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Arbitration Appeal

Arb. A. No. 2 of 2011 - H.K.A. Agencies Vs. Actia India, 2011 (1) KLT 424 : 2011 (1) KLJ 328 : ILR 2011 (1) Ker. 378

posted Jan 21, 2013, 10:29 AM by Law Kerala   [ updated Jan 21, 2013, 10:34 AM ]

IN THE HIGH COURT OF KERALA


R. Basant and K. Surendra Mohan, JJ.

Arb. A. No. 2 of 2011

Decided On: 11.01.2011

H.K.A. Agencies Vs. Actia India Pvt. Ltd.

Head Note:-
Arbitration and Conciliation Act, 1996 - Sections 9 & 42 - Jurisdiction - Where plurality of courts have jurisdiction to deal with the matter and one court has already dealt with the matter in any dimension earlier, it is for such court, which has already dealt with the matter and no other court, to later entertain any subsequent applications in respect of the same matter. 
Arbitration and Conciliation Act, 1996 - Sections 9 & 42 - Jurisdiction - Arbitration Agreement - By using the expression "with respect to arbitration agreement", all the three instances of a petition filed under the part prior to the commencement of the arbitral proceedings, after the commencement of the arbitral proceedings and after the culmination of the arbitral proceedings, can all be taken within its sweep. That precisely is the reason why the expression "with respect to the arbitration agreement" is made use of.
For Appellant: 
  • P.B. Sahasranaman
  • T.S. Harikumar
  • K. Jagadeesh
For Respondents: 
  • E.K. Nandakumar, Adv.
J U D G M E N T

R. Basant, J.

1. Does not an application filed under Section 9 of the Arbitration and Conciliation Act, 1996 ('the Act' hereafter) after the commencement of the Arbitral Proceedings attract the bar under Section 42 of the Act?

(ii) Are the words "in respect to an arbitration agreement" employed by the legislature in Section 42 sufficient to exclude the application of Section 43 of the Act to such applications filed after the commencement of arbitral proceedings?

These questions arise for consideration in this appeal.

2. This appeal is directed against an order passed by the District Court, Ernakulam directing return of proceedings initiated under Section 34 of the Act.

3. There is no dispute on fundamental facts. That there is an arbitration agreement between the parties is admitted. Invoking the provisions in the arbitration agreement, arbitral proceedings had commenced. That is also not disputed. That during the pendency of the arbitral proceedings, an application was filed by the Respondent under Section 9 of the Act before the Delhi High Court is not disputed. That award was passed in the arbitral proceedings on 4-3-2009 is accepted. That the petition under Section 9 of the Act was disposed of by the Delhi High Court after 4-3-2009 is conceded. That the petition under Section 34 of the Act was filed by the Appellant before the District Court, Ernakulam, on 30-3-2009 is also not disputed. It will be crucial to mention that the fact that the court at Delhi and the court at Ernakulam are both courts having jurisdiction within the meaning of Section 2(e) of the Act is also not disputed.

4. In the application filed by the Appellant under Section 34 of the Act before the District Court, the Respondent entered appearance and raised an objection that the District Court, Ernakulam, though it answers the definition of "court" under Section 2(e) of the Act, cannot have jurisdiction to entertain the petition under Section 34 of the Act in view of the clear bar under Section 42 of the Act.

5. The court below considered the objection. The court, upholding the objection, held that proceedings having already been initiated before the court at Delhi, the subsequent proceedings must also be initiated before that court and not before the District Court at Ernakulam. The Appellant claims to be aggrieved by the impugned order. We entertained reservations on the need for admission of the appeal. The learned Counsel was requested to advance detailed arguments. A caveat had been lodged by the Respondent and the Respondent is represented by a counsel before us. We have heard the learned Counsel for the Appellant. The learned Counsel for the Respondent also, though the matter has not formally been admitted, has been heard by the court on the sustainability of the appeal.

6. The important question that arises for consideration is whether the District Court, Ernakulam, though it satisfactorily answers the definition of 'Court' in Section 2(e) of the Act, has jurisdiction to entertain the petition under Section 34 of the Act in the light of the admitted fact that an earlier application under Section 9 was entertained validly and orders passed earlier by the Delhi High Court.

7. The learned Counsel for the Appellant first of all contends that no written statement has been filed before the District Court, Ernakulam and in these circumstances; the court below erred in considering the objections without insisting on the filing of a written statement. The crucial facts, having a bearing on the question, are all admitted. We are not, in these circumstances, persuaded to take the view that not filing the written statement must be held to be crucial or vital in the circumstance of the case. That objection is found to be unsustainable.

8. The next contention urged, though without conviction, is that the Delhi High Court is not a court under Section 2(e) of the Act. In the course of arguments, it is accepted that the Delhi High Court entertains civil jurisdiction and is the principal civil court of original jurisdiction so far as Delhi is concerned. The definition of the court in Section 2(e) of the Act makes it very clear that where the High Court is the civil court of original jurisdiction in a district that court will be court for the purpose of Section 2(e) of the Act. We extract Section 2(e) of the Act below:
“Section 2(e) : 'Court' means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes. 
(emphasis supplied)
9. There can, in these circumstances, be no merit in the contention that the Delhi High Court is not a court answering the definition in Section 2(e) of the Act. It will not be inapposite in this context to mention that an appealable order under Section 9 was passed by the Delhi High Court with the Appellant on the party array and the Appellant has not chosen to challenge the order.

10. Lastly and most importantly the contention is raised that Section 42 can have no application in the fact scenario available in the case.

11. We extract Section 42 of the Act below:
“42. Jurisdiction.- Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court. 
(emphasis supplied)
12. The language of Section 42 of the Act is clear and simple. The purpose of the stipulation also appears to us to be clear and evident. Where plurality of courts have jurisdiction to deal with the matter and one court has already dealt with the matter in any dimension earlier, it is for such court, which has already dealt with the matter and no other court, to later entertain any subsequent applications in respect of the same matter.

13. The learned Counsel for the Appellant lays emphasis on the use of the words "with respect to an arbitration agreement" in Section 42 and contends that the bar of jurisdiction under Section 42 of the Act can apply only when application is filed under Part I with respect to an arbitration agreement. To put it in a nut shell the argument of the counsel is that in this case application under Section 9 of the Act has been filed admittedly after commencement of the arbitral proceedings. It cannot hence be said that the application is with respect to an arbitration agreement. It was with respect to the arbitral proceedings which had already commenced. The counsel hence contends that Section 42 can have no application.

14. We are afraid, this argument cannot be accepted. The application under Section 9 as also application under Section 34, are both applications under Part I of the Act. So far as an application under Section 9 is concerned, such an application can be filed prior to the arbitral proceedings, during the arbitral proceedings or after the culmination of the arbitral proceedings. All the three must necessarily relate to the arbitration agreement. An application during the arbitral proceedings or after the completion of the arbitral proceedings could be described with reference to the arbitral proceedings. But, when arbitral proceedings is only anticipated and has not actually commenced, reference to the proceedings can be only by reference to the arbitral agreement. Such reference to the arbitral agreement would cover all the 3 cases-of proceedings prior to formal initiation of the arbitral proceedings, after the initiation of arbitral proceedings and after culmination of the arbitral proceedings. In these circumstances, the attempt to make much out of the use of the expression "with respect to an arbitration agreement", cannot obviously succeed. The legislature was conscious that by using the expression "with respect to arbitration agreement", all the three instances of a petition filed under the part prior to the commencement of the arbitral proceedings, after the commencement of the arbitral proceedings and after the culmination of the arbitral proceedings, can all be taken within its sweep. That precisely is the reason why the expression "with respect to the arbitration agreement" is made use of.

15. The language of Section 42 of the Act is clear and simple. Whether an application under Part I is already filed (and that includes an application under Section 9), all subsequent applications must be before that court. We may hasten to observe that such first application filed must be filed validly and legally. If such prior application is filed before a court which has no jurisdiction, the bar of Section 42 cannot obviously be applied. The expression an application under this part "has been made in a court" must certainly be read in the circumstances "as validly made in court". We need not go into that question in detail in this case as we have no dispute that the Delhi High Court is not a court answering the definition of court under Section 2(e) of the Act or that the application under Section 9 was not validly made before that Court. There is no contention even that the application under Section 9 lacked bona fides.

16. The legislative purpose underlying Section 42 of the Act appears to be two fold. The yearning to avoid conflicting decisions appears to be primary. Parallelly, and equally important, it appears to us, is the convenience of the parties. Having already been obliged to contest the proceedings at one venue, they should not be obliged to run to another venue to continue the contest in respect of the same subject-matter. This legislative purpose also cannot persuade us to distinguish between a pre arbitral proceedings application under Section 9 and a post arbitral proceedings application under Section 9, in the interpretation of Section 42. It must further be seen that Section 42 later refers to all subsequent applications "arising out of that agreement and the arbitral proceedings". There can hence be no semblance of doubt on this aspect.

17. We are, in these circumstances, of the opinion that the court below was absolutely justified in taking the view that in the light of Section 42 of the Act and in the light of the admitted filing and disposal of the earlier application under Section 9 before the Delhi High Court, the District Court, Ernakulam did not have jurisdiction to entertain the petition under Section 34 filed by the Appellant. The challenge fails.

18. Finally the learned Counsel for the Appellant submits that the Appellant may be given time to present the returned petition before the Delhi High Court. The Appellant shall, of course, have reasonable time from this date to present the application under Section 34 of the before the Delhi High Court. Taking all the relevant circumstances into account, we reckon and stipulate 30 days as reasonable time to re-present the petition before the Delhi High Court.

19. In these circumstances, we dismiss this writ petition in limine with the above observations.

Arb. A. No. 35 of 2009 - Muthoot Leasing and Finance Ltd. Vs. N.P. Asiya, 2011 (1) KLT 858 : 2011 (1) KLJ 623 : ILR 2011 (1) Ker. 809

posted Jan 11, 2013, 10:00 AM by Law Kerala   [ updated Jan 11, 2013, 10:01 AM ]

IN THE HIGH COURT OF KERALA AT ERNAKULAM

K.M. Joseph and M.C. Hari Rani, JJ.

Arb. A. No. 35 of 2009

Decided On: 07.02.2011

Muthoot Leasing and Finance Ltd.

Vs.

N.P. Asiya

Head Note:-

Arbitration and Conciliation Act, 1996 - Sections 7(1), 9 and 36 - Civil Procedure Code, 1908 - Order 21, Rules 54 & 58 - Order 38, Rules 9, 10 and 11A - Order of Attachment - General Principles - Application filed by third party - Vacating Interim Order - Powers of District Court - Incidental, Ancillary and Inherent Power -Quoting of a wrong provision will not invalidate an order if power is otherwise available.

Held:- In Sirajudheen K. Vs. Sreedhar K. Kottaram, 2010 (1) KHC 281 this Court, no doubt, was dealing with a case of the Defendant furnishing security and the court lifting the attachment whereas this is a case where a third party applies to vacate the order. This Court has taken the view in the said decision that the general principles would apply. In fact, it cannot be in the region of any dispute that if the court has passed an order which is obtained by practising fraud, it must possess the power to recall the order. Equally, we would think that under Section 9 of the Act providing for passing of interim orders, the court would have incidental and ancillary power which is inherent in it as a court to vacate the order, if it is convinced that even prior to the order of attachment being effected, there was a valid assignment. We would think that clothing the court with such powers under Section 9 would only tantamount to a recognition of the court's powers as a court intended to do justice. We would think that the court must possess the inherent power also to vacate the order of attachment when it is demonstrated to it that the order of attachment has, in fact, ceased to be of any effect in view of the assignment being made prior to the attachment being effected. Precisely, it is this which the court below has done. We would also think that there is merit in the contention of the first Respondent that the power under Order 21 Rule 58 must on general principles be made applicable without actually applying the provisions as such. Even without the same, we are of the view that as already held by us, the court must possess inherent powers or ancillary powers to vacate the order of attachment in view of the evidence which was brought before it. The acceptance of the contention of the Appellant would involve driving of the third party to institute a Suit questioning the legality of the order of attachment. In such circumstances, we see no merit in the Appeal and the Appeal is dismissed.

Chronological List of Cases Referred:

  1. Prasad Vs. Monnet Finance Ltd. 2010 (4) KLT 66
  2. Sirajudheen K. Vs. Sreedhar K. Kottaram, 2010 (1) KHC 281
  3. Hemalata Sahu Vs. Sugyani Sahu, AIR 2010 Ori 35
  4. SREI Infrastructure Finance Vs. Bhageeratha Engineering, AIR 2009 Gah 110
  5. Adhunik Steels Vs. Orissa Manganese Minerals, AIR 2007 SC 2563
  6. Firm Ashok Traders Vs. Gurumukh Das Saluja, 2004 (3) SCC 155

For Appellant: C.S. Manilal, Adv.

For Respondents: P.K. Ravisankar & K. Pradeep, Adv.

J U D G M E N T

K.M. Joseph, J.

1. On the allegation that Respondents to 4 entered into an hypothecation agreement for purchase of a vehicle, under which the second Respondent is the borrower and Respondents 3 and 4 are the guarantors, and alleging that an amount of Rs. 4,40,921/= is due and further alleging the existence of an arbitration agreement, the Appellant moved the District Court under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act), claiming attachment of the properties of the Respondent therein. The Court ordered attachment on 11.11.2008. The attachment was effected, however, only on 29.11.2008. The first Respondent thereupon filed a petition styled under Order 21 Rule 58 of the Code of Code of Civil Procedure and Section 9 of the Act, praying that the attachment was effected only on 29.11.2008 and she had purchased the property on 22.11.2008 by way of registered Sale Deed and she prayed that the attachment may be lifted. The learned District Judge found that before effecting attachment, the property had been sold. The court below relied on the Pass Book and the evidence of PW2, who is the brother of the first Respondent who was examined as PW1 to find that the property was purchased by paying consideration and the court below found that there is nothing to prove that the sale is a fraudulent transfer.

2. Apparently, the Court took note of the contention, as it were, of the Appellant that there is no power to lift the attachment. The court found that the jurisdiction under Section 9 is only to grant an interim measure till the conclusion of the arbitral proceedings, and that all the provisions of the Code of Code of Civil Procedure including Order 21 Rule 58 are not made applicable to arbitral proceedings, particularly to the court dealing with the petition under Section 9 of the Act. It is found that since Order 21 Rule 58 is not specifically made applicable, the Court may have jurisdiction to pass an order which is having the force of a decree. It is further found that in a proceeding under Section 9 of the Act, the Court was competent to pass necessary ancillary orders, and that in the circumstances, the court is competent to lift the attachment as and when it is found that the property was alienated prior to the date of attachment.

3. We heard Shri C. S. Manilal, learned Counsel for the Appellant and Shri P. K. Ravi Sankar, learned Counsel appearing for the first Respondent.

4. Learned Counsel for the Appellant would submit that the court below has erred in granting relief to the first Respondent. He would submit that under Section 9, only a party to the agreement can approach the Court for relief. Sections 7(1) reads as follows:

7. Arbitration agreement. - (1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.”

He would further contend that what is contemplated under Section 9 of the Act is only the power of the Court to grant interim relief. Section 9 does not contemplate the entertaining of a third party claim under Order 21 Rule 58 CPC. He would contend that under Order 38 Rule 10 CPC, rights of persons who are having independent right as on the date of the attachment are not affected. Order 38 Rule 10 Code of Code of Civil Procedure reads as follows:

10. Attachment before judgment not to affect rights of strangers, nor bar decree-holder from applying for sale.- Attachment before judgment shall not affect the rights, existing prior to the attachment, or persons not parties to the suit, not bar any person holding a decree against the Defendant from applying for the sale of the property under the attachment in execution of such decree.”

He would further contend that third parties can work out their remedies before the competent civil court. He would point out that if Order 21 Rule 58 is made applicable, then, the order that would be passed must be treated as a decree and such a contingency is not contemplated in proceedings under Section 9 of the Act. He would distinguish the judgment of this Court in Sirajudheen K. Vs. Sreedhar K. Kottaram 2010 (1) KHC 281 by pointing out that, that was a case where attachment was ordered and under the order of attachment, the Defendant had been called upon to furnish security. It was in such circumstances, this Court took the view that the Court shall lift the attachment, the moment the Defendant furnished sufficient security to the satisfaction of the Court. He would also rely on the judgment of the Apex Court in Firm Ashok Traders And Anr. Vs. Gurumukh Das Saluja and Ors., 2004 (3) SCC 155. Therein, the Apex Court, inter alia, held as follows:

“The right conferred by Section 9 is on a party to an arbitration agreement. A person not party to an arbitration agreement cannot enter the court for protection under Section 9. This has relevance only to his locus standi as an applicant. This has nothing to do with the relief which is sought for from the court or the right which is sought to be canvassed in support of the relief.”

5. Learned Counsel for the Appellant would also rely on the decision in SREI Infrastructure Finance Ltd. Vs. Bhageeratha Engineering Ltd. and Ors., AIR 2009 Gah 110where a learned Single Judge took the view that proceedings under Section 9 is maintainable only between the parties to the arbitration agreement. There, the applicant had financed the first Respondent therein for purchase of equipment and the first Respondent had entered into arbitration agreement with the second Respondent. There were disputes between the Respondents. The applicant under Section 9, the financier sought impleadment and protection under Section 9. It was in that context the Court took the view that the application by him was not maintainable. Hemalata Sahu Vs. Sugyani Sahu, AIR 2010 Ori 35 was another decision relied on by the learned Counsel for the Appellant. That was a case where the Court took the view that matters which were finally decided could not be reopened under Order 21 Rule 58 at the instance of third party. In Adhunik Steels Ltd. Vs. Orissa Manganese Minerals Pvt. Ltd., AIR 2007 SC 2563, again relied on by the Appellant, the Court took the view that the power under Section 9 is not totally independent of the principles governing the grant of interim injunction, that is to say, the court, while granting injunction under Section 9, cannot eschew the principles evolved under relevant provisions of the Specific Relief Act, and they would constitute the substantive law relating to the grant of injunction.

