Electrical Mfg.Co.Ltd. Vs Power Grid Corpn.Of India Ltd.

Page 1

1

Non-Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6568 OF 2016 (Arising out of SLP (C) No.17475/2008)

ELECTRICAL MFG. CO. LTD. … APPELLANT

VERSUS

POWER GRID CORPN. OF INDIA LTD. & ANR … RESPONDENTS

J U D G M E N T

Uday Umesh Lalit.J

1. Leave granted.

2. This appeal is directed against the judgment and order dated 04.07.2008

passed by the Division Bench of the High Court of Delhi allowing FAO

(OS) No.196/2006, setting aside the judgment and order dated 10.02.2006

Page 2

2

passed by the Single Judge of the High Court of Delhi in CS(OS) No.1201

of 1993.

3. A Contract for “400 KV Transmission Line Power Package for Rihand –

Kanpur – Eta – Kanpur Line” was awarded by National Thermal Power

Corporation (hereinafter referred to as “NTPC”) to the appellant herein.

Clause 26 of the Contract titled “Arbitration” was to the following effect:-

“26.0 ARBITRATION

26.1 If any dispute or difference of any kind whatsoever shall arise between the Owner and the Contractor, arising out of the Contract for the performance of the Works whether during the progress of the Works or after its completion or whether before or after the termination, abandonment or breach of the Contract, it shall, in the first place, be referred to and settled by the Engineer, who, within a period of thirty (30) days after being requested by either party to do so, shall give written notice of his decision to the Owner and the Contractor.

26.2 Save as hereinafter provided, such decision in respect of every matter so referred shall be final and binding upon the parties until completion of the Works and shall forthwith be given effect to by the Contractor who shall proceed with the Works with all due diligence, whether he or the Owner requires arbitration as hereinafter provided or not.

26.3 If after the Engineer has given written notice of his decision to the parties, no claim to arbitration has been communicated to him by either party within thirty (30) days from the receipt of such notice, the said decision shall become final and binding on the parties.

26.4 In the event of the Engineer failing to notify his decision as aforesaid within thirty (30) days after being requested

Page 3

3

as aforesaid, or in the event of either the Owner or the Contractor being dissatisfied with any such decision, or within thirty (30) days after the expiry of the first mentioned period of thirty (30) days, as the case may be, either party may required that the matters in dispute be referred to arbitration as hereinafter provided.

26.5 All disputes or differences in respect of which the decision, if any, of the Engineer has not become final or binding as aforesaid, shall be settled by arbitration in the manner hereinafter provided.

26.6.1 The arbitration shall be conducted by three arbitrators, one each to be nominated by the Contractor and the Owner and the third to be named by the President of the Institution of Engineers, India. If either of the parties fails to appoint its arbitrator within sixty (60) days after receipt of a notice from the other party invoking the Arbitration Clause, the President of the Institution of Engineers, India, shall have the power at the request of either of the parties, to appoint the arbitrator. A certified copy of the said President making such an appointment shall be furnished to both the parties.

26.6.2 The arbitration shall be conducted in accordance with the provisions of the Indian Arbitration Act, 1940 or any statutory modification thereof. The venue of arbitration shall be New Delhi, India.

26.7 The decision of the majority of the arbitrators shall be final and binding upon the parties. The expenses of the arbitration shall be paid as may be determined by the arbitrators. The arbitrators may, from time to time, with the consent of all the parties enlarge the time for making the award. In the event of any of the aforesaid arbitrators dying, neglecting, resigning or being unable to act for any reason, it will be lawful for the party concerned to nominate another arbitrator in place of the outgoing arbitrator.

Page 4

4

26.8 The arbitrator shall have full powers to review and/or revise any decision, opinion, directions, certification or valuation of the Engineers in consonance with the Contract, and neither party shall be limited in the proceedings before such arbitrators to the evidence or arguments put before the Engineer for the purpose of obtaining the said decision.

26.9 No decision given by the Engineer in accordance with the aforegoing provisions shall disqualify him as being called as a witness or giving evidence before the arbitrators on any matter whatsoever relevant to the dispute or difference referred to the arbitrators as aforesaid.”

