ARBAP/1/2010 of CONTINENTAL CONSTRUCTION LTD CCL Vs GOVERNMENT OF UTTARAKHAND and ANOTHER on 31 December 2010

IN THE HIGH COURT OF UTTARAKHAND AT NAINITALArbitration Application No. 01 of 2010

Continental Construction Ltd. (CCL). ..……… Applicant

Versus

Government of Uttarakhand & another.

.………. Respondents

Mr. Sharad Sharma, Senior Advocate with Mr. B.S. Thind, Advocate for the applicant. Mr. B.K. Gupta, Addl. Advocate General for respondent No. 1. Mr. Vinay Kumar, Advocate for respondent No. 2.

Dated: 31stDecember, 2010

Hon’ble Barin Ghosh, C.J.

In relation to a contract dated 30[th] March, 1981, certain disputes and differences arose. Those were referred for adjudication to Arbitrators under the Arbitration Act, 1940. While those disputes were pending adjudication, State of Uttarakhand came into existence. State of Uttarakhand decided to recommence the work, which was the subject matter of the contract dated 30[th] March, 1981. In relation thereto, a supplementary agreement dated 9[th] July, 2002 was executed between the applicant and respondent No. 1. The said agreement provided, amongst others, that future disputes in relation to the work in question shall be sorted out through conciliation, and upon failure, through arbitration by the Arbitrators, one to be nominated by the applicant, second to be nominated by respondent No. 1 and the third to be chosen jointly by the two nominees. In relation to the disputes pending adjudication at the time of entering into the said supplementary agreement dated 9[th] July, 2002, it was provided in the said supplementary agreement as follows:

“D) Dispute Resolution Board:

Old disputes arising out of the principal contract, in reference to Principal Agreement, shall be resolved in Dispute Review Board (DRB), in mutually agreed time bound manner.

It is agreed that the Contractor will withdraw all claims from the Arbitrations. All the issues/claims & interest thereon, pending due to paucity of funds at the time of stoppage of work, shall be looked at / resolved by the Engineer-in-Charge or by the Chief Engineer and after their decision, the remaining disputes / issues / claims, if any, shall be referred to DRB, for which an agreement shall be signed within first 4 Months of the signing of the Supplementary Agreement. No recovery of outstanding advances & interest thereon, if any, shall be effective till the implementation of the decision of the DRB. All the remaining undecided outstanding issues / claims & interest thereon, raised till the signing of the Supplementary Agreement shall be placed before the DRB for adjudication. The DRB shall adjudicate all the issues / claims referred to them in mutually agreed period by both the parties.”

2. The applicant has filed a supplementary affidavit. With that, it has annexed a Settlement Agreement. The same is as follows:

“SETTLEMENT AGREEMENT

Sub.: In the matter of Arbitration in disputes arising out of Contract No. 1/SE/80-81 Dated 31.03.81 under the Arbitration & Conciliation Act, 1996 – Arbitration Case Nos. (i) MBU CL-01, (ii) MBU CL-02,

(iii) MB CL – 04 &

(iv) MB CL – 05 & 06

The parties to the arbitrations hereby agree that the disputes under reference shall be resolved in DRB (Dispute Review Board) as per the agreed procedure laid down in the Supplementary Agreement signed on 09.07.2002 to the above contract.

In view of this settlement, it is agreed by the parties that for the present the above arbitrations may not proceed further and may be taken as withdrawn from the Arbitral Tribunal so that these could be referred to DRB as stated above.

Sd. Sd.

(Authorised Representative) (Authorised Representative) Employer Continental Construction Limited Govt. of Uttaranchal”

3. On 16[th] November, 2002, the immediate superior to respondent No. 1 in hierarchy wrote a letter to the applicant pertaining to resolution of old disputes, issues / claims arising out of the principal contract. The said letter is reproduced below:

“

WITHOUT PREJUDICE(Regd.)

Office of the Chief Engineer Yamuna Valley Projects Irrigation Department, Uttaranchal Dehradun – 248001

No. C305/CE/YP/Ag.-2/SE/80-81/02-03

Dated: Nov. 16, 2002

To,

(i) The Chairman & Managing Director, M/s Continental Construction Co. Ltd, Regd. Office – Continental House, 28, Nehru Place, New Delhi – 110 019.

