Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 9
CASE NO.:
Appeal (civil) 9136-9137 of 2003
Special Leave Petition (civil) 2096-2097 of 2002
PETITIONER:
M/s.Sathyanarayana Brothers (P) Ltd.
RESPONDENT:
Tamil Nadu Water Supply & Drainage Board
DATE OF JUDGMENT: 18/11/2003
BENCH:
Brijesh Kumar & (Arun Kumar.
JUDGMENT:
JUDGMENT
BRIJESH KUMAR,J
Leave granted.
These appeals are the outcome of an arbitration
proceedings initiated at the instance of the appellant
M/s.Sathyanarayana Brothers (P) Ltd. raising certain claims
against the respondent Tamil Nadu Water Supply &
Drainage Board (for short ’the Board’). The claim was
ultimately partly allowed by the Umpire. The objections
against the Award preferred by the appellant were allowed
by the learned single Judge but the Division Bench set aside
the order of the learned single Judge. Hence, this appeal by
M/s.Sathyanarayana Brothers (P) Ltd.
In view of the acute scarcity of water in the
State of Tamil Nadu a project known as Veeranam project
was undertaken by the State Government after its clearance
by the Planning Commission for bringing the water from the
left bank of the Coleroon at Lower Anicut to the city of
Madras covering a distance of 155 miles through the
pipelines to be laid for the purpose. The work required to be
done was for manufacturing, supplying, delivering 1676
mm. (66") Diameter Prestressed Concrete Pipes and fittings
including transporting to site, laying, jointing and testing for
raw water and clear water conveying mains from Veeranam
Tank to Madras city.
The tenders submitted by the appellant
M/s.Sathyanarayana Brothers (P) Ltd. for carrying on the
job detailed above was accepted for a lump sum amount of
Rs.16,55,87,300/- subject to clearance of the foreign
collaboration arrangement and release of necessary foreign
exchange and also subject to other conditions and issued
G.O.Ms.No.1607 Public (TWAD) Department dated
13.7.1970. While submitting the tender the petitioner had
also written a letter dated 22.1.1970 to the Chief Engineer
(Buildings) and City Water Supply, Veeranam Project,
Public Works Department, Chepauk, Madras with a request
for foreign exchange requirement for import of
equipments from foreign manufacturers. The contractor had
requested the government to give all assistance in
procurement of foreign exchange and other necessary
central government clearances. Articles of agreement was
executed between the State of Tamil Nadu and
M/s.Sathyanaraya Brothers specifying the terms and
conditions of the contract. The work was required to be
completed within 36 months from the date of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 9
entrustment of the site which was to be done within 30 days
after the date of acceptance of the tender. It also provided
that if there was any delay in handing over the site there
should be extension of time for completion of the contract.
The time for completion was liable to be extended on the
request of the contractor for justifiable reasons.
The contractor required Rs.1.2 crores of foreign
exchange for importing necessary equipments for
manufacture of Prestressed Concrete Pipes from Switzerland
since the exporters insisted on payment in Doutecha Marks.
The contractor was advised to approach the Integral Credit
and Investment Corporation of India (ICICI) who insisted
that the contractor should be in the form of an incorporated
company so as to be able to avail facilities of foreign
exchange instead of a partnership firm. The contractor,
therefore, converted into a private limited company as per
the advise on 24.2.1971. The imported equipment landed in
Madras in February 1972 whereafter a factory at
Thirukalikundram and another factory at Panruti were
commissioned by June 1972 and January 1973 respectively.
There was thus already a delay of one year four months in
commencing production of prestressed concrete pipes. The
contractor therefore, requested for extension of time up to
31.12.1975. It was, however, extended up to 30.06.1975 by
the Chief Engineer. The contractor wrote a letter dated
11.11.1974 refusing to accept the offer and further indicated
that he would be prepared to work on the condition that
contractor would be paid at the rate to be worked out taking
into account the increase in the cost and which may further
increase during the course of the work. It was also indicated
that necessary time may be given for completion of the work
keeping in mind the capacity of equipment and the rate of
production. He also wanted to be compensated for the
losses resulting from the delay and default on the part of the
government. The contractor stopped the work with effect
from June 30, 1975. The Chief Engineer extended time for
completion of the work by 31.12.1975 and again upto
31.3.1976 but did not agree to the other conditions as
indicated in the letter of the contractor dated 11.11.1974.
The dispute thus arose and the work stood stopped with
effect from 30.06.1975. The contractor invoked the
arbitration clause and appointed one Mr.P.S.Subramaniam, a
Chartered Engineer as its Arbitrator. After some litigation at
the instance of the Board it also nominated its arbitrator.
