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Supreme Court of India
M/S Laxmi Continental … vs State Of U.P. on 20 September, 2021Author: M.R. Shah
Bench: M.R. Shah, A.S. Bopanna
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6797 OF 2008
M/s Laxmi Continental Construction Co. …Appellant(s)
Versus
State of U.P. & Anr. …Respondent(s)
JUDGMENT
M.R. SHAH, J.
1. Being aggrieved and dissatisfied with the impugned judgment and
order dated 19.06.2007 passed by the High Court of Uttaranchal at
Nainital passed in A.O. No. 1489 of 2001 by which the High Court has
allowed the said appeal and has set aside the award dated 08.01.1998
made by the learned Arbitrator and the order dated 20.04.2001 passed
by the learned Civil Judge (Senior Division), Roorkee making the said
award Rule of the Court, original claimant, M/s. Laxmi Continental
Signature Not Verified
Construction has preferred the present appeal.
Digitally signed by R
Natarajan
Date: 2021.09.20
17:13:28 IST
Reason:
2. The facts leading to the present appeal in nutshell are as under:-
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2.1 A contract was entered into between the appellant and the
respondents regarding the earthwork including lining of
V.U.G.C. from KM 10 to KM 11 vide agreement dated
06.02.1988. During the contract work, various disputes and
differences arose between the parties. All disputes and
differences between the parties were required to be resolved
through arbitration in pursuance of clause 52 of the
agreement. Clause 52 of the agreement reads as under:-
“52. ARBITRATION:
All disputes or differences in respect of
which the decision is not final and conclusive,
shall be referred for arbitration to a sole arbitrator
appointed as follows:
Within thirty days of receipt of notice from the
contractor of his intention to refer the dispute to
arbitration the Chief Engineer shall send to the
contractor a list of three officers of the rank of
Superintending Engineer or higher, who have not
been connected with the work under this contract.
The contractor shall within fifteen days of receipt
of this list select and communicate to the Chief
Engineer the name of one officer from the list who
shall then be appointed as the sole arbitrator. If
contractor fails to communicate his selection of
name, within the stipulated period, the Chief
Engineer shall without delay select one officer
from the list and appoint him as the sole
arbitrator. If the Chief Engineer fails to send such
a list within thirty days, as stipulated, the
contractor shall send a similar list to the Chief
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Engineer within fifteen days. The Chief Engineer
shall then select an officer from the list and
appoint him as the sole arbitrator within fifteen
days. If the Chief Engineer fails to do so the
contractor shall communicate to the Chief
Engineer the name of one officer from the list,
who shall then be the sole arbitrator.
The arbitration shall be conducted in accordance
with the provisions of the Indian Arbitration Act,
1940 or any statutory modification thereof. The
decision of the sole arbitrator shall be final and
binding on the parties thereto. The arbitrator
shall determine the amount of costs of arbitration
to be awarded to either parties.
Performance under the contract shall continue
during arbitration proceedings and payments due
to the contractor by the owner shall not be
withheld, unless they are the subject matter of the
arbitration proceedings.
All awards shall be in writing and in case of
awards amount to Rs.1.00 Lakh and above, such
awards shall state reasons for the amounts
awarded.
Neither party is entitled to bring a claim to
arbitration if arbitrator has not been appointed
before the expiration of thirty days after defect
liability period.”
2.2 Arbitrator was required to be appointed as provided under
clause 52 of the agreement. The Chief Engineer appointed
one Shri S.S. Manocha, who at the relevant time was also a
Chief Engineer, as an Arbitrator vide order dated 31.10.1992.
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The Sole Arbitrator entered into the Reference on
19.11.1992 and issued notice to the parties directing them to
submit the relevant papers and documents etc. The claimant
filed its claim giving all details. The respondents also filed
their objections to the said claim of the claimant. The
respondents, thus, participated in the proceedings before the
Sole Arbitrator. On various dates, the arbitration proceedings
were adjourned at the instance of the respondents. During
the period, the learned Arbitrator Shri S.S. Manocha
superannuated on completion of superannuation age on
30.11.1995. During the hearing, the time for making and
publishing the award was extended from time to time by the
respondents. That the Superintending Engineer vide its letter
dated 09.08.1996 refused to extend the period of arbitration
particularly when the arbitration was about to close and the
same could not be completed due to lapses, default and
seeking adjournments on the part of the respondents.