(ii) Camp Office, M/s Continental Construction Ltd., Maneri Bhali Hydro-electric Project, M/s Continental Construction Ltd., Maneri Bhali Hydro-electric Project, Joshiyara, Distt. Uttarkashi, (Uttaranchal).

Sub.: Resolving of old disputes issues / claims arising out of Principal Agreement No. 1/SE/80-81. Dear Sir, It is to be brought to your kind notice that as per Supplementary Agreement clause No. – S.1.3.01(D) all the issues / claims arising out of the Principal Agreement updated upto the date of signing of the Supplementary Agreement, including those to be withdrawn from pending arbitrations, are required to be submitted to the Engineer-in-Charge for a fresh look and resolution, if found tenable. However, the remaining undecided claims, if any, will be required to be placed before the DRB for the adjudication. Now necessary action in this regard is needed at your end as Govt. of Uttaranchal has accorded permission to constitute DRB. As per sanctioned format’s clause No.-01, it is to be further noted that Board shall be composed of 3 members, one selected by the employer, 2[nd] selected by the contractor and 3[rd] selected jointly by the selected members. Consequently it is requested that name and particulars about the members to be nominated by the company for the membership of the above said board may kindly be furnished to this office at an early date so that further necessary action to constitute DRB may be initiated and tripartite agreement may be drawn.

Yours faithfully Encl.: Format as above. (M.P. Bhartari) Chief Engineer (Yamuna)

No.: /CE/YP/of date Copy forwarded to Superintending Engineer, Maneri Bhali Stage-II Circle, Joshiyara (Uttarkashi) for information and necessary action.

(M.P. Bhartari) Chief Engineer (Yamuna).”

4. In response to the said letter dated 16[th] November, 2002, the applicant, by a letter dated 22[nd] January, 2003, nominated Sri Mahesh Chand as the nominee of the applicant on the Dispute Review Board (hereinafter referred to as the “DRB”) for resolution of old disputes, issues / claims arising out of the principal contract, in terms of the said supplementary agreement. Thereafter, the immediate superior to respondent No. 1 in hierarchy wrote a letter to the applicant and, thereby, nominated Sri S.B. Khare as a Member of the DRB. The text of the said letter dated 30[th] September, 2005 is as follows:

“From, Chief Engineer (Yamuna), Irrigation Department, Uttaranchal, Dehradun.

To,

M/s Continental Construction Ltd.,

Site Office – Joshiyara, Distt.-Uttarkashi.

No. C-427/CE(YP)/P-1/DRB/Continental Dated: Sept. 30, 2005.

Sub.: In the matter of Arbitration in dispute arising out of contract No. 01/SE/80&81 dated 31.3.1981 under the Arbitration & Conciliation Act 1996- Under Supplementary Agreement No. 01(S)/SE/2002-03: Regarding Nomination of Member (DRB).

Dear Sirs,

It is to inform you that Shri S.B. Khare, Chief Engineer (Retd.), U.P. Irrigation Department (Tel. No. 2768807) presently residing at 28, Vasant Vihar-I, Dehradun has been nominated as a member of the DRB in the above subject matter.

This is for your information & necessary action.

Yours faithfully (Ashok Kumar Rathi) Chief Engineer (Yamuna).”

Thereafter, on 3[[rd]] October, 2005, Sri Mahesh Chand and Sri S.B.

5. Thereafter, on 3[[rd]] October, 2005, Sri Mahesh Chand and Sri S.B. Khare appointed Sri K.S. Gangadharan as the third Member, in terms of Section 11(3) of the Arbitration and Conciliation Act, 1996.

6. Sri K.S. Gangadharan, Sri Mahesh Chand and Sri S.B. Khare, thereupon, held a sitting at Dehradun on 22[nd] October, 2005 at 10:00 a.m. At the said sitting, both applicant and respondent No. 1, through the Executive Engineer, were present. At the said sitting, certain decisions were taken in furtherance of resolution of disputes inter se the parties, which were to be and could be resolved by them and which arose out of the principal contract.

