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TMI Blog2013 (4) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... on 8th August, 2006. The contract price of the project was Rs. 79.52 crores. The project could not be completed timely and both the parties claimed that there are breach of obligations on either side. Thereafter, the respondent / claimant before the tribunal vide its letter dated 16th June, 2006 requested for extension of time (EOT) upto 31st July, 2007 for completion of the project. In reply to the same, the petitioner replied by stating that the respondent had not submitted any notice regarding the events of compensation and that the details of the revised target program need to be submitted by the claimant in order for the respondent to process the EOT application. The respondent further replied to the said letter on 12th July, 2006 and stated that the updated program had already been submitted by it in March 2005 for the balance works and also furnished all the details of the earlier correspondences to the petitioner. 4. That vide letter dated 7th August, 2006, the petitioner granted the extension of time up to 8th November, 2006 stating that the EOT application of the respondent was under process. Despite several communications between the parties, the issue of EOT could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties gave its recommendations which can be summarized as under: In accordance with clause 60.2 of the contract conditions read with S.No. 42(b) of the contract data, the contractor is entitled to receive an amount equal to 5% of the value of the work not executed as loss of the profit and other damages, since no fundamental breach of the contractor under clause 59.2(g) and 59.2(a) of the contract has been established. At the same time, notice of termination could not have been held up further due to very slow progress of the work and there was no possibility of completing the work even after 15 months beyond the EOT applied for. Taking into account the above, the DRB agrees with the action of the Employer to terminate the contract for convenience for which he has power vested under clause 59.4 of the contract condition. The employer‟s additional cost for completing the works shall be 20 % of the value of the work not completed in accordance with the clause 60.1 of the contract conditions read with S.No. 42(a) of the contract data since fundamental breach of the contractor under clause 59.2(h) and under S.No. 41(a) of the contract data read with clause 9 of GCC is est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Arbitral Tribunal after hearing the submissions of the parties returned the finding by passing the impugned order dated 20th August, 2011 holding that the recommendations of DRB have attained finality since the respondent/ petitioner herein has failed to challenge the same in time, as per the stipulation of the contract. Therefore, the respondent therein/petitioner herein is not entitled to challenge the said findings at this stage by raising the dispute before the tribunal for re-opening of such recommendations of the DRB. The said finding was given by the Arbitral Tribunal on Issue No.1. As far as Issue No.2 is concerned, the counsel for the petitioner did not press for the same and remained contended with the proposal of the tribunal that the counter claim could not be raised by the petitioner for the first time before the Arbitral Tribunal. 14. Petitioner after being dissatisfied by the impugned order dated 20th August, 2011 passed by the Arbitral Tribunal challenged the same before this court by filing the appeal under Section 37(2) of the Act. The said appeal was earlier registered as FAO (first appeal against orders) and thereafter the said appeal was transferred throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave entertained the claims of the petitioner warranting interference from this court. b) Mr. Sharma, learned Senior counsel argued that clause 24.2 of the agreement is broad enough which may enable the Arbitral Tribunal to entertain the challenges to the recommendation of DRB, even if the said recommendations have attained finality. c) Mr. Sharma further argued that the learned Arbitral Tribunal ought to have entertained the claims of the petitioner in view of clause 24.3 of the agreement which also enables the tribunal to hear the claims in the form challenges to the recommendations even if said recommendations have attained finality. d) Mr. Sharma argued that the procedural laws are always held to be handmaiden to justice and not an obstruction to justice. The said view is prevalent when it comes to dealing the matters involving the procedural laws which seek to curtail the rights of the parties. It has been argued that there is no reason why this court should not adopt the said approach in the cases involving contractual prescription which is also procedural in nature. Therefore, the Arbitral Tribunal has erred in not entertaining the claims of the petitioner on the ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenged along with the final order in certain cases. Mr. Sethi, thus contended that the appeal should be dismissed as not maintainable as the same is outside the scope of Section 37 of the Act. Mr. Sethi in order to buttress his submission has also relied upon the judgment passed in the case of National Thermal Power vs. Siemens Atiengesellschaft (Sag), 121 (2005) DLT 36 wherein the learned Single Judge of this Court has held the decision on the counter claims on merits is distinct from the jurisdictional objection and the appeal in such a case is not maintainable under Section 37 of the Act. c) Mr. Sethi, learned Senior counsel for the respondent urged that in any event the submission that clause 24 of the agreement which provides for the time period in order to raise a challenge against the recommendation of DRB so as to entitle the party to go for arbitration does not violate the public policy. Mr. Sethi argued that there exists a distinction between the clauses which provide time limit which in effect reduces a limitation period prescribed under law as against the clauses which extinguish the remedy itself. It is stated that in the later kind of cases, the clauses cannot be he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal to rule on its jurisdiction.