Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(s). 947 OF 2006
M/S. LADLI CONSTRUCTION CO. (P) LTD. Appellant (s)
VERSUS
PUNJAB POLICE HOUSING CORPN. LTD. & ORS. Respondent(s)
J U D M E N T
R.M. LODHA, J. :
This Appeal, by special leave, arises from
the judgment and order dated November 25, 2002 passed by
the Punjab & Haryana High Court.
2. The controversy arises in this way. A
contract was entered into between the appellant – M/s Ladli
Construction Co. (P) Ltd. (hereinafter referred to as 'the
Contractor'), and the respondent Nos. 1 and 2, namely,
Punjab Police Housing Corporation Limited and Executive
Engineer (Civil), Punjab Police Housing Corporation
Limited (hereinafter referred to as 'the Corporation') for
construction of 240 houses Type II-A at Urban Estate,
Ludhiana at an estimated cost of Rs. 273.84 Lakhs. The
contract provided in Clause 2 that time was essence of the
contract and the time allowed for carrying out work as
entered in the tender shall be strictly observed by
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Contractor. The Contractor could not maintain the time
schedule and the progress of the work was not observed. The
Contractor was directed to push up the progress of work but
that also it failed to do. The Contractor was notified
that if it failed to take any action to show requisite
th
progress by 30 of April, 1991, action against it under
Clause 3 of the agreement would be taken. Still there was
no requisite progress in execution of the work by the
Contractor. On May 8, 1991, the Corporation resorted to
action under Clause 3 of the contract, rescinded the
contract and adopted further course by giving unexecuted
work to another contractor. The disputes, thus, having
arisen between the parties, the Contractor moved the court
of Sub Judge, First Class, Chandigarh, for appointment of
the arbitrator in terms of Clause 25A of the contract.
3. On the application made by the Contractor for
appointment of the arbitrator, the Sub Judge, on May 13,
1992, ordered that matter in dispute may be referred for
arbitration as per Clause 25A of the agreement and,
accordingly, as per the agreement and the statement of
parties, the Sub Judge ordered the Chief Engineer of the
Corporation to act as an arbitrator as provided under
Clause 25A of the agreement. Both the parties were
permitted to file claim and counter claim before the
arbitrator.
4. In pursuance of the order dated May 13, 1992,
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the Corporation lodged its claim against the Contractor on
June 15, 1992. The arbitrator – Chief Engineer of the
Corporation - called upon the Contractor to appear before
him on June 25, 1992. Thereafter also the arbitrator called
upon the Contractor to appear before him. The Contractor,
however, did not appear before the arbitrator and instead
sent a letter on June 29, 1992 intimating him that his
appointment as arbitrator was not acceptable to it; it did
not expect any justice and fair play from him and he must
refrain from acting as an arbitrator in the case.
5. Thereafter, on July 24, 1992, the Contractor
made an application before the Sub Judge, Chandigarh under
Sections 5, 11 and 12 of the Arbitration Act, 1940 (for
short, 'the 1940 Act') for removal of the arbitrator. The
Contractor did not appear before the arbitrator.
Consequently, the arbitrator proceeded with the arbitration
ex parte and passed the award on August 18, 1992.
6. After filing of the award, the Contractor
submitted objections under Section 30 of the 1940 Act
alleging misconduct on the part of the arbitrator and also
objected to the award being made rule of the court.
7. The Sub Judge heard the two applications
together - (i) application made by the Contractor for
removal of the arbitrator and objections under Section 30,
and (ii) application for making the award rule of the court
- and by a common order dated May 8, 1995 dismissed the
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application made by the Contractor for removal of the
arbitrator and made the award dated August 18, 1992 rule of
the court and passed decree in terms thereof.
8. The Contractor challenged the common order dated May
8, 1995 passed by the Sub Judge, Chandigarh in appeal
before the District Judge, Chandigarh. The District Judge
dismissed the appeal on September 19, 1998.
9. Against these two concurrent judgments, the
Contractor filed civil revision before the High Court which
too was dismissed on November 25, 2002. As noted above, it
is from this order that the present Appeal, by special
leave, has arisen.
10. We have heard Mr. Rajeev Sharma, learned counsel for
the Contractor, and Dr. Balram Gupta, learned senior
counsel for the respondent Nos. 1 and 2 – Corporation.