7. On 6[th] January, 2006, respondent No. 1 informed the said Members of the DRB that after perusal of the Minutes of the sitting held on 22[nd]October, 2005, it was found that some of the conclusions drawn in the meeting need proper vetting from the Law Department of the Government of Uttarakhand and, hence, the Minutes of the meeting are declared cancelled. By a writing dated 19[th] January, 2006, the applicant protested against the same. It was stated that the Minutes of the said meeting and the directions contained therein are not open, either to the applicant or to respondent No. 1, to cancel or vary. Subsequent thereto, on 13[th] April, 2006, respondent No. 1 informed the said Members of the DRB that the said respondent is unable to file counter statements of facts within the stipulated date of 15[th] April, 2006 and, accordingly, requested extension upto 14[th] May, 2006.

8. On 19[th] April, 2006, applicant informed respondent No. 1 that by agreement of the parties, DRB was finally constituted in October, 2005 and, accordingly, execution of Bipartite Agreement is a mere formality. Still then, on that date, a Bipartite Agreement, prepared on the basis of drafts suggested by respondent No. 1, was forwarded to the said respondent for execution by the said respondent. It was held out that if within week’s time, the same is not executed, it would be considered that the draft Bipartite Agreement has concurrence of respondent No. 1. There was no response thereto.

9. By a letter dated 15[th] May, 2006, respondent No. 1 informed Sri K.S. Gangadharan and Sri Mahesh Chand that Sri S.B. Khare is related to Director (Project) of respondent No. 2 and, accordingly, respondent No. 1 is of the view that Sri S.B. Khare needs immediate replacement. It was indicated that respondent No. 1 will soon nominate somebody else in place of Sri S.B. Khare. By the said letter, a request was made to defer the proposed meeting on 21[st] May, 2006 so that the new departmental nominated Member may be included in the DRB.

10. Subsequent thereto, respondent No. 1, by a letter dated 20[th] May, 2006 written to Sri K.S. Gangadharan, sought extension of date of submission of counter statements of facts from 15[th] May, 2006 to 14[th]July, 2006. The said letter is reproduced below:

“No. /MBS-IIC/MW-1/DRB/1.3.01 Dated: 20 May 2006 To, Sri K.S. Gangadharan, Presiding Member DRB, Addl. Director General (Retd.) CPWD, 15, Charak Sadan, Vikaspuri, New Delhi – 110 018. Sub.: In the matter of arbitration between M/s Continental Constructions Ltd., 28, Nehru Place, New Delhi – 110 019 and Chief Engineer (Yamuna), Yamuna Valley Projects, Irrigation Department, Uttaranchal, in respect to work of Maneri Bhali Stage – II Project, Uttarkashi – Agreement No. 01/SE/80-81.

Ref.: Our letter no. 2473/MBC Stage-II/MW-1/DRB/1.3.01 dated 13.4.2006. Sir, In the subject matter it is to bring to your kind notice due to extremely busy schedule in visits of a number of project monitoring and consultants teams and some other administrative difficulties we are unable to file our counter statements of facts within stipulated date of 14.5.2006, as per our above referred letter. We, therefore, request to the Hon’ble DRB to extend the date of submission of counter statements of facts from 15.5.2006 to 14.7.2006.

Yours sincerely (Dheer Singh) Superintending Engineer”

11. Thereafter, by a letter dated 19[th] June, 2006, the immediate superior to respondent No. 1 in hierarchy informed Sri K.S. Gangadharan and Sri Mahesh Chand that since Sri S.B. Khare is connected with the Director of Uttarakhand Jal Vidyut Nigam Ltd., therefore, nomination of Sri S.B. Khare as a Member of the DRB is not in accordance with the mandate of constitution of DRB. In the said letter, it was stated, amongst others, that Rs. 3,000/- per day has been fixed by the Government for the Members of the DRB for each meeting of DRB and, hence, the Executive Engineer was not competent to give his consent in respect of the fees of the Members of the DRB and other decisions as were taken in the meeting of the DRB held on 22[nd] October, 2005. Accordingly, a request was made to keep the next sitting of DRB in abeyance.

