M/S LAXMI CONTINENTAL CONSTRUCTION CO. versus STATE OF U.P. & ANR. on 20 September 2021

1. Being aggrieved and dissatisfied with the impugned judgmentand order dated 19.06.2007 passed by the High Court of Uttaranchalat Nainital passed in A.O. No. 1489 of 2001 by which the High CourtFhas allowed the said appeal and has set aside the award dated08.01.1998 made by the learned Arbitrator and the order dated20.04.2001 passed by the learned Civil Judge (Senior Division), Roorkeemaking the said award Rule of the Court, original claimant, M/s. LaxmiContinental Construction has preferred the present appeal.

G2. The facts leading to the present appeal in nutshell are asunder:- 2.1 A contract was entered into between the appellant and therespondents regarding the earthwork including lining of V.U.G.C. fromKM 10 to KM 11 vide agreement dated 06.02.1988. During the contractHwork, various disputes and differences arose between the parties. All disputes and differences between the parties were required to beresolved 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 isnot final and conclusive, shall be referred for arbitration to a solearbitrator appointed as follows:

Within thirty days of receipt of notice from the contractor of hisintention to refer the dispute to arbitration the Chief Engineer shallsend to the contractor a list of three officers of the rank ofSuperintending Engineer or higher, who have not been connectedwith the work under this contract. The contractor shall withinfifteen days of receipt of this list select and communicate to theChief Engineer the name of one officer from the list who shallthen be appointed as the sole arbitrator. If contractor fails tocommunicate his selection of name, within the stipulated period,the Chief Engineer shall without delay select one officer fromthe list and appoint him as the sole arbitrator. If the ChiefEngineer fails to send such a list within thirty days, as stipulated,the contractor shall send a similar list to the Chief Engineer withinfifteen days. The Chief Engineer shall then select an officer fromthe list and appoint him as the sole arbitrator within fifteen days.If the Chief Engineer fails to do so the contractor shallcommunicate to the Chief Engineer the name of one officer fromthe list, who shall then be the sole arbitrator.

The arbitration shall be conducted in accordance with theprovisions of the Indian Arbitration Act, 1940 or any statutorymodification thereof. The decision of the sole arbitrator shall befinal and binding on the parties thereto. The arbitrator shalldetermine the amount of costs of arbitration to be awarded toeither parties.

Performance under the contract shall continue during arbitrationproceedings and payments due to the contractor by the ownershall not be withheld, unless they are the subject matter of thearbitration proceedings.

All awards shall be in writing and in case of awards amount toRs.1.00 Lakh and above, such awards shall state reasons for theamounts awarded.

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212SUPREME COURT REPORTS

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ANeither party is entitled to bring a claim to arbitration if arbitratorhas not been appointed before the expiration of thirty days afterdefect liability period.”

2.2 Arbitrator was required to be appointed as provided underclause 52 of the agreement. The Chief Engineer appointed one ShriBS.S. Manocha, who at the relevant time was also a Chief Engineer, asan Arbitrator vide order dated 31.10.1992. The Sole Arbitrator enteredinto the Reference on 19.11.1992 and issued notice to the partiesdirecting them to submit the relevant papers and documents etc. Theclaimant filed its claim giving all details. The respondents also filed theirobjections to the said claim of the claimant. The respondents, thus,Cparticipated in the proceedings before the Sole Arbitrator. On variousdates, the arbitration proceedings were adjourned at the instance of therespondents. During the period, the learned Arbitrator Shri S.S. Manochasuperannuated on completion of superannuation age on 30.11.1995.During the hearing, the time for making and publishing the award wasDextended from time to time by the respondents. That the SuperintendingEngineer vide its letter dated 09.08.1996 refused to extend the periodof arbitration particularly when the arbitration was about to close andthe same could not be completed due to lapses, default and seekingadjournments on the part of the respondents.