6. Learned Counsel for the Appellant also relied on the judgment of the Apex Court in Prasad Vs. Monnet Finance Ltd., 2010 (4) KLT 66. The Court took the view that there was no arbitration agreement between the parties and the Appellant could not have been impleaded in the arbitration proceedings and the award against the Appellant was interfered with. This was on the basis that the Appellant who was a guarantor for a loan, could not be made a party to the reference to arbitration, as he was not a party to the loan agreement containing the arbitration agreement.

7. Per contra, learned Counsel for the first Respondent would contend relying on the judgment of this Court in Sirajudheen K. Vs. Sreedhar K. Kottaram, 2010 (1) KHC 281though the first Respondent is not a party to the arbitration agreement, she has not sought any of the reliefs under Section 9. In other words, she was constrained to come to the Court only for the reason that an order of attachment was obtained under Section 9 at the instance of the Appellant and he draws a distinction by pointing out that the first Respondent has not claimed any of the reliefs under Section 9. On the other hand, she has approached the Court to persuade the Court to lift the attachment, as before the attachment could be effected, she had purchased the property. He would draw our attention to the words in Section 9 which reads as follows:

9. Interim measures etc. by Court.- A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a Court:

(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

He would also contend that even though Order 21 Rule 58 as such is not applicable and it may also be correct to say that the order lifting the attachment is not a decree, he would contend that the general principles would apply and there is power with the Court to lift the attachment.

8. Section 9 of the Act is a novel provision. The repository of the power under Section 9 is the Principal Civil Court having jurisdiction. Undoubtedly, as held by the Apex Court and as referred to by us, the power to grant relief must be exercised in the context of the well established principles governing the same.

9. Rule 9 of Order 38 Code of Code of Civil Procedure provides for attachment to be withdrawn, upon the Defendant furnishing security together with security for the costs of the attachment or when the Suit is dismissed. Rule 10 of Order 38 declares that the attachment before judgment will not affect the rights existing prior to the attachment of persons not parties to the Suit. As per Order 38 Rule 11A, the provisions of the Code applicable to an attachment made in execution of a decree shall so far as may be, apply to an attachment made before judgment, which continues after judgment by virtue of Rule 11.

10. Under Order 38 Rule 5, it is open to the Court to pass an order of conditional attachment. Under Order 38 Rule 6, if the Defendant fails to show cause why he should not furnish security or fails to furnish security, the court may order attachment. It is open to the Defendant to furnish security or to show cause and in such a case, the court is bound under Order 38 Rule 6(2) to withdraw the attachment already ordered. When an attachment is made, it may also affect third parties. A third party may be a person with whom the Defendant has entered into an agreement concerning property under which the third party has rights. Likewise, a third party may come forward with a case that the property which is attached actually belongs to him, and that the Defendant has no right over the property. A species of such a category would be the case of a person who comes forward pointing out that before the attachment was effected, though the property belonged to the Defendant, the property has been transferred to the third party. We are concerned with in this case with the last category.

11. No argument was addressed before us to unsettle the finding of the court below that there was an assignment of the rights of the Respondents to the application under Section 9 filed by the Appellant prior to the order of attachment being effected. We are also not called upon to pronounce on the correctness of the finding by the court below that the transfer in favour of the first Respondent is not a fraudulent one. Therefore, this is a case whereon facts which are not disputed, by the time the order of attachment was effected, there was a valid assignment in favour of the first Respondent by the Respondents to the application under Section 9 filed by the Appellant. We must notice that the order of attachment in such circumstances would constitute a shadow over the rights of the first Respondent. It is true that the order of attachment does not create any interest over the property and its effect is against Respondents 2 to 4 that they are forbidden from alienating the property. It is also true that prior to such attachment, the assignment in favour of the first Respondent has taken place and it could be argued that under Order 38 Rule 10, the order of attachment will not affect the right of the first Respondent. An order of attachment in respect of immovable property is effected by prohibiting the judgment debtor, Defendant/Respondent from transferring or charging the property in any way and all persons from taking any benefit from such transfer of charge. In the State of Kerala, Sub-rule is inserted in Order 21 Rule 54. It reads as follows:

54. Attachment of immovable Property.- (3) The attachment shall be deemed to have taken as against transferees without consideration from the judgment-debtor from the date of the order of attachment and as against all other persons from the date on which they respectively had knowledge of the order of attachment or the date on which the order was duly proclaimed under Sub-rule (2) whichever is the earlier.”

12. What has been done by the court in this case is to lift the attachment on finding that the property had already been transferred prior to the date of attachment being effected. The Appellant does not challenge before us the finding of the court below that the assignment in favour of the first Respondent was effected prior to the attachment being effected and that the transaction was not fraudulent. Therefore, actually the Appellant cannot have any grievance against the order of attachment being lifted, as no purpose will be served by the continuance of the attachment.

13. Of course, the first Respondent filed the application under Section 9 read with Order 21 Rule 58. But, the first Respondent has not sought for passing of an order contemplated under Section 9 in her favour. Quoting of a wrong provision will not invalidate an order if power is otherwise available. The Appellant may be correct in contending and the first Respondent also does not join issue with him that Order 21 Rule 58 may not be applicable.

14. It is not as if this is a case where the first Respondent can have a complaint as such against the order passed by the Court. This is for the reason that at the time when the order was passed by the court, there was no assignment in favour of the first Respondent. But, none-the-less, it could be argued that the continuance of the order of attachment would create a shadow over the rights of the first Respondent and would adversely affect her if the court were not apprised of the assignment made prior to the order of attachment being effected and the court persuaded to withdraw the same. We have already noticed that the Appellant cannot be said to be prejudiced on the merits of the matter.

15. In Sirajudheen K. Vs. Sreedhar K. Kottaram, 2010 (1) KHC 281 this Court, no doubt, was dealing with a case of the Defendant furnishing security and the court lifting the attachment whereas this is a case where a third party applies to vacate the order. This Court has taken the view in the said decision that the general principles would apply. In fact, it cannot be in the region of any dispute that if the court has passed an order which is obtained by practising fraud, it must possess the power to recall the order. Equally, we would think that under Section 9 of the Act providing for passing of interim orders, the court would have incidental and ancillary power which is inherent in it as a court to vacate the order, if it is convinced that even prior to the order of attachment being effected, there was a valid assignment. We would think that clothing the court with such powers under Section 9 would only tantamount to a recognition of the court's powers as a court intended to do justice. We would think that the court must possess the inherent power also to vacate the order of attachment when it is demonstrated to it that the order of attachment has, in fact, ceased to be of any effect in view of the assignment being made prior to the attachment being effected. Precisely, it is this which the court below has done. We would also think that there is merit in the contention of the first Respondent that the power under Order 21 Rule 58 must on general principles be made applicable without actually applying the provisions as such. Even without the same, we are of the view that as already held by us, the court must possess inherent powers or ancillary powers to vacate the order of attachment in view of the evidence which was brought before it. The acceptance of the contention of the Appellant would involve driving of the third party to institute a Suit questioning the legality of the order of attachment. In such circumstances, we see no merit in the Appeal and the Appeal is dismissed.

-----------------


Arb.A. No. 17 of 2010 - Union of India Vs. M/s. Bharath Builders & Contractors, (2012) 250 KLR 708 : 2012 (2) KLT 812

posted May 24, 2012, 2:20 AM by Law Kerala   [ updated Jun 4, 2012, 5:09 AM ]

(2012) 250 KLR 708 
IN THE HIGH COURT OF KERALA AT ERNAKULAM 


PRESENT: THE HONOURABLE MR.JUSTICE R.BASANT & THE HONOURABLE MR.JUSTICE S.S.SATHEESACHANDRAN 
THURSDAY, THE 12TH DAY OF APRIL 2012/23RD CHAITHRA 1934 
Arb.A.No. 17 of 2010 ( ) 
------------------------ 
ORDER DATED 21.12.2009 IN ARB.O.P.NO.526/2008 OF THE IST ADDITIONAL DISTRICT JUDGE, ERNAKULAM 

APPELLANT(S)/APPELLANT/PETITIONER: 
--------------------------------- 
UNION OF INDIA REP. BY CHIEF ENGINEER, NAVAL WORKS, NAVAL BASE P.O. KATTARIBAGH, KOCHI-4. BY ADV. SRI.S.KRISHNAMOORTHY, CGC 
RESPONDENT(S): 
-------------- 
M/S.BHARATH BUILDERS & CONTRACTORS, C/O.G.KARTHIKEYAN, PARTNER, "SREE GOVINDAM" AYYAPPANKAVU, CHITTOOR ROAD, KOCHI-18. 
BY ADV. SRI.MEIJO KURIAN PUVATHINGAL 
THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 23-03-2012, THE COURT ON 12-04-2012 DELIVERED THE FOLLOWING: 

C.R. 
R.BASANT & S.S.SATHEESACHANDRAN, JJ. 
------------------------------- 
Arbitration Appeal No.17 OF 2010 (D) 
----------------------------------- 
Dated this the 12th day of April, 2012 

Head Note:-
Arbitration and Conciliation Act, 1996 - Section 34 - When the award is opposed to public policy it is void, and as such, there cannot be any question of upholding any part of the award in respect of certain claims alone.

J U D G M E N T 


Satheesachandran, J. 


The appellant, Union of India, was the respondent in the arbitration proceedings emanating from the contract agreement, CA NO.CECZ/CHN/34 of 1989-90: Provision of an AED Hangar at INS Garuda, Naval Base, Kochi, in which a sole arbitrator was appointed as per the directions issued by this Court in Writ Petition No.10520 of 2004. The award passed by the arbitrator was challenged by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996, for short, `the Act', on various grounds, before the court below, the 1st Additional District Judge, Ernakulam. The learned District Judge, repelling the challenges raised against the award, dismissed that application. Feeling aggrieved, the appellant has preferred this appeal.


2. Short facts necessary for disposal of this appeal can be summed up thus: 


The respondent/contractor was awarded the contract work, construction of an AED Hangar at INS Garuda, Naval Base, for a sum of Rs.1,42,58,880/-. That contract work bearing CA NO.CECZ/CHN/34/1989-90: provision of AED Hangar at INS Garuda, Kochi was entered into under the General Conditions of Contracts of I.A.F.W-2249, to which, Military Engineering Service Rules, Regulations, Conditions etc. are applicable, including adherence to the Official Secrets Act by the employees engaged by the contractor to execute the work, even after its execution. While the contract work was in progress with nearly 86% of such work completed, the AED Hangar constructed collapsed down on 27-03-1992. Rehabilitation work was carried out by the same contractor/ respondent without entering into any fresh contract, and, later, the work was completed within the extended period by 30-09-1999. After completion of the work, the respondent, who is hereinafter referred to as the claimant, raised various claims over the execution of the work and sought for resolving the disputes by reference to the arbitration as provided under the agreement. The claimant, later, filed a writ petition numbered as W.P.(C).No.10520 of 2004 seeking a number of reliefs over the work executed. Pursuant to the directions issued by this Court in the writ petition, a sole arbitrator (D.K.Sharma, Engineer in Chief, Army Head Quarters, New Delhi) was appointed invoking Clause 70 of I.A.F.W-2249. The terms of reference for arbitration covered claim Nos.1 to 75 by the claimant, and claim Nos.1 to 7 by the Union of India. Award passed by the arbitrator was challenged by the appellant before the court below mainly on grounds under Section 34(2)(a) (iv) and under Section 34(2)(b)(ii) of the Act. The learned District Judge, as already indicated, turned down the challenges raised to the award; and, questioning the correctness of that decision as unsustainable under law and facts, the appeal is preferred. 


3. Learned Central Government Standing Counsel Sri.S.Krishnamoorthy assailed the award passed by the arbitrator as wholly unsustainable, incorrect and illegal, contending that not only the arbitrator has embarked upon disputes which were not arbitrable, but, he has also decided the disputed issues flouting even principles of natural justice inasmuch as denying opportunity to the appellant to challenge the materials brought in evidence and relied to enter findings to base the award upholding the claims of the claimant. The appellant has raised a preliminary objection before the arbitrator that the case of `design fault' canvassed by the claimant as the cause for collapse of the hangar to sustain his claims was not at all arbitrable since he had taken the rehabilitation work unconditionally agreeing to complete the work on the same terms and conditions of the contract previously entered into, at his risk and cost. Changes in the design to facilitate the rehabilitation work was nothing but a deviation to the existing contract permitted by the terms and conditions of I.A.F.W-2249 and, there was no novation of contract as contended by the claimant to base his claims that design fault resulted in the collapsing of the hangar, is the submission of learned Central Government Standing Counsel. The arbitrator by negativing the preliminary objections that design fault is not arbitrable, has exceeded his jurisdiction and, the award passed by him is vitiated and unsustainable, submits the counsel. The next limb of attack to assail the award by the learned Central Government Standing Counsel was that there was denial of opportunity to the appellant to examine the expert who furnished the opinion that design fault resulted in collapsing of the hangar. A specific request was made in writing to provide opportunity to cross examine that expert, and the defence experts, who were involved in the preparation of the designs, to substantiate the contentions of the appellant. The arbitrator turned them down and even refused to furnish a copy of the report of the expert, which too was applied for, and, thus, there was flagrant violation of the provisions of sub section (2) of Section 26 of the Act by the arbitrator. Disallowing of the request to examine the expert, and, the arbitration proceeding conducted denying opportunity to the appellant to challenge the report of the expert, tantamounts to flouting of the fundamental rules of procedure to be followed in decision making by any person under law, submits the counsel. The course so followed negating natural justice by the arbitrator is against the public policy of the land and, therefore, the award is vitiated on a ground covered under Section 34(2)(v) of the Act, according to the learned Central Government Standing Counsel. The arbitrator, it is urged, has relied on inadmissible materials, to support his finding on disputed issues, is the further submission of the learned Central Government Standing Counsel. Reference to the report by Board of Inquiry over the collapsing of the hangar and advertance to the recommendation in such report in the award is unethical and improper, and totally uncalled for, submits the counsel. Such report was placed only for perusal, that too on orders passed by the arbitral tribunal, making it clear, and also with the reservation, that it is confidential. The Board of Inquiry constituted under Defence Regulation does not envisage of any finding but only of recommendation, which may or may not be acceptable to the Competent Authority, is the submission of the Central Government Standing Counsel to assert that the arbitrator has egregiously erred in adverting and referring to such recommendation in his award to enter finding that there was design fault over the roof truss and it led to the collapse of the hangar. The Board of Inquiry and recommendations over any matter covered by Defence Regulation by such Board are only part of an in-house mechanism, strictly applicable to Defence Services, which cannot form the basis nor even scrutiny at the instance of any third party, is the submission of the Central Government Standing Counsel to contend that the arbitrator has acted illegally in relying upon the recommendation of the Board discarding the objections raised thereto by the appellant. 


4. Challenges raised before the court below to impeach the award as unsustainable on grounds that the claimant had received compensation from the insurance company over the loss arising from the collapsing of the hangar during the execution of the contract work and also that the interest fixed on the claims allowed at the rate of 10% by the arbitrator was excessive and unreasonable and it could have been fixed only at the rate of 6% per annum have also been canvassed by the learned Central Government Standing Counsel. However those challenges were not pursued as no material from the record could be pointed out to differ from the view taken by the arbitrator and the learned District Judge showing that the claimant has received any compensation from the insurance company, and, that the arbitrator had exercised his discretion improperly in awarding 10% interest per annum on the sum awarded to the claimant. 


5. Learned counsel for the claimant, Sri. Meijo Kurian resisted the challenges to the award and also to the judgment passed by the learned District Judge, as unworthy of any merit. Over the challenge raised that design fault was not an arbitrable issue, the learned counsel submitted that any exception thereto required to be raised before filing the defence statement, but, it was advanced long after such statement was filed. Further more, very many disputes covered by the claims rested on the fulcrum of design fault which, according to the claimant, resulted in the collapse of the hangar. The appellant too requested to have the design checked by the arbitrator through an expert agency of his choice. Accordingly, acceding to the request of the appellant, both parties were directed to file panel of experts by the arbitrator, and one among those named in the panel of the appellant was chosen to check the design. The appellant having asked for checking the design by an expert has given up whatever objections raised that design fault was not arbitrable, and it cannot turn around and contend that the arbitrator has exceeded his jurisdiction in examining whether the design fault has caused collapsing of the hangar, submits the counsel. The claimant undertook that rehabilitation work without prejudice to his rights and claims and, further, the appellant had also supplied materials for such work treating that there was a novation of the contract, according to the counsel. So far as the denial of opportunity to the appellant to examine the expert and reliance placed on his report without providing an opportunity to challenge it, to assail the award, learned counsel contended that it has no merit as none of the parties to the proceedings had expressed any desire to have the expert examined when a request was made for the appointment of an expert. If at all such a requirement had been made at the time of making the request for appointment of expert, the arbitrator could have mentioned it when willingness of the expert was asked for, that he should appear and answer before the tribunal apart from giving detailed analysis report in writing. Without asking for the willingness of the expert to do so at a later stage after the report was filed by the expert, the arbitrator could not have asked him to face examination over his report, is the submission of the learned counsel. There was no infringement or violation of Section 26 of the Act by the non-summoning and examining of the expert, is the submission of the counsel pointing out that even the recommendation made by the Board of Inquiry constituted by the appellant would disclose that design fault of the roof truss contributed for collapse of the hangar. Recommendation made by the Board of Inquiry which has examined the cause for the collapse of the hangar cannot be brushed aside as of no value is the submission of the counsel pointing out that the learned arbitrator has not based his findings solely on such inquiry report but on other materials including the report of the expert to conclude that design fault contributed for the collapse of the hangar. Learned counsel adverting to the minutes recorded by the arbitrator over the deliberations of the arbitral proceedings held on 11th to 13th of September, 2011 submitted that the appellant and his counsel had acknowledged under their signature that they had full opportunity to present and argue their case and nothing further to add except the submissions made. Though the appellant has requested for examination of the expert, even by making a request in writing, it was not insisted upon nor any protest made before final arguments were over, is the submission of the counsel to contend that challenge canvassed on that score to assail the award is meritless. The award passed is proper, legal and correct, and it does not call for any interference, is the submission of the counsel. 