12. DRB held meetings on 21[st] & 22[nd] June, 2006. On receipt of the Minutes of the said meetings, by a letter dated 1[st] July, 2006, the immediate superior to respondent No. 1 in hierarchy protested against the said Minutes since Chief Engineer (Yamuna), Irrigation Department, Dehradun, was shown as ‘respondent’ in the said Minutes. It was indicated that the Superintending Engineer, Maneri Bhali Stage-II Circle, Joshiyara (Uttarkashi), is the authorised representative of the Government of Uttarakhand, who has executed the agreement on behalf of the Government and, therefore, he is the controlling officer of the Project and that the Chief Engineer and Head of Department, Irrigation Department, Uttarakhand, Dehradun, has no connection with the Project.

13. Applicant, by its letter dated 15[th] July, 2006, objected to the contentions raised by respondent No. 1 in its letter dated 19[th] June, 2006.

14. By a letter dated 30[th] September, 2006 addressed to the applicant, the immediate superior to respondent No. 1 in hierarchy referred to the clause pertaining to Conciliation, which was pertaining to future cases, and stated that since DRB is under limitation to adjudicate individual claims upto one per cent of the contract value subject to a ceiling of Rs. 1.00 million for contracts valued upto 300 millions or and ceiling of Rs. 10.00 millions for contracts valued above Rs. 300.00 millions, the powers of DRB are limited. It was indicated that since Sri S.B. Khare and Sri Mahesh Chand retired as Chief Engineers of Irrigation Department of Uttar Pradesh, the said Members of DRB could not adjudicate the claims in question. On the said date, i.e. on 30[th] September, 2006, the immediate superior to respondent No. 1 in hierarchy wrote a letter to Sri K.S. Gangadharan, wherein it was contended that no separate DRB agreement has been signed and, accordingly, hearing of DRB may kindly be held in abeyance. It was indicated that Sri S.B. Khare and Sri Mahesh Chand were employees of Irrigation Department of Uttar Pradesh before creation of Uttarakhand State and the principal agreement was with the Uttar Pradesh Government and, accordingly, those two cannot be Members of DRB, according to the Tripartite Agreement for DRB. These contentions were answered by the applicant by its letter dated 8[th] November, 2006. It was stated that the principal agreement stood altered by the supplementary agreement, whereby it was agreed that DRB was to be formed for resolving all disputes. It was pointed out that the supplementary agreement provided fast track resolution of old claims and that, as per the provisions of the Arbitration and Conciliation Act, 1996, there cannot be any limitation of the claim to be thus adjudicated. It was stated that Sri S.B. Khare and Sri Mahesh Chand retired 20 years back from the Irrigation Department of Uttar Pradesh and the said fact was known to everyone and there is no impediment in their acting as Members of DRB. It was stated that fee payable Rules, framed by the Government of Uttarakhand, are not binding on Arbitral Tribunal.

15. On 22[nd] April, 2007, Sri S.B. Khare died. He was, however, not replaced by another nominee by respondent No. 1. The applicant, therefore, through its Advocate, on 29[th] July, 2009, called upon respondent No. 1 to nominate its nominee for the DRB / Arbitral Tribunal. In reply to the said notice, respondent No. 1, through its Advocate, on 6[th]August, 2009, informed the applicant that there is no arbitration clause in supplementary agreement dated 9[th] July, 2002 for the disputes raised in the notice under reply and, hence, compliance of notice does not arise.

16. In such circumstances, the present Application had been filed for appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, so as to complete the composition of the Arbitral Tribunal of Sri K.S. Gangadharan and Sri Mahesh Chand.