2.3 The appellant thereafter filed Arbitration Suit No.116 of 1996
before the Civil Judge (Senior Division), Roorkee under
Section 28 of the Arbitration Act, 1940 praying for extension
of time for making the award and for hearing and conducting
the arbitration. The respondents took their objections that
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the arbitrator has got retired and, therefore, the arbitration
proceedings should not be proceeded further by the Sole
Arbitrator, who has retired. Even the respondents also filed
Misc. Suit No. 122 of 1997 with a prayer for declaring
Reference sent to the Sole Arbitrator as inoperative and
illegal.
2.4 Both the suits were heard together by the learned Civil Judge
(Senior Division), Roorkee. By common order dated
11.12.1997, the learned Civil Judge (Senior Division)
extended the period of arbitration for 30 days and directed
the Sole Arbitrator, Shri S.S. Manocha to decide the same
within the extended period of time. That thereafter, the
learned Sole Arbitrator, Shri S.S. Manocha declared the
award on 08.01.1998 and ordered the respondents to pay a
total sum of Rs.10,97,024.00 with interest on the said sum
from 01.10.1990 to 07.01.1998. The respondents filed their
objections under Section 30/33 of the Arbitration Act, 1940
vide Misc. Case No. 3 of 1998, challenging the said award
and made prayer therein for setting aside the award dated
08.01.1998 before the learned Civil Judge (Senior Division),
Roorkee.
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2.5 Having found that arbitration clause 52 of the agreement
does not provide for terminating the mandate of the Arbitrator
on his retirement, the learned Civil Judge (Senior Division),
Roorkee overruled the objections raised by the respondents
herein and made the award dated 08.01.1998 Rule of the
Court.
2.6 Feeling aggrieved, dissatisfied with the judgment and order
dated 20.04.2001 passed by the learned Civil Judge (Senior
Division), Roorkee, overruling/rejecting the objections of the
respondents and making the award dated 08.01.1998 Rule
of the Court, the respondents preferred appeal before the
High Court and by impugned judgment and order the High
Court has allowed the said appeal and has quashed and set
aside the award dated 08.01.1998 made by Shri S.S.
Manocha, the then Chief Engineer and the Sole Arbitrator
and the order dated 20.04.2001 passed by the learned Civil
Judge (Senior Division), Roorkee making the award Rule of
the Court, solely and mainly on the ground that after the
retirement of the Sole Arbitrator, Shri S.S. Manocha as Chief
Engineer, he has misconducted himself by proceeding
further with the arbitration proceedings.
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2.7 Feeling aggrieved and dissatisfied by the impugned
judgment and order passed by the High Court, the original
claimant has preferred the present appeal.
3. Shri Mukesh Kumar Sharma, learned Advocate has appeared on
behalf of the appellant and Shri Ravindra Raizada, learned Senior
Advocate has appeared on behalf of the respondents – State of U.P.
4. Shri Mukesh Kumar Sharma, learned Advocate appearing on
behalf of the appellant has vehemently submitted that in the facts and
circumstances of the case, the High Court has materially erred in
quashing and setting aside the award declared by the Sole Arbitrator as
well as the order passed by the learned Civil Judge (Senior Division),
Roorkee making the award Rule of the Court.
5. It is submitted that both the parties are bound by the arbitration
clause contained in the agreement, in particularly, contained in clause 52
of the agreement. It is submitted that clause 52 of the agreement
provides for nomination of the arbitrator by the Chief Engineer out of the
three officers of the rank of Superintending Engineer or higher, who have
not been connected with the work under the contract. It is submitted that
clause 52 does not provide that the arbitrator nominated and/or
appointed shall have a mandate to continue the arbitration proceedings
till he remains in service, and, thereafter, on his retirement his mandate
is terminated. It is submitted that in absence of such a provision in the
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clause 52, once an Arbitrator is appointed considering the qualification
mentioned in clause 52, thereafter, he continues as an Arbitrator till the
arbitration proceedings are concluded unless clause 52 provides other
way round. It is further submitted by learned Advocate appearing on
behalf of the appellant that even otherwise the High Court ought to have
appreciated that throughout the respondents participated in the
arbitration proceedings even after the Sole Arbitrator, Shri S.S. Manocha
attained the age of superannuation. It is submitted that High Court has
also not appreciated that even thereafter by order dated 11.12.1997, the
learned Civil Judge (Senior Division), Roorkee extended the time to
complete the arbitration proceedings after overruling the objections
raised by the respondents and that after the retirement, Shri S.S.