4. The Contract was completed and the aforesaid line was taken over by NTPC.

In respect of certain claims and issues raised by the appellant, negotiations

took place and thereafter a Committee constituted to consider the claims by

its report dated 03.01.1991 recommended that claim in respect of Rs.10.35

lakhs could be accepted, provided the appellant confirmed that there were no

further claims. The appellant thereafter vide letter dated 18.07.1991

addressed to the Executive Director (NR), National Thermal Power

Corporation Ltd., Indira Bhawan, Civil Lines, Allahabad, sought decision in

respect of pending disputes/matters. It was stated that the decision in

respect of issues so raised be conveyed to the appellant within 30 days of the

date of the letter. It appears that by letter dated 14.08.1991 the appellant was

informed that “Engineer” in respect of the Contract in question was General

Manager (TL-NR) and that the letter dated 18.07.1991 was forwarded to

Page 5

5

him. Soon thereafter i.e., on 02.09.1991 the appellant wrote to General

Manager (TL-NR), National Thermal Power Corporation Ltd., Indira

Bhawan, Civil Lines, Allahabad that the aforesaid letter dated 18.07.1991

having been forwarded to him as “Engineer” of the Contract, in accordance

with Clause 27 of the Contract required notice was deemed to have been

served and that the appellant was waiting for reply in return. However,

nothing was heard within 30 days.

5. On 28.11.1991 NTPC wrote to the appellant that under the directions of the

Government of India, NTPC and National Power Transmission Corporation

Ltd. (“NPTC”, for short) had entered into an agreement on 13.08.1991 for

management of construction, operation and maintenance of Transmission

System and assorted facilities of NTPC, pending completion of legal

formalities for transfer of ownership of the Transmission System to NPTC in

due course of time. It was further stated that NPTC would administer the

Contract for and on behalf of NTPC and all further correspondence be

addressed to NPTC.

6. Though letters issued on 18.07.1991 and 02.09.1991 were admittedly

received by NTPC which requested the Engineer to act in terms of the

relevant Clause of the Contract, no action was taken in that behalf. Even

after issuance of letter dated 28.11.1991, for next more than three months

Page 6

6

nothing was done either by NTPC or NPTC. Therefore, by letter dated

20.03.1992 addressed to NTPC the appellant informed that in as much as the

“Engineer” had failed to notify his decision within the period specified as

per Clause 26.4 of the Contract, the appellant was invoking Clause 26.6.1 of

the Contract regarding arbitration and nominating Shri J.C. Jain as its

Arbitrator. The appellant requested NTPC to appoint its Arbitrator and give

intimation to the President of the Institution of Engineer (India) in order to

enable appointment of the third Arbitrator so that adjudication proceedings

could be proceeded with. A copy of this letter was forwarded to and received

by NPTC. However, nothing was done for next more than three months.

7. On 7.07.1992, the appellant wrote to the President, Institution of Engineers

(India) drawing his attention to the letter dated 20.03.1992 and stated that

despite being called upon to appoint an Arbitrator on their behalf within the

period specified, there was complete failure on the part of NTPC. Since the

prescribed period of 60 days had expired, a request was made vide said letter

to appoint an Arbitrator and that a copy of such appointment be furnished to

both the parties and further steps be taken in the matter. A copy of this letter

was sent to the Chairman and Managing Director of NTPC. On 24.08.1992

a telegram was sent by Sr. Manager (P&C) of NPTC to the President,

Institution of Engineers(India) to the following effect:- “MESSAGE FORM

Page 7

7

TO PRESIDENT INSTITUTION OF ENGINEERS(INDIA) 8-GOKHLE ROAD, CALCUTTA-700 020.

KINDLY REFER LETTER NO. HC/009/1-1 DTD. 7TH JULY, ’92 FROM M/S EMC, REGARDING APPOINTMENT OF ARBITRATOR FOR DISPUTES ARISING OUT OF CONTRACT NO. 01/00-75/177/-al, DTD.7.12.84 FOR KANPUR-ETAH TL (.) REQUEST ACTION REGARDING APPOINTMENT OF ARBITRATOR ON BEHALF OF RESPONDENT BY INSTITUTION OF ENGINEERS MAY BE KEPT IN ABEYANCE(.) DETAIL LETTER FOLLOWS(.) REGARDS(.)