E2.3 The appellant thereafter filed Arbitration Suit No.116 of 1996before the Civil Judge (Senior Division), Roorkee under Section 28 ofthe Arbitration Act, 1940 praying for extension of time for making theaward and for hearing and conducting the arbitration. The respondentstook their objections that the arbitrator has got retired and, therefore,the arbitration proceedings should not be proceeded further by the SoleFArbitrator, who has retired. Even the respondents also filed Misc. SuitNo. 122 of 1997 with a prayer for declaring Reference sent to the SoleArbitrator 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, theGlearned Civil Judge (Senior Division) extended the period of arbitrationfor 30 days and directed the Sole Arbitrator, Shri S.S. Manocha to decidethe same within the extended period of time. That thereafter, the learnedSole Arbitrator, Shri S.S. Manocha declared the award on 08.01.1998and ordered the respondents to pay a total sum of Rs.10,97,024.00 withHinterest 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, 1940vide Misc. Case No. 3 of 1998, challenging the said award and madeprayer therein for setting aside the award dated 08.01.1998 before thelearned Civil Judge (Senior Division), Roorkee.

2.5 Having found that arbitration clause 52 of the agreement doesnot provide for terminating the mandate of the Arbitrator on hisretirement, the learned Civil Judge (Senior Division), Roorkee overruledthe objections raised by the respondents herein and made the awarddated 08.01.1998 Rule of the Court.

2.6 Feeling aggrieved, dissatisfied with the judgment and orderdated 20.04.2001 passed by the learned Civil Judge (Senior Division),Roorkee, overruling/rejecting the objections of the respondents andmaking the award dated 08.01.1998 Rule of the Court, the respondentspreferred appeal before the High Court and by impugned judgment andorder the High Court has allowed the said appeal and has quashed andset aside the award dated 08.01.1998 made by Shri S.S. Manocha, thethen Chief Engineer and the Sole Arbitrator and the order dated20.04.2001 passed by the learned Civil Judge (Senior Division), Roorkeemaking the award Rule of the Court, solely and mainly on the groundthat after the retirement of the Sole Arbitrator, Shri S.S. Manocha asChief Engineer, he has misconducted himself by proceeding further withthe arbitration proceedings.

2.7 Feeling aggrieved and dissatisfied by the impugned judgmentand order passed by the High Court, the original claimant has preferredthe present appeal.

3. Shri Mukesh Kumar Sharma, learned Advocate has appearedon behalf of the appellant and Shri Ravindra Raizada, learned SeniorAdvocate has appeared on behalf of the respondents – State of U.P.

4. Shri Mukesh Kumar Sharma, learned Advocate appearing onbehalf of the appellant has vehemently submitted that in the facts andcircumstances of the case, the High Court has materially erred inquashing and setting aside the award declared by the Sole Arbitratoras 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 arbitrationclause contained in the agreement, in particularly, contained in clause52 of the agreement. It is submitted that clause 52 of the agreement A

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Aprovides for nomination of the arbitrator by the Chief Engineer out ofthe three officers of the rank of Superintending Engineer or higher, whohave not been connected with the work under the contract. It issubmitted that clause 52 does not provide that the arbitrator nominatedand/or appointed shall have a mandate to continue the arbitrationproceedings till he remains in service, and, thereafter, on his retirementBhis mandate is terminated. It is submitted that in absence of such aprovision in the clause 52, once an Arbitrator is appointed consideringthe qualification mentioned in clause 52, thereafter, he continues as anArbitrator till the arbitration proceedings are concluded unless clause52 provides other way round. It is further submitted by learnedCAdvocate appearing on behalf of the appellant that even otherwise theHigh Court ought to have appreciated that throughout the respondentsparticipated in the arbitration proceedings even after the Sole Arbitrator,Shri S.S. Manocha attained the age of superannuation. It is submittedthat High Court has also not appreciated that even thereafter by orderdated 11.12.1997, the learned Civil Judge (Senior Division), RoorkeeDextended the time to complete the arbitration proceedings afteroverruling the objections raised by the respondents and that after theretirement, Shri S.S. Manocha, the learned Sole Arbitrator cannotcontinue with the arbitration proceedings. It is submitted that the orderdated 11.12.1997 passed by the learned Civil Judge (Senior Division),ERoorkee remained unchallenged and attained the finality. It is submitted,therefore, that thereafter it was not open for the respondents again toraise the same objection that after the learned Sole Arbitrator, Shri S.S.Manocha attained the age of superannuation on 30.11.1995, he cannotcontinue with the arbitration proceedings, the objection which as suchwas overruled/rejected by the learned Civil Judge (Senior Division),FRoorkee while passing the order dated 11.12.1997.