11. Mr. Rajeev Sharma, learned counsel for the
Contractor, strenuously urged that the Contractor had
reasonable apprehension of bias on the part of the
arbitrator as the action of cancellation of contract was
taken by the Executive Engineer at the behest of the
arbitrator as he was the Chief Engineer of the Corporation.
He referred to the inspection made by the Chief Engineer
along with other Engineers of the Corporation on October
26, 1990 and the opinion formed by the Chief Engineer on
the basis of the inspection that the work was not being
carried out by the Contractor in accord with the time
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schedule. He also referred to conduct of the arbitral
proceedings by the arbitrator, particularly concluding the
arbitration proceedings in a short span of about 49 days
and that too when the Contractor's application for his
removal was pending before the Court. In support of his
submission that the arbitrator was biased against the
Contractor, the learned counsel also referred to post
arbitral conduct of the arbitrator in contesting the Appeal
before this Court and filing counter affidavit in
opposition to the Appeal.
12. Mr. Rajeev Sharma would highlight two aspects,
viz., (i) the arbitration agreement was not placed before
the arbitrator, yet he commenced and concluded the arbitral
proceedings, and (ii) the award relating to unutilised
amount of secured advance which was not claimed by the
Corporation was passed, to indicate that the arbitrator was
biased. In support of his submissions, the learned counsel
relied upon a Constitution Bench judgment of this Court in
Gullapalli Nageswara Rao and Others Vs. Andhra Pradesh
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State Road Transport Corporation and Another and a judgment
of the House of Lords in Bristol Corporation Vs. John
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Aird & Co.
13. Dr. Balram Gupta, learned senior counsel for the
Corporation, supported the judgment of the High Court. He
submitted that only two submissions were made before the
1 [1959] Supp. (1) SCR 319
2 [1911-13] All E.R. 1076
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High Court which have been noted and considered and no
other point was urged.
14. The arbitration clause in the agreement, i.e.,
Clause 25A, reads as follows :
“Clause 25A. Arbitration etc. - If any
question, difference or objection whatsoever
shall arise in any way connected with or
arising out of this instrument of the meaning
of operation of any part thereof or the rights
duties or liabilities of either party, then
save in so far as the decision of any such
matter is hereinbefore provided for and has
been so decided, every such matter including
whether its decision has been otherwise
provided for and/or whether it has been finally
decided accordingly, or whether the contract
should be terminated or has been rightly
terminated and as regards the rights and
obligations of the parties as the results of
such termination shall be referred for
arbitration to the Chief Engineer of the Punjab
Police Housing Corporation, Chandigarh or
acting as such at the time of reference within
180 days or in six months from the payment of
the final bill to the contractor or from the
date registered notice is sent to the
contractor to the effect that his final bill is
ready for payment and his decision shall be
final and binding and where the matter involves
a claim for or the payment or recovery or
deduction of money, only the amount, if any,
awarded in such arbitration shall be
recoverable in respect of the matter so
referred.”
15. The Contractor consciously agreed for the disputes
between the parties to be referred for arbitration to the
Chief Engineer of the Corporation. The Contractor, at the
time of agreement, was in full knowledge of the fact that
the Chief Engineer is under full control and supervision of
all civil engineering affairs of the Corporation, yet it
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agreed for resolution of disputes between the parties by
him as an arbitrator. It is a fact that the Chief Engineer
inspected the progress of the work given to the Contractor
along with other engineers of the Corporation on October
26, 1990. In the course of inspection, the slow progress of
the work was brought to the notice of the Contractor on
that date. There was nothing unusual about it and, as a
matter of fact, on the contract being terminated on May 8,
1991, it was the Contractor who made an application for
appointment of arbitrator in terms of Clause 25A of the
agreement as it was well aware that the inspection by the
arbitrator did not disqualify him to be arbitrator. In the
application for appointment of arbitrator, no allegation of
any bias or hostility was made against the named
arbitrator, i.e., Chief Engineer of the Corporation, rather
the Contractor prayed for appointment of arbitrator in
terms of the arbitration Clause 25A. When the application
came up for consideration before the Sub Judge on May 13,
1992, the advocate appearing for the Contractor also
submitted for appointment of the arbitrator as named in the
agreement. Before the Court, no allegation was made that
the contract was terminated at the instance or behest of
the Chief Engineer. These facts clearly show that no case
of bias on the part of the Chief Engineer was pleaded or
pressed by the Contractor before the court in the
proceedings for appointment of the arbitrator. There is
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nothing to indicate that something happened after May 13,
1992 which prompted the Contractor to write to the
arbitrator on June 29, 1992 that it had lost faith in him.