(P.N.GUPTA) SR. MANAGER(P&C)

Confirmation copy by post to: SIGNATURE (of person By REGD. POST authorized to approve)

1. President Institution of NAME:P.N.GUPTA Engineers(India), 8, Ghokhle DESGN.: SR.MANAGER Road, Calcutta- 700 029 DEPTT. P&C

2. M/s EMC Stealal Ltd., 51, Catnal East Road Calcutta CHECKED FOR DESPATCH

3. Shri V.L. Dua, S M (C) N.D.

4. Shri Gurman Singh, C.L.D. CC.N.D.

Dt. 24.08.92 Regd. Office: Hemkunt Chambers, 10th Floor, 89, Nehru Place, New Delhi-110 019 (Tel. 646 3390 91-92 Grams:‘ NATGRID’”

8. Since there was no follow up action and nothing was done for more than a

month, the Institution of Engineers (India) on 29.09.1992 appointed Shri

P.P.Agrawal, Chief Consulting Engineer, Water and Power Consultancy

Page 8

8

Services (India) Ltd. as the Second Arbitrator in terms of the Contract. On

the same date Shri Som Gupta, Fellow of Institution of Engineers was

appointed as the Third Arbitrator in the matter. Intimation in that behalf was

sent by letter dated 29.09.1992 to the Chairman and Managing Director,

NTPC.

9. On 08.01.1993, the “National Thermal Power Corporation Ltd, National

Hydro Electric Corporation Ltd. and the North-Eastern Electric Power

Corporation Ltd. (Acquisition and Transfer of Power Transmission

Systems) Ordinance, 1993” (No.10/1993) was promulgated by the President

of India. As per Section 3 of the Ordinance, the Power Transmission System

and the right, title and interest of these three companies in relation to their

power transmission systems stood transferred to and vested in the Central

Government on and with effect from the appointed day. The power

transmission system so vested in the Central Government, immediately

thereafter was deemed to have been transferred to and vested in the Power

Grid Corporation India Ltd., i.e. respondent No.1 herein. The appointed

day under the Ordinance was 1st April, 1992.

10.On 13.01.1993, first meeting of the Arbitral Tribunal consisting of three

Arbitrators, namely, Shri J.C. Jain, nominated by the appellant, Shri P.P.

Agrawal, nominated as the Second Arbitrator by the President, Institution of

Page 9

9

Engineers (India) and Shri Om Gupta, nominated as the Third Arbitrator by

the President, Institution of Engineers (India) was held. The Arbitral

Tribunal entered upon reference in respect of the dispute in question. It was

decided in this meeting to hold the next meeting on 11.02.1993 and copies of

the minutes of this meeting were forwarded to the appellant and the

Chairman and Managing Director, NTPC.

11.On 04.02.1993, a letter was written by respondent No.1 to the appellant that

in terms of Clause 26 of the Contract, arbitration could be invoked only if

there was failure to settle the dispute amicably and this being pre-condition

of the contract, the matter was not mature for arbitration and any step in that

behalf would be in violation of the Contract. A copy of this letter was

marked to the President, Institution of Engineers (India).

12.On 06.02.1993, the appellant filed its Statement of Claim in the sum of

Rs.3.98 crores before the Arbitral Tribunal. On 11.02.1993 second meeting

of the Arbitral Tribunal was held. The representative of the appellant

brought the aforesaid Ordinance to the notice of the Arbitral Tribunal and

submitted that in view of the Ordinance, respondent No.1 be made party to

the proceedings. The Statement of Claim along with annexures and copy of

the Contract were taken on record and the appellant was directed to supply

copies of the Statement of Claim to both NTPC and respondent No.1.

Page 10

10

NTPC was directed to submit their reply to the statement of claim by

04.03.1993 and all parties, namely, the appellant, NTPC and respondent

No.1 were requested to attend the next meeting of the Arbitral Tribunal

which was fixed on 25.03.1993. Copies of the minutes of this meeting were

forwarded to NTPC as well as respondent No.1. On 23.02.1993, a letter was

written on behalf of NTPC with copies to the Arbitrators and respondent

No.1 that after promulgation of the aforesaid Ordinance, NTPC had nothing

to do in the matter. Copy of the minutes of the meeting dated 11.02.1993 of

the Arbitral Tribunal was forwarded by NTPC to respondent No.1 along

with copy of this letter dated 23.02.1993.

13.As the date fixed for the next meeting, i.e., 25.03.1993 was a public holiday,

a telegram was sent by the appellant to the Arbitrators and to respondent

No.1 that the meeting be adjourned. On 12.03.1993 the Convener Arbitrator

sent telegram to the appellant and respondent No.1 confirming the

adjournment of the case to 05.04.1993. On 20.03.1993 another telegram

was sent by the Convener Arbitrator to the appellant and to respondent No.1

that the date of hearing was shifted to 07.04.1993.