6. Making the aforesaid submissions and relying upon thedecisions 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 DevelopmentGAuthority and Anr., (1987) 4 SCC 217 and N. Chellappan Vs.Secretary, Kerala State Electricity Board and Anr., (1975) 1 SCC289, learned Advocate appearing for the appellant prayed to allow thepresent appeal and quash and set aside the impugned judgment andorder passed by the High Court and consequently to restore the awardHdeclared by the Sole Arbitrator and the order passed by the learned Civil Judge (Senior Division), Roorkee making the award Rule of theCourt.

7. The present appeal is opposed by Shri Raizada, learned SeniorAdvocate appearing on behalf of the respondents.

8. It is vehemently submitted by Shri Raizada, learned SeniorAdvocate appearing on behalf of the respondents that it is not in disputethat the learned Sole Arbitrator was appointed as per clause 52 and ashe was the Chief Engineer. It is submitted, therefore, that once heretired on attaining the age of superannuation and he did not continueas a Chief Engineer, his mandate is terminated to continue with thearbitration proceedings and a new Arbitrator is to be nominated andappointed afresh as per clause 52 of the agreement. It is furthersubmitted that right from the retirement of the Sole Arbitrator, therespondents raised an objection against his continuing with the arbitrationproceedings and despite the same, he continued with the arbitrationproceedings even after his retirement, as rightly observed by the HighCourt, he has misconducted himself, and, therefore, the High Court hasrightly 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 reliedupon the State Amendment of Section 4 of the Arbitration Act, 1940by submitting that as per the State Amendment applicable to the Stateof U.P., in every case, where any appointed arbitrator neglects orrefuses to act, or becomes incapable of acting or dies, the vacancy shallbe supplied by the person designated as mentioned in sub-section (1)of Section 4. Making the aforesaid submissions, it is prayed to dismissthe present appeal.

10. Heard the learned counsel appearing for the respective partiesat length. The short question which is posed for consideration beforethis Court is whether once an officer of the department is appointedas an Arbitrator considering the arbitration clause, whether his mandateto continue the arbitration proceedings shall come to an end on hisretirement? The further question which is posed is whether continuanceof the arbitration proceedings by such an Arbitrator after his retirementcan be said to be committing a misconduct by such a Sole Arbitrator?

11. For the aforesaid question, the relevant arbitration clauserequired to be considered is clause 52. In the present case, arbitration A

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Aagreement contains arbitration clause as per clause 52 of the agreement,which is reproduced hereinabove. It provides that on the receipt of thenotice from the contractor of his intention to refer the dispute to thearbitration the Chief Engineer shall send to the contractor a list of threeofficers of the rank of Superintending Engineer or higher, who havenot been connected with the work under the contract. Thereafter, theBcontractor shall within fifteen days of receipt of the list select andcommunicate to the Chief Engineer the name of one officer from thelist, who shall then be appointed as the Sole Arbitrator. It furtherprovides that if a contractor is failed to communicate his selection ofname, within the stipulated period, the Chief Engineer shall without delayCselect 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 listwithin 30 days, as stipulated, the contractor shall send a similar list tothe Chief Engineer within fifteen days and the Chief Engineer shall thenselect an officer from the list and appoint him as the Sole Arbitratorwithin fifteen days. It further provides that the arbitration shall beDconducted in accordance with the provisions of the Indian ArbitrationAct, 1940. Therefore, the only qualification for appointment as anarbitrator is that he should be the officer of the rank of the SuperintendingEngineer or higher. Once such an officer is appointed as anArbitrator, he continues to be the Sole Arbitrator till theEarbitration proceedings are concluded unless he incurs thedisqualification under the provisions of the Indian ArbitrationAct, 1940. Even after his retirement, the arbitration proceedings haveto be continued by the same Arbitrator. Clause 52 of the agreementdoes not provide at all that on the retirement of such an officer, who isappointed as a Sole Arbitrator, he shall not continue as a Sole ArbitratorFand/or the mandate to continue with the arbitration proceedings will cometo an end.