16. It is pertinent to notice that on May 13, 1992
while referring the disputes between the parties for
arbitration as per Clause 25A of the agreement, the
Contractor as well as the Corporation were permitted to
file claim and counter claim before the arbitrator. The
Corporation filed its claim against the Contractor on June
15, 1992. Upon receipt of the claim by the Corporation, the
arbitrator called upon the Contractor to appear before him
on June 25, 1992. The Contractor did not appear and instead
sent a letter to the arbitrator on June 29, 1992 intimating
him that his appointment as arbitrator was not acceptable.
No steps were taken by the Contractor for removal of the
arbitrator immediately. The application for removal of the
arbitrator was made almost after 26 days. Although the
Contractor prayed before the Sub Judge for stay of the
proceedings before the arbitrator but it was not successful
in getting any such order on July 24, 1992, or on the
subsequent dates, namely, July 30, 1992, August 3, 1992 and
August 6, 1992 from the court. In the absence of any stay
order from the court and non-appearance by the Contractor,
the arbitrator was left with no choice but to proceed ex
parte and conclude the arbitral proceedings. Merely
because the award came to be passed on August 18, 1992,
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i.e., a day before the next date fixed before the Sub
Judge, it cannot be said that the arbitrator concluded the
proceedings hastily or he was biased.
17. The two aspects highlighted by Mr. Rajeev Sharma,
learned counsel for the Contractor, regarding (i) non-
availability of the agreement before the arbitrator, and
(ii) the award of return of unutilised amount of secured
advance by him, as grounds of bias have no merit at all.
18. The order dated May 13, 1992 passed by the Sub Judge
shows that photocopy of the arbitration agreement was
produced before the court. AW-1, who was examined by the
Corporation, in his deposition before the arbitrator, has
stated that photocopy of the agreement was tendered to the
arbitrator. Merely because copy of the agreement was not
found by the District Judge in the record of the arbitral
proceedings, it cannot be assumed that copy of the
agreement between the parties was not placed for
consideration before the arbitrator.
19. The arbitrator in his award has awarded interest in
the sum of Rs. 1,40,150/- upto December 31, 1991 on the
amount of secured advance paid to the Contractor for the
period the amount remained unutilised although the
Corporation had claimed the interest on that count in the
sum of Rs. 1,69,878/-. With regard to award of unutilised
amount of secured advance, the arbitrator observed in the
award that the exact amount of award will depend upon the
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actual unutilised amount of secured advance till
realisation. On ascertaining the total amount of
unutilised secured advance, it was found to be Rs.
9,63,635.25/-.
20. The District Judge in the appeal preferred by the
Contractor in challenging the judgment and decree held in
para 21 of the judgment thus :-
“....In it unutilised advance of Public Health
items as per statement at page 243 of the
arbitrator file is Rs. 5,85,423.75ps. The
statement of this witness dated 14.8.1992 with
statement of interest and principal of the
unutilised secured advance of building component
is at pages 283-289 of the arbitration file in
which unutilised secured advance of building
component is mentioned as Rs. 3,73,211.50ps. So
the total unutilised secured advance on both the
counts comes to Rs. 9,63,635.25ps. The maxim
is,” Certum est quod, certum reddi potest” .
(certain is that which can be made certain).
Now, from the perusal of the record of the total
unutilised secured advance can be ascertained as
Rs. 9,63,635.25ps. Similarly, from the record,
the principal amount of the secured advance can
also be calculated and on it, interest on the
amount of the secured advance paid to the
appellant for the period the amount remain
unutilised could be calculated. The appellant
has not been able to point out that the
calculation of this amount as Rs. 1,40,150/- upto
31.12.1991 was wrong or incorrect. Therefore, it
would be naïve to contend that the award was
vague, evasive or non-committal.”