The arbitrators entered upon the reference on 18.3.1978.
The arbitrators disagreed. Mr.P.S.Subramaniam, the
arbitrator appointed by the appellant partially awarded the
claim to the extent of about Rs.7.00 crores whereas the
arbitrator appointed by the Board only said that he did not
agree with the award. Since there was no agreement
between the two arbitrators hence the matter was referred to
the Umpire - Justice Palaniswamy, a retired Judge of the
High Court who started the proceedings on 2.4.979. The
Umpire gave its award on 10.9.1979 and filed it in the court
on 26.11.1979. The appellant contractor filed objections for
setting aside of the Award given by the Umpire and
challenged the conclusions and findings arrived at by him to
the effect that it was not obligatory upon the State
Government to get foreign exchange cleared from
Government of India for the contractor and that the
contractor had abandoned the work on June 30, 1975 despite
the extension of time up to March, 1976 as well as the
finding that non-production of inter-departmental
correspondence and documents as requested by the
contractor would not vitiate the award. The Board, on the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 9
other hand supported the findings of the Umpire and prayed
for making the award a rule of the court.
The matter was considered by the learned single
Judge of the High Court. According to the decision of the
learned single Judge the State Government was obliged to
get foreign exchange clearance for the contractor for import
of equipment from Switzerland for the purposes of
manufacturing prestressed concrete pipes. Due to delay in
clearance for foreign exchange the time should have been
extended by the Board as requested by the contractor. The
learned single Judge also found that extension of time after
stoppage of the work was of no avail, thus there was no
breach on the part of the contractor. Non-production of the
documents by the Board as requested by the appellant had
the effect of vitiating the award given by the Umpire. The
award was thus set aside by the learned single Judge.
In the appeal preferred by the Board, the
Division Bench, found that the following points fell for its
consideration:
"(1) Whether there is any obligation on the
part of the Government of Tamilnadu to get
foreign exchange clearance from
Government of India as per the terms of
contract entered into between the Contractor
and the State Government?
(2) Whether the contractor has not
committed breach of contract by abandoning
the work with effect from 30.06.1975?
(3) Whether the non-production of inter
departmental correspondence of confidential
nature as required by the contractor will
vitiate the Award passed by the Umpire?
(4) To what relief?"
The Division Bench held that no such clause in
the agreement has been disclosed to indicate that it was the
obligation on the part of the State Government to get
clearance of Government of India for foreign exchange for
the purpose of import of equipment by the contractor from
Switzerland. The acceptance of the tender was subject to
Government of India clearance of foreign collaboration
arrangement and release of necessary foreign exchange.
While arriving at this finding the Division Bench quoted an
extract from one of the letter of the contractor dated
22.1.1970 Exh.D-557 to the following effect :
"We understand that the Government should
give us all assistance in the procurement of
foreign exchange and necessary Central
Government clearance".
The Division Bench further observed that the Umpire was
right in coming to a conclusion that Government of
Tamilnadu had rendered all possible assistance to the
contractor for getting the foreign exchange clearance as the
Government of Tamilnadu had approached the I.C.I.C.I. for
that purpose, whom the contractor had approached on the
advise of Government of India. Thus the state shall not be
responsible for the delay in getting the foreign exchange.
On the other two points the Division Bench held that time
cannot be said to be the essence of the contract since the
agreement contained a clause for extension of time for
justifiable reasons. It has also been found that the contractor
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 9
could not carry on the work in accordance with its
commitment of manufacturing 28 prestressed concrete pipes
per day and laying of 72 pipes per day. Whereas according
to the contractor the target could not be achieved due to
frequent failures of electricity and dropping of voltage. The
Division Bench ultimately came to the conclusion that the
contractor alone had committed the breach of contract in
executing the work of Veeranam project. In so far it related
to non-production of the file containing inter-departmental
correspondence including the handing over note by former
Chief Engineer, Veeranam project Exh.D-660, it was
observed by the learned single Judge that it was a secret
document which was not available on the record of the
Board. The case of the Board was that the note of the former
Chief Engineer while handing over the charge to his
successor would not bind the Board in any respect and other
inter-departmental correspondence may not be admissible in
evidence and it would also not advance the case of the
contractor. The Division Bench seems to have agreed with
the submissions made on behalf of the Board. The Division
Bench, after discussing the case law, came to the conclusion
that the Award given by the Umpire cannot be set aside
except on the ground that the arbitrator or the umpire had
mis-conducted himself or the arbitration proceedings having
become invalid or the Award was procured improperly.