6. On the submissions made by the counsel with reference to the facts presented in the case, we find the following questions emerge for consideration in the appeal:- 

1. Has the arbitral tribunal exceeded its authority in entertaining the dispute over design fault, and, is the award passed entering a decision on such dispute beyond the scope of arbitration, rendering it vitiated under Section 34(2)(iv) of the Act? 

2. Whether the arbitral procedure followed by the tribunal in which the request of the appellant for a copy of expert's report and his examination was turned down, and a decision over the disputes was formed relying on such report, render the award vitiated and liable to be set aside on the grounds under Sections 34(2)(v) and also 34(b)(ii) of the Act? 

7. In the course of the hearing, we have entertained a doubt whether any challenge to the award is circumscribed by the Defence Services Regulations since the disputes covered by the arbitration proceedings pertained to the execution of a contract over the construction of a hangar in the Naval Base. We have taken note that in the Defence Services Regulations, certain procedures are laid down for arbitration in respect of military engineering contracts. Regulation No.528 in Defence Services Regulations (Volume 1) spells out the particular procedure to be followed, as far as practicable, in giving an award under the arbitration clause embodied in the MES contract forms. Clause (k) of the above regulation which is of relevance reads thus: 

"(k) If any fees or expenses are payable to the arbitrator, he should give notice to the parties that his award is ready and will be declared on payment of such fees and expenses. He may refuse to publish his award until the required payment is made. Such an award is conclusively binding on both parties and will not be looked at on its merits by a court of law. The award can only be set aside by a court of law on proof of misconduct on the part of the arbitrator or that the award was improperly secured. If a point of law arises which the arbitrator is unable to decide, he can state a special case for the opinion of the court, under the provisions of Section 13 of the Arbitration Act, 1940 where this applies. The court will give its decision on the legal point and inform the arbitrator accordingly, but will still leave the final award for the arbitrator's decision". 

(Underlining supplied) 

8. Perusing the revised edition of the Defence Services Regulations 1987, and taking note of the preface thereunder issued by the Secretary of the Government of India, that the regulations are not statutory but are supplemented to the statutory provisions wherever they exist, we have requested the learned Central Government Standing Counsel to enlighten us whether the award passed in arbitral proceedings in MES contract is open to challenges on all or any of the grounds covered by the Act or within the narrow limits of the regulation only if the award is vitiated by the misconduct of the arbitrator or it has been improperly secured (sic. procured). We have posed such a question to the learned Central Government Standing Counsel taking note of the provisions of Chapter XV of the Army Act, 1950 as well. The above chapter in the Army Act captioned `RULES' deal with the power of the Central Government to make Rules and Regulations for the purpose of giving effect to that Act and also the publication thereof mandating that such Rules and Regulations are to be laid before the Parliament. Sections 192, 193 and 193A of the Army Act read thus: 

192. Power to make regulations:- The Central Government may make regulations for all or any of the purposes of this Act other than those specified in Section 191. 

193. Publication of rules and regulations in Gazette:- All rules and regulations made under this Act shall be published in the Official Gazette and, on such publication, shall have effect as if enacted in this Act. 

193A. Rules and regulations to be laid before Parliament:- Every rule and every regulation made by the Central Government under this Act shall be laid, as soon as may be after it is made, before each House of Parliament while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session, or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulations or both Houses agree that the rule or regulations should not be made, the rule or regulations shall thereafter have effect in only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation." 

Section 193A is a new provision in the Army Act which has been brought in by amendment under Act 20 of 1983 with effect from 15-03-1984. Even before that amendment, the provision covered by Section 193 mandated of publication of the rules and regulations under the Act in the Official Gazette and once such publication made they have effect as if enacted in the Act. (Similar provisions as in the Army Act, with slight modifications, and captioned as 'Regulations' appear in Chapter X of the Navy Act, 1957. We mention it only because the contract work was executed in a naval base). In the above backdrop, we requested the Central Government Standing Counsel whether the subordinate legislation covered by the regulations is applicable to the contract covered by the award challenged in this appeal, and if so, whether without a challenge to Regulation 569(k) referred to above is the award still assailable on the grounds raised under Section 34 of the Act. We felt the need to do so taking note of the observations of the Apex Court in Hinsa Virodhak Sangh v Mirzapur Moti Kuresh Jamat (AIR 2008 SC 1892), wherein, it has been observed thus: 

"A piece of delegated legislation is also statutory in character and the only limitation on it is that it should not violate the provisions of the parent statute or of the Constitution........ 

We have recently held in Govt. of Andhra Pradesh and others v Smt. P Laxmi Devi (AIR 2008 SC 1640) that the court should exercise judicial restraint while judging the constitutional validity of statutes. In our opinion, the same principle also applies when judging the constitutional validity of delegated legislation and here also there should be judicial restraint. There is a presumption in favour of the constitutionality of statutes as well as delegated legislation, and it is only when there is a clear violation of a constitutional provision (or of the parent statute, in the case of delegated legislation) beyond reasonable doubt that the court should declare it to be unconstitutional."

That was a case where the vires of the delegated legislation were under question; but the principle laid thereunder has to be taken note of by the court in respecting and giving effect to such legislation wherever and whenever its applicability comes to its notice. 


9. Learned Central Government Standing Counsel after getting necessary inputs from the concerned has reported that Defence Regulation does not form part of MES contract. It is also submitted that Military Engineering Service is governed by the Regulations of Military Engineering Service (RMES) issued by the Government which does not impose any restriction to challenge the arbitral award. The general conditions of MES contracts issued by the Government are governed by the Indian Laws for the time being in force and the arbitrator is being appointed accordingly, and the arbitral proceedings and the award passed by such arbitrator is governed by the Act, is the stand of the Central Government Standing Counsel. Learned Standing Counsel has placed before us the queries addressed to and also the answers received thereto from the concerned as indicated above. Perusing such material, we notice that in a matter involving not only high stakes but even security cover of the defence establishment the queries of legal nature are answered by the Chief Engineer, through an officer on his behalf. We direct that the papers placed by the Standing counsel (5 sheets) (Communication dated 21st March, 2012 with the accompaniments from Deputy Director (Contracts) for Chief Engineer and also the copy of the letter sent by Central Government Standing Counsel seeking answers to the queries), be incorporated with the records of the case. Though we are not impressed by the answers given to the queries, in view of the stand taken by the appellant as above further probe with respect to the regulations referred to is found not necessary. We may also state that though the counsel for the claimant has also been requested to examine and express his views on the applicability of Regulation 569(k) of the Defence Services Regulations referred to above to the contract the stand taken by the Central Government Standing Counsel is practically conceded to. That being so, we find, in the present appeal where both sides accept that the award is challengeble under Section 34 of the Act dehors Defence Regulations 569(k), no further dilation as to whether it has applicability or not is called for. However, we have adverted to the above aspect taking note that the regulation 569 specifically mentions of MES contract and the procedure to be followed in the matter of arbitration arising out of such contracts, which has been captioned as `Procedure for Making Award under the Arbitration Clause in Military Engineering Service Contract Forms'. Further more, in the present scenario, where defence establishments spread over the country are also prone to threats from different corners, with regard to the execution of the contract work in such establishments like the one in the present case-construction of hangar in a Naval Base, is it advisable and more so prudent that the designs of such construction built within such security establishment, and also other materials connected with the work, without any inbuilt safeguards that they would not fall upon undesirable hands, which may cause a threat to the nation, are to be shuttled and transmitted from one court to another and subjected to scrutiny by various persons. That surely cannot be avoided if arbitration proceedings in respect of disputes over such work are allowed without adequate safeguards, and, further challenges to the award permitted without reasonable restriction imposed. Even in respect of an MES contract where the construction was within a naval base is not the applicability of the regulation of 569(k) desirable and more so necessary, is a matter that requires serious consideration by those who are at the helm of affairs of such work. We hope serious consideration thereof will be shared by those concerned taking note that the security of the nation is not a myth, but, very much depended upon eternal vigilance and preventive measures put in place to shield not only real and existing threats, but, perceived one as well.


10. The first question to be considered is whether the design fault attributed as the cause for collapse of the hangar by the claimant was not an arbitrable issue entertainable by the arbitrator. The arbitrator was incompetent to go into the question of design fault, and in doing so, discarding the preliminary objection raised by the appellant, he has exceeded his jurisdiction, and the award rendered by him is vitiated, is the challenge of the appellant. Fundamentally, such a challenge is built on the citadel that the claimant having agreed to do the rehabilitation work at his risk and cost was estopped from questioning the design on which the hangar was constructed earlier, but, collapsed down after almost major part of the execution of the work was over. We do not find any merit in the challenge canvassed by the appellant for more than one reason. First and foremost, the rehabilitation work was taken by the claimant stating in unmistakable terms that it was without his prejudice to his rights and claims. Such work was taken at his risk and cost and perhaps even to avoid impairment to his reputation does not indicate that he had given up once and forever whatever claims he had over the work already performed irrespective of the collapsing down of the hangar put up. If the hangar had actually collapsed down on account of the design fault, or atleast that contributed even minimally for its collapse, the fact that he had taken the rehabilitation work at his risk and cost, that alone, would no way preclude him to canvass such a case also to sustain his claims. The learned Central Government Standing Counsel has relied on clause 48 in Chapter III dealing with Performance of Contracts in I.A.F.W-2249, which contains the General Conditions of Contract, to contend that when rehabilitation work on collapsing down of the hanger was taken by the claimant on his risk and costs it is not open to him to set up a case that the hanger collapsed down on account of the design fault. We do not find anything in clause 48 in I.A.F.W-2249 precluding and interdicting the contractor/claimant in pointing out and pressing upon any default on the part of the other contracting party, the appellant in relation to the contract work that had resulted in loss or damages to him. Clause 48 in I.A.F.W-2249 `General conditions of contract' does not insulate the appellant from all and every fault on its part, if that be so, in the execution of the contract work. Then also, looking into what all transpired during the arbitration proceedings it is evidently clear that the challenge set up that the arbitral tribunal exceeded its authority in deciding the dispute over design fault has no merit at all. Section 16 of the Act deals with the competence of the arbitral tribunal to rule on its jurisdiction. Sub sections (2) and (3) of that section which have some relevance on the question posed read thus: 

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. 

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings." 

In examining the challenge canvassed by the appellant over the dispute relating to design fault, whether it is an arbitrable issue or not, it could be seen that it was not a question of competency of the jurisdiction of the arbitrator but one of exceeding the authority of the arbitrator as under sub section (3) referred to above, provided it is found so. We find no merit in the submission of the learned counsel for the claimant that such an issue could not have been raised by the appellant after filing of the statement of defence. In fact, even a challenge over jurisdiction can be entertained by the arbitrator after filing of the statement of defence, provided he considers that the delay thereof is justifiable. This is explicitly spelt out under sub section (4) of Section 16 of the Act. If a plea is raised under sub sections (2) or (3), as the case may be, the arbitral tribunal shall decide it and in the event of rejection of such plea, it shall continue the arbitral proceedings and make an arbitral award. Sub section (5) of Section 16 of the Act reserves the right of the aggrieved party, whose plea raised under sub sections (2) or (3) was rejected, to make an application setting aside such an arbitral award under Section 34 of the Act. When such inbuilt provisions are made under Section 16 of the Act with respect to the jurisdiction of the arbitral tribunal and also his competency to arbitrate one or other matter when he has jurisdiction in respect of other matters covered by the proceedings, the question looms large whether the appellant, in the given facts of the case, is entitled to set up the plea canvassed under sub section (3) that the arbitrator has exceeded his authority in deciding design fault as a ground to assail his award under Section 34 of the Act. True, the appellant has raised such a plea contending that the arbitrator has no authority to decide the dispute over design fault. However, we notice that in the very same preliminary objection canvassed the appellant has made a request for appointment of an expert to determine whether there was any defective design; and, the arbitrator, on such request, directed both parties to file panel of experts to choose one of them to furnish opinion. Once the panels were filed, National Institute of Technology, Trichi was chosen by the appellant, from the names given by the appellant though the name of the expert was not disclosed at that stage. The direction of the arbitrator to deposit the consultation charges of Rs.1,50,000/- to the expert in equal proportion by both parties has also been complied by the appellant. The aforesaid circumstances clearly demonstrate whatever challenge raised over the competency of the arbitrator to examine the dispute over the design fault as a preliminary objection by the appellant was nothing but one raised for namesake, and the appellant too desired the arbitrator to examine that issue appointing an expert to furnish opinion after having a study of the designs prepared and other materials, to consider whether design fault had resulted or contributed for collapse of the hangar. Such being the fact situation presented in the case, we do not find any merit in the challenge raised by the appellant that the arbitrator exceeded his authority in arbitrating over the disputes relating to design fault, to challenge the award passed by him. 


11. The seminal and spinal issue to be resolved in this appeal on the contextual facts presented and grounds of attack raised against the award is whether the award passed by the arbitrator without supplying a copy of the expert and also denying opportunity to the appellant to examine the expert is opposed to public policy. Has the arbitrator flouted and transgressed the procedure to be followed in arbitral proceedings of providing equal opportunity to both parties is also to be considered. Facts are not in dispute that the appellant did apply for getting a copy of the report of the expert appointed by the arbitral tribunal, whose consultation charges were equally borne by it with the claimant, and that it had also requested for his examination and the defence experts who prepared the designs, on the basis of which the hangar was previously constructed, but, collapsed down. In the communication bearing No.810230/Arbitration/876/E8 dated 31.08.2007 addressed to the arbitrator taking exception to the order of the arbitrator for not furnishing copy of the report of the expert to the parties to the arbitration, the appellant has specifically made a request for such report on the design check contending that it is absolutely essential to explain about the design, the shortcomings, if any, after studying the design with the report of the expert. Paragraphs 4 to 6 of the aforesaid communication addressed to the arbitrator are worth reading: 

4. It is submitted that the Original design of the AED Hangar, which forms a part of the contract had been prepared by CE, (Design and Consultancy), Pune during Feb-Mar 1998 and department wants to know that whether design has been checked based on parameters based on prevailing IS during Feb 1988. Almost all such important designs were prepared for the MES by the office of the Chief Engineer, (Design and Consultancy), Pune and in several places, similar designs were adopted and the best example is the AED Hanger at Arkonam in Chennai. As the officials, who prepared the original design are essentially be able to explain about their design, they have to be examined for any shortcomings if any, in the design, while comparing with the report of the expert agency. Besides that the design is being independently been checked by the officials of expert agency. It is highly necessary that the officials of both the concern are to be examined as witnesses in the above case. 

5. It is submitted that Section 26 (b) of the Arbitration and Conciliation Act, 1996, says that the experts have to furnish the relevant information to a party to the Arbitration. They should be given access to the relevant document. Further, they can examine under Section 26 (2) of the Act. Atleast under Section 26(3), the expert on request of a party, make available all the documents. Since all the report expert agency is in possession of the Arbitrator, either he may place the same for perusal or through the expert. The denial is a clear violation of the provisions of Section 26 of the Arbitration and Conciliation Act and also the principles of Natural Justice. 

6. Hence, it is prayed that the report of the expert agency on the design check may furnished to the department for its perusal and for the deliberations, as a part of the Arbitration proceedings. In this particular case, interest of justice required that the officials of the Office of the Design and Consultancy, Pune as well as the expert who checked the design as per order of the arbitrator and the then GE & AGE who has executed the work before collapse of hangar, Shri.CA Kurian, Surveyor (United India Assurance Co.), Challakkal, Old Station Road, Kochi - 18 shall be permitted to be examined as witness. 

Still, the arbitrator declined the request for a copy, and refused permission to examine the expert and also the defence personnel involved in the preparation of the designs. In the award referring to the aforesaid communication made by the appellant, the arbitrator has stated thus:

"After hearing both the parties and further perusing the written submissions made by them, it was decided by me that no further discussions/examination of witnesses was necessary on the report received from the expert agency as the expert advise on design of hangar structure was taken by appointing expert agency with clear and unconditional consent of both parties. Expert agency chosen for analysis and study of design of collapsed hangar was in fact the one proposed by the Union of India themselves. Non-supply of copy of the experts report to Union of Indian cannot be considered as denial of opportunity as alleged. Accordingly, the hearing was treated as complete in all respects while full opportunity having been given to both the parties to present and argue their case as also noted by them duly signed on 13 Sep 07 during final hearing of the case." 

The report of the expert, copy of which was not supplied, with the examination of such expert also declined, it is seen, has been based and, in fact, it is the foundation on which the findings of the award are pivoted by the arbitrator. The arbitrator on the basis of the report of the expert has expressed thus: 

"The report clearly stated that the structure is safe in all aspects except in roof trusses. It is worth mentioning here that the roof structure comprising of trusses has collapsed during the construction of the hangar. Thus, it brings me to conclude, with regard to design aspect, that the design of roof trusses incorporated in tender was inadequate/unsafe for which responsibility rests with Union of India." 