14.On 07.04.1993 third meeting of the Arbitral Tribunal was held. Though the

appellant was present, respondent No.1 was absent. It was noted that the

minutes of the second meeting held on 11.02.1993 were sent to NTPC and

Page 11

11

respondent No.1 and were received by them. The relevant portion of the

minutes of the meeting dated 07.04.1993 was as under:

“It was also noted the minutes of the second meeting held on 11.02.1993 had been sent both to M/s NTPC and M/s PGCIL and received by them.

It was however noted with regret that no representative of M/s NTPC and/or M/s PGCIL turned up for the hearing.

No compliance was made by the aforesaid two respondents to the directive given to them in the second meeting regarding filing their replies to the statement of claim filed by M/s EMC.

During the third meeting Mr. M.K. Kureshi of M/s EMC requested that despite no response from respondents, the case should be proceeded with and the arbitrators were requested to deliver the award within the statutory period of 4 months which expired on 12th May, 1993.

Under the circumstances, it was decided that the next hearing in the matter will commence from 10.30 a.m. on 20.04.1993 and continue on all the days upto 25th April, 1993. Each day the meeting shall commence from 10.30 a.m. and continue during the day in an effort to complete the items on the agenda as specified in the following para.

In the meantime respondents are again requested to file their replies to the statement of claim filed by the claimants and such other documents that they may like to file before the Arbitrators by 14th April, 1993 giving copies to all the three arbitrators and the claimants.

M/s EMC are also requested to file such other documents that they may like to present to the arbitrators by 14.04.1993 giving copies to respondents.

Page 12

12

Following matters will be taken up during the hearings from 20th April, 1993 upto 25th April, 1993:

i) Framing of the issues. ii) Admission/Denial of documents filed and taking

the same on record. iii) Evidences by the claimants and respondents. iv) Arguments by claimants; counter arguments by

respondents; replies by the claimants.”

15.On 09.04.1993, a letter was addressed by one Mr. Sunil Narula, Advocate,

on behalf of respondent No.1 to three Arbitrators and the appellant. It was

stated in the letter as under:- “…………..Since M/s Electrical Mfg. Co. Ltd. Calcutta,

have raised some disputes in the above-said contract and instead of settling the matter amicably with our client despite our client’s repeated requests, have directly invoked the Arbitration Clause which is not in consonance with the terms and conditions of the above referred agreement and therefore, the appointment of the arbitrators in this matter is void ab initio. M/s Electrical Mfg. Co. Ltd., Calcutta have chosen to neglect their own written submissions to our client in which they had agreed to discuss and settle the matter amicably with our client in accordance with the terms and conditions of the agreement and this was also a condition precedent to the invocation of Arbitration Clause 26.1 of the said agreement.

Our clients M/s Power Grid Corporation of India Ltd. are initiating the appropriate legal proceedings in the Hon’ble High Court of Delhi to challenge the appointment of Shri J.C.Jain, Shri P.P. Agarwal and Shri Som Gupta, the addressee No. 1,2 and 3, herein as Arbitrators in the above mentioned matter. As the dispute in this matter is to the effect of legality of the appointment of all the three learned Arbitrators, you are requested to abstain from and/or postpone the arbitration proceedings for a period of 60 days, which shall be just, reasonable and in the interest of justice and during this period

Page 13

13

our client shall be able to obtain necessary orders from the Hon’ble High Court of Delhi.”

16.On 20.4.1993, fourth meeting of the Arbitral Tribunal was held at 10.30 a.m.

as scheduled. The relevant minutes of the meeting were as under:-

“It was noted that the minutes of the third meeting held on 7th April, 1993 were sent to M/s NTPC and M/S PGCIL and have been acknowledged by them. Acknowledgement copy taken into record.

It was, however, noted that regret that no representative of M/s NTPC, M/s PGCIL turned up for the hearing.

No compliance was made by the aforesaid respondents to the directives given to them in the second and third meetings dated 11.02.1993 and 7th April, 1993, respectively.

Despite repeated directives from the Arbitrators respondents did not appear for the hearing of 20.04.1993 at 10.30 a.m.. In pursuance of the decision taken by the Arbitrators at the hearing dated 7.04.1993 the Arbitrators proceeded with the hearing ex-parte.

The Arbitrators received on 17.04.1993 at Lucknow a letter dated 9th April, 1993 from one Mr. Sunil Narula, Advocate claiming to be acting under instructions from PGCIL. The contents of the letter were considered. Arguments of EMC’s representative Mr. M.K. Kureshi were also heard. The Arbitrators decided to proceed with the hearing.