The Court would not re-appraise the evidence. The Award
of the Umpire awarding only a sum of Rs.2,67,41,079 has
been upheld by the Division Bench. Thus it set aside the
order passed by the learned single Judge.
Shri Deepankar Gupta, learned senior counsel
appearing for the appellant has first tried to submit that the
Arbitration Tribunal has not been constituted in accordance
with the arbitration clause. In that connection he has drawn
our attention to Clause 70 of the agreement which provides
that the dispute shall be referred to the arbitration of three
persons, one of whom shall be nominated by the contractor,
the second by the Governor and the third shall be an
independent person selected by other two persons so
nominated and this provision shall be deemed to be a
submission to the arbitration within the meaning of Indian
Arbitration Act 1940. It is therefore submitted that there
should have been three arbitrators instead of two arbitrators
and an umpire chosen by the arbitrators, in the present case.
It appears that this point was never raised by the appellant
before any forum earlier as pointed out by Shri Nageshwar
Rao, learned senior counsel appearing for the respondent. It
is submitted that such a question cannot be allowed to be
raised in this Court for the first time after the appellant had
himself submitted to the jurisdiction of the arbitrators and
the umpire. There is no dispute about the appointment of
two arbitrators and the umpire having been appointed by the
arbitrators. The arbitration proceedings concluded before
the two arbitrators in which both parties participated without
any objection. Thereafter all matters having been referred to
the umpire, there too parties submitted to the proceedings
before the umpire. No such objection was raised in the
objections filed against the award nor before the High Court.
That being the position, it is submitted that it is too late in
the day to say that the dispute should have been decided by
three arbitrators and not by two and then by umpire in the
event of difference between the two arbitrators. No good
reason could be indicated on behalf of the appellant for
having kept silent on this point all throughout the
proceedings. They still rely upon the award given by the
arbitrator Shri Subramaniam in their favour. It is still their
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 9
stand that the order passed by the learned Single Judge of
the High Court records the correct finding. We find that the
stage to have raised such an objection as to whether the
dispute was liable to be decided by two arbitrators or a
Board of three arbitrators had passed long before. The two
arbitrators were appointed in accordance with the provisions
of arbitration clause as well as the third arbitrator called
umpire. The mode of hearing was adopted in the manner
that the dispute was heard by two arbitrators appointed by
the respective parties. The matter was referred to umpire
since there was no agreement between the two arbitrators.
There is no justification now at this stage to raise such an
objection that Board of three arbitrators should have decided
the matter. Such a plea contradicts their own action, and it
seems to be taken now to wriggle out of the award
ultimately given by the umpire, but it would not be
permissible at this stage. Shri Nageshwar Rao, learned
senior counsel, has placed reliance upon Russel on
Arbitration "Loss of right to object". It states as under:
"A party who objects to the award on the
ground that the tribunal lacks substantive
jurisdiction, should not only act promptly,
but should also take care not to lose his right
to object. A party who takes part or
continues to take part in the proceedings is
in a different position from someone who
takes no part in the proceedings. The latter
cannot lose his right to object as long as he
acts promptly to challenge the award once it
is published. The former must, however,
state his objection to the tribunal’s
jurisdiction "either forthwith or within such
time as is allowed by the arbitration
agreement or the tribunal". That statement,
which should be recorded in writing and sent
to the tribunal and the other parties, should
not only mention the jurisdiction objection
but also make clear that any further
participation in the arbitration will be
without prejudice to the objection. If that is
not done, the party concerned may not be
able to raise that objection before the court
"unless he shows that, at the time he took
part or continued to take part in the
proceedings, he did not know or could not
with reasonable diligence have discovered
the grounds for the objection". A person
alleged to be a party to arbitral proceedings
but who takes no part in those proceedings
may at any time apply to the court for a
declaration, an injunction or other relief
concerning the validity of the arbitration
agreement, the proper constitution of the
arbitral tribunal and any matter submitted to
arbitration in accordance with the arbitration
agreement."
In view of the above position, we repel the
contention raised on behalf of the appellant pertaining to the
jurisdiction of the arbitrators and the umpire to decide the
matter.
It is next submitted on behalf of the appellant
that it is no doubt that period of contract was specified to be
36 months in the agreement itself but it has been rightly held
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 9
by the learned Single Judge that time was not essence of the
contract for the reason that as per the terms of the contract
time could be extended for justifiable reasons and it is for
this reason that the time was extended by the respondent but
they initially extended the time in an unreasonable manner.