Manocha, the learned Sole Arbitrator cannot continue with the arbitration
proceedings. It is submitted that the order dated 11.12.1997 passed by
the learned Civil Judge (Senior Division), Roorkee remained
unchallenged and attained the finality. It is submitted, therefore, that
thereafter it was not open for the respondents again to raise the same
objection that after the learned Sole Arbitrator, Shri S.S. Manocha
attained the age of superannuation on 30.11.1995, he cannot continue
with the arbitration proceedings, the objection which as such was
overruled/rejected by the learned Civil Judge (Senior Division), Roorkee
while passing the order dated 11.12.1997.
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6. Making the aforesaid submissions and relying upon the decisions
of this Court in Himalayan Construction Co. Vs. Executive Engineer,
Irrigation Division, J&K and Anr., (2001) 9 SCC 359, Prasun Roy Vs.
Calcutta Metropolitan Development Authority and Anr., (1987) 4
SCC 217 and N. Chellappan Vs. Secretary, Kerala State Electricity
Board and Anr., (1975) 1 SCC 289, learned Advocate appearing for the
appellant prayed to allow the present appeal and quash and set aside
the impugned judgment and order passed by the High Court and
consequently to restore the award declared by the Sole Arbitrator and
the order passed by the learned Civil Judge (Senior Division), Roorkee
making the award Rule of the Court.
7. The present appeal is opposed by Shri Raizada, learned Senior
Advocate appearing on behalf of the respondents.
8. It is vehemently submitted by Shri Raizada, learned Senior
Advocate appearing on behalf of the respondents that it is not in dispute
that the learned Sole Arbitrator was appointed as per clause 52 and as
he was the Chief Engineer. It is submitted, therefore, that once he
retired on attaining the age of superannuation and he did not continue as
a Chief Engineer, his mandate is terminated to continue with the
arbitration proceedings and a new Arbitrator is to be nominated and
appointed afresh as per clause 52 of the agreement. It is further
submitted that right from the retirement of the Sole Arbitrator, the
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respondents raised an objection against his continuing with the
arbitration proceedings and despite the same, he continued with the
arbitration proceedings even after his retirement, as rightly observed by
the High Court, he has misconducted himself, and, therefore, the High
Court has rightly quashed and set aside the award declared by Shri S.S.
Manocha, the learned Sole Arbitrator, who is held to have been
misconducted.
9. Shri Raizada, learned Senior Advocate has also heavily relied
upon the State Amendment of Section 4 of the Arbitration Act, 1940 by
submitting that as per the State Amendment applicable to the State of
U.P., in every case, where any appointed arbitrator neglects or refuses to
act, or becomes incapable of acting or dies, the vacancy shall be
supplied by the person designated as mentioned in sub-section (1) of
Section 4. Making the aforesaid submissions, it is prayed to dismiss the
present appeal.
10. Heard the learned counsel appearing for the respective parties at
length. The short question which is posed for consideration before this
Court is whether once an officer of the department is appointed as an
Arbitrator considering the arbitration clause, whether his mandate to
continue the arbitration proceedings shall come to an end on his
retirement? The further question which is posed is whether continuance
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of the arbitration proceedings by such an Arbitrator after his retirement
can be said to be committing a misconduct by such a Sole Arbitrator?
11. For the aforesaid question, the relevant arbitration clause required
to be considered is clause 52. In the present case, arbitration
agreement contains arbitration clause as per clause 52 of the
agreement, which is reproduced hereinabove. It provides that on the
receipt of the notice from the contractor of his intention to refer the
dispute to the arbitration the Chief Engineer shall send to the contractor
a list of three officers of the rank of Superintending Engineer or higher,
who have not been connected with the work under the contract.
Thereafter, the contractor shall within fifteen days of receipt of the list
select and communicate to the Chief Engineer the name of one officer
from the list, who shall then be appointed as the Sole Arbitrator. It
further provides that if a contractor is failed to communicate his selection
of name, within the stipulated period, the Chief Engineer shall without
delay select one officer from the list and appoint him as the Sole
Arbitrator. It further provides that if the Chief Engineer fails to send such
a list within 30 days, as stipulated, the contractor shall send a similar list
to the Chief Engineer within fifteen days and the Chief Engineer shall
then select an officer from the list and appoint him as the Sole Arbitrator
within fifteen days. It further provides that the arbitration shall be
conducted in accordance with the provisions of the Indian Arbitration Act,
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1940. Therefore, the only qualification for appointment as an arbitrator
is that he should be the officer of the rank of the Superintending
Engineer or higher. Once such an officer is appointed as an
Arbitrator, he continues to be the Sole Arbitrator till the arbitration
proceedings are concluded unless he incurs the disqualification
under the provisions of the Indian Arbitration Act, 1940. Even after
his retirement, the arbitration proceedings have to be continued by the
same Arbitrator. Clause 52 of the agreement does not provide at all that
on the retirement of such an officer, who is appointed as a Sole
Arbitrator, he shall not continue as a Sole Arbitrator and/or the mandate
to continue with the arbitration proceedings will come to an end.
