TMI Blog2001 (10) TMI 1170X X X X Extracts X X X X X X X X Extracts X X X X ..... acting on behalf of the Town Municipal Council (TMC), Chintamani. As per the contract, the contractor had to execute the work within 15 months from the date of letter of acceptance, that is on or before 14-5-1995. In consideration of execution and completion of the work, RITES agreed to pay to the Contractor the respective rates contained in the bill of quantities, with such other sums as may become payable to the Contractor under the contract. The agreement also provided that the tender notice, letter of acceptance, general conditions of contract, special conditions of contract, technical specification and drawings, correction slips 1 and 2, schedules and the letters exchanged between RITES and the Contractor between the date of tender and the contract, shall form part of the contract. Clause 65 of the General Conditions of Contract refers to settlement of disputes. Sub-clause (2) of Clause 65 provides for settlement of disputes by arbitration. 3. The Contractor claims that in terms of the contract, it mobilized the men, machinery and material to execute the work in right earnest, but the work could not be completed within the stipulated period or thereafter due to the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manager (Works). As the claims were not settled, the Contractor raised disputes in regard to the said claims, and ultimately, the second respondent was appointed as sole Arbitrator to settle the disputes. 5. Before the Arbitrator, a preliminary hearing was held on 11-9-1997. The claim statement, with supporting documents, was filed by the Contractor on 9-10-1997; the counter-statement with documents were filed by RITES, on 26-11-1997; the rejoinder with documents were filed by the Contractor and on 8-12-1997; and hearings were conducted on 7-1-1998, 8-1-1998, 12-3-1998, 20-4-1998, 21-4-1998 and 8-6-1998. The documents filed by the claimant were marked as C1 to 46, C43-A, 44 and 46-A; the documents filed on behalf of the respondent were marked as R, R1 to 15 and R(ARG); and the contract documents were marked as A, A1 to 3. All the documents were marked by consent. On 8-6-1998, both the parties submitted a joint memo, stating that they were given full opportunity to submit arguments and had nothing more to submit. Thereafter, the Arbitrator made and published a reasoned award dated 20-8-1998. 6. The particulars of the claim and the award, in brief are as follows: Claim No. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of deprivation of substantial portion of execution of work due to defaults and breach of contract committed by RITES (Claim: ₹ 3,61,395/-). Claim rejected. Equitable rates plus price adjustment charges in terms of Clause 68(1) of the General Conditions of Contract for the quantum of work executed under different items in the bill of quantities in the prolonged period beyond the stipulated date of compensation (as detailed in the award). Claim rejected. Compensation for loss on account of the idle men and machinery suffered by the Contractor on account of defaults and breach of contract committed by RITES (Rs. 30,00,0007/-. ₹ 15,00,000/- was awarded. Reimbursement of extra expenditure incurred by the claimant on additional monthly overhead charges in the prolonged period from 13-5-1995 to 20-10-1997 at the rate of ₹ 1,03,138.00 per month (Claim: ₹ 20,63,660/-). ₹ 13,00,000/- was awarded. Reimbursement of extra expenditure incurred on extending the insurance coverage for the work beyond the originally envisaged period (Claim ₹ 34.086/-). ₹ 34,086 was awarded. Reimbursement of extra sales tax from Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iolation of the arbitration clause? (4) Whether the petitioner proves that the award is arbitrary, illegal? 8. Feeling aggrieved, the employer has filed this appeal urging the following three contentions: (i) The arbitration agreement between the parties prescribes the appointment procedure; and the appointment of Arbitrator is in violation of said arbitration procedure and therefore the award was liable to be set aside under Section 34(2)(a)(v) of the Act; (ii) RITES was acting as an agent of TMC, Chintamani in awarding the work and getting the work executed. Therefore, TMC, Chintamani was a necessary party to the arbitration proceedings as the TMC was liable to make payment. But the Contractor failed to implead the TMC as a party and wrongly made the claim against RITES who was merely an agent and not against the TMC, Chintamani, who was the principal. The claim was thus contrary to Section 230 of the Indian Contract Act, 1872. Therefore, the award was liable to be set aside under Section 34(2)(a)(i) and 34(2)(b)(i) and (ii) of the Act; and (iii) That the award made by the Arbitrator on the several claims was erroneous, illegal and opposed to the public po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one officer from the list, who shall then be the sole Arbitrator . 11. The employer (RITES) contends that when the Contractor issued a notice dated 29-5-1997, seeking reference to arbitration and calling upon the General Manager (Projects) to send a panel of three officers, RITES had in fact sent a panel of three names to the Contractor on 1-7-1997; that instead of selecting one of the names from the said panel, the Contractor untenably contended that the employer had failed to send a panel of names within 30 days and sent its panel of three names; that even when RITES pointed out by letter dated 2-7-1997 that the procedure adopted by the Contractor was erroneous, the Contractor persisted in its stand and proceeded to appoint the second respondent as sole Arbitrator by letter dated 16-7-1997, from the list of three names mentioned in its (Contractor's) panel. It is contended that the appointment of second respondent is therefore illegal and that as per the appointment procedure, the Contractor ought to have selected one of the three names from the panel of names notified by RITES. 