- (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose - (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense; 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". "37. Appealable orders.- (1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals shall lie only in those events. 22. Now, the question which requires further examination is what constitutes a plea that the Arbitral Tribunal does not have jurisdiction. Does it also include the plea of the nature that the claims are beyond the scope of the arbitration and thus barred. Does lack of jurisdiction objection also include the objection that the claims are not arbitrable and thus falls outside the purview of the arbitration. I find that the answer to these questions seem to be in affirmative in view of the settled legal position in the field. 23. The plea that the Arbitral Tribunal "does not have jurisdiction" as provided under Section 16(2) of the Act has to be given meaning of widest amplitude and cannot be considered in a narrow sense. The said objection lack of jurisdiction or does not have jurisdiction is not merely confined to lack of jurisdiction which is ordinarily understood in the civil law which is but ofcourse included the same. Additionally, the said wordings plea of does not having jurisdiction have to be considered in the context of authority of the arbitrator to entertain the dispute and to rule on his jurisdiction. The said wordings plea of do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dispute falling outside the scope of arbitration is a plea under Section 16 (2). In the said case also, the counter claims were ordered to be rejected on the similar counts that the said claims were outside the purview of the dispute due to lack of issuance of prior notice to raise the claim. This can be seen if one goes through the order passed by the arbitrator in the said case and the facts narrated by the learned Single Judge in the said case in the following manner: "4. Learned Arbitrator vide the impugned order has allowed the application of the respondent under Section 16 of the Act concluding as under: "In view of this, I hold that the counter claims raised in the letter dated 8.5.2000 will have to be adjudicated upon by this arbitral tribunal and the rest of the counter-claims cannot be entertained and adjudicated upon, because those are pre-mature claims and are outside the ambit of the expression "dispute". The contention of Mr. Mahesh K. Chaudhary that the claimant had increased the amount of claims, which were filed before the previous Arbitrator Mr. Pahwa and the claims fled before this arbitral Tribunal. It is within my domain and province to decide this question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could consider only the aforesaid questions and could not go into the question whether the counter-claim filed by the appellant constituted disputes. Mr. Mehta, urged that parties are at liberty to prove their claims and counter-claims by filing documents or otherwise and, therefore, the Arbitrator has the jurisdiction to adjudicate upon the counter-claims filed by the appellant and could not have rejected the same at this stage for want of jurisdiction at the threshold. In the opinion of this Court, the power conferred on the Arbitrator under Section 16 are of wide amplitude and it includes the power even to rule on the question as to whether any claim/counter claim can be said to be dispute within the meaning of the Arbitration Agreement and whether the Arbitrator has or does not have the jurisdiction to adjudicate on the said claim/counter claim. No doubt it may be open to a party to challenge the Award of the Arbitrator under Section 34 of the Act on the ground that the Award deals with a dispute not contemplated or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission of the arbitration, neverthel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, unless in the statement of either of the parties it is specifically denied or objected to on the ground that the plea sought to be raised by the other party is beyond the scope of the dispute for adjudication by the arbitrator being outside the scope of reference. In other words, in case of enlargement of the scope of dispute in the statement of claim in comparison to the one referred to, and in the absence of any objection by the other party, it could be deemed to have been conceded to form the subject-matter of dispute for adjudication before the arbitral Tribunal. This is abundantly clear from Section 16(2) r/w Section 4 of the said Act. Undoubtedly, Section 16(2) refers to the point of jurisdiction. However, Section 16(2) r/w Section 16(1) would disclose that the point of jurisdiction thereunder would include any controversy as regards the existence or validity of arbitration agreement which would obviously cover any plea regarding exclusion of the subject-matter from arbitration. And in terms of Section 4 of the said Act, the party would be deemed to have waived the right to raise objection regarding the exclusion of the subject-matter from arbitration. (Emphasis Supplied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suffered