12. Identical question came to be considered by this Court in thecase of Himalayan Construction Co. (supra). The question beforethis Court was whether the High Court was justified in taking the viewGthat the award, which is made the Rule of the Court by the learnedSingle Judge was illegal and liable to be set aside on the ground thatthe arbitrator, who was appointed by designation had retired and hasceased to hold his office when he passed the award. In that case also,the Sole Arbitrator even after his retirement prayed for extension ofHtime and the extension was granted after hearing the parties and as no

such objection was raised at that time, and thereafter the nominatedArbitrator, who was the officer, passed the award. This Court overruledthe objection that after the retirement of the Sole Arbitrator, who wasappointed by designation cannot continue arbitration proceedings afterhis retirement and cannot pass the award.

13. In the present case also the Sole Arbitrator, who at therelevant time was the Chief Engineer and was qualified to become theSole Arbitrator was even nominated and/or appointed by the ChiefEngineer as per clause 52. Therefore, considering the clause 52of the agreement, it cannot be said that his mandate to continuewith the arbitration proceedings would come to an end on hisretirement.

14. It is further required to be noted that even the very objectionwas raised by the respondents before the learned Civil Judge (SeniorDivision), Roorkee when the question of extension of time was beingconsidered by the learned Civil Judge (Senior Division), Roorkee. Thelearned Civil Judge (Senior Division), Roorkee overruled such anobjection and granted further one month’s extension to the Sole Arbitratorto complete the arbitration proceedings. The said order has attained thefinality. Therefore, thereafter, it was not open for the respondents toagain raise such an objection.

15. Now, so far as the reliance placed upon the amendment toSection 4 of the Indian Arbitration Act, 1940 as applicable to the Stateof U.P. is concerned, the aforesaid has no substance. State amendmentof Section 4 of Arbitration Act, 1940 as applicable to State of U.P. uponwhich the reliance has been placed reads as under:- “ XXXXXXXXXX

(2) In every such case where any appointed arbitrator neglectsor refuses to act, or becomes incapable of acting or dies, thevacancy shall be supplied by the person designated as aforesaid.”

On fair reading of the aforesaid provision, we are afraid that theaforesaid provision shall be applicable at all. It cannot be said that theSole Arbitrator had become incapable of acting on his retirement fromservice.

16. Even the observations made by the High Court in theimpugned judgment and order that the Sole Arbitrator has misconducted A

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Ahimself by continuing with the arbitration proceedings after hisretirement is also not tenable at law. In the present case, the learnedCivil Judge (Senior Division), Roorkee extended the time to the SoleArbitrator to complete the arbitration proceedings and granted furtherperiod of 30 days which was after his retirement and after specificallyoverruling/rejecting the objections raised by the respondents that afterBretirement, he cannot continue with the arbitration proceedings.Therefore, once the learned Sole Arbitrator continued with the arbitrationproceedings and passed the award within the extended period of time,it cannot be said that he has misconducted himself as he continued withthe arbitration proceedings.

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17. In view of the above and for the reasons stated above, theimpugned judgment and order passed by the High Court quashing andsetting aside the award as well as the order passed by the learned CivilJudge (Senior Division), Roorkee making the impugned award Rule ofthe Court deserves to be quashed and set aside. Accordingly, the presentDappeal is allowed. The impugned judgment and order passed by theHigh Court dated 19.06.2007 passed in A.O. No.1489 of 2001 isquashed and set aside and the award passed by the learned SoleArbitrator dated 08.01.1998 and the order passed by the learned CivilJudge (Senior Division), Roorkee dated 20.04.2001 passed in OriginalSuit No. 4 of 1998 and Misc. Suit No.3 of 1998 making the award,ERule of the Court are hereby restored.

18. In the facts and circumstances of the case, there shall beno order as to costs.

FBibhuti Bhushan Bose

Appeal allowed.

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