At 11.10 a.m. Mr. Sunil Narula accompanied by an officer of PCGIL came to the hearing. Since Mr. Narula did not have a proper letter of authority to appear before the Arbitrators on behalf of PGCIL in respect of the dispute under arbitration, and since the directives given by the Arbitrators in the previous meetings had not been complied with by PGCIL, the Arbitrators

Page 14

14

were unable to entertain any submission of Mr. Narula. The hearing proceeded further thereafter.

M/s EMC submitted through their letter No. EMC/009/ARB dated 20.4.1993 additional documents (12 nos.) as per list attached with the letter. These were taken on record.

The following issues were framed:

1. Whether EMC is entitled to the various claims mentioned in para 6, Clause (i) to (xvi) and para 7, 8, 9 and 17(d) of the Statement of Claim? If so, to what effect and extent.

2. Whether EMC is entitled to claim interest mentioned at the end of Para 17(d)? If so, to what effect and extent.

3. Whether EMC is entitled to say other relief in the present circumstances? If so, to what effect and extent.

Mr. M.K. Kureshi proceeded to get various documents produced by him before Arbitrators, proved by Mr. Kalyan Kumar Ghosh, Manager (Project Monitoring) EMC Ltd., Exhibit I to XXV as per details enclosed with minutes were got proved.

The hearing will continue on Wednesday the 21st April, 1993 at the same place and venue i.e. 89, Sundar Nagar, New Delhi at 10.30 a.m.”

17. The aforesaid minutes noted the appearance of Mr. Sunil Narula at

about 11.10 a.m. and that since he did not have appropriate authority, and

the directives given in the previous meeting were not complied with, no

submissions were entertained by the Arbitrators. Said Mr. Narula within an

hour thereafter sent an Express Telegram to the Convener Arbitrator as

under:-

Page 15

15

“EXPRESS TELEGRAM

Sh. Som Gupta Convenor Arbitrator Sh Som Gupta 89, Sunder Nagar (Ist Floor) C-8/3, Park Road New Delhi Lucknow-226 001

Ref.: Arbitration proceedings regarding contract 01/CC/75-77 for 400KV Kanpur-Etah & Kanpur-Kanpur Line.

I appeared on 20.4.93 on behalf of POWERGRID before the learned arbitrators at 89, Sunder Nagar, New Delhi and submitted a Vakalatnama duly authorizing me to represent (POWERGRID CORPORATION before the learned Arbitrators. The learned arbitrators refused to accept the Vakalatnama and made a pre-condition to the effect that POWERGRID should first make the payment of expenses of the Arbitration Proceedings and also submit a proper authority letter granting extension of time for making the award by another 4 months in order to allow the POWERGRID to present the case before the Learned Arbitrators.

In the above circumstances, the arbitration proceedings being held by the Learned Arbitrators in the above matter is illegal, arbitrary and against the principles of natural justice.

(SUNIL NARULA) ADVOCATE, DELHI 20.4.1993”

18. Nobody appeared on behalf of respondent No.1 before the Arbitral

Tribunal on 21st, 22nd and 23rd April, 1993. The matter having been

concluded by 23.04.1993, the Arbitral Tribunal by its award dated

05.05.1993 found that the appellant had proved its case and was entitled to a

Page 16

16

sum of Rs. 72,69,096/- as against its claim of Rs.3.98 crores. The award

was then forwarded to the Court to be made Rule of the Court in terms of the

provisions of the Arbitration Act, 1940 (hereinafter referred to as the “Act”).

Copy of the award and notice of filing of the award in Court were given to

all the parties. The application for making the award Rule of the Court was

registered as CS(OS) No.1201 of 1993 and objections under Section 30

and 33 of the Act filed by respondent No.1 were numbered as IA No.8638

of 1993.

19. By his judgment and order dated 10.02.2006, the Single Judge of the

High Court dismissed the objections preferred by respondent No.1 and made

award dated 5.05.1993 awarding a sum of Rs. 72,69,096/- in favour of

appellant, Rule of the Court against respondent No.1. The appellant was

also held entitled to simple interest @ 12 % per annum from the date of the

award till the date of the decree and to simple interest @ 9% per annum

from the date of the decree till its realization. The appellant was also held

entitled to costs from respondent No.1 which were quantified at Rs.7,500/-.