by the petitioner herein/ respondent therein on account of the failure of the respondent/ claimant to perform its commitment. Likewise in para 11 of the reply, the breaches committed by the respondents are enumerated. The respondent herein filed a rejoinder to the said reply which is kind of defence to the counter claim and response to the disputes raised by the petitioner herein/ respondent therein. In the said rejoinder, the respondent herein has dealt with the reply on merits to paragraph 4, 6 to 9, paragraph 11 that the petitioner herein is estopped from challenging the said dispute/ raising the said dispute before the Arbitral Tribunal on account of the fact that the recommendation of DRB has attained finality as per the agreement. The collective reading of the reply statement and the rejoinder clearly reveals that the respondent herein has taken such objection at the earnest opportunity and there is no waiver of the same. c) It is upon the objection of the respondent herein/claimant before the Arbitral Tribunal that the Arbitral Tribunal has framed the preliminary issues relating to entitlement of the respondents to raise the settlement of dispute as per clause 24 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent in the rejoinder and consequently the learned Arbitral Tribunal framed such preliminary issue. In this backdrop, it is noteworthy to mention that for maintainability of the appeal under Section 37 (2) (a) of the Act, the scope of the enquiry is whether the objection/ plea in the nature of Section 16 (2) of the Act has been accepted or not. It is immaterial as to in what manner of decision making, the conclusion is arrived at while upholding the said objection. The Arbitral Tribunal in its wisdom can choose the manner of decision making either by ruling on the application under Section 16 of the Act when preferred by the parties or in the alternative proceeding to frame a preliminary issue and dispose of the same when it is ex-facie clear to the Arbitral Tribunal that the claims are not entertainable The question is therefore not the manner of the decision making but the real and the moot question is whether the conclusion of the Arbitral Tribunal is such which goes into the root of the matter and takes the away the jurisdiction of the tribunal to rule on the claims presented before it. If the answer comes in affirmative, then whether it is in the form of preliminary issue or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tertain the objection under Section 34 on the grounds envisaged under sub-section (2) clause (iv). Thus, the permissible extent of entertainment of the objection under Section 34 (2) (iv) is limited in cases where the Arbitral Tribunal decides the matter outside the scope of the arbitration. The said ground under Section 34 (2) (iv) does not extend to the cases where the Arbitral Tribunal refuses to its exercise jurisdiction on the subject matter or refuses to entertain the claims being outside the purview of arbitration. There is no ground under Section 34 which permits such enquiry by the Court under the said provision. This also indicates that the Act of 1996 is a self contained Code and provides for different kind of challenges at different stages of the proceedings. Therefore, the order on lack of jurisdiction can aptly be questioned under the provisions of Section 37 (2) (a) and not under Section 34 of the Act as in the instant case. d) The judgment passed by the learned Single Judge in the case of NTPC v. Siemens (supra) is distinguishable from the facts and circumstances of the instant case. The said judgment is distinguishable due to following reasons: Firstly, the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) or Section 16(3) of the Act." After recording the aforenoted submission of the counsel for the respondent in the case of NTPC, learned Single Judge proceeds to discuss the observations in the award and then arrives at the finding that the award does not confine itself to the ruling on lack of jurisdiction but also decides the question on merits. In the words of the learned Single Judge, it was observed thus: "The Arbitral Tribunal then takes stock of the material on record in regard to the question of limitation whether the claim of the SAG for damages was barred by time. The question of admissibility of counter-claims has been discussed towards the end of the Partial Award from para 4.58 onwards and has been answered in the following terms: 4.58 In the Tribunal's view none of these alleged Counterclaims is admissible. The key question which the Claimant has raised is whether the Settlement Agreement reached between the parties in April and May 2000 operates to bar the majority of these Counterclaims on the ground that they are subject to that settlement and therefore there is no dispute. This argument is advanced by the Claimant in respect of the second, third, forth, fifth, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reservation of rights. There is no admissible dispute. That leaves the first Counterclaim to be considered and as to that it is in the Tribunal's opinion plain, that the Claimant's argument is correct. The correspondence makes it clear in relation to the original pleading that five purchase orders were confirmed and supplied and are therefore being complied with, so no dispute can arise. 