12. We have carefully gone through the appointment procedure contained in the arbitration a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ES does not dispute the fact that there was a delay on its part in sending the panel of three names within thirty days from the date of receipt of notice. In fact RITES has clearly admitted that there was such delay on its part in sending the panel of names, in para 7.1 of its counter-statement filed before the Arbitrator, which reads as follows: The General Manager has forwarded a list of officers to the claimant to choose one of the officers of his selection. It is admitted that there is a delay of one day in sending the list of officers for the claimant's selection, due to the fact that the General Manager is stationed in Delhi and only the Chief Project Manager is heading the Bangalore Unit. . . . Instead of selecting one of the officers from the list, the claimant has taken advantage of the delay and sent a list of three officers to the respondent... . (emphasis supplied) 14. The appointment procedure is clear and specific. The employer has to send a panel of three names within 30 days from the date of receipt of notice from the Contractor. The 30 days period expired on 29-6-1997. The employer sent the panel only on 1-7-1997. These facts are not in dispute. Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, shall be deemed to have waived his right to so object. Section 13 of the Act provides that a party who intends to challenge an Arbitrator shall, within fifteen days after becoming aware of the constitution of the Arbitral Tribunal or after becoming aware of any circumstances referred to in Sub-section (3) of Section 12, send a written statement of the reasons, for the challenge to the Arbitral Tribunal. Section 12(3) provides that an Arbitrator may be challenged if he does not possess the qualifications agreed to by the parties. A combined reading of Sections 4, 13 and 12(3) makes it clear that if RITES wanted to challenge the appointment of second respondent as Arbitrator (either on the ground that he was not an officer of RITES or on the ground that his appointment was not in accordance with the appointment procedure), it ought to have raised it before the Arbitrator in the manner provided in Section 13(2). As it failed to do so, it is deemed to have waived its right to object the appointment of Arbitrator. 17. In this case, RITES not only waived its right to object, but has voluntarily subjected itself to the jurisdiction of the Arbitrator and thereby estopped from challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chintamani, only the disclosed principal, namely TMC, Chintamani could be made liable for any claim of the Contractor and the employer (RITES) cannot personally be made for any claim of the Contractor. It is submitted that as TMC, Chintamani is not made a party, the claims are liable to be rejected and the award against RITES is liable to be set aside under Section 34. 20. In State of Uttar Pradesh and Anr. v. Murari Lal and Brothers Limited, the Supreme Court has held that the agent is not personally bound by the terms of the contract made on behalf of the principal. 20.1 In Midland Overseas v. M.V. CMBT Tana and Ors., the Bombay High Court held that having regard to Section 230, before an agent can be sued, it must be pleaded and shown that the principal is undisclosed and the contract, breach of which is sued on was entered into by the agent as having contracted personally and when the contract is entered by the agent, on behalf a disclosed principal, the agent cannot be sued personally, nor can be made personally liable. 20.2 In Steel Authority of India Limited v. Transworld Marine Limited and Anr., SAIL filed a suit against the principal (Transworld, a Taiwanese com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices or purchase goods, from the principal, thereby creating a privity of contract between the principal and third parties, the agent cannot personally be bound to perform such contracts nor made personally liable for non-performance or breach by the principal. Section 230 makes this position clear. But there may be several types of transactions, or contracts, where the agent enters into contracts, either disclosing the principal, or without disclosing the principal, or without even disclosing that he is acting in the capacity of an agent agreeing, promising or undertaking to perform obli- gations which clearly disclose an intention to be personally bound by the contracts; and in such cases, irrespective of the fact that the contract is purported to be made on behalf of a disclosed principal, the agent can be sued for breach or non-performance, in his personal capacity. 23. Many a time independent Contractors or management contracts are loosely called as 'agents'. If a Contractor undertakes to achieve a particular result or execute a particular work, by adopting processes or means of his choice and over which he has control, he becomes personally liable both to the em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to RITES the said work, that is, design, detailed engineering and project management services on turnkey basis. RITES was engaged to provide services for survey, design, detailed engineering and project management of construction complete in all respects, including planning, tendering, contracting, procurement, construction, inspection, site supervision and commissioning of the said shopping complex; (ii) RITES shall engage main and Sub-Contractors for completing the construction and take single point responsibility for supervision of the construction and quality control, ensuing that construction is carried out in accordance with the approved drawings and specifications; (iii) RITES shall make progressive payments to the Contractors engaged by it for completion of the construction work and finalise the accounts and close the Contractors engaged for the work; (iv) RITES shall maintain the building for a period of 6 months after certifying completion and handing over to TMC, Chintamani; (v) RITES shall be responsible to complete the execution of the work as per completion time schedule and also pay liquidated damages to TMC for delays; (vi) There was to be no privity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of RITES. We may conveniently refer to the following admissions in the counter-statement and in the written arguments of RITES before the Arbitrator and the documents, in this behalf (Note: 'Respondent' and 'Employer' refer to 'RITES' and client refers to 'TMC'): Counter-statement: Para 4.1.