The arbitrator, perhaps, was totally oblivious of the Conduct of Procedure for arbitration proceedings covered by the Act. Section 18 of the Act mandates that not only that the party shall be treated with equality but each of them shall be given full opportunity to present its case. The aforesaid Section reads thus: 

"18. Equal treatment of parties:- The party shall be treated with equality and each party shall be given a full opportunity to present his case". 

It is not only impartiality and absence of bias from the part of the arbitrator that is postulated in the aforesaid section, but an inviolable binding obligation to conduct a fair trial in the arbitration proceedings. Fair trial requires something more than treating the parties with equality. It contemplates of providing each party reasonable opportunity to present his case also. Where a most crucial report which has decisive effect on the issues involved in the arbitration proceedings, and that too collected at the instance of the parties to the proceedings, was withheld from them, and, then, relied upon to pass the award by the arbitrator, it goes without saying that the procedure followed by him was clearly unethical and unsustainable. A party to the proceeding must know what is the evidence that has been given and he must also be given an opportunity to show why it is not to be used against him. In B.Surinder Singh Kanda v. Government of the Federation of Malaya (1962 AC 322) Lord Denning speaking for the Privy Council has said:- 

"If the right to be heard is to be a real right, which is worth anything, it must carry with it a right in the accused man to know the case which is made against him. He must know what evidence has been given and what statements have been made affecting him; and then he must be given a fair opportunity to correct or contradict them." 

Lord Macnaughten in Lapointe v. L'Association de Bienfaisance et de Retraite de la Police de Montreal (1906 AC 535) has held that the rule is not confined only to conduct of strictly legal tribunals but is applicable to every tribunals or body of persons invested with the authority to adjudicate matters involving civil consequences to individual. Lord Tucker L.J. in Russel v. Duke of Norfolk and Others (1949) 1 ALL ER109 (CA) has said thus: 

"Whatever standard of natural justice is adopted, one essential is that the person concerned should have a reasonable opportunity of presenting his case." 

The Apex Court in Smt.Maneka Gandhi v. Union of India and another (AIR 1978 SC 597) has held that the rule of fair opportunity is sufficiently flexible to permit modifications and variations to suit exigencies of myriad situations, which may arise. The expressions `fair opportunity' `reasonable opportunity' or `proper hearing' etc. are not capable of any precise definition. However, whether it be before the court or before the arbitrator each party must have reasonable opportunity to present evidence. The Apex Court in Union of India v. Varma (T.R.) (1958 (11) L.L.J. 259) has said thus: 

"Stating it broadly and without intending it to be exhaustive, it may be observed that rules of natural justice require that a party should have the opportunity of adducing all relevant evidence on which he relies, that the evidence of the opponent should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party, and that no materials should be relied on against him without his being given an opportunity of explaining them." 

(underlining supplied). 

In any view of the matter, the non-supply of a copy of the expert to the appellant and also denying it an opportunity to examine that expert amounted to denial of equal opportunity to present its case. 


12. In the context, Section 26 of the Act dealing with the appointment of expert by the arbitral tribunal is also quite relevant. Sub section (2) of the above Section which has some bearing on the question now under consideration reads thus: 

"(2) Unless otherwise agreed by the parties, if a party so requests or if the arbitral tribunal considers it necessary, the expert shall, after delivery of its written or oral report, participate in an oral hearing where the parties have the opportunity to put questions to him and to present expert witnesses in order to testify the points at issue." 

The above statutory provision, not only safeguard the rights of the parties to the arbitration proceedings but empower them to summon and examine the expert, who has been appointed by the arbitral tribunal to report on specific issues, and also to present expert witnesses to testify on the points at issue. What has been stated in the award by the arbitrator, and also submitted by the learned counsel for the claimant, that since examination of the expert who filed the report was not insisted upon when his appointment was requested for, it cannot be allowed in the proceedings, is totally fallacious and, in fact, amounts to repudiation of the statutory mandate. 


13. We may also point out that whether the arbitrator should hold oral hearing for the presentation of evidence, or for oral argument or whether the proceedings shall be conducted on the basis of documents and other materials, depends primarily upon the agreement of the parties, who seek resolving of their disputes by arbitration. The arbitrator has also to give sufficient advance notice of any hearing, and, in fact, even in respect of any meeting of the tribunal for the purpose of inspection of the documents, goods or other property. Statutory mandates binding upon the arbitrator to conduct the arbitration proceedings fairly are spelt out by sub sections (1) and (2) of Section 24 of the Act. That Section contains another mandatory provision in the conducting of arbitration proceedings by the tribunal. Sub section (3) of Section 24 of the Act reads thus: 

(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. 

(underlining supplied) 

When that is the statutory safeguard ensuring fair opportunity to the parties to the arbitration proceedings to seek and look into all materials including expert report or evidentiary documents which the arbitral tribunal may rely in making his decision, the decision taken by the arbitrator that no copy of the expert report collected in the proceedings need be given to the appellant and no opportunity to be provided for examination of the expert, is patently erroneous, unsustainable and illegal. 


14. The recommendations of the Board of Inquiry constituted by the authorities of the Naval Force over the collapsing of the hangar resulting in the death of two workmen during the execution of its contract work, we find, are extensively referred to in the award by the learned arbitrator and, further, relied upon as well to base his decision. Objections raised by the appellant that the recommendations of the Board of Inquiry are confidential in nature, and, at the most, they are only recommendations not binding, and even its acceptability rests with the Commanding officer, has been given scant respect by the arbitrator. Scanning through the provisions of the Army Act and also the Navy Act, the Rules and Regulations thereunder, we notice that even in respect of recommendations of Board of Inquiry or Board of officials constituted in matters connected with and involving the interests of the Forces, there is statutory interdiction barring its admissibility in evidence. When that be the case, it is only to be stated that the arbitrator was not at all justified in referring to the recommendations of the Board of Inquiry, more so, in placing reliance of such recommendations to found his decision rendered in the award. The award so rendered by him suffers from incurable legal infirmity. 


15. The upshot of the discussion as above leaves no room for any doubt that the arbitrator in the conducting of the proceedings has followed a procedure opposed to public policy inasmuch as flouting the statutory mandates under the Act regulating the procedure for arbitration proceedings and also the law of the land, by denying opportunity to the parties to present their case. The arbitral award is liable to be set aside if arbitral procedure followed by the arbitrator was not in consonance with the provisions under Part I of the Act. Section 34(2)(v) of the Act reads thus: 

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part". 

Parties to the arbitral proceedings in the present case have not agreed to a different procedure than what is contemplated under Part I of the Act. Even if such an agreement had been entered into if that was in conflict with any provision of the above Part, it cannot be given effect to as the parties cannot derogate any of the provisions under that Part in the conducting of the arbitration proceedings. However, it is open to them to adopt a procedure in terms of Part I of the Act so far as whether oral hearing to lead evidence is required or not or arguments alone on production of materials would suffice. Be that as it may, it goes without saying that none of the parties to the arbitration proceedings can adopt a procedure which is in conflict with any provision of Part I of the Act by way of agreement. Where the arbitrator has followed a procedure conflicting and violating the mandatory prescriptions in the conducting of the proceedings under Sections 18, 24 (3) and 26 (2) of the Act it is a clear case that the award passed by him in derogation of the provisions of Part I of the Act is vitiated and liable to be set aside. Similarly, as already taken note of, the procedure followed by the arbitrator in denying equal opportunity to the parties to the proceedings by withholding the report of the expert and declining his examination even after a demand was made by the appellant is in conflict with the public policy of India as the procedure followed thereof is against the fundamental principles of natural justice. The arbitral award so passed by arbitrator is in conflict with the public policy of India and, thus, on that ground covered under Sections 34(2)(b)(ii) of the Act as well it is unsustainable. The phrase 'public policy of India' as covered under the aforesaid section has been considered by the Apex Court in Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd. (AIR 2003 SC 2629). The Apex Court dilating on the phrase has held thus: 

"The phrase 'public policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Award could be set aside if it is contrary to:- (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or (d) in addition, if it is patently illegal. Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks that conscience of the Court. Such award is opposed to public policy and is required to be adjudged void. 

We have already found that the illegality over the conducting of the proceedings by the arbitrator is not of a trivial nature but something which goes to the root of the matter and when that be so, the irresistible conclusion has to follow that the award is against the public policy of the land. 


16. Though the learned Central Government Standing Counsel submitted that the award so far as the upholding the claims under claim Nos.8 to 75 are not seriously opposed and it need not be set aside, urging that the challenge to the award on the ground it is opposed to public policy is against the awarding of claims under 1 to 7, we are not impressed by that submission. When the award is found to be void as opposed to public policy no question of segregation of any part of the award would emerge for consideration. We may also state that the suggestion mooted as above has been objected to without reservation by the counsel for the claimant, who would state that if the award is fundamentally unsustainable, which is not conceded, it has to be set aside in toto and not in piecemeal. When the award is opposed to public policy it is void, and as such, there cannot be any question of upholding any part of the award in respect of certain claims alone, as adjudged by the arbitrator. 


17. Now that we have come to the conclusion that the award is void as it is opposed to public policy and is liable to be set aside, what next to be followed also require to be considered. The arbitrator, who passed the award has already retired from service. After ascertaining from the parties whether on remission he can conduct the arbitration proceedings, it is reported that he is not available, and also not interested in the conducting of the arbitration proceedings over the dispute between the parties any more. No statutory provision is available for remission once the award is set aside on any of the grounds under Section 34 of the Act. However, we notice from the judicial pronouncements rendered by the Apex Court that on setting aside of the award remitting it to the same arbitrator is well recognized. Still, there is no enabling provision, nor any judicial pronouncement brought to our notice, empowering this Court to appoint an arbitrator afresh to conduct the arbitration proceedings once the award is set aside under Section 34 of the Act. But looking into Clause 70 of I.A.F.W-2249 'General Conditions of Contract' governing the contract work involved in the case, we find the imponderability presented in the appointment of an arbitrator afresh on setting aside of the award can be resolved. Clause 70 of I.A.F.W-2249 deals with the arbitration clause governing the contract work. That clause provides that disputes between the parties to the contract, following the procedure prescribed, are to be referred to arbitration mandating that a Serving Officer having the required qualification specified has to be appointed as the arbitrator by the authority mentioned in the tender documents. That clause also contains a safeguard to meet any contingency arising from the resignation, vacation of office or unwillingness to act by the arbitrator appointed, for any reason whatsoever. That part of the clause 70 reads thus: 

"If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place. 

In view of the provision stated as above forming part of the contract, more so in the arbitration clause, we do not find any impediment to the competent authority mentioned in the tender documents to appoint an arbitrator afresh on setting aside of the award and remission of the case where the previous arbitrator has now retired from service. 


In the result, we pass the following orders: 

i. Award challenged in the appeal is declared void and it is set aside; and the case is remitted for determination of the claims of both parties through arbitration afresh in accordance with law. 

ii. Competent authority named in the tender documents, Engineer-in-Chief, Army Head Quarters, New Delhi, shall appoint a sole arbitrator in terms of I.A.F.W-2249, within one month from the date of receipt of a copy of this judgment, to conduct the arbitration proceedings afresh, and to pass the award. 

iii. A Copy of the judgment shall be sent to the Secretary (Defence), Union of India, to take note of the observations made in paragraph 9, and to examine whether statutory inbuilt safeguards have to be put in place over the execution of contract works in defence establishments restricting the scope of arbitration and limiting it in terms of the Defence Services Regulation 569(k), provided the same as of now is not applicable to such contract works. Copy of the judgment shall also be forwarded to the Engineer in Chief, Army Head Quarters, New Delhi, to appoint  an arbitrator to conduct the arbitration proceedings, with the time limit fixed by this Court. 

(iv) The arbitrator to be appointed shall complete the arbitration proceedings as expeditiously as possible, at any rate, within six months from the date of assumption of his office as arbitrator. 

(v) Whatever materials already placed in the arbitration proceedings by the parties shall form part of the records in the arbitration proceedings ordered to be commenced afresh on remission of the case by appointment of an arbitrator afresh. 

Appeal is allowed as indicated above, directing both sides to suffer their costs. 


R.BASANT JUDGE 

S.S.SATHEESACHANDRAN JUDGE 

vdv/prp  


Arb.A. No. 7 of 2012 - State of Kerala Vs. M/s. Somdatt Builders Ltd., 2012 (2) KLJ 58 : 2012 (2) KHC 46

posted Apr 2, 2012, 7:44 PM by Kesav Das   [ updated Jun 19, 2012, 5:41 AM by Law Kerala ]

(2012) 227 KLR 984

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR 

THURSDAY, THE 1ST DAY OF MARCH 2012/11TH PHALGUNA 1933 

Arb.A.No. 7 of 2012 () 

---------------------- 

I.A.4915/2011 IN OP(ARB) NO.71/2004 OF II ADDITIONAL DISTRICT COURT, ERNAKULAM 

................... 

APPELLANT/EMPLOYER: 

------------------------------------- 

STATE OF KERALA, REPRESENTED BY THE CHIEF ENGINEER, NATIONAL HIGHWAY, PUBLIC WORKS DEPARTMENT, PUBLIC OFFICE BUILDINGS, THIRUVANANTHAPURAM. 
BY SR. GOVT. PLEADER MR.T.T. MOHAMMED. 

RESPONDENT/CLAIMANT: 

-------------------------------------- 

M/S.SOMDATT BUILDERS LIMITED, ENGINEERING CONTRACTORS, 56-5, COMMUNITY CENTRE, E.KAILASH, NEW DELHI-112 065. 

BY SRI.ARAVIND MINOCHA, SENIOR ADVOCATE. ADV. MR.MILLU DANDAPANI 

THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 01-03-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: rs. 

THOTTATHIL B.RADHAKRISHNAN & C.T.RAVIKUMAR, JJ. 

----------------------------------- 

Arb.A.No.7 of 2012 

------------------------------------ 

Dated this the 1st day of March, 2012 

Head Note:-

Arbitration and Conciliation Act, 1996 – Sections 5 and 37 - No appeal lies against an order refusing leave to amend applications under Sec.34 of the Act.

JUDGMENT 

Thottathil B.Radhakrishnan,J. 

C.R. 

1.This appeal by the State of Kerala is filed invoking Section 37 of the Arbitration & Conciliation Act, 1996, hereinafter referred to as the `Act'. 

2.The only provision in the Act for an appeal to this Court from the order of the court dealing with an application for setting aside an arbitral award under Section 34 is sub-section (1) of Section 37, which enumerates the orders which are appealable under that provision. The legislature, in its wisdom, has categorically expressed that an appeal shall lie from the orders enumerated in clauses (a) and (b) of sub-section (1) of Section 37 "and from no others". The use of the phrase "and from no others" within brackets in sub-section (1) of section 37 is a legislative device used to keep reminding that no appeal other than that which would fall in clauses (a) and (b) of Section 37 (1) would lie. Learned counsel for the respondent also refers to section 5 which restricts the extent of judicial intervention. This appeal is, admittedly, against an order by which the Court refused to grant leave to amend an application filed under section 34 of the Act. 

3.The sequence of events would show that O.P(Arb).71/04 filed by the State before the court below seeking to set aside the award dated 20.12.2003 was dismissed on 23.3.2005. That led to MFA.16/05 to this Court. That appeal was allowed in part. The parties went to the Apex Court. Civil Appeals 3089/06 and 3090/06 were decided as per judgment dated 17.9.2009 ordering as follows: 

i. "The judgment of the High Court dated June, 2005 and the judgment dated February 23, 2005 passed by the 2nd Additional District Judge, Ernakulam are set aside. 
ii. The petition (O.P.Arb.71/2004) by the State of Kerala against the award dated December 20, 2003 is restored to the file of the 2nd Additional District Judge, Ernakulam for fresh hearing and consideration of the objections in respect of claim Nos.1, 4B, 5 and 6. 
iii. However, the 2nd Additional District Judge, Ernakulam shall fist emit the award to the Arbitral Tribunal for stating their reasons in support of claim Nos.1 and 4B and after receipt of the reasons from the arbitral tribunal proceed with the hearing and disposal of objections. 
iv.Parties shall bear their own costs." 

4.Following that, the court below remitted the award to the Arbitral Tribunal to state their reasons in support of claim No.1 and 4B in terms of directions (iii) in the judgment of the Apex Court. The Arbitral Tribunal has since stated reasons and forwarded it to the court below. State, being aggrieved by the reasons stated by the Arbitral Tribunal in support of claim Nos.1 and 4B, applied for leave to amend the application O.P (Arb).71/04. That interlocutory application stands dismissed. This order is the one that is now challenged before us. 

5.In terms of what is noted on the issue of jurisdiction referable to the provisions under sections 37 and also, 5 of the Act, no appeal lies against an order refusing leave to amend applications under Section 34 of the Act. 

6.In the result, this appeal is dismissed without expressing anything on the merits of the impugned order and without prejudice to the right, if any, of the appellant to pursue other remedies against the impugned order, in accordance with law. 

7.Having dismissed the appeal, any interlocutory order granted in this appeal, including in the nature of stay, will stand automatically vacated. The Office will re-transmit LCR to the court below forthwith. 

Sd/- THOTTATHIL B.RADHAKRISHNAN, Judge. Sd/- C.T.RAVIKUMAR, Judge. kkb.6/3. 


