances specified under Sub-section (2) of Section 32 of the Act. Under Section 34, a party to an arbitral proceedings has got a right to move the court against an arbitral award and for setting aside such an award in accordance with Sub-sections (2) and (3) of the said Section 34. Under Section 35 of the Act, an arbitral award would become final and binding on the parties and the same becomes enforcible after the expiry of the period specified under Section 34 for making an application to set aside the arbitral award. Thereafter, it can be enforced under the provisions of the Civil Procedure Code as if the award is a decree of the court. The only other mode by which a challenge can be made to the award is by filing an appeal as against an order declining to interfere with the award or to set aside the award by approaching the appellate forum as prescribed under Section 37 of the Act.

18. A conspectus reading of the above provisions makes it amply clear that having regard to the prohibition contained in Section 5, unless a party to an arbtiral award challenges the award in the manner set out in Section 34 of the Act or in the event of not getting a favourable order in such an application under Section 34 by filing an appeal under Section 37 of the Act, under no other mode it is permissible for a party to the Arbitration Award to seek for setting aside the same.

17. In respect of the submission of Mr. S. Silambanan, learned Senior Counsel appearing for the 1st respondent, based on the decision reported in : [1999]1SCR89 Sundaram Finance Ltd. v. NEPC India Limited, at the outset we wish to state that the said decision will not apply to a case where an application is filed under Section 9 of Act 26/1996 after the passing of the award. The ratio laid down in the said decision in paragraph 19 would go to show that the statement of law held therein is in a case where an application is filed under Section 9 before the commencement of the arbitral proceedings therefore, the ratio laid down in the said decision does not apply to the facts of this case.

18. Having regard to such a settled legal position, it will be too much to state that in an application filed under Section 9(ii)(d) of the Act, the Court dealing with such an application would be competent to set at naught an award otherwise validly made under the provisions of Act 26/1996.

19. In the light of our above said conclusion, we hold that the learned Principal District Judge has exceeded his jurisdiction in setting aside the award of the arbitrator dated 08.03.2002 in the application filed by the appellant under Section 9(ii)(d) of Act 26/1996. The impugned order of the learned Principal District Judge is therefore liable to be set aside and the same is accordingly set aside.

20. Once we set aside the order of the learned Principal District Judge, in the absence of any other formidable contentions to resist the claim of the appellant made in the application filed under Section 9(ii)(d) of Act 26/1996, the said application deserves to be allowed. Therefore, the application shall stand allowed. As a sequale to it, a prohibitory order is bound to issue as against the 2nd and 5th respondents until the amounts due to the appellant as per the Award dated 08.03.2002 is fully discharged.

21. When the civil miscellaneous appeal was entertained, an interim order was passed in CMP No. 10297 of 2003 on 23.07.2003 in which an order of temporary injunction was granted restraining the respondents 2 to 5 from making or disbursing any amount to the 1st respondent from the fund lying with them to the extent of the award amount now due i.e. Rs. 33,74,000/-. Subsequently, the said interim order was modified by yet another order dated 19.04.2004 by which the injunction was restricted to an extent of Rs. 27,23,214.97 which was also directed to be reinvested in fixed deposit in the very same nationalised bank in which the 2nd respondent University was operating its accounts but to the credit of AOP No. 71/2002. The balance sum was directed to be refunded to the 1st respondent after furnishing a bank guarantee.

22. In the light of the orders passed in the Civil Miscellaneous Appeal, we set aside the orders passed in EP No. 43/2003 and restore the same to the file of the Principal District Judge, Thanajvur. However, since the amount is already secured pursuant to the interim orders dated 23.07.2003 and 19.04.2004, the 4th and the 5th respondents with whom fixed deposit of Rs. 27,23,214.97 is invested are directed to disburse the same to the appellant with accrued interest as on date on production of a copy of this judgment. If any further sum is due and payable by the 1st respondent to the appellant, it is open to the appellant to work out the same in EP No. 43/2003. The Execution Petition shall be disposed of within four weeks from the date of receipt of the records from this court. In the event of such sum being found due and payable by the 1st respondent, the same shall be recovered by enforcing the bank guarantee directed to be furnished by the 1st respondent as per the order dated 19.04.2004. The 1st respondent and the other respondents who have furnished the bank guarantee shall therefore keep the bank guarantee alive till final orders are passed in the Execution Petition.

23. The Civil Miscellaneous Appeal stands allowed and the Civil Revision Petition is ordered on the above terms. There will be no order as to costs.