--... That RITES is only a consultancy organisation executing the work on behalf of the client and all the payments can be released by RITES to the claimant only on receipt of funds from the client. Since there were some delays in the release of the payment by the client, RITES could not release the payment to the claimant in time and did not wilfully withhold any payment due to the claimant on its own. Para 8.1.--As explained in para 4.1, it had admitted that the respondent has to make payments to the claimant which were not released due to the fact that the respondent had not received the payments from the client. ... The details of the payments to be released to the claimant are as under ...(Total ₹ 38,49,292.96) Para 8.2.--... As such the payments due to the claimant shall be released promptly on receipt of the payment from the client. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsibility of the planning, constructing and delivering the project [shopping complex] with discretion to select the Contractors and pay the Contractors in consideration of the TMC reimbursing the entire cost of construction plus 9 1/2%. In other words, the RITES was the project management Contractor for the TMC and the first respondent-Contractor was virtually a Sub-Contractor for the RITES. There was no privity of contract between TMC, Chintamani and the Contractor. Even after the disputes were referred to arbitration, RITES continued to say that it will pay the amount due, but never said that the Contractor should recover the amount due from TMC, Chintamani. Therefore, even though RITES disclosed that it was entering into the contract on behalf of TMC, it is not absolved of its liability towards the Contractor. Nor is the Contractor enabled to sue TMC, Chintamani directly by the terms of the contract. 27. Having regard to the terms of the contract and the surrounding circumstances, it is clear that the Contractor could sue only RITES and not the TMC. Therefore, the case is not covered by the rule contained in Section 230 of the Contract Act, as a contract to the contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the General Conditions of Contract; in regard to extra items of work under Clause 52(4) read with Clause 68(1); for variation in the scope of work, under Clause 51(1)(d) of the General Conditions of Contract; (d) The Contractor was entitled for compensation for idle men, machinery, additional overheads and additional insurance charges; (e) RITES was liable to refund the excess sales tax collected; (f) The Contractor was entitled to interest at 18% per annum on amount awarded (other than award of interest under claim Nos. 1(b) and 3 from 21-10-1997 to date of award. 30. Each and every one of these findings is based on the terms of the contract, admissions made by RITES in its statement of objections and written arguments filed before the Arbitrator and the documentary evidence exhibited by the parties. A perusal of the statement of objections and written arguments of RITES shows that it has admitted the following: (a) That it had not paid the running bills and price adjustment bills to the Contractor, as required under the contract; (b) That the quantities of several items work have exceeded the permissible limits (that is plus or minus 30%) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of evidence and it will not be for the Court to take upon itself the task of being the Judge on the evidence before the Arbitrator. High Court cannot examine matters as a regular Appellate Court and substitute its own view in place of Arbitrator's view. 32. Under the old Act, the award could be challenged on the ground that there was an error apparent on the face of the award or on the ground that the Arbitrator had misconducted himself by giving inconsistent conclusions, or by ignoring the provisions of law or by making an award in the absence of any evidence or by completely ignoring the material evidence. But, those grounds for interference are not available under the 1996 Act. An award can be challenged only on the grounds enumerated in Section 34 of the new Act. The Supreme Court in Olympus Superstructures Private Limited v. Meena Vijay Khetan and Ors., has recognised that the scope of the provisions for setting aside an award under Section 34 of the Arbitration and Conciliation Act, 1996 is far less than the scope under Sections 30 and 33 of the Arbitration Act, 1940. 33. The appellant has not been able to make out any of the grounds available under Sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Law Dictionary aptly defines 'public policy' thus: Broadly, principles and standards regarded by the legislature or by the Courts as being of fundamental concern to the State and the whole of society -- also termed policy of the law . 34.4 In Shri Sitaram Sugar Company Limited and Anr. v. Union of India and Ors., the Supreme Court (in some other context) observed that all decisions, whether legislative, administrative or quasi-judicial, must be in harmony with the Constitution and other laws of the land. 34.5 Judicial pronouncements in India on the scope and limitations of these words with reference to interference with Arbitral Awards in Domestic Arbitration are still in nascent stages. We may however proceed on the basis that 'Public Policy of India' for purposes of Section 34, refer to the principles and standards constituting the general or fundamental policy of the State, established by the Constitution and the existing laws of the country, and the principles of justice and morality. 35. RITES has not been able to make out that the award is in conflict with public policy of India. Nor has RITES made out any other ground mentioned in Sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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