During the course of his judgment, the learned Single Judge observed as

under:-

“29.It is not in dispute that notices were duly served upon respondent No.1. It is also not in dispute that respondent No.2

Page 17

17

had knowledge of the proceedings as the relevant documents had been forwarded to respondent No.2. Despite this fact respondent No.2 failed to enter appearance. I am also unable to accept the plea of the learned senior counsel for the respondent No.1 that there was no power in the Arbitrators to add respondent No.2 as a party. In fact no such addition was necessary and what ought to have been done was only to substitute respondent No.2 in place of respondent No.1.

30.The respondent No.2 even appeared subsequently but instead of participating in the matter was only interested in adjournment. The Arbitrators, even assuming the arguments of the counsel appearing before the Arbitrator to be correct, wanted an extension of time failing which they wanted to proceed with the Arbitration so that the award could be made within the statutory period of time. Respondent No.2 was not willing to join in the extension of time. In such a situation respondent No.2 ought to have taken immediate legal remedy to at least challenge the constitution of the Tribunal if so advised. This respondent No.2 did not do but just kept silent over the matter. The allegations and submissions that the statement of claim was not available with respondent No.2 or that the record is silent about the same or as to what transpired on 20.4.1993 are clearly afterthoughts. It is also to be kept in mind that there was a panel of Arbitrators. Two Arbitrators were appointed by an independent agency. There could have been hardly any grievance made by respondent No.2 about the composition of the Tribunal.

31.Respondent No.2 itself had addressed a communication dated 24.8.1992 to the Institute of Engineers and have made admission themselves in paragraph 2.26 (iii) of the objections that they had received intimation of the appointment of Arbitrators on 12.11.1992. The proceedings have also been sent to respondent No. 2. Respondent No. 2 having not appeared negligently or willfully, a further opportunity was given by the Arbitrators to the said respondent on 7.4.1993……….…………….. Respondent No. 2 apparently was not willing to join the Arbitration proceedings and negligently kept away and did not even take steps to challenge such Arbitration proceedings. There cannot be an indefinite

Page 18

18

period for pre-Arbitration settlement proceedings to continue. The Contract stood concluded in 1988 and despite all discussions no settlement could be finalized right till 1991. The dispute resolution mechanism was followed in view of the letter of the petitioner dated 18.7.1991 with a copy marked to the Engineer of the project and the petitioner clarified in terms of letter dated 2.09.1991 that the disputes raised by its earlier letter had been raised before the Engineer or the Contract in terms of Clause 26.4 of the terms and conditions of Contract. The Engineer did not answer to the claim within thirty(30) days of the receipt of the notice as was required to be done and it is in view thereof that the Arbitration Clause was invoked on 20.3.1992.”

20. The matter was carried further by respondent No.1 by filng FAO(OS)

No.196 of 2006 which appeal came to be allowed by the Division Bench of

the High Court vide its judgment and order dated 4.07.2008. The Division

Bench found that the Arbitral Tribunal had acted in utter haste in rushing

through the arbitration proceedings without affording proper and adequate

opportunity to respondent No.1 in presenting its case. The Division Bench

felt that the interest of justice would be best served if the matter was

referred again to a Sole Arbitrator to adjudicate the dispute between the

parties afresh after giving due opportunity to both the parties. Allowing the

appeal and setting aside the order passed by the learned Single Judge and the

award made by the Arbitrator, the matter was referred to the Sole Arbitrator.

During the course of its judgment, the Division Bench of the High Court

observed, inter alia:-

Page 19

19

“……..We are of the view that the Arbitrators have unnecessarily acted in haste in concluding the arbitral proceedings. Once the appellant had appeared before them, the least they should have done was to afford some reasonable time to the appellant to file its objections to the statement of claim filed by the respondent EMC. The Arbitrators also could have given a pre-emptory notice to the appellant before proceeding ex parte against them. Even after proceeding ex-parte against the appellant the Arbitrators still could have called upon them to cause appearance in the matter……………….”

“… The appellant had appeared on 9th April, 1993 as well as on 20th April, 1993, but they were not allowed to participate in the proceedings1 and thereafter within four days i.e. from 21.4.1993 to 25.04.1993 the same were concluded. ……..”