4.67 In the light of the Tribunal's findings on the nature and effect of the Settlement Agreement of 6th /7th April 2000, it is unnecessary for the Tribunal to consider any additional defenses to the Counterclaims. They are not admissible and no capable of being included in this reference to arbitration." The Tribunal has summarized its findings under the heading "IV-Determination" - and concluded as under in para 5.7:- 5.7 Accordingly, the Tribunal rules that Claimant's claim is admissible, there being no limitation bar. The first Counterclaim is not admissible, both in its original form and as amended. The second, third, fourth, fifth, sixth, eighth and ninth Counterclaims which have been the subject of a prior binding settlement are not admissible and the seventh Counterclaim is not admissib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitrated as the recommendations of DRB have attained finality and the same were not challenged timely. There is no adjudication of the claims on merits and findings are returned on the basis of the applicability of the clause 24 which as per the Tribunal, disentitled the petitioner to raise such disputes. Therefore, no situation similar to the case of NTPC (supra) has arisen in the instant case where the award is merely confined to declaring the disputes of the petitioner as not arbitrable by operation of clause 24 and does not travel beyond the same on merits as in the case of NTPC (supra). Secondly, In the case of NTPC (supra), the award was indeed an award on merits and that is the reason why the learned Single Judge also laid stress on the kind of dispensation rendered in the form of partial award in the said case. In the facts and circumstances of NTPC‟s case, it was correct approach to say that the partial award is not challengeable under Section 37 (2) after the learned Single Judge arrived at the finding that the partial award travels beyond the contours of Section 16(2) and proceeded to decide admissibility of the claims on merits. On the other hand, in the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on merits cannot be termed as an order passed by the Arbitral Tribunal accepting or rejecting the plea referred to in sub-section (2) or sub-section (3) of Section 16. A bare reading of Section 37 of the Act would clearly show that an appeal would lie only against an order of the Arbitral Tribunal accepting the plea referred to in sub-section (2) or (3) of Section 16, e.g holding that the Arbitral Tribunal does not have the jurisdiction or accepting the plea that the Tribunal was exceeding the scope of its authority. (Emphasis Supplied) ...... "A conjoint reading of Section 5 and Section 37 makes it abundantly clear that the only orders against which appeals would lie are the orders specifically mentioned in Section 37 in case of original decrees passed by a Court and Section 37(2) in respect of orders passed by an Arbitral Tribunal. The contention of the learned counsel for the appellant that the qualifying words used in Sub-section 1 being absent in Sub-section (2) of Section 37 and, therefore, an appeal can also lie from an order of the Arbitral Tribunal even if the said order is strictly not one falling under Clause (a) or (b) has no merits and is liable to rejection because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion on merits but, it essentially takes away the jurisdiction of the Arbitral Tribunal to adjudicate such disputes at the threshold. Thus, the NTPC case is clearly distinguishable on facts and circumstances. It is equally well settled that the judgments of the superior courts are not to be read as Euclidtheorems so as to conduct as arithmetical calculation in the form of decision making and unless they actually fit in the facts and circumstances. The inch of facts here and there makes a lot of difference in applicability of the case and precedential value of the said decision. (Bharat Petroleum Corporation Ltd. & Another vs. N.R. Vairamani & Anr, (AIR 2004 SC 4778) and in Bhavnagar University Vs. Palittana Sugar Mills Pvt. Ltd., (2003) 2 SCC 111 (at paragraph 59). Applying the said principle of law to the instant case, it can be safely said that the decision of NTPC (supra) is not applicable to instant case as the facts and circumstances in the said case were entirely different as the award in the case of NTPC (supra) was award in strict sense of term deciding the merits of the claims and its admissibility being settled and binding ones as against the instant case where there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel for the parties in relation to operation of arbitration clause so far as it disentitles the party from raising the claims before the arbitrator unless the notice is issued within 14 days of receipt of the recommendation of DRB. 36. I am of the opinion that there is no need to reinvent the wheel when the law seems to be well settled and there is a consistent view leaning towards the proposition that the arbitration clauses which put the impediment of time limit to raise the claim before the arbitrator are violative Section 28 of the Contract Act, 1857 and as such required to be read down by the courts. The operation of such clauses to the extent they put restriction on the right to arbitrate should be treated as directory in nature. 