It is submitted that despite the best efforts made, the
equipment could not be imported prior to February 1972 at
the first instance. The result was that there was a delay of
one year and 4 months as found by the courts also, in
starting the work itself. It is submitted that there was clear
understanding that the State Government would get the
clearance from the Central Government for foreign
exchange necessary for import of the equipment. The State
Government did not provide proper assistance in the matter
and the appellant was referred to ICICI by the Central
Government for foreign exchange. As per conditions of
ICICI, the appellant had to change its constitution
converting into a company as desired. After the clearance of
the foreign exchange, due to other intervening factors of Pak
war etc., the import could not be possible. Therefore, the
appellant was not responsible for the delay caused. It is then
further submitted that after the factories were installed on
receipt of foreign exchange, equipment were installed
promptly. There have been problems of availability of
electrical energy and low voltage which was so necessary
for carrying on the work in the factory. For such difficulties
the appellant could not be held responsible. It is also
submitted that according to the agreement, trenches etc.
were also to be dug out by the Board. It is submitted that
the finding as recorded by the umpire and the Division
Bench that the Board was not responsible for the delay, it
will not necessarily lead to the inference that the appellant
was responsible for it. For good reasons time was liable to
be extended reasonably. It could not be cut short
unreasonably. It is further submitted that the Board itself
later on extended the time beyond 31.3.1975 but initially it
was refused. It indicates that partial extension given by the
Board was insufficient and not justified. Time was even
thereafter extended but by that time the appellant was
compelled to stop the work. The effort therefore which has
been made before us by the appellant is that it was not a
case of abandonment of contract on the part of the appellant
rather the delay occurred for justifiable reasons on account
whereof extension of reasonable time as prayed for by the
contractor was not allowed by the respondent.
Shri Nageshwar Rao, learned counsel for the
respondent submits that the Board had extended all possible
assistance which was needed for the foreign exchange to
import the machinery by the appellant but so far electricity
is concerned it was to be arranged by the contractor himself.
In this connection learned counsel for the appellant has
drawn our attention to the observations made by the umpire
in his award where it has been observed that no doubt failure
of electricity or low voltage would have caused some
dislocation but that cannot absolve the contractors
from their contractual liability and certainly the
failure of electricity cannot be the sole reason for the
dismally poor performance of the contractors. It is
submitted that the case of the appellant is not that the Board
failed to arrange for the electricity but there is no denial of
the fact that due to interrupted electric supply and low
voltage the progress of the work got slowed down, may be
Board is not responsible for it but it also cannot be said to be
the responsibility of the contractor. Such a reason would be
a justifiable reason to be considered for appropriate
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 9
extension of time to complete the job.
Learned counsel for the appellant then submitted
that the arbitrator failed to summon the document, namely
the inter-departmental correspondence of the Board and the
"handing over note" of the Chief Engineer of the Project to
his successor. It is submitted that these documents
contained relevant and authentic material and facts and
provide proper background to correctly appreciate the points
regarding obligation of the State Government to get the
foreign exchange, late arrival of equipments imported, the
interrupted electric supply , digging of trenches etc. by
looking into which alone the question could properly be
decided as to whether the appellant had abandoned the work
or how far the appellant was responsible for the delay and
stoppage of the work. It is submitted that there could not be
any confidentiality about such documents which related to
the work of the project. So far the "handing over note" is
concerned, it is a document written by none else but the
Chief Engineer of the Project who had first hand knowledge
of all that was going on pertaining to the work and he was
competent to prepare a record of the same in official
discharge of his duties. It is submitted that the arbitrator
erred in not allowing the application moved before him for
summoning of the "handing over note" and the learned
Single Judge, it is submitted, rightly held that it vitiated the
award of the arbitrator. It may be mentioned here that the
Umpire also refused to get the "handing over note" and
place it on record and peruse the same so as to realize the
relevance of the note for the purposes of arriving at a just
and correct finding on the questions involved. It was
necessary to have the proper background as contained in the
note prepared by the Chief Engineer of the Project.
The learned counsel for the appellant has taken
us through some of the parts of the "handover note" just
with a view to emphasize the relevance and importance of
the said note which is document D-660. A copy of the same
has been filed in this Court. In Paragraph 6.1.7 and 6.1.7.1.
it is indicated that Department had to carry out the work of
trench excavation, the service roads, river, rail and road
crossings besides many other things enumerated therein.