“……….Although, the conduct of both the corporations i.e., NTPC & NPTC, (appellant) in adopting a very casual and lackadaisical approach, in not timely taking the actions including for an appointment of an arbitrator and also for their non-appearance before the Arbitral Tribunal exhibits their total insensitivity to the monetary claims of the duly appointed contractor and their own financial interests yet at the same time the said contractor i.e., EMC cannot completely absolve itself to share the blame by not adhering to the said communication dated 28.11.1992. The respondent EMC was not oblivious of the said fact of transfer of ownership of the transmission system by NPTC in favour of the appellant (NPTC), although the same came to be notified through an ordinance on 8.1.1993.”

21. While issuing notice in the petition for special leave to appeal

preferred by the appellant, this Court by its order dated 01.08.2008 stayed

1

This observation is not correct. On 9.4.1993 a letter was addressed by the Advocate. No hearing was fixed on 9.4.1993.

Page 20

20

the operation of the judgment and order passed by the Division Bench.

Consequently, the matter did not proceed before the Sole Arbitrator named

in the judgment of the Division Bench. The parties having exchanged the

pleadings, we heard Mr. C.Mukund, learned Advocate in support of the

appellant and Mr. Parag Tripathi, learned Senior Advocate for respondent

No.1.

22. Having heard the learned Counsel and gone through the record, in our

view, the instant matter raises questions ; a) Whether arbitration was validly

invoked in the matter; b) Whether the appointment of the Arbitrators was in

terms of the relevant Clauses of the Contract; c) Whether respondent No.1

was aware of such invocation and consequential proceedings; and d)

Whether the Arbitral Tribunal was right in refusing to adjourn the

proceedings and proceed with the matter. Our answers to these questions are

as under:-

a) In terms of the provisions of Clause 26 (1) of the Contract, the

appellant vide letters dated 18.7.1991 and 02.09.1991 had requested the

“Engineer” to look into the disputes as raised by the appellant. These letters

were admittedly received by NTPC. As stipulated in Clause 26 (1) read with

Clause 26 (4), in the event of the “Engineer” failing to notify his decision

Page 21

21

within 30 days after being requested, the concerned party would be within its

rights to require that the matters in dispute be referred to arbitration. Since

nothing was done with respect to the request made by the appellant within

30 days of the receipt of communication dated 18.07.1991 or even the one

dated 02.09.1991, the appellant could validly require that the matters in

dispute be referred to arbitration. Even assuming that in terms of letter dated

28.11.1991, it was NPTC who was to be concerned with the matters in

dispute, no appropriate decision was taken even within 30 days of this

communication. In the circumstances, invocation of arbitration by the

appellant vide its letter dated 20.03.1992 was perfectly valid and in terms of

the Contract.

b) A copy of aforesaid letter dated 20.03.1992 addressed to NTPC was

admittedly forwarded to and received by NPTC. Neither of them took

appropriate and required steps in the matter within 60 days as contemplated

by Clause 26.6.1 of the Contract. In the circumstances, the step taken by the

appellant to approach Institution of Engineers (India) requesting its President

to appoint the arbitrator in terms of said Clause, vide its letter dated

07.07.1992 was also in keeping with the express terms of the Contract. It is

crucial to note that a telegram was sent on 24.08.1992 on behalf of NPTC

requesting the President, Institution of Engineers (India) to keep the action

Page 22

22

regarding appointment of arbitrator on their behalf in abeyance. It was

stated that a detailed letter was to follow. However nothing was done in the

matter for more than a month and the detailed letter was never sent. In the

circumstances, the President, Institution of Engineers (India) was absolutely

right and justified in making the appointment of the Second Arbitrator on

29.09.1992. The appointment of the Third Arbitrator was in any case within

the powers of the President. Thus, appointment of the Second and Third

Arbitrator and constitution of the Tribunal cannot be found fault with.