17. No counter affidavit has been filed by respondent No. 1. Instead, a counter affidavit has been filed by respondent No. 2. The said affidavit has been affirmed by the Executive Director (Civil) of respondent No. 2. In the counter affidavit, execution of the contract dated 30[th] March, 1981 and supplementary agreement dated 9[th] July, 2002 has been acknowledged. It was stated that according to Article 229 of the Constitution of India, the contract dated 30[th] March, 1981 and supplementary agreement dated 9[th] July, 2002 are Government contracts, but the Minutes of the meeting dated 22[nd] October, 2005, having not been made on behalf of the Government, failed to comply with the requirements of Article 229 of the Constitution. The stand taken in the letters dated 19[th] June, 2006 and 1[st] July, 2006, referred to above, was reiterated. It was clearly stated that the Superintending Engineer is the authorised representative of the Government. It was clarified that the Executive Engineer was not authorised to sign and execute the Minutes of the meeting dated 22[nd] October, 2005. It was stated that the supplementary agreement cannot be read without the principal agreement. It was stated that Clause 1.3.01(D) only speaks of DRB, which is to be created after signing of an agreement and the terms thereof have not been settled in the said Clause. It was contended that the said Clause is not an arbitration agreement and is hit by Section 29 of the Indian Contract Act, i.e. an agreement to agree. It was contended that there is no agreement between the parties within the meaning of Section 7 of the Arbitration and Conciliation Act, 1996. It was contended that the supplementary agreement, read with principal agreement, would reveal that there is no arbitration agreement between the parties. It was stated that the letter dated 16[th] November, 2002 did not mention the word “Arbitrator”. It was contended that the DRB proceedings were not arbitration proceedings and the Members thereof did not constitute Arbitral Tribunal. It was contended that DRB Members do not assume the role of arbitrators without any valid arbitration agreement being in existence. It was contended that the Minutes of the meeting dated 22[nd] October, 2005 cannot constitute a valid arbitration agreement because the same was signed by the Executive Engineer. It was contended that respondent No. 2 has a separate legal existence from respondent No. 1. It was contended that the issues / claims, which were pending due to paucity of funds, were, first, to be resolved by the Engineer-in-Charge or by the Chief Engineer and, after his decision, remaining disputes, issues / claims, if any, were to be referred to DRB. It was, however, not stated whether Engineer-in-Charge or the Chief Engineer resolved any such issues / claims. It was contended that since adjudication by DRB does not specify as to whether the decision of DRB shall be final and binding, and hence, reliance on DRB is misplaced. It was contended that there is no arbitration agreement and there is no Arbitral Tribunal.

18. The stand, thus, taken by respondent No. 2 appears to be that there is no arbitration agreement between the parties, in terms whereof, old disputes arising out of the principal contract can be referred to. Reason there for being there is no agreement to refer such disputes and that the contemplated agreement contained in Clause 1.3.01(D) has not been signed. The said stand, if accepted, would permit the Government to play fraud on the applicant, inasmuch as, the said Clause itself records that the applicant will withdraw all claims from arbitrations, which acknowledges that claims by the applicant were pending adjudication in arbitrations.

19. Be that as it may, the question is whether there is an agreement between the parties to submit to arbitration disputes pertaining to the principal contract, which were pending adjudication in arbitrations and which were agreed to be withdrawn and sorted out in the manner prescribed in Clause 1.3.01(D) of the supplementary agreement. A look at the said Clause would indicate that the same contemplated reference of the said disputes, not looked at or resolved by the Engineer-in-Charge or by the Chief Engineer. But then, for that, an agreement was to be signed within four months of signing of the supplementary agreement. There is, therefore, no doubt that there was requirement of an agreement to be signed by the parties for referring those disputes to DRB. The settlement agreement, referred to in paragraph (2) above, according to me, is that agreement, which was contemplated in Clause 1.3.01(D). The said settlement agreement, according to me, made it clear that the parties thereto agreed that the disputes, being the subject matter of the arbitration cases mentioned in the said settlement agreement, which were then pending settlement through arbitrations, were agreed to be withdrawn from the then Arbitral Tribunals and were agreed to be referred to DRB. Still then, the constitution of the DRB was not agreed by the parties. On 16[th] November, 2002, an offer was given to the applicant for agreeing to the constitution of DRB. By the letter dated 22[nd] January, 2003, applicant accepted the said offer and acted on the basis thereof by nominating its nominee in the DRB. Thereupon, the Chief Engineer nominated the nominee on behalf of respondent No. 1 and, thereafter, those two nominees nominated the third nominee. The proposal contained in the letter dated 16[th] November, 2002 was, thus, accepted in toto. From a look at the letter dated 30[th] September, 2005, it would be clear that the intention of constituting the DRB was for the purpose of constitution of an Arbitral Tribunal. On completion of constitution of DRB on 3[rd] October, 2005, constitution of the Arbitral Tribunal was, thus, completed. True, the letter dated 16[th] November, 2002 was without prejudice. But, after the proposal contained therein was accepted in toto by the letter dated 22[nd]January, 2003 and, thereafter, on the basis of the action in terms of the letter dated 22[nd] January, 2003, when the letter dated 30[th] September, 2005 was issued nominating the nominee of the respondent No. 1 in the DRB, the contention that the contents of the letter dated 16[th] November, 2002 was without prejudice, was duly given a go by, inasmuch as, the letter dated 30[th] September, 2005 was not without prejudice.