21. The above finding of the District Judge, Chandigarh,
was not challenged by the Contractor before the High Court
as is apparent from the impugned order. Thus, there is no
merit, at all, in the submission of the learned counsel for
the Contractor that the arbitrator awarded unutilised
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secured advance for which there was no claim. In any case,
this hardly leads to any inference of bias of the
arbitrator.
22. In Gullapalli Nageswara Rao and Others (supra) this
Court restated the principle of natural justice that the
authority empowered to decide the dispute must be one
without bias towards one side or the other in the dispute.
There can hardly be any doubt about this fundamental
principle of natural justice. The question is – Whether on
facts, the Contractor has been able to establish that the
arbitrator was biased against it ? None of the
circumstances pointed out by the Contractor leads to any
inference that the arbitrator had any bias, personal or
otherwise. No doubt, bias may be found in variety of
situations and each case, where bias of adjudicator is
alleged, has to be seen in the context of its own facts but
a fanciful apprehension of bias is not enough.
23. The observations of the Lord Atkinson in Bristol
Corporation (supra), relied upon by the learned counsel for
the Contractor, instead of supporting his argument, go
fully against the Contractor. In Bristol Corporation
(supra) Lord Atkinson stated thus :
“...If a contractor chooses to enter into a
contract binding him to submit any disputes which
arise between him and the engineer of the persons
with whom he contracts to that engineer to
arbitrate on, then he must be held to his
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contract; whether it be wise or unwise, prudent
or the contrary, he stipulated that a person who
is the servant of the persons with whom he
contracted shall be the judge to decide upon
matters upon which, necessarily, that engineer or
arbitrator has himself formed an opinion. But
though the contractor is bound by that contract,
still he has a right to demand that,
notwithstanding those pre-formed views of the
engineer, that gentleman should listen to
argument, and should determine the matters
submitted to him as fairly as he can, as an
honest man; and if it be shown in fact that there
is any reasonable prospect that he will be so
biased as not to decide fairly upon those
matters, then the contractor is allowed to escape
from his bargain, and to have the matters in
dispute tried by one of the ordinary tribunals of
the land. But he has more than that right. If,
without any fault of his own, the engineer has
put himself in such a position that it is not
fitting, or decorous, or proper that he should
act as arbitrator in any one or more of those
disputes, the contractor has the right of
appealing to a court of law to exercise the
discretion which s. 4 of the Arbitration Act
vests in them....”
24. The above observations exposit the legal position
that a contractor is bound by the contract if he has agreed
to submit the disputes to the engineer for arbitration
although he has to deal with such engineer under the
contract. It needs no emphasis that once the dispute is
referred to such arbitrator, the arbitrator has to act
fairly and objectively and the proceedings must meet the
requirements of principles of natural justice.
25. Insofar as the facts of the present case are
concerned, the Contractor moved the court for appointment
of the Chief Engineer as arbitrator and then chose not to
appear before him. What was the intervening event after
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the arbitrator was appointed at his instance that prompted
him to ask the arbitrator to recuse is not stated by the
Contractor. The Contractor was not successful in getting
any final or interim order in the proceedings initiated by
it for removal of the arbitrator. The award passed by the
arbitrator also does not show that he misconducted in any
manner in the proceedings. He gave full opportunity to the
Contractor to appear and put forth its case but the
Contractor failed to avail of that opportunity.
26. There is no justifiable circumstance on record that
enables the Contractor to escape from the bargain that it
made under the contract and have the disputes resolved
through the process other than agreed.
27. In The Secretary to the Government, Transport
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Deptt., Madras Vs. Munuswamy Mudaliar and Others , this
Court stated :-
“11... When the parties entered into the
contract, the parties knew the terms of the
contract including arbitration clause. The
parties knew the scheme and the fact that the
Chief Engineer is superior and the Superintending
Engineer is subordinate to the Chief Engineer of
the particular circle. In spite of that the
parties agreed and entered into arbitration and
indeed submitted to the jurisdiction of the
Superintending Engineer at that time to begin
with, who, however, could not complete the
arbitration because he was transferred and
succeeded by a successor. In those circumstances
on the facts stated no bias can reasonably be
apprehended and made a ground for removal of a
named arbitrator. In our opinion this cannot be,
at all, a good or valid legal ground. Unless
3 AIR 1988 SC 2232
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there is allegation against the named arbitrator
either against his honesty or capacity or
malafide or interest in the subject-matter or
reasonable apprehension of the bias, a named and
agreed arbitrator cannot and should not be
removed in exercise of a discretion vested in the
Courts under S. 5 of the Act.
