M/S Laxmi Continental … vs State Of U.P. on 20 September, 2021


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Supreme Court of India

M/S Laxmi Continental … vs State Of U.P. on 20 September, 2021

Author: 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:-

1
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

2
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.

3
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
4
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.

5
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.

6
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

7
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.

8

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

9
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

10
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,

11
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

12
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

13
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

14
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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