Arb.A. No. 44 of 2011 - Board of Trustees of Port of Cochin Vs. Jaisu Shipping Company, 2011 (4) KHC 881

posted Jan 5, 2012, 9:21 AM by Kerala Law Reporter



HIGH COURT OF KERALA

Hon’ble Mr. Justice V. Ramkumar and Hon’ble Mr. Justice P.Q. Barkath Ali

Arb. A. No. 44 of 2011

Dated this the 14th day of December, 2011

Head Note:-

Arbitration and Conciliation Act, 1996 – Section 9 - interim measure - there should be clear averment in the petition under S.9 evincing a manifest intention on the part of the applicant to go for arbitration and such intention should also be discernible from the subsequent conduct of the applicant. 

Indian Contract Act, 1872 – Sections 73, 74, 75 - Unless actual loss or damage is proved to have resulted on account of the breach of contract or rescission of contract, as the case may be, no amount by way of compensation would be payable to the claimant.

Chronological List of Cases Cited:-

  1. State of Goa Vs. Praveen Enterprises, 2011 (7) SCALE 131 : 2011 (3) KLT SN 130
  2. M/s. J. G. Engineers Vs. Union of India, (2011) 5 SCC 758 : 2011 (5) SCALE 46 : AIR 2011 SC 2477 :  2011 (2) KHC SN 19
  3. Indowind Energy Ltd. Vs. Wescare India Ltd. (2010) 5 SCC 306 : AIR 2010 SC 1793 : 2010 (4) SCALE 395
  4. Bharat Sanchar Nigam Ltd. Vs. Motorola India pvt. Ltd., (2009) 2 SCC 337 : AIR 2009 SC 357 : 2008 (12) SCALE 720
  5. Raman Tech and Process Engg. Co. Vs. Solanki Traders, (2008) 2 SCC 302
  6. Adhunik Steels Limited Vs. Orissa Manganese and Minerals (P) Ltd., (2007) 7 SCC 125 : AIR 2007 SC 2563
  7. Firm Ashok Traders Vs. Gurumukh Das Saluja, AIR 2004 SC 1433 : 2004 (3) SCC 155 :  2004 (3) KLT SN 26
  8. Sundaram Finance Ltd. Vs. NEPC India Ltd., (1999) 2 SCC 479 : AIR 1999 SC 565
  9. Woody’s Hotel Pvt. Ltd. Vs. Prasanth Kumar Panigrahy, 1998 (1) KLT 149 : 1998 (1) KLJ 169 : ILR 1998 (2) Ker. 113
  10. Retnamma Pillai Deepa Vs. Govinda Pillai Gopala Pillai, 1995 (1) KLT 405 :  1995 (1) KLJ 270 :  ILR 1995 (2) Ker. 354
  11. State of Karnataka Vs. Shree Rameshwara Rice Mills, (1987) 2 SCC 160 : AIR 1987 SC 1359 :  1987 (2) KLT SN 13
  12. Shalimar Rope Works Ltd. Vs. N. C. John & Sons. Ltd., 1986 KLT 1366 : 1986 KLJ 1051 : ILR 1987 (1) Ker. 619 : 1986 KLN 720
  13. State of Kerala Vs. United Shippers and Dredgers Ltd., 1982 KLT 738 : 1982 KLJ 430 : ILR 1982 (2) Ker. 627 : AIR 1982 Ker. 281 : 1982 KLN 544
  14. Rai Prem Chand Vs. P. K. Ahammed and Co., 1981 KLT 294
  15. Union of India Vs. Rampur Distillery and Chemical Co., Ltd., (1973) 1 SCC 649 : AIR 1973 SC 1098
  16. Maula Bux Vs. Union of India, (1969) 2 SCC 554 : 1969 KLT SN 59 : AIR 1970 SC 1955
  17. Fateh Chand Vs. Balakishan Dass, AIR 1963 SC 1405 : 1964 (1) SCR 515

For Appellant:-

  • Joseph Kodianthara

For Respondent:-

  • V. Joseph Markos
  • Mathews K. Uthuppachan
  • Binu Mathew
  • Terry V. James
  • B.J. John Prakash
  • Tom Thomas
  • K.L. Varghese
  • Sumathy Dandapani
  • Santha Varghese
  • Millu Dandapani

CONTENTS

Sl. No.

INNER TITLES

Para No.

1

The parties

2

2

The background facts in chronological order (from 31.01.2005 to   07.12.2011)

5

3

Argument of the appellant

6

4

Judicial Evaluation

7 to 23


Pre-requisites for a conditional order of attachment before judgment

Circumstances against the Appellant

8


a) No specific pleading in the O.P. in terms of Order 38 Rule 5 CPC

9


b) No manifest intention shown to go for arbitration and no pleading also in that behalf

10 to 17


c) The conduct of the appellant

18


d) Sustainability of the appellants’ demand for Rs.259.97 crores by way of compensation for the alleged breach of contract

19


e) Prima facie breach of the guiding principles for awarding compensation

20


f) Balance of convenience and comparative hardship

21


g) The Ist respondent has no attachable interest

22


Our Conclusion

23


J U D G M E N T

V. Ramkumar, J.

1. In this appeal filed under S.37(1)(a) of the Arbitration and Conciliation Act, 1996 ("the Act" for short), the appellant i.e. the Board of Trustees, Port of Cochin, challenges the order dated 05.09.2011 passed by the District Judge, Ernakulam dismissing on merits OP (Arbitration No. 505/2011) filed by the appellant under Section 9 of the Act.

THE PARTIES

2. The appellant is a major Port constituted under the Major Port Trusts Act, 1963 having its office at Willingdon Island, Kochi - I and is represented by its Chairman Sri. Paul Antony. The first respondent i.e. Jaisu Shipping Company Private Ltd. is company incorporated under the Companies Act, 1956, having its registered office at Kewal Remany House, Dinshaw Building Road, Nedar Custom House, Kandala Port, Gujrat - 370 220 and having a branch office at Link Horizon, Marine Drive, Ernakulam. The additional second respondent i.e. Jaisu Dredging and Shipping Ltd., Gujrat got itself impleaded as per the order dated 04.10.2011 in IA 2557/2011 and claims ownership rights over the dredgers and equipments in respect of which the appellant sought a conditional order of attachment .

3. As per the impugned order the learned District Judge dismissed on merits the original petition filed by the appellant under Section 9 of the Act. Hence, this appeal.

4. We heard Sr. Advocate Sri. Joseph Markos, the learned counsel appearing for the appellant and Sr. Advocate Sri. K. L. Varghese, the learned counsel appearing for the first respondent and Advocate Sri. Millu Dandapani, the learned counsel appearing for the 2nd respondent.

THE BACKGROUND FACTS

5. Before analysing the rival contentions of the parties it may be necessary to have an insight into the background facts . The following is the chronological narration of the undisputed facts leading to the final hearing of this appeal: -

31.01.2005 The appellant (Board of Trustees, Port of Cochin) executed an agreement with India Gateway Terminal (P) Ltd., (IGTPL for short - a subsidiary of Dubai Port World) for development, operation and management of an International Container Transhipment Terminal (ICTT) at Vallarpadom in Kochi. 

As per the terms of the agreement the appellant undertook to carry out capital dredging (fresh dredging) of a Berth Basin and approach channels so as to provide 14.5 meter draft (depth) required for 8000 +TEU capacity container vessels. 

IGTPL, however, insisted subsequently that in order to enable them to meet their project cargo requirements an interim depth at the basin area should be achieved and that they will themselves undertake the work of dredging for that purpose from December 2008 till July 2009. The work so undertaken by IGPTL was the dredging of the channel in front of the quay and retaining wall and in between the piles. 

15.12.2008 Appellant entered into Ext. A1 Agreement No. 52 of 2008-2009 (containing General Conditions of Contract) with the first respondent (Jaisu Shipping Company Ltd.) for carrying out the work of "capital dredging for deepening and widening of outer channel of Group B of Cochin Port Trust, deepening of inner channel of Group B leading to ICTT and creating a basin in front of ICTT for providing sufficient depth required for 14.5 m. draft container vessels and maintenance dredging for maintaining specified depths in the Group C channels of Cochin Port Trust during the period from 01. 09.2008 to 31.12.2010 by deploying Trailing Suction Hopper Dredgers (TSHDs) of suitable cap10 to 17acity and other type of dredgers, if required, and carrying out survey works as stipulated."  

The length of the proposed outer channel from the channel mouth till Buoy 10 was 13.2 kms. and the length of the proposed inner channel from Buoy 10 to the basin was 1.8 kms.  

The contract amount was Rs.525.50 crores. The appellant termed as the "employer" and the first respondent termed as the "contractor" were the "parties" to the contract. The contract period as originally fixed was from 01.09.2008 to 31.01.2010. Ext. A2 is the Special Conditions of Contract specially mentioning the scope of the work. Article 2.39 of Ext. A2 Special Conditions of Contract provides for resolution of any dispute or difference between the parties by arbitration under the Arbitration and Conciliation Act, 1996 ("the Act" for short) if attempts by the parties to settle the disputes or differences, fail. Article 2.39 reads as follows: - 

"2.39 Settlement of Disputes & Arbitration 

2.39.1. Except where otherwise provided in the Contract all questions and disputes relating to the meaning of the "Specifications, design, Drawings and instructions here - in before mentioned and as to the quality of workmanship or equipments used on the Work or as to any other question claim, right, matter or thing whatsoever in any way arising out of or relating to the Contract, designs, Drawings, Specifications, estimates, instructions, orders or these conditions or otherwise concerning the Works or the execution or failure to execute the same whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof shall be dealt with as mentioned hereinafter. 

2.39.2. If the Contractor considers any Work demanded of him to be outside the requirements of the Contract, or disputes any Drawings, record or decision given in writing by the Engineer on any matter in connection with or arising out of the Contract or carrying out of the work, to be unacceptable, he shall promptly within 15 days request the Engineer in writing for written instruction or decision. Thereupon, the Engineer shall given his written instructions or decision within a period of one month from receipt of the Contractor's letter. 

2.39.3. If the Engineer fails to give his instructions or decisions in writing within the aforesaid period or if the Contractor is dissatisfied with the instructions or decision of the Engineer, the Contractor may within 15 days of the receipt of Engineer's decision, appeal to the Chairman. The Chairman shall hear the Contractor and dispose off the appeal within 15 Days of receipt of the appeal. The Chairman may constitute an Expert Committee to assist him to dispose off the appeal in his absolute discretion. 

2.39.4. If the Chairman did not dispose off the appeal within 15 Days of receipt of appeal or his order is not satisfactory to the Contractor, the dispute may be referred for arbitration under the clause 2.39.6 (Arbitration) below. 

2.39.5. Before commencement of arbitration, both Parties shall attempt to settle the dispute amicably. However, unless both Parties agree otherwise, arbitration may be commenced on or after the fifty-sixth Day after the Day on which notice of dissatisfaction was given, even if no attempt at amicable settlement has been made. 

2.39.6. Arbitration 

(i) Arbitrators 

Failing amicable settlement and/or settlement with the assistance of Expert, the dispute or differences or claims, as the case may be, shall be finally settled by binding Arbitration under the Arbitration and Conciliation Act, 1996. The Arbitration shall be by a panel of three Arbitrators, one to be appointed by each Party and the third to be appointed by the two Arbitrators appointed by the Parties. A Party requiring Arbitration shall appoint an Arbitrator in writing, inform the other Party about such appointment and call upon the other Party to appoint its Arbitrator. If the other Party fails to appoint its Arbitrator, the party appointing Arbitrator shall take steps in accordance with Arbitration and Conciliation Act, 1996. 

ii) Place of Arbitration 

The place of Arbitration shall be Kochi. 

iii) English Language 

The request for Arbitration, the answer to the request, the terms of reference, any written submissions, any orders and rulings shall be in English and, if oral hearings take place, English shall be the language to be used in the hearings. 

(iv) Procedure 

(a) The arbitration proceedings under this clause and the rule of evidence, which are to apply, shall be in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or re- enactment thereof and the rules made there under and for the time being in force. 

(b) It is a term of this contract that the party invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute along with the notice for appointment of arbitrator and giving reference to the rejection by the Chairman of the appeal. 

(c) It is also a term of this Contract that if the Contractor does not make any demand for appointment of arbitrator in respect of any place in writing as aforesaid within 120 Days of receiving the intimation from the Engineer that the final bill is ready for payment, claim of the Contractor shall be deemed to have been waived and absolutely barred and the Employer shall be discharged and released of all liabilities under the Contract in respect of these claims. 

(d) It is also a term of this Contract that the arbitrator shall give separate award against each dispute and claim referred to him an in all cases where the total amount of the claims by any party exceeds Rs.1,00,000/-, the arbitrator shall give reasons for the award. 

(e) It is also a term of this contract that in case interest is allowed on arbitration amount it shall be limited to PLR + 2%. 

(v) Fees and Expenses 

The fees and expenses of the Arbitrators and all other expenses of the Arbitration shall be equally shared by the Parties. 

(vi) Performance during Arbitration 

Pending the submission of and/or final decision on a dispute, difference or claim or until the Arbitral Award is published, the Parties shall continue to perform of all their obligations under this Agreement, without prejudice to a final settlement in accordance with such Award". 

A reduced copy of the plan made available to us by the appellant's counsel showing the scheme for capital dredging of the basin area and the outer and inner channels of Group B channel, is given below: - 

(Contract period was mutually extended till 30.04.2010 and by tha time capital dredging of the approach channel of Group B channel was completed by the first respondent. The period for completion of the Basin Area capital dredging was extended till 30.09.2010). 

15.12.2008 The Ist respondent entered into a time-charter agreement with the 2nd respondent (Jaisu Dredging and Shipping Ltd., Gujrat) for taking on hire, 8 vessels together with the crew belonging to the 2nd respondent for operating Ext. A1 contract on payment of hire charges. The 8 vessels are: 

1. Hopper Barge "M.V. Sahayak" 

2. Hopper Barge "M.V. Kiran" 

3. Hopper Barge "M.V. Kabir" 

4. Anchor handling Barge "M.V. Kamal XXXII" 

5. Survey Boat "M.T. Jai Jhulelal" 

6. Crew Boat "M.T. Kamal XVI" 

7. Motor Vessel "M.V. Saraswathi" 

8. Mooring Launch "Kamal XI" 

03.10.2009 Contrary to the undertaking given by IGTPL that they will start the dredging of the channel in front of the quay and retaining wall and in between the piles in December 2008, IGTPL started the work only from 03.10.2009 . On account of the deployment Back hoe dredgers (BHD dredgers) and other equipments used by the contractors engaged by IGTPL, the first respondent was unable to carry out the capital dredging as scheduled. Even a massive bucket dredger with 5 long sling wires each 200 m. long and barges (for removing the dredged material) used by the first respondent had to be demobilised. (Vide Annexure R-VI). 

12.12.2009 Due to the prolonged occupation of the dredging area by the IGTPL, the first respondent was asked to demobilise a large bucket dredger mobilised by it as per the time schedule given by IGTPL . This was to prevent collision between the crafts of the two contractors. 

30.04.2010 IGTPL was able to complete their part of the dredging work at the ICTT berth basin only by 30.04.2010 i.e. after a delay of 9 months. By that time the Ist respondent had completed the capital dredging of the approach channels of Group B channel. When the appellant conducted a survey along with MPSO on 30.04.2010 it was noticed that the IGTPL had not achieved the designated dredging targets of 16 M depth and even a vessel with 10m draft could not be successfully berthed. (See Annexure R VI). 

June- 2010 While conducting capital dredging in the berth frontage area, the dredgers of first respondent picked up several blocks of concrete, timber logs, steel scrap and other construction debris in front of the berth. (Vide Annexure A18). 

12.07.2010 Ext. A1 agreement was amended by executing Ext. A3 Amendment Agreement modifying certain terms and conditions specified in Ext. A2 Special Conditions of Contract. The contract period was extended till 31.03.2011. But there was no amendment made to the arbitration clause in Ext. A2. 

15.07.2010 When a vessel M. V. Zen Hua 10 was brought along the side berth she had met with patches of hard material and other obstructions necessitating diversion of the vessel to Q 5 berth of Ernakulam wharf . Thereafter the first respondent had to mobilise a mechanical grab dredger from Mumbai and also hire the appellants' dredger GHD Nehru Shatabdi for tackling the hard-material in front of the berth. (See Annexure A18). 

09.02.2011 The Vallarpadom ICTT was formally inaugurated by the Prime Minister Sri. Manmohan Singh. 

The ICTT was not fully commissioned at that time. 

21.03.2011 Appellant sent Ext. A4 letter to the first respondent accusing the latter for not completing the capital dredging in the Basin and not achieving the specified depths in the channels and directing the first respondent to continue the work of capital dredging achieving the specified depths in the Group B channels till attaining the required depth or till 15.05.2011 whichever was earlier reserving the right of the appellant to claim compensation. 

23.03.2011 The first respondent sent Ext. A5 reply to Ext. A4 letter and refuted the allegation therein and stated that as on 30.04.2010 the first respondent had completed capital dredging of the inner and outer channels and had commenced maintenance dredging from 01.05.2010 and relying on clause 22 of Ext. A3 demanded payment for the work based on the hopper volume of the dredged material. 

23.03.2011 The appellant sent Ext. A6 reply to Ext. A5 letter reiterating the appellants' contentions and stating that as per clause 2.46 of Ext. A3 amendment agreement it was for the first respondent to ensure the completion of capital dredging in the Basin and to achieve the specified depth in the Group B channel with liability to pay compensation to the appellant for the left over quantity of the work. The appellant also denied the applicability of clause 22 of Ext. A3. 