12. Reasonable apprehension of bias in the mind of
a reasonable man can be a ground for removal of
the arbitrator. A predisposition to decide for or
against one party, without proper regard to the
true merits of the disputes is bias. There must
be reasonable apprehension of that predisposition.
The reasonable apprehension must be based on
cogent materials. See the observations of Mustill
and Boyd, Commercial Arbitration, 1982 Edition,
page 214. Halsbury's Laws of England, Fourth
Edition, Volume 2, para 551, page 282 describe
that the test for bias is whether a reasonable
intelligent man, fully apprised of all the
circumstances, would feel a serious apprehension
of bias.
13. This Court in International Airport
Authority of India v. K.D.Bali, (1988) 2 JT 1 :
(AIR 1988 SC 1099) held that there must be
reasonable evidence to satisfy that there was
a real likelihood of bias. Vague suspicions
of whimsical, capricious and unreasonable
people should not be made the standard to
regulate normal human conduct. In this country in
numerous contracts with the Government, clauses
requiring the Superintending Engineer or some
official of the Govt. to be the arbitrator are
there. It cannot be said that the
Superintending Engineer, as such, cannot be
entrusted with the work of arbitration and
that an apprehension, simpliciter in the mind
of the contractor without any tangible ground,
would be a justification for removal. No other
ground for the alleged apprehension was indicated
in the pleadings before the learned Judge or the
decision of the learned Judge. There was, in our
opinion, no ground for removal of the
arbitrator. Mere imagination of a ground cannot
be an excuse for apprehending bias in the mind of
the chosen arbitrator.”
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28. In S. Rajan Vs. State of Kerala and another , this
Court stated :-
“12....Thus, this is a case where the agreement
itself specifies and names the arbitrator. It is
the Superintending Engineer, Buildings and Roads
Circle, Trivandrum. In such a situation, it was
obligatory upon the learned Subordinate Judge, in
case he was satisfied that the dispute ought to
be referred to the arbitrator, to refer the
dispute to the arbitrator specified in the
agreement. It was not open to him to ignore the
said clause of the agreement and to appoint
another person as an arbitrator. Only if the
arbitrator specified and named in the agreement
refuses or fails to act the Court does get the
jurisdiction to appoint another person or persons
as the arbitrator. This is the clear purport of
Sub-section (4). It says that the reference
shall be to the arbitrator appointed by the
parties...”
29. Where parties enter into a contract knowing the
role, authority or power of the Chief Engineer in the
affairs relating to the contract but nevertheless agree for
him to be arbitrator and name him in the agreement to
adjudicate the dispute/s between the parties, then they
stand bound by it unless a good or valid legal ground is
made out for his exclusion.
30. Except raising the vague and general objections that
the arbitrator was biased and had predisposition to decide
against the Contractor, no materials, much less cogent
materials, have been placed by the Contractor to show bias
of the arbitrator. No sufficient reason appears on record
as to why the arbitrator should not have proceeded with the
4 AIR 1992 SC 1918
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arbitral proceedings. The test of reasonable apprehension
of bias in the mind of a reasonable man is not satisfied in
the factual situation.
31. We may now deal with the submission of the learned
counsel for the Contractor that bias on the part of the
arbitrator is also reflected from the fact that he has
contested the present Appeal and filed the affidavit in
opposition. What would have the arbitrator done when he has
been personally impleaded as respondent in the Appeal and
the allegations of bias have been made against him. He was
left with no choice but to rebut the allegations by filing
his affidavit. The arbitrator did what any other person in
his place would have done in the circumstances.
32. The view taken by the High Court does not suffer
from any infirmity justifying interference by us in our
jurisdiction in appeal under Article 136 of the
Constitution of India.
33. Civil Appeal is dismissed with no order as to costs.
..........................J.
(R.M. LODHA)
NEW DELHI ..........................J.
FEBRUARY 23, 2012 (H.L. GOKHALE)