20. The question is whether the Chief Engineer could act on behalf of respondent No. 1. There is no dispute that the Chief Engineer is the immediate superior to respondent No. 1 in hierarchy. A superior officer can do what his junior is authorised to do.

21. Subsequent to agreement for submission of the disputes to DRB and constitution of DRB, when the same was constituted as an Arbitral Tribunal, as was the intention of the parties depicted from the letters dated 16[th] November, 2002, 22[nd] January, 2003 and 30[th] September, 2005 and action of the nominees on 3[rd] October, 2005, there cannot be any dispute that an arbitration agreement was entered into by the parties. Section 7 of the Arbitration and Conciliation Act, 1996 requires an arbitration agreement to be in writing, whereby the parties agree to submit to arbitration all or certain disputes, which have arisen in respect of a defined legal contractual relationship. The same may be contained in exchange of letters, which provide a record of the agreement. In the instant case, the arbitration agreement is in writing signed by the parties as contained in the supplementary agreement as well as settlement agreement referred to above and the letters dated 16[th] November, 2002, 22[nd] January, 2003 and 30[th] September, 2005. Constitution of the Arbitral Tribunal was completed on 3[rd] October, 2005 when the two nominees nominated the third.

22. Further, statement of claim was filed before the Arbitral Tribunal with copy thereof to respondent No. 1. Respondent No. 1, in writing, sought time and extension of time to deal with the same by filing statement of defence. The conduct of the parties, to that effect, suggests not only existence of an arbitration agreement, but also intention culled out from their conduct to have the subject disputes settled through arbitration. At a later stage, respondent No. 1, or authorities superior to it, sought to wrongfully resile from the agreement and, for that purpose, initially took the plea that the nominee of respondent No. 1 is incompetent to act since he is a relative of a Director of respondent No. 2. Being a relative of a Director of respondent No. 2, the said nominee did not become disqualified to be appointed as an Arbitrator. In any event, the applicant did not object to nomination of the said nominee of respondent No. 1. Furthermore, a representation was made by or on behalf of respondent No. 1 that it would replace the said nominee. That was not done for no just reason. Later, a stand was taken that the nominee of respondent No. 1 as well as the nominee of the applicant, having had worked in the Irrigation Department of Uttar Pradesh, are not entitled to be appointed as Arbitrators since the principal contract was awarded in favour of the applicant by the State of Uttar Pradesh. I do not think that the said contention was at all appropriate, particularly when those two gentlemen had retired from the services of the Irrigation Department of the State of Uttar Pradesh 20 years back. In any event, there was no impediment on the part of respondent No. 1 to nominate a person after its nominee died. That, too, was not done for no just reason forthcoming. The object of respondent No. 1, as it appears, was to close arbitration cases referred to in the settlement agreement and, thereupon, to hoodwink the applicant and, for that purpose, the said respondent and its superiors had taken steps as depicted above.

23. At the sitting of the Arbitral Tribunal, respondent No. 1 did not appear nor anyone superior to respondent No. 1 in hierarchy appeared at the said sitting. Instead, respondent No. 1 deputed Executive Engineer to attend the said sitting. Respondent No. 1, thereby, authorised the Executive Engineer to represent him at the said sitting. It was unjust and improper to contend that the Minutes of the sitting of the Arbitral Tribunal dated 22[nd] October, 2005 contained the arbitration agreement. The Minutes of the sitting of the Arbitral Tribunal, held on 22[nd] October, 2005, recorded the proceedings of the said sitting.

24. In the circumstances, in exercise of my power under Sub-Section (6) of Section 11 of the Arbitration and Conciliation Act, 1996, I supply the vacancy created by the death of the nominee of respondent No. 1 in the Arbitral Tribunal by nominating Hon’ble Sri Justice Irshad Hussain, since retired. Let the first sitting of the Arbitral Tribunal be held within two months from today.

25. The Application is, thus, disposed of.

(Barin Ghosh, C. J.)