25.03.2011 First respondent sent Ext. A7 reply to Ext. A6 letter and reiterated its earlier stand and its inability to continue the dredging work and told the appellant that the first respondent will stop the work and demobilise the dredgers on 31.03.2011. 

26.03.2011 As per Ext. A8 letter the appellant informed the first respondent that the attempt to stop the work will be treated as a default on the part of the first respondent. 

28.03.2011 The first respondent sent Ext. A9 letter to the appellant reiterating its earlier stand and indicating that the matter of payment relating to dredging beyond 31.03.2011 could be referred to arbitration if the dispute cannot be settled amicably. 

31.03.2011 The first respondent removed a dredger TSHD KAMAL XXXIII from the dredging site. 

01.04.2011 The appellant filed O.P. (Arbitration) 442 of 2011 before the District Court, Ernakulam under Section 9 of the Act seeking a temporary injunction restraining the first respondent from removing the dredgers and equipments from the Cochin Port Area. Appellant alleged that the first respondent which was directed to do the work till 15.05.2011 had carried away one dredger from the dredging site, detrimentally affecting the right of the appellant to seek specific performance of the contract which was breached by the Ist respondent. 

02.04.2011 The District Court granted an ex-parte order of injunction. 

02.04.2011 The appellant issued Ext. A12 (Ext. B1) termination notice to the first respondent giving 14 days' notice to the first respondent to the effect that the first respondent had unilaterally abandoned the work with effect from 01.04.2011 and had unlawfully taken away one dredger from the Cochin Port Trust Limits and that the appellant proposes to carry out the remaining work at the risk and cost of the first respondent and on the expiry of the notice period, the contract shall stand terminated with the harsh consequences indicated therein. 

NOTE: The notice period would expire on 16.04.2011. 

04.04.2011 The appellant issued a show cause notice for blacklisting the first respondent for a period of 5 years. 

05.04.2011 The appellant issued Ext. B5 re-tender notice inviting tenders for re-arranging the balance work . This was issued even before 16.04.2011 which is the date of expiry of the notice period in Ext. A12. 

12.04.2011 District Court passed Ext. B7 order dismissing OP (Arb) 442 /2011 and vacated the ad interim injunction holding that the appellant which obtained the ad interim injunction on the ground that the appellant wanted the contract to be specifically enforced, had, by terminating the contract, sought to sustain the OP (Arb) with unclean hands. 

Note. - No arbitration proceedings were commenced by the appellant during the period between 01.04.2011 and 12.04.2011. 

12.04.2011 On the same day of dismissal of OP (Arb) 442/2011, the appellant filed the present OP (Arb) 505/2011 for a direction to the first respondent to furnish security for Rs.300 crores and in the meanwhile to pass an order of conditional attachment of the dredgers and equipments of the first respondent. (No averment that the appellant proposes to go for arbitration). 

The appellant also filed IA No. 2015 of 2011 for an ex parte order of conditional attachment. 

No ex-parte order of attachment granted. 

As per IA 2014/2011 the appellant also sought the appointment of an advocate commission for conducting hydrographic survey to ascertain the dredging depth with the assistance of a Government approved hydro graphic agency. 

20.04.2011 R1 filed its counter affidavit in OP (Arb) 505/11 contending inter alia that there was no basis at all in the claim of the appellant for furnishing security for Rs.300 crores. 

26.04.2011 Appellant terminated the contract of the first respondent. 

28.04.2011 Appellant issued Ext. B8 work order for maintenance dredging to M/s. Dredging Corporation of India for three years from 01.04.2011 onwards for Rs.319.50 crores. 

03.05.2011 A London based company by name Clashmore Holdings Ltd. filed a Writ Petition as WP (C) No. 12392/2011 before the High Court of Kerala and obtained an order for release of two dredgers TSHD KAMAL XXXV and TSHD KAMAL XXXVI which they had hired to first respondent. 

06.05.2011 Appellant filed Arb. Appeal 27/2011 before the High Court challenging the order of the District Court dismissing OP (Arb) 442/2011. 

Note. - No arbitral proceedings were commenced by the appellant even on the date of appeal. 

09.05.2011 Appellant issued Ext. B9 work order for the balance capital dredging work to M/s. Mercator Lincs Ltd. for a total cost of Rs.60.80 crores. 

17.05.2011 Writ Appeal No. 566/2011 filed by the appellant against the release order of 2 dredgers granted to Clashmore Holdings, dismissed by the Division Bench. 

19.05.2011 Appellant sent Ext. A15 letter (Annexure A15 in this appeal) to first respondent calling upon the first respondent to remit within 7 days of receipt of the letter Rs.259.97 crores after arriving at a total compensation of Rs.308.68 crores - Annexure to Ext. A15 shows the break up of the compensation. A sum of Rs.192.86 crores is computed as compensation recoverable as per certain clauses of Ext. A3 amended agreement. Another sum of Rs.3.98 crores is shown as associated claims. A further sum of Rs.111.83 crores is shown as consequential claims. From the grand total of Rs.308.68 crores constituting the above claims of compensation, Rs.48.71 crores shown as payable to the first respondent, is deducted to arrive at Rs.259. 97 crores.  

There is a threat in the letter that if the amount is not paid within 7 days it will bear interest at the rate of 18 percent per annum and that the appellant will also be constrained to initiate appropriate legal proceedings for recovery of the amount. 

23.05.2011 Since the dredgers and other vessels of second respondent were lying idle in the Cochin Port area incurring heavy expenditure and also since those vessels were required by second respondent for their work in the Port of Goa, the second respondent applied to the appellant for a clearance to remove those vessels. No action on the said application. 

26.05.2011 Second respondent filed W.P. (C) No. 14331/2011 seeking release of their vessels from the Cochin Port Area. After detailed argument, Judgment has been reserved in that case. 

26.05.2011 The appellant filed I.A. No. 2742/2011 in O.P. (Arb) 505/2011 again seeking conditional attachment over 11 more equipments including 3 dredgers. 

08.06.2011 As per Annexure - R-V judgment, Arbitration Appeal 27/2011 was disposed of by the High Court allowing the appellant to withdraw O.P. (Arb) 442 of 2011. The Division Bench also set aside Ext. B7 order dated 12.04.2011 passed by the District Court dismissing O.P. (Arb.) 442/2011. It was however made clear that the option of the first respondent to comment upon the alleged unfair and improper conduct of the appellant in the proceedings initiated by it before the District Judge shall remain unfettered by the dismissal of that appeal. 

Note. - No arbitral proceedings were commenced by the appellant between 12.04.2011 and 08.06.2011. 

02.09.2011 Pending O.P. (Arb) 505/2011, Chief Engineer issued Annexure R II notice referring to Ext. A15 letter and called upon the first respondent to appear before him on 14.09.2011 for a determination of the appellant's claim for payment of Rs.259.97 crores. 

05.09.2011 The District Court as per the impugned order dismissed on merits the present O.P. (Arb) 505 of 2011. 

09.09.2011 First respondent submitted Annexure R III objection to Annexure R II notice. In the said objection the first respondent , relying on 1987 (2) SCC 160, 2009 (2) SCC 337 and JT 2011 (5) SC 380 contended inter alia that it was not permissible to the Chief Engineer who is an officer of the appellant (a party to the contract) to adjudicate upon the question regarding the breach of contract allegedly committed by the other party to the contract and which party was disputing the alleged breach. 

19.09.2011 The present appeal (Arb. Appeal 44 of 2011) filed by the appellant against the order dated 05.09.2011 passed by the District Court dismissing OP (Arb) 505 of 2011. 

22.09.2011 Pending this appeal as per Annexure R XI letter the Chief Engineer informed the first respondent that the latter did not attend the hearing in compliance of Annexure R-II notice dated 02.09.2011 and that the objections raised in Annexure R - III were not relevant and accordingly determined that the amounts (i.e. Rs.259.97 crores) claimed in Ext. A15 letter issued by the appellant to the first respondent are due and payable by the first respondent to the appellant. 

22.09.2011 The first respondent filed a detailed counter affidavit in this appeal. In paragraph 2 (i) and (ii), the first respondent has specifically contended that the appellant has not taken any steps for reference of the dispute forming the subject matter of O.P. (Arb) 505.2011 , to arbitration and that the appellant has not evinced any manifest intention to take recourse to arbitration. 

27.10.2011 This appeal argued in part before another Division Bench of the High Court. The first respondent inter alia contended in the written notes of arguments that even till 27.10.2011 no arbitral proceedings were commenced by the appellant. 

15.11.2011 Nearly two months after the filing of this appeal, the appellant made a counter - claim of the present dispute through courier to the 3 arbitrators who were arbitrating some other claim raised by the Ist respondent and arising out of the same contract. 

(This, according to the appellant amounts to commencement of arbitration proceedings). 

03.12.2011 This appeal finally heard by this Bench  

07.12.2011

ARGUMENT OF THE PORT OF COCHIN (APPELLANT)

6. Sr. Advocate Sri. Joseph Markos appearing for the appellant made the following submissions before us in support of the appeal: The objection raised by the Ist respondent that the OP filed by the appellant before the District Court under Section 9 of the Act was not maintainable for failure to initiate arbitration proceedings within reasonable time, is untenable. All that is necessary is that the intention of the applicant to go for arbitration should be discernible from the application filed under Section 9. That is the manifest intention as highlighted in Sundaram Finance Ltd. Vs. NEPC India Ltd., (1999) 2 SCC 479. When under Section 9 the Court can be approached for an interim measure of protection even before arbitral proceedings, it may not be correct in insisting upon a notice under Section 21 of the Act as a condition precedent to the filing of the application. The exigencies of the case may compel a party to move the Court for an urgent interim measure and in such a case all that the Court need be satisfied is that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration. If at the time of passing the order under Section 9 of the Act, the Court has any doubt regarding the proposed commencement of arbitral proceedings, the Court should, as was done in Firm Ashok Traders Vs. Gurumukh Das Saluja, AIR 2004 SC 1433, ask the applicant as to what steps he intents to take for commencement of arbitral proceedings and the Court may even pass a conditional order. Once the Court arrives at such satisfaction, it will have jurisdiction not only to entertain the application under Section 9, but also to pass appropriate order granting an interim measure of protection. In this case, when the appellant has already commenced arbitral proceedings on 15.11.2011 by filing a counter claim before the arbitrators, the question as to whether the appellant had the manifest intention to go for arbitration, is really irrelevant at this stage. In State of Goa Vs. Praveen Enterprises, 2011 (7) SCALE 131 the Apex Court has held that arbitral proceedings can also be commenced by raising the dispute by way of counter claim in pending arbitration proceedings. Ext. A25 proceedings dated 14.06.2011 of the Presiding Arbitrator pertaining to the pending arbitral proceedings between the Ist respondent and the appellant, shows that the initial statement of claims (SOC) filed by the Ist respondent containing 6 claims on 04.04.2011 was subsequently amended by the Ist respondent under Section 23 (3) of the Act by raising 5 more claims in the 2nd week of April 2011 and yet another claim was made on 06/06.2011 and consequently the appellant could file its statement of defence and counter claim only after 01.08.2011 till which time the presiding Arbitrator granted time to the appellant. Ext. B10 application dated 25.04.2011 filed by the appellant before the Arbitrator seeking time for filing its statement of defence and counter claims will show that the appellant also had its claims to be made before the Arbitrator. It was granting the above application that the Arbitrator gave the appellant time till 01.08.2011. The delay in filing the counter claim was not due to any laches on the part of the appellant. At any rate, on 15.11.2011 the appellant filed his counter claim before the Arbitrator and with that the appellant should be deemed to have commenced the arbitral proceedings for the purpose of his application under Section 9. In Sundaram Finance (supra) the Apex Court has held that in order to ensure that effective steps are taken to commence arbitral proceedings the Court while passing conditional order under Section 9 can put the applicant to such terms as it may deem fit to see that effective steps to commence arbitral proceedings within a reasonable time, are taken. In Firm Ashok Traders Vs. Gurumukh Das Saluja, AIR 2004 SC 1433 the Apex Court has held that the Court while passing orders under Section 9 can direct the applicant to take steps for appointment of arbitrator without any further loss of time. Now that the appellant has already commenced the arbitral proceedings by filing the counter claim before the Arbitrator on 15.11.2011, the question of manifest intention has become purely academic. On the merits, the prayer in the OP filed by the appellant was to direct the 1st respondent to furnish security for Rs.300 crores and in the meanwhile to pass a conditional order of attachment in respect of 11 dredging vessels and one accessory vessel. The appellant had also sought the appointment of an Advocate Commission assisted by an expert to conduct a hydrographic survey to ascertain the dredging depth. The appellant admits that by 30.04.2010 the Ist respondent had completed the capital dredging of the approach channels of Group B channel. But the Ist respondent had not completed the capital dredging of the basin area. The period of completion of the basin area capital dredging was extended till 30.09.2010 within which also the said work was not completed by the Ist respondent. They were permitted to complete the said work by 31.03.2011. On 09.02.2011 the International Container Transhipment Terminal was inaugurated by the Prime Minister, without any of the specified category of ships being able to enter the basin area. During the period beyond 30.09.2010 the Ist respondent was willing to carry out the work only on additional payment. The appellant insisted that the Ist respondent who was at fault was bound to complete the work without any additional payment. Exts. A4 to A9 are the correspondence passed between the parties. On 31.03.2011 the Ist respondent stopped work disregarding the direction of the appellant in Ext. A4 letter to work till 15.05.2011. On 02.04.2011 the appellant issued 14 days' notice of termination of the contract to the Ist respondent and informed them that the appellant will carry out the work under their risk and cost. In the meanwhile on 31.03.2011 the Ist respondent unauthorisedly removed a dredger from the dredging site. That was what compelled the appellant to file O.P. (Arb) No. 442 of 2011 seeking a temporary injunction. But the cause of action for the present OP (Arb) was different and the surviving interest of the appellant was to ensure the security for the favourable award which might be passed in favour of the appellant. The Court below had obviously not looked into Ext. A15 letter in which the total compensation due to the appellant consequent on the breach of contract by the Ist respondent was assessed at Rs.308.68 crores of which Rs.192.86 crores are recoverable as per the terms of Ext. A3 contract itself. The balance amount of Rs.111.83 crores and 3.98 crores constituted consequential and associated claims. Deducting the sum of Rs.48.71 crores due to the Ist respondent, the appellant had demanded Rs.259.97 crores from the Ist respondent. In any view of the matter, the claim of compensation for Rs.192.86 crores was strictly in accordance with the clauses under Ext. A3 and can be fully supported by the decision of the Apex Court in J. G. Engineers Vs. Union of India, (2011) 5 SCC 758, in which clause 25 of the contract was almost identical with clause 2.39 of Ext. A1. As per the terms of the contract, the Ist respondent was bound to retain all the dredgers and other equipments till the completion of the work. When the Ist respondent had abandoned the work leaving it incomplete, the appellant was fully justified in approaching the Court, particularly when the Ist respondent had unauthorisedly removed one of the dredgers from the dredging site. Even if the averments in O.P. (Arb) 505.2011 are not sufficient to invoke Order 38 Rule 5 CPC, there were proper averments in IA No. 2015/2011 filed for ad interim conditional order of attachment. The Ist respondent has no case that they completed the work either as on 30.09.2010 or as on 31.03.2011 There is no contradiction in the stand of the appellant with regard to the backlog of the unfinished work left by the Ist respondent. The volume of the work for re-tender as per Annexure A19 dated 05.04.2011 is two million Cu.m. Eventhough the volume of work stated by the Chief Engineer in Annexure R XVI minutes of the meeting was 1.5 million cu.m., the Assistant Vice President did not agree with the statement of the Chief Engineer. Similarly, just because the appellant has in Annexure A18 letter blamed the IGTPL that it was their fault in delaying the capital dredging work in front of the berth by 9 months, the same cannot be taken advantage of by the Ist respondent in not completing its commitment under the contract. Moreover, the quantity shown as two million in the re-tender notice has been specified as indicative quantity. As for the claim put up by the 2nd respondent over the vessels sought to be attached, no such claim was made before the Court below. Second respondent got itself impleaded only in this appeal. Until then, the first respondent was claiming the vessels as its own. From the very fact that there are common directors in both first and second respondent companies, it is a matter for interference that it is really one and the same company and the decision making is by the same persons. The learned District Judge has overlooked all the above vital aspects before dismissing the OP filed by the appellant.

JUDICIAL EVALUATION

7. We are afraid that we find ourselves unable to accept the above submissions made on behalf of the appellant. By now, it is well settled that the Civil Court while disposing of an application under Section 9 of the Act, can avail of the auxiliary or incidental powers which are at its disposal under the Code of Civil Procedure, 1908 ("CPC" for short). This is so by virtue of the latter part of Section 9 itself which reads "and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it". (Vide paragraph 11 Adhunik Steels Limited Vs. Orissa Manganese and Minerals (P) Ltd., (2007) 7 SCC 125 and the Judgment dated 28.11.2011 in Muthukoya Thoopiyakkal Vs. Union of India and Others ( Arbitration Appeal No. 48 of 2011). That apart, Rule 11 of the Kerala Arbitration and Conciliation (Court) Rules, 1997 specifically makes the CPC as well as the Kerala Civil Rules of Practice, 1971 and even the Circular Orders issued by the High Court of Kerala from time to time, applicable to all proceedings under the Act.