12. Identical question came to be considered by this Court in the case
of Himalayan Construction Co. (supra). The question before this
Court was whether the High Court was justified in taking the view that
the award, which is made the Rule of the Court by the learned Single
Judge was illegal and liable to be set aside on the ground that the
arbitrator, who was appointed by designation had retired and has ceased
to hold his office when he passed the award. In that case also, the Sole
Arbitrator even after his retirement prayed for extension of time and the
extension was granted after hearing the parties and as no such objection
was raised at that time, and thereafter the nominated Arbitrator, who was
the officer, passed the award. This Court overruled the objection that
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after the retirement of the Sole Arbitrator, who was appointed by
designation cannot continue arbitration proceedings after his retirement
and cannot pass the award.
13. In the present case also the Sole Arbitrator, who at the relevant
time was the Chief Engineer and was qualified to become the Sole
Arbitrator was even nominated and/or appointed by the Chief Engineer
as per clause 52. Therefore, considering the clause 52 of the
agreement, it cannot be said that his mandate to continue with the
arbitration proceedings would come to an end on his retirement.
14. It is further required to be noted that even the very objection was
raised by the respondents before the learned Civil Judge (Senior
Division), Roorkee when the question of extension of time was being
considered by the learned Civil Judge (Senior Division), Roorkee. The
learned Civil Judge (Senior Division), Roorkee overruled such an
objection and granted further one month’s extension to the Sole
Arbitrator to complete the arbitration proceedings. The said order has
attained the finality. Therefore, thereafter, it was not open for the
respondents to again raise such an objection.
15. Now, so far as the reliance placed upon the amendment to Section
4 of the Indian Arbitration Act, 1940 as applicable to the State of U.P. is
concerned, the aforesaid has no substance. State amendment of
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Section 4 of Arbitration Act, 1940 as applicable to State of U.P. upon
which the reliance has been placed reads as under:-
“ XXXXXXXXXX
(2) In every such case where any appointed arbitrator
neglects or refuses to act, or becomes incapable of
acting or dies, the vacancy shall be supplied by the
person designated as aforesaid.”
On fair reading of the aforesaid provision, we are afraid that the
aforesaid provision shall be applicable at all. It cannot be said that the
Sole Arbitrator had become incapable of acting on his retirement from
service.
16. Even the observations made by the High Court in the impugned
judgment and order that the Sole Arbitrator has misconducted himself by
continuing with the arbitration proceedings after his retirement is also not
tenable at law. In the present case, the learned Civil Judge (Senior
Division), Roorkee extended the time to the Sole Arbitrator to complete
the arbitration proceedings and granted further period of 30 days which
was after his retirement and after specifically overruling/rejecting the
objections raised by the respondents that after retirement, he cannot
continue with the arbitration proceedings. Therefore, once the learned
Sole Arbitrator continued with the arbitration proceedings and passed the
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award within the extended period of time, it cannot be said that he has
misconducted himself as he continued with the arbitration proceedings.
17. In view of the above and for the reasons stated above, the
impugned judgment and order passed by the High Court quashing and
setting aside the award as well as the order passed by the learned Civil
Judge (Senior Division), Roorkee making the impugned award Rule of
the Court deserves to be quashed and set aside. Accordingly, the
present appeal is allowed. The impugned judgment and order passed
by the High Court dated 19.06.2007 passed in A.O. No.1489 of 2001 is
quashed and set aside and the award passed by the learned Sole
Arbitrator dated 08.01.1998 and the order passed by the learned Civil
Judge (Senior Division), Roorkee dated 20.04.2001 passed in Original
Suit No. 4 of 1998 and Misc. Suit No.3 of 1998 making the award, Rule
of the Court are hereby restored.
18. In the facts and circumstances of the case, there shall be no order
as to costs.
………………………………….J. [M.R. SHAH]
NEW DELHI; ………………………………….J.
SEPTEMBER 20, 2021. [A.S. BOPANNA]
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