c) The record is clear that NTPC was aware of the communications

dated 18.07.1991 and 02.09.1991. If under the directions of the Government

of India, NPTC was to take over matters including those related with the

Contract in question, NPTC ought to have been appraised of the issues in

question by NTPC. In any case, the telegram dated 24.08.1992 as stated

above, expressly shows complete awareness on part of NPTC and yet no

further steps were taken by NPTC. No detailed letter as stated in the

telegram was ever sent. Further, respondent No.1 which is the successor-in-

interest was made aware of the pendency of proceedings before the Arbitral

Tribunal but chose not to appear and take part. Minutes of first two meetings

of the Arbitral Tribunal were forwarded to and received by respondent

No.1. Even telegrams seeking and granting adjournment of the proceedings

Page 23

23

were sent to respondent No.1. When in the meeting dated 07.04.1993 the

Schedule for days beginning from 20.04.1993 was fixed and copy of the

minutes was sent to respondent No.1, the Advocate for the respondent No.1

addressed a letter to the Arbitration on 09.04.1993. This letter not only

indicates complete awareness of the proceedings but displays definite idea

having crystallized to initiate appropriate proceedings in the High Court. If

that be so, nothing stopped respondent No.1 from initiating such challenge,

which never happened. The least that it could do in the circumstances was to

be ready to participate in the proceedings and be ready on merits of the

matter. However even on 20.04.1993, i.e. eleven days after the letter was

sent, it was not willing to participate. If it wanted adjournment in the matter,

it ought to have consented to the extension of time as the Arbitral Tribunal

had rightly indicated. The conduct of respondent No.1 as rightly commented

by the Division Bench of the High Court, was extremely casual.

d) The Arbitral Tribunal in the present case had entered upon reference and

held its first meeting on 13.01.1993. The mandate of Section 28(1) and (2)

of the Act read with Schedule I, Clause 3 of the Act was that the statutory

period to complete the proceedings and make the award was four months

after entering on the reference. The minutes of the meeting dated 07.04.1993

show awareness that the period would expire on 12.05.1993. The law on the

Page 24

24

point is clear that in such circumstances, the enlargement of time could be

possible if parties to the arbitration agreement consent to such enlargement.

The decision of this Court in Hari Krishna Wattal v. Vaikunth Nath

Pandya by L.RS. & Ors.2 is quite eloquent and relevant paragraphs thereof

are:-

“6. Section 3 of the Arbitration Act, 1940 provides:

“An arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule insofar as they are applicable to the reference.”

7. The First Schedule has 8 clauses describing the implied conditions of an arbitration agreement. Clause 3 reads as follows:

“The arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow.”

10. The question depends upon the true construction of Section 28. There is no doubt that the Arbitrator is expected to make his award within four months of his entering on the reference or on his being called upon to act or within such extended time as the Court may allow. Reading Clause 3 of the Schedule along with Section 28 one finds that the power to

2

1973 (2) SCC 510

Page 25

25

enlarge the time is vested in the Court and not in the Arbitrator. Clause 3 and Section 28(1) exclude by necessary implication the power of the Arbitrator to enlarge the time. This is emphasised by Section 28(2) which provides that even when such a provision giving the Arbitrator power to enlarge the time is contained in the agreement, that provision shall be void and of no effect. The head-note of Section 28 brings out the force of this position in law by providing that the power is of the Court only to enlarge time for making the award.

11. Sub-section (2) of Section 28, however, indicates one exception to the above rule that the Arbitrator cannot enlarge the time, and that is when the parties agree to such an enlargement. The occasion for the Arbitrator to enlarge the time occurs only after he is called upon to proceed with the arbitration or he enters upon the reference. Hence, it is clear that if the parties agree to the enlargement of time after the Arbitrator has entered on the reference, the Arbitrator has the power to enlarge it in accordance with the mutual agreement or consent of the parties. That such a consent must be a post reference consent, is also clear from Section 28(2) which renders null and void a provision in the original agreement to that effect. In a sense where a provision is made in the original agreement that the Arbitrator may enlarge the time, such a provision always implies mutual consent for enlargement but such mutual consent initially expressed in the original agreement does not save the provision from being void. It is, therefore, clear that the Arbitrator gets the jurisdiction to enlarge the time for making the award only in a case where after entering on the Arbitration the parties to the arbitration agreement consent to such enlargement of time.”

In the circumstances, if the Arbitral Tribunal insisted upon appropriate

consent to extend the time, no fault could be found with. At the same time, if

respondent No.1 was not willing to give such consent, the Arbitral Tribunal

had to go on with the matter and make the award within the statutory period.

Page 26

26

The Division Bench was not right in observing that the Arbitral Tribunal

showed undue haste in the matter.

23. In our view, the Division Bench was not right and justified in allowing

the appeal and setting aside the judgment and order passed by the Single

Judge. We, therefore, allow this appeal, set aside the judgment and order

passed by the Division Bench of the High Court of Delhi and restore the

judgment and order dated 10.02.2006 passed by the Single Judge of the High

Court of Delhi.

24. This appeal is allowed with no order as to costs.

….....………………………………J. (Fakkir Mohamed Ibrahim Kalifulla,)

....…………………………………J. (Uday Umesh Lalit)

New Delhi, July 20, 2016