PRE-REQUISITES FOR A CONDITIONAL ORDER OF ATTACHMENT BEFORE JUDGMENT

8. Attachment before Judgment is an extraordinary power which has to be exercised by the Court with due care and caution. It cannot be granted on a mere assertion by the plaintiff that the defendant is attempting to dispose of property or remove property from the jurisdiction of the Court. Woody's Hotel Pvt. Ltd. Vs. Prasanth Kumar Panigrahy, 1998 (1) KLT 149 DB specific act of the defendant with intent to directly or indirectly obstruct or delay the execution of the decree that may be passed, is required. Vague or evasive allegations are not enough to pass an order under Order XXXVIII Rule 5 CPC Retnamma Pillai Deepa Vs. Govinda Pillai Gopala Pillai, ILR 1995 (2) Ker. 354. It is incumbent upon the plaintiff to state the grounds on which he entertains the belief or apprehension or to furnish the source of his information and belief that the defendant would dispose of or remove property. (Rai Prem Chand Vs. P.K. Ahammed and Co., 1981 KLT 294. Even where the Court passes a conditional order of attachment that does not take away the right of the defendant to show cause why he should not furnish security. Shalimar Rope Works Ltd. Vs. N.C. John & Sons. Ltd. 1986 KLT 1366 (DB). Where particulars of the plaintiff's claim in the plaint are not specific, no relief by way of attachment before Judgment can be granted. Raman Tech and Process Engg. Co. Vs. Solanki Traders, (2008) 2 SCC 302. In the absence of a prima facie case for the plaintiffs, mere shifting or removal of machinery by the defendant from one place to another, by itself is not a ground for granting attachment before judgment. Vide Raman Tech (supra). Applying the above principles to the facts of this case, we are of the view that the following circumstances dis entitle the appellant to claim the discretionary relief under Section 9(ii)(b) of the Act. If a strict interpretation of the above provision is attempted it could even be said that the interim measure of protection by way of "securing the amount in dispute in the arbitration" cannot be granted in a case where there is no dispute in arbitration. Well, having regard to the serious, if not disastrous, consequences which such an interpretation might give rise to, we are not inclined to go to such extreme.

Circumstances against the Appellant

We now proceed to give the aforesaid circumstances:

a) No specific pleading in the OP in terms of Order 38 Rule 5 CPC.

9. What is averred in paragraph 14 of the OP filed by the appellant herein before the Court below reads as follows:

"14. Now since the Respondent has not come up to complete the work in consonance with the terms of the contract the only option left with the petitioner is to carryout the remaining work at the Respondent's risk and cost as stated in the notice dated 02.04.2011. It is submitted that at any rate the petitioner will have to shell out huge amounts approximately to the tune of Rs.300 crores for completion of the dredging works left over by the Respondent. In the meanwhile, if the Respondent happens to remove the dredgers and other allied equipment scheduled hereunder from the Port waters clandestinely and illegally the petitioner will not be in a position to realise the amounts out by the petitioner for completing of the dredging work which has to be exactly ascertain and resolved though Arbitration as per the arbitration clause in the Special Conditions of Contract".

There is no averment in the OP that the Ist respondent herein is about to remove the dredgers or other equipments from the local limits of the jurisdiction of the Court. No doubt, in paragraph 3 affidavit in support of IA 2015/2011 it is stated that it is understood that the respondent therein (R1 herein) is intending to clandestinely and illegally take away the equipments and dredgers without the permission of the Chief Engineer. The OP itself is for an interim measure of protection under Section 9 of the Act. When the OP does not contain an allegation that the Ist respondent is about to remove the equipments from the local limits of the jurisdiction of the Court below, it is doubtful whether an averment as above in an interlocutory application filed in the above OP could be looked into. Even if the said averment in the IA could be looked into by the Court, it does not further say that the apprehended removal is with intent to obstruct or delay the execution of any award that may be passed against the Ist respondent. The OP also does not contain an averment to that effect. Hence the impugned order cannot be faulted on that account.

b) No manifest intention shown to go for arbitration and no pleading also in that behalf.

10. This is a case where the appellant approached the District Court for an interim measure of protection under Section 9 of the Act before arbitration proceedings. Unlike the former statute, namely, the Arbitration Act, 1940, the present law enables a party to an arbitration agreement to move the Civil Court for an interim measure of protection not only during or after arbitral proceedings but also before the commencement of such arbitral proceedings.

11. It is pertinent to note that under Arbitration Act, 1940 Section 20 thereof enabled a party to apply to the Court merely for appointing an arbitrator when no matter was pending before the Court and such party could simultaneously move an application before the Court for any of the interim reliefs under the second schedule read with Section 41 (b) thereof. But there is no corresponding provision in the new Act. Under the new Act the ordinary Civil Court cannot be approached for the mere purpose of appointing an arbitrator. As per Section 8 of the new Act the Court gets jurisdiction to refer the parties to arbitration (where there is an arbitration agreement) only if an action is pending before the Court. (Vide para 12 of Sundaram Finance (supra) . Under the old Act, in a case where an action was pending before the Civil Court and there was an arbitration agreement, the proceedings could only be stayed under Section 34, and that too, if the conditions specified therein were present.

12. As per the new Act the Court has jurisdiction to grant an interim measure of protection under Section 9 not only during arbitral proceedings and after the award but also before the commencement of arbitral proceedings. Section 9 of the new Act reads as follows: -

Section 9 of the Act reads as follows: 

"9. Interim measures, etc. by Court. - A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to Court: 

i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or 

ii) for an interim measure of protection in respect of any of the following matters, namely: - 

a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; 

b) Securing the amount in dispute in the arbitration; 

c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; 

d) interim injunction or the appointment of a receiver; 

e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it".

There cannot be any difficulty regarding the power of the Court in the exercise of the above jurisdiction both during and after arbitral proceedings. The justification for conferring the power to pass interim measure of protection during arbitral proceedings in spite of the fact that the arbitral tribunal has been given similar powers under Section 17 of the Act, is that the orders of the arbitral tribunal cannot be enforced unlike those passed by the Court. (Vide para 11 of Sundaram Finance (supra). But in a case, as the present one, where the Court is approached by invoking Section 9 for an interim measure of protection before arbitral proceedings are commenced, should not the party approaching the Court plead or at lease exhibit a manifest intention to go for arbitration within a reasonable time ?. Or, is it enough that after securing an interim measure of protection disabling the opposite party, the applicant can sit back and leisurely commence arbitral proceedings at his convenience and sweet will ?

13. In Sundaram Finance (supra) the Supreme Court examined the question whether it was open to the Court to entertain an application under Section 9 and pass an interim order before the commencement of arbitral proceedings. This is what the Supreme Court held:

"13. Under the 1996 Act, the Court can pass interim orders under Section 9. Arbitral proceedings, as we have seen, commence only when the request to refer the dispute is received by the respondent as per Section 21 of the Act. The material words occurring in Section 9 are "before or during the arbitral proceedings." This clearly contemplates two stages when the Court can pass interim orders, i.e. during the arbitral proceedings or before the arbitral proceedings. There is no reason as to why Section 9 of the 1996 Act should not be literally construed. Meaning has to be given to the word "before" occurring in the said section. The only interpretation that can be given is that the Court can pass interim orders before the commencement of arbitral proceedings. Any other interpretation, like the one given by the High Court will have the effect of rendering the word "before" in Section 9 as redundant. This is clearly not permissible. Not only does the language warrants such an interpretation but it was necessary to have such a provision in the interest of justice. But for such a provision, no party would have a right to apply for interim measure before notice under Section 21 is received by the respondent. It is not unknown when it becomes difficult to serve the respondents. It was therefore, necessary that provision was made in the Act which could enable a party to get interim relief urgently in order to protect its interest. Reading the section as a whole it appears to us that the Court has jurisdiction to entertain an application under Section 9 either before arbitral proceedings or during arbitral proceedings or after the making of the arbitral award but before it is enforced in accordance with Section 36 of the Act."

It was then argued before the Supreme Court that where a party invokes the jurisdiction of the Court under Section 9 of the Act before the commencement of arbitration proceedings, then such party must express a manifest intention to go for arbitration. The said argument was upheld by the Supreme Court thus:

"18. It was submitted by Mr.Subramanium that even if the Court can exercise jurisdiction under Section 9 before the arbitral proceedings have commenced, the party seeking to invoke Section 9 must express a manifest intention to arbitrate. The learned counsel submitted that this intention can take the following forms: 

(a) in an application under Section 9 the party would have to state that it inequivocally relies on the arbitration agreement and makes an averment that it would invoke the arbitration clause. 

(b) At the time when the Court passes an interim order under Section 9 an express undertaking is given by the party before the Court that it would invoke the arbitration clause forthwith and within a fixed period and 

(c) a notice invoking the arbitration clause should have been issued to the opposite party.

It was contented that mere filing of an application under Section 9 was not sufficient to establish manifest intention to this extent.

19. When a party applies under Section 9 of the 1996 Act, it is implicit that it accepts that there is a final and binding arbitration agreement in existence. It is also implicit that a dispute must have arisen which is referable to the Arbitral Tribunal. Section 9 further contemplates arbitration proceedings taking place between the parties. Mr.Subramanium is, therefore, right in submitting that when an application under Section 9 is filed before the commencement of the arbitral proceedings, there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings if at the time when the application under Section 9 is filed, the proceedings have not commenced under Section 21 of the 1996 Act. In order to give full effect to the words "before or during arbitral proceedings" occurring in Section 9, it would not be necessary that a notice invoking the arbitration clause must be issued to the opposite party before an application under Section 9 can be filed. The issuance of a notice may in a given case, be sufficient to establish the manifest intention to have the dispute referred to an Arbitral Tribunal. But a situation may so demand that a party may choose to apply under Section 9 for an interim measure even before issuing a notice contemplated by Section 21 of the said Act. If an application is so made, the Court will first have to be satisfied that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration. Once it is so satisfied, the Court will have the jurisdiction to pass orders under Section 9 giving such interim protection as the facts and circumstances warrant. While passing such an order and in order to ensure that effective steps are taken to commence the arbitral proceedings, the Court while exercising jurisdiction under Section 9 can pass a conditional order to put the applicant to such terms as it may deem fit with a view to see that effective steps are taken by the applicant for commencing the arbitral proceedings."

14. In Firm Ashok Traders (supra) also the Supreme Court approved the above ratio in Sundaram Finance (supra) . There the applicant had even commenced arbitral proceedings by issuing a notice under Section 21 of the Act on 02.06.2003 to the opposite party (which, however, denied receipt of the said notice). It was, thereafter, on 22.07.2003 that the party approached the Addl. District Judge for interim measure of protection under Section 9 (ii) (d) of the Act. In spite of that the Supreme Court held that the applicants should have post haste sought for the appointment of arbitrator under Section 11 if the opposite party to whom notice under Section 21 was given had failed to respond. This inaction was held sufficient to deny relief to the applicant who had failed to exhibit manifest intention to go for arbitration. However, on the peculiar facts of the case the Apex Court did not consider it necessary to set aside the order of the Madhya Pradesh High Court which had appointed a receiver for the conduct of the partnership business. Instead of the applicants, the opposite party which was conducting the business for past 9 out of 12 months, were appointed as receivers to conduct the business and with duty to account for the same. During the course of discussion the Supreme Court observed as follows:

17. There are two other factors which are weighing heavily with us and which we proceed to record. As per the law laid down by this Court in M/s. Sundaram Finance Ltd. an application under Section 9 seeking interim relief is maintainable even before commencement of arbitral proceedings. What does that mean? In M/s. Sundaram Finance Ltd., itself the Court has said- "It is true that when an application under Section 9 is filed before the commencement of the arbitral proceedings there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings. "Section 9 permits application being filed in the Court before the commencement of the arbitral proceedings but the provision does not give any indication of how much before. The word "before" means , inter alia, ahead of; in presence or sight of; under the consideration or cognizance of ". The two events sought to be interconnected by use of the term 'before' must have proximity of relationship by reference to occurrence; the later event proximately following the preceding event as a foreseeable or 'within sight' certainty. The party invoking Section 9 may not have actually commenced the arbitral proceedings but must be able to satisfy the Court that the arbitral proceedings are actually contemplated or manifestly intended (as M/s.Sundaram Finance Ltd. puts it) and are positively going to commence within a reasonable time . What is a reasonable time will depend on the facts and circumstances of each case and the nature of interim relief sought for would itself give an indication thereof. The distance of time must not be such as would destroy the proximity of relationship of the two events between which it exists and elapses. The purpose of enacting Section 9 read in the light of the Model Law and UNCITRAL Rules is to provide 'interim measures of protection'. The order passed by the Court should fall within the meaning of the expression 'an interim measure of protection' as distinguished from an all-time or permanent protection.

18. Under the A and C Act, 1996, unlike the predecessor Act of 1940, the arbitral Tribunal is empowered by Section 17 of the Act to make orders amounting to interim measures. The need for Section 9, in spite of Section 17 having been enacted, is that Section 17 would operate only during the existence of the arbitral Tribunal and its being functional. During that period, the power conferred on the arbitral Tribunal under Section 17 and the power conferred by the Court under Section 9 may overlap to some extent but so far as the period pre and post the arbitral proceedings is concerned the party requiring an interim measure of protection shall have to approach only the Court. The party having succeeded in securing an interim measure of protection before arbitral proceedings cannot afford to sit and sleep over the relief, conveniently, forgetting the proximately contemplated or 'manifestly intended' arbitral proceedings itself. If arbitral proceedings are not commenced within a reasonable time of an order under Section 9 the relationship between the order under Section 9 and the arbitral proceedings would stand snapped and the relief allowed to the party shall cease to be an order made 'before', i.e. In contemplation of arbitral proceedings. The Court approached by a party with an application under Section 9 is justified in asking the party and being told how and when the party approaching the Court proposes to commence the arbitral proceedings. Rather the scheme in which Section 9 is placed obligates the Court to do so. The Court may also while passing an order under Section 9 put the party on terms and may recall the order if the party commits breach of the terms.

19. During the course of hearing, we asked the learned counsel for Group "A" what steps have they taken for initiation of arbitral proceedings ever since 02.06.2003 the date on which they claim to have invoked arbitration clauses, or since 22.07.2003 the date on which the application under Section 9 was filed? We were told that Group "A" was awaiting for the orders of the Court under Section 9 of the Act. This is hardly an explanation. Commencement or arbitral proceedings is not dependent on the interim relief being allowed or denied. It was expected of Group "A" to have post-haste sought for the appointment of arbitrator under Section 11 of the Act if the partners noticed had failed to respond to the demand of Group "A" for arbitration. This, by itself, in our opinion, would have been enough to deny relief to Group "A". However, in the facts and circumstances of the case, as we find the High Court having felt convinced of the need for appointment of receiver and as we are inclined only to suitably modify the order, we do not deem it proper to dismiss the application under Section 9 in its entirety and for this reason alone. We direct the applicant under Section 9 to take steps for appointment of arbitrator/s, without any further loss of time.

15. If the contention of the appellant is accepted then an applicant under Section 9 of the Act before the commencement of arbitral proceedings, should be asked by the Court as to when and in what manner does he propose to commence the arbitral proceedings and if the answer is vague or evasive, the Court can even pass an order granting interim measure of protection subject to the condition that within a specified time limit the applicant shall take effective steps to commence arbitral proceedings. Merely because the Apex Court in Firm Ashok Traders (supra) asked the applicant in that case as aforesaid, it does not follow that such a procedure which is not insisted by the statute should invariably be followed by the Court in all cases. What the law, as interpreted in Sundaram Finance (supra) as affirmed in Firm Ashok Traders (supra) enjoins is a manifest intention on the part of the applicant to go for arbitration in a case where he approaches the Court before the arbitral proceedings. Such manifest intention can be discerned from the positive averments in the petition, followed by effective steps taken in that behalf by the applicant.

16. A perusal of the application in O.P. (Arb) 505/2011 running into 17 paragraphs, shows that there is not even an averment in the application that the appellant proposes to initiate arbitration proceedings with regard to the dispute raised by it. The learned counsel for the appellant had to strain much to make out from paragraph 14 of the OP that the allegation therein to the effect that if the respondent clandestinely and illegally removes the dredgers and allied equipments, the appellant will not be in a position to realise the amounts which are to be ascertained and resolved through arbitration, spells out the manifest intention of the appellant to go for arbitration. We cannot agree. There is not only no positive averment in the above O.P. filed on 12.04.2011 that the appellant proposes to resolve its claim through arbitration, but no steps were also taken in that direction by the appellant either during the pendency of the OP before the Court below till 05.09.2011 or at least when the appellant filed this appeal before this Court on 19.09.2011. No steps were taken even after the Ist respondent filed its counter-affidavit in this appeal on 22.09.2011 or thereafter on 27.10.2011 when this appeal was heard in part by another Division Bench of this Court and when the Ist respondent had filed a written notes of argument contending inter alia that no arbitral proceedings have so far been taken by the appellant. It was only on 15.11.2011 that the appellant filed a counter-claim in a pending arbitration proceedings in which the Ist respondent is the claimant. There is no dispute that on 04.07.2011 the Apex Court in Praveen Enterprises, 2011 (7) SCALE 131 laid down that arbitral proceedings can also be commenced by means of a counter-claim in a pending arbitration, but after notice. This is what the Supreme Court has held in paragraph 26 of the above decision:

"26. A counter claim by a respondent pre-supposes the pendency of proceedings relating to the disputes raised by the claimant. The respondent could no doubt raise a dispute (in respect of the subject matter of the counter claim ) by issuing a notice seeking reference to arbitration and follow it by an application under Section 11 of the Act for appointment of Arbitrator, instead of raising a counter claim in the pending arbitration proceedings. The object of providing for counter claims is to avoid multiplicity of proceedings and to avoid divergent findings. The position of a respondent in an arbitration proceedings being similar to that of a defendant in a suit, he has the choice of raising the dispute by issuing a notice to the claimant calling upon him to agree for reference of his dispute to arbitration and then resort to an independent arbitration proceedings or raise the dispute by way of a counter claim, in the pending arbitration proceedings."