37. In the case of Shri J.K. Anand v. Delhi Development Authority (supra) the learned Single Judge of this court applied the Section 28 of the Indian contract Act in relation to arbitration clause which restricted the contractor to demand the claim by way of arbitration within 90 days of the intimation from the Engineer in charge that the bill is ready for payment. In such circumstances, learned Single Judge applied the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther with reimbursable expenses of the types specified in the Contract Data and the cost shall be divided equally between the Employer and the Contractor, whatever decision is reached by the Dispute Review Expert. Either party may refer a decision of the Dispute Review Expert to an Arbitrator within 28 days of his written decision. If neither party refers the dispute to arbitration within the above 28 days, the Dispute Review Expert‟s decision will be final and binding. ".....Having heard learned counsel for the parties, I am of the view that there is absolutely no merit in the objection raised by the petitioner founded upon clauses 24 and 25 of the General conditions of the contract. A perusal of clause 24.1 shows that when a contractor is not in agreement with the decision of the engineer, for whatever reasons, the Contractor can seek reference of the said decision/dispute to the DRE within 14 days of the notification of the Engineer‟s decision. The said clause does not purport to prescribe a strict period of limitation and does not say that in case the reference to the DRE is not sought within 14 days of the notification of the engineer‟s decision, the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement as it lies in the teeth of Section 28 of the Contract Act, 1872 and also find that the restriction for raising the claim by issuing notice within 14 days of DRB recommendation before the arbitrator is inconsequential in nature as it attempts to restrict the right to parties to arbitrate. 40. I also do not find merit in the contention of Mr. Sethi, learned Senior counsel for the respondent that clause 24.1 does not put any restriction on the time limit to enforce the right but extinguishes the right itself if no action is commenced within the period stipulated by the agreement and as such the said clause does not offend the provisions of Section 28 of the Contract Act, 1872. The answer to the said submission lies if one carefully sees Section 28 of the Contract Act, 1872 as it stood prior to the amendment of 1997 and post the amendment of 1997. Both the provisions prior to the amendment and post amendment are reproduced hereinafter: "Section 28. Agreements in restraint of legal proceedings void.- Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration. 41. A perusal of the amended Section 28 of the Contract Act, 1957 extracted above would show that both kinds of agreements i.e. agreements which restrict the period of limitation within which claims could be referred, as also agreements which extinguish the right of a party to prefer a claim or discharges any party from any liability under a contract on expiry of a specified period, are void to that extent. 42. Before the amendment of Section 28 in 1997, the agreements reducing the period of limitation were distinguished from those which did not limit the time within which a party might enforce his rights, but which provided for a release or forfeiture of rights, if no suit was brought within the period stipulated in the agreement; and the latter class of agreements, being outside the scope of the section, were held to be binding between the parties. Thus, in National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co. (AIR 1997 SC 2049), the Supreme Court drew a clear distinction between an agreement which curtails the period of limitation and an agreement which provides for forfeiture or waiver of the right itself, if no action is commenced within the period stipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made in Sunil Goyal's case at paras 12 to 15 are relevant: "12. It appears that in H.P. State Forest Company Ltd. case a statement was made that the amendment has been repealed. Therefore, the provisions, as it existed prior to the amendment have to be examined. In fact, such statement made by the counsel for the appellant before the Hon'ble Supreme Court was under a mistaken belief. Indian Parliament Act No.1 of 1997 amended Section 28 of the Act. Later by Indian Parliament Act No.30 of 2001, the enactments specified in the first schedule were repealed to the extent mentioned in 4th column thereof. Indian Parliament Act No.1 of 1997 has been repealed, but such repeal does not affect any other enactment in which repealed enactment has been applied, incorporated or referred to in terms of the repealing Act. In terms of Section 6-A of the General Clauses Act, 1897, the amendment in the Act incorporated by the Amending Act does not stand repealed by such Repealing and Amending Act, 2001. The periodical process of repealing is carried out to prune statutes on the statute book. (Emphasis Supplied) 13. Section 6-A of the General Clauses Act, 1897 has been interpreted in Jethanand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se dead matter, prune off superfluities and reject clearly inconsistent enactments" - See Mohinder Singh vs. Harbhajan Kaur, AIR 1955 Punjab 141." 15. In view of the above, the Indian Parliament Act No.30 of 2001 does not have the effect of repealing the amendment carried out by Indian Parliament Act No.1 of 1997..................." (Emphasis supplied) 45. In view of the above discussion, I do not find any reason to depart from the view taken by Sunil Goyal's case (supra) by Punjab and Haryana High Court. Therefore, the judgments passed in the case of H.P. State Forest Corporation (supra) and United India Insurance Company Limited v. Karam Chand Goel are distinguishable as they were rendered under the provisions of unamended Section 28 of the Contract Act. Therefore, I find that clause 24.1 of the Act so far as it puts the restriction on the party either by extinction of right to arbitrate or for its enforcement of the right to arbitrate unless the notice is given within 14 days of the receipt of the recommendations of DRB lies in the teeth of Section 28 of the Contract Act (as amended in the year 1997) and thus the same has to be read down and the effect of such restriction is i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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