Para 6.1.10 deals with requirement of foreign exchange and
the details thereof. In Paragraph 6.1.10.3 the delay in arrival
of the machinery imported due to Indo-Pakistan war is also
indicated. Paragraph 6.11 deals with the factors that
contributed to delay in execution of the project. Thereunder
it is mentioned about the availability of power. Some
problem relating to trench excavation by the Board also
finds mention in Para 7 onwards. A bare look of some of
the parts of the note indicates that it may have some
material bearing on the merits relating to the question of
delay in execution of the project, and throwing some light
on the share of responsibility of the parties to the contract
and extent of their responsibility as well.
Learned counsel for the appellant has placed
reliance upon a decision reported in (1975) 2 S.C.C. 236 \026
K.P. Poulose Vs. State of Kerala and Another to indicate
that where it is a speaking award and the arbitrator fails to
take note of the relevant documents or ignores the same, it
vitiates the award. It was observed such documents which
were ignored were material documents to arrive at a just and
fair decision to resolve the controversy between the parties.
Our attention has particularly been drawn to the
observations made in Paragraph 4 which reads as under:
"We have been taken through all the
relevant documents by the learned counsel
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 9
for both sides and we are satisfied that Ex.P-
11 and Ex.P-16 are material documents to
arrive at a just and fair decision to resolve
the controversy between the Department and
the contractor. In the background of the
controversy in this case even if the
Department did not produce these
documents before the Arbitrator it was
incumbent upon him to get hold of all the
relevant documents including Ex.P-11 and
P-16 for the purpose of a just decision.
Ex.P-11 dated September 8, 1966, is a
communication from the Superintending
Engineer to the Chief Engineer with regard
to the objections raised by audit in
connection with the construction of the
reservoirs\005\005."
(emphasis supplied by us)
Reliance has also been placed upon a decision reported in
(2001) 5 S.C.C. 629 \026 Sikkim Subba Associates Vs. State
of Sikkim, particularly to the observations made in
Paragraph 12 of the decision that an award, ignoring very
material and relevant documents throwing light on the
controversy to have a just and fair decision would vitiate the
award as it amounts to misconduct on the part of the
arbitrator. The case of K.P. Poulose (supra) has also been
referred to. Yet another decision on the point referred to is
reported in 2003 (7) Scale Page 20 \026 Bharat Cocking Coal
Ltd. Vs. M/s. Annapurna Construction where also it has
been held that passing award ignoring the material
document would amount to mis-conduct in law, In such
circumstances the matter was remitted to a retired Judge of
the Jharkhand High Court instead of to the named arbitrator
since only the question of law was involved and the parties
had also agreed for the same.
In so far the case in hand is concerned, learned
counsel appearing for the respondent first made a
submission that no application was moved by the appellant
before the arbitrator for summoning the document, namely,
the "handing over" note prepared by the Chief Engineer
while handing over the charge as Project in-charge to his
successor but after verification he conceded that such an
application was moved before the Arbitrator but no orders
had been passed on it. The learned Single Judge has given it
as one of the reasons to hold that it vitiated the award. We
again find that before the umpire also effort was made to get
the document on record for perusal of the same but the
request was not accepted. We find that there is no question
of secrecy or confidentiality so far the "handing over note"
of the Chief Engineer is concerned. It is a note prepared by
the Chief Engineer of the project in official discharge of his
duties. It contains relevant facts and information regarding
questions involved in the case. The appreciation of the
contents of the ’note’ and its effect would of course be a
matter to be decided by the appropriate
authority/arbitrator/umpire but its perusal or consideration
could not be shut out on the meek ground that the
department was not bound by it or on the ground of
confidentiality in the times when more stress is rather on
transparency. In our view, the learned Single Judge was
right in inferring that such an infirmity would vitiate the
award. That being the position, in our view the order of the
Division Bench, reversing the decision of the Single Judge
is not sustainable and the matter may be required to be
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 9
remitted to be considered in the light of the "handing over
note" of the Chief Engineer in respect whereof an
application was moved by the appellant before the arbitrator
as well as before the Umpire which remained unattended to
by the forum and later did not accede to the request.
Considering the fact that it is an old matter and
it being a speaking award the matter having also been
considered by the learned single Judge, it would better
serve ends of justice to ensure expeditious disposal of the
matter, therefore, the Division Bench of the High Court may
consider the matter afresh, taking into account the "handing
over note" of the Chief Engineer of the Project and other
relevant documents in respect of which request may have
been made but refused.
In the result, these appeals are allowed. The
order of the Division Bench of the High Court is set aside
and the matter is remitted to the High Court for being
decided afresh by the Division Bench in the light of the
observations made above. Costs easy.