Even assuming that the appellants' explanation regarding the delay in filing the counter claim is acceptable, still, it is an admitted fact that no notice was given by the appellant to the Ist respondent before the appellant filed the counter claim. After giving our anxious consideration to the above observation by the Apex Court, we do not think that it is permissible for a party to unilaterally impose a counter claim on the opposite party even without a previous notice in that behalf. Nor are we inclined to accept the argument on behalf of the appellant that the observation regarding notice made by the Apex Court is only for initiation of fresh arbitration proceedings and not while submitting a counter claim in a pending arbitration. In any view of the matter, until 15.11.2011 when the appellant submitted its counter claim before the arbitrators, there was no manifest intention to go for arbitration revealed by the appellant either to the District Court below or to this Court in appeal.

17. The satisfaction to be arrived at by the Court regarding the manifest intention of the applicant under Section 9 of the Act in a case where the Court is approached before the commencement of arbitral proceedings, should be that of the Court of first instance itself. The applicant cannot be heard to say that he need satisfy the existence of the manifest intention only at the appellate stage and that too, long after the filing of the appeal as was attempted to be shown by the appellant herein. It is pertinent to note in this connection that prior to the present O.P. the appellant had filed O.P. (Arb) 442 of 2011 also under Section 9 seeking an injunction against the first respondent from removing any of the dredgers or other equipments from the dredging site. There the appellant had initially secured an ad interim injunction which was eventually vacated by the District Judge holding inter alia that the appellant had approached the Court with unclean hands. An appeal preferred from the final order in that case was later on disposed of by this Court allowing the appellant to withdraw the O.P. No steps for commencement of arbitration proceedings were taken by the appellant either during the pendency of O.P. (Arb) 442 /2011 (i.e. from 02.04.2011 to 12.04.2011) or during the pendency of Arbitration Appeal 27/2011 (i.e. from 06.05.2011 to 08.06.2011). The conduct of the appellant in filing O.P. (Arb) 442 of 2011 on 01.04.2011, and securing an ad interim injunction on 02.04.2011 and on the same day issuing Ext. A12 (Ext. B1) notice of termination of the contract and before expiry of the notice period issuing Ext. B5 re-tender notice inviting tenders for the completion of the work allegedly abandoned by the Ist respondent, had invited adverse comments at the hands of the District Judge. This Court while permitting the appellant to withdraw O.P. (Arb.) 442 of 2011 had however, allowed the Ist respondent to highlight in O.P. (Arb) 505/2011 the lack of bona fides of the appellant. The learned District Judge in the impugned order has upheld the contention of the Ist respondent that the appellant was not acting in a fair manner but instead was abusing the process of the Court. We, are therefore, of the considered opinion that in a case where the Civil Court is approached for an interim measure of protection under Section 9 at a stage before the commencement of arbitral proceedings, there should be clear averment in the petition under Section 9 evincing a manifest intention on the part of the applicant to go for arbitration and such intention should also be discernible from the subsequent conduct of the applicant. Without being satisfied about the existence of such manifest intention the District Court also will not be justified in granting any interim order of protection to such applicant. We also hold that it will be impermissible for the applicant in such a case to contend before the Court of first instance that he will prove the manifest intention eventually before the Appellate Court. In that view of the matter we have no hesitation to hold that the appellant failed to convince the Court that it has the manifest intention to go for arbitration so as to be entitled to an interim order of protection. Of course, the question as to whether the counter claim submitted by the appellant in the pending arbitration is allowable or not and if so to what extent, are all matters to be decided by the arbitrators.

c) THE CONDUCT OF THE APPELLANT

18. Eventhough the filing of OP (Arb) 442/2011 by the appellant earlier does not have any direct impact on the present proceedings, the circumstances leading to the dismissal of the said OP, are certainly relevant in assessing the lack of bona fides of the appellant and the abuse of the process of Court committed by the appellant. There is no dispute that as on 30.04.2010 that the first respondent had completed the capital dredging of the approach channels of Group B channels. Thereafter what remained was only the capital dredging of the basin area and maintenance dredging of Group C channel. As per Ext. A3 contract, Trailing Suction Hopper Dredgers (TSHDs) with a total hopper capacity of not less than 14000 Cu. m. were to be deployed by the Ist respondent during the period from 01.10.2010 to 31.03.2011 for achieving the specified depths during the maintenance dredging of the basin area (Vide the Note to Table B2(b) of Ext. A3 contract). But from November 2010 to January 2011 the Ist respondent had deployed 7 dredgers with a total hopper capacity of 30478 M3 as against the contractual requirement of 14000 M3. Details of those dredgers and their hopper capacity are as follows:

Sl.No. Name of dredger           hopper capacity M3 

1        TSHD KAMAL XXV            2980 

2        TSHD KAMAL XXXV          8205 

3        TSHD KAMAL XXXIII         3205 

4        BLD KAMAL XXXVI           5544 

5        TSHD SERAM                  3000 

6        TSHD KAMAL XXIX           2000 

7        BLD KAMAL XXVI             5544 

         TOTAL                           30,478 M3

On 31.03.2011 the Ist respondent removed one vessel (TSHD KAMAL XXXIII) having a hopper capacity of 3205 M3 leaving behind at the dredging site 3 vessels with a total hopper capacity of 16,507 M3 which is much above the contractual requirement of 1400M3. But, the appellant filed OP (Arb) 442.2011 on 01.04.2011 seeking a perpetual injunction against the first respondent from removing the dredgers and other equipments alleging that if the first respondent removes those vessels it would be detrimental to the right of the appellant in seeking specific performance of the contract. On 02.04.2011 the appellant obtained an ex parte order of injunction and on the same date issued Ext. B1 notice of termination of the contract to the Ist respondent. The 14 days' notice period mentioned in the notice was to expire on 16.04.2011. But on 05.04.2011 itself the appellant issued re-tender notification for entrusting the balance work to other contractors. The first respondent herein and another company by name Clashmore Holdings Ltd. (which alleged that 2 of the dredgers in respect of which prohibitory orders were obtained by the appellant, belonged to them and were hired by the Ist respondent for the dredging work) entered appearance and filed counter-affidavits opposing the OP and interim injunction. As per Ext. B7 order dated 12.04.2011 the learned District Judge dismissed OP (Arb) 442/2011 and vacated the interim injunction holding inter alia that the appellant herein by its conduct of deciding to terminate the contract after approaching the Court for specific performance of the contract, was not entitled to an injunction so as to compel the Ist respondent to detain the dredgers and that the appellant had not approached the Court with clean hands. The learned District Judge also took note of the fact that even according to the appellant the Ist respondent had completed 96% of the work under the contract and what remained was only 4 % of the work which the appellant was desirous of awarding to some other contractors. After the dismissal of O.P. (Arb) 442 of 2011 the appellant preferred an appeal before this Court as Arbitration Appeal No. 27 of 2011 on 06.05.2011 and later on got the OP withdrawn on 08.06.2011 as evidenced by Ext. R-V Judgment of this Court. It is significant to note that throughout the pendency of O.P. (Arb) 442 of 2011 and throughout the pendency of the appeal (Arbitration Appeal No. 27 of 2011) therefrom, the appellant had not taken any steps to commence arbitration proceedings, much less any manifest intention to do so. Out of the above vessels 2 owned by a foreign company (Clashmore Holdings Ltd) and given on hire to the Ist respondent were allowed to be taken away by them as per the order passed by the High Court in W.P. (C) No. 12392/2011 which was confirmed in W.A. No. 566 of 2011. The first respondent would have it that the new chairman of the appellant has been showing a hostile attitude towards the first respondent and was very particular in awarding the balance work to M/s. Mercator Lines Limited and Dredging Corporation of India and the materials obtained by the ist respondent by resort to the Right to Information Act would show that both the above contractors engaged by the appellant have not performed the work in accordance with the contracts awarded to them. Thus, the appellant by its conduct, had also become disentitled to the discretionary orders of the Civil Court.

d) Sustainability of the appellants' demand for Rs.259.97 Crores by way of compensation for the alleged breach of contract

19. After terminating the contract of the Ist respondent and awarding the balance maintenance dredging work to M/s. Dredging Corporation of India and the balance capital dredging work to M/s. Mercator Lines Ltd. the appellant sent Ext. A15 letter dated 19.05.2011 to the Ist respondent claiming a total compensation of Rs.259.97 crores of which Rs.192.86 crores was allegedly recoverable as per the terms of Ext. A3 contract and the balance being "consequential" and "associated" claims. Thereafter the Chief Engineer of the appellant during the pendency of OP (Arb) 05/2011 before the District Court, proposed to determine the above compensation stated to be due to the appellant. The Chief Engineer as per Annexure R-II notice dated 02.09.2011 called upon the Ist respondent to appear before him for a determination of the above claim. Even though the respondent denied the alleged breach of contract by it and objected to the authority of the Chief Engineer (who was only an officer under the appellant who in turn, is a party to the contract) the Chief Engineer overruled the objection and confirmed the demand of Rs.259.97 crores as the compensation due to the appellant. Reliance placed by the appellant on M/s. J. G. Engineers (Pvt) Ltd., Vs. Union of India, (2011) 5 SCC 758 before us to justify the above demand is of no avail to it because in paragraph 14 thereof it is specifically held by the Supreme Court that the authority of the Engineer to decide the percentage of compensation due to the employer from the contractor (for the latter's delay) by recourse to the terms of the contract itself can be justified only if the contractor admits that he was responsible for the breach of the terms of contract. Here the Ist respondent is not admitting the breach. As for the delay in not executing the 4% balance work, the Ist respondent has very many explanations. Suffice it to say that one does not require much brains to conclude that a demand of Rs.259.97 crores as compensation for the work of capital dredging of the basin area which now stands entrusted with Mercator Lines for Rs.60.80 crores, ex-facie arbitrary and exorbitant . In the case of an alleged breach of contract which is either disputed or not admitted, a party to the contract cannot unilaterally decide the said question of breach and demand any compensation for the alleged breach of contract. (Vide- State of Karnataka Vs. Shree Rameshwara Rice Mills, (1987) 2 SCC 160 paras 7 & 8; Bharat Sanchar Nigam Ltd. Vs. Motorola India pvt. Ltd., (2009) 2 SCC 337 paras 33 and 34 and M/s. J. G. Engineers Pvt. Ltd. Vs. Union of India, (2011) 5 SCC 758 paras 15 and 16. There is a controversy between the parties as to what exactly was the balance work left behind by the Ist respondent. According to the appellant the left over work is not only the capital dredging of the basin area but also the maintenance dredging of the Group C channels. But according to the Ist respondent what remains to be performed by it is only the capital dredging work in the basin area. This is a matter for resolution during the arbitral proceedings. But there is no dispute that the Ist respondent had completed the capital dredging of the outer and inner channels of Group B channel by 30.04.2010 which was within the contract period and with regard to the balance work, the appellant had even published in its web site that the Ist respondent had completed 96 % of the work leaving a balance of 4%. Thus, the appellant's demand for Rs.259.97 crores by way of compensation in Ext. A15 letter dated 19.05.2011 followed by Annexure R-XI demand of the very same amount by the Chief Engineer employed by the appellant, is not only not founded on any adjudication by any independent agency, but also is ex facie unconscionable.

e) Prima facie breach of the guiding principles for awarding compensation. 

20. The aforementioned sum of Rs.259.97 crores by way of compensation demanded by the appellant appears to be in the nature of penalty. The law on the question of damages or compensation in such types of contracts is well settled . Sections 73 to 75 in Chapter VI of the Indian Contract Act, 1872 deal with the consequences of breach of contract. Whether it is compensation by way of unliquidated damages falling under Section 73 or whether it is compensation by way of liquidated damages falling under Section 74 of the Contract Act or whether it is compensation consequent on anticipatory breach, the claimant will only be entitled to reasonable compensation. In other words, unless actual loss or damage is proved to have resulted on account of the breach of contract or rescission of contract, as the case may be, no amount by way of compensation would be payable to the claimant. Fateh Chand Vs. Balakishan Dass, AIR 1963 SC 1405 Maula Bux Vs. Union of India, (1969) 2 SCC 554, Union of India Vs. Rampur Distillery and Chemical Co., Ltd., (1973) 1 SCC 649 State of Kerala Vs. United Shippers and Dredgers Ltd., 1982 KLT 738. When the first respondent was disputing the alleged breach of contract, it was not open either to the appellant or to any officer of the appellant to unilaterally demand any amount by way of compensation by taking shelter under any of the terms in the contract . The first respondent has been disputing the very basis of arriving at the quantum of the backlog of the work and consequently the resultant calculation of the damages.

f) Balance of convenience and comparative hardship

21. As per Ext. B1 notice of termination issued by the appellant to the first respondent invoking clause 14.2 of the contract the first respondent was to vacate the site and withdraw its crew in the vessels. According to the first respondent, the dredgers and other vessels available at the site are costing about Rs.209 crores and there are more than 200 crew members employed in those vessels of which two of them are kept 10 kms. away from the port limits and lying exposed to the vagaries of weather. Going by the contentions of the first respondent drifting of vessels in heavy rains and adverse climatic conditions may lead to their collision with ships and other vessels coming to the port and going out of the port and unless proper care is taken the vessels may even sink. The first respondent would have it that it is finding it difficult to maintain the crew, keep the dredgers idling and meeting the expenses towards the salary, wages accommodation and food of the crew members . According to the first respondent as per the contract the above expenses together with idling charges of the vessels come to Rs.4784160/- per day. That apart, the appellant has been claiming berthing charges for the detention of the first respondent's vessels and a Writ Petition filed against that as W.P. (C) 15070/2001 is pending judgment. The further case of the first respondent is that its annual turn over in the last three years has been more than Rs.250 crores and the appellant has no case that all the directors of the first respondent who are Indians will leave the country or that the first respondent will become insolvent. Over and above that there is a claim for about Rs.500 crores by the first respondent in the pending arbitration. It is the case of the first respondent that after the new Chairman took charge no payment has been made for the work done by the first respondent in February and March 2011 and about Rs.85 crores have been retained with the appellant. The first respondent would further allege that the chairman of the appellant has encashed the bank guarantee pursuant to which its bankers have stopped all payments to the first respondent. Since all the dredgers have to be run on diesel for generating power without which the crew members cannot survive on board and constant maintenance is required using oil and lubricants for the smooth functioning of the dredging parts and for providing fresh drinking water to the officers and crew members on board Rs.3 lakhs per dredger per day will be required . Pending this appeal, notwithstanding the blacklisting of the first respondent by the appellant and conveying the said information to all the major Port Trusts in India, the Cochin Shipyard Ltd. had issued tender documents to the first respondent's company for carrying out an urgent work of launching of a new Indian Aircraft Carrier which is a prestigious venture undertaken by the Cochin Shipyard for the whole nation. Hence, the first respondent should be permitted to re-deploy the vessels and other equipments which have been detained by the appellant. The first respondent also may have to bring in other vessels and equipments for executing the above assignment for which purpose it has already filed IA No. 2858 of 2011 before us. 

All the above factors cannot be lost sight of by the Court in evaluating the balance of convenience and comparative hardship before passing an order under Section 9 of the Act.

g) The first respondent has no attachable interest

22. Annexures R2 (a) to R2 (g) are the copies of the certificates of registration pertaining to 8 dredgers employed by the first respondent for carrying out the dredging work under Ext. A1 contract. Those certificates of registration show that the additional 2nd respondent is the owner of those dredges. As per Annexures R2 (h) to R2 (o) Time Charter Agreements those dredgers were hired by the first respondent on various dates commencing from 12.08.2008 to 15.05.2010. It was in respect of these and other vessels that the appellant sought an interim injunction in O.P. (Arb) 442/2011 and conditional attachment in the present OP (OP (Arb) 505 /2011). The real person affected by those proceedings was the Addl. R2 . It is true that the additional R2 was not a party in the proceedings before the District Court. The appellant should have made the additional R2 a party before the Court below. The ad interim injunction granted by the District Court in OP (Arb) 442 /2011 on 02.04.2011 lasted only for 10 days and it was on the 10th day that the District Judge vacated the interim injunction. No ex parte conditional order of attachment was granted by the District Judge in the present OP. Hence, failure on the part of the additional R2 to intervene in the proceedings before the Court below cannot be taken advantage of by the appellant. Both R1 and additional R2 have other contractual commitments requiring the mobilization of the very same dredgers to other sites. It may be true that there are common directors in R1 and additional R2. But as long as the two companies are distinct legal entities having independent status and identity, the mere fact that they have common share holders or common Board of Directors will not make the two companies a single entity. Nor will the existence of common shareholders or directors lead to an inference that one company will be bound by the acts of the other. (See paragraphs 17 & 18 of Indowind Energy Ltd. Vs. Wescare India Ltd., (2010) 5 SCC 306

OUR CONCLUSION

23. After giving our anxious consideration to the entire facts and circumstance of the case, we have absolutely no hesitation to conclude that the learned District Judge was fully justified in dismissing the O.P. refusing the interim measure of protection prayed for by the appellant. We do not find any good ground to interfere with the order passed by the District Judge. In the light of the averments in the affidavit in support of IA 2858 of 2011 filed by the first respondent, the prayer in the said I.A. will stand allowed.

24. This appeal is, accordingly, dismissed. There will be no order as to costs. 


We place on record our appreciation for the remarkably fair, saintly and mature arguments addressed before us by Sr. Advocate Sri. Joseph Markos and the tenacious and razor sharp submissions of Sr. Advocate Sri. K. L. Varghese and the brief and pointed arguments of Adv. Sri. Millu Dandapani.


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