Saturday, 25 June 2016

Whether court should consider objection to jurisdiction while deciding to give decree on basis of arbitration award?

 The other observations of the Civil Court that the
objection of jurisdiction cannot be considered in a proceeding

filed to get decree on the award cannot be considered, is also
not tenable. In that matter also written statement was filed and
objection to jurisdiction was taken. When there is such objection,
the Civil Court is expected to give decision on this objection also.
Further, separate proceeding under section 33 of the Act was
there and so, while deciding to give decree on the basis of
award, it was necessary for the Civil Court to decide as to
whether Arbitral Tribunal had jurisdiction, authority. Only after
deciding such objection, the Court can pronounce the judgment
in terms of award. Other observations of the Civil Court that the
participation of the employer in the arbitral proceeding amounts
to acquiescence is also not tenable. When there is initial want of
jurisdiction, the things cannot be cured by acquiescence and the
party who appeared before the arbitrator, but took objection to
its jurisdiction is not established from questing the validity of the
award on the ground of jurisdiction.
16) In view of the aforesaid discussion, this Court holds
that the Civil Court has committed error in giving decree on the
basis of award and it has committed error in rejecting the
objection application filed by the employer. Shri. Mahurkar could
not have been appointed as arbitrator and there was no such
arbitration agreement. Thus, award is liable to be set aside.

IN THE HIGH COURT AT BOMBAY
APPELLATE SIDE, BENCH AT AURANGABAD
APPEAL FROM ORDER NO. 9 OF 1999
WITH
CIVIL APPLICATION NO. 551 OF 1999
WITH
CIVIL APPLICATION NO. 13144 OF 2011
IN
CIVIL APPLICATION NO. 16821 OF 2010
Maharashtra Krishna Vally Development
Corporation (Incorporated under the
Maharashtra State Krishna Vally
Development Corporation Act, 1996)

Versus
 M/s. S.D. Shinde & Company

CORAM : T.V. NALAWADE, J.
DATED : 23rd November, 2015.
Citation: 2016(3) MHLJ 705

1) The appeal and revision are filed to challenge the
judgment and order of learned Civil Judge, Senior Division,
Ahmednagar in Arbitration Application No. 1/1997 and Regular
Civil Suit No. 5/1997. Both the proceedings are decided at the

same time by the learned Civil Judge, Senior Division. In the suit,
decision is given, by which decree is given on the basis of award
of Arbitral Tribunal. The application filed by employer, present
appellant for setting aside the award is dismissed. Both the sides
are heard. It appears that some of the partners of the contractor
got separated and so, different advocates appeared for the
partners in the present proceedings and all of them were allowed
to argue the matter. However, they argued in support of the
decision of the Civil Court and in support of the award delivered
by so called arbitrator.
2) Krishna Vally Development Corporation is a State
Corporation and it had given the work of construction of canal to
respondent M/s. S.D. Shinde and Company. The value of the work
was Rs. 55.77 lakh. The time of the work was fixed as 18 months
and penalty was stipulated in the contract if delay was caused in
respect of completion of work. On 15.1.1994 the contractor
requested to withdraw the work on the basis of terms and
conditions of the contract and the work was actually withdrawn.
Final bill was prepared in the month of March 1995 and the
amount under the final bill was paid to the contractor which was
accepted under protest.

3) The contractor issued notice to the Corporation and
informed that contractor had appointed one Shri. S.V. Mahurkar,
retired Superintending Engineer of Government of Maharashtra
as arbitrator. The Corporation appeared before the arbitrator and
took objection to the authority, jurisdiction of the arbitrator. The
Corporation contended that there was no agreement for
referring the dispute to the arbitrator.
4) A proceeding was filed in the year 1996 under
section 33 of Arbitration Act, 1940 (hereinafter referred to as
'the Act' for short) in the Court by the Corporation (1/1996). This
application was dismissed by holding that the application under
section 33 of the Act was not tenable. Reasons were given that
the Corporation had appeared before the arbitrator and it can be
said that it had submitted to the jurisdiction of the arbitrator.
The submissions made by the learned counsel for the contractor
were accepted that all the objections can be taken after the
award is made and as arbitration proceeding was already
started, it needs to be concluded.
5) Arbitrator passed award on 30.11.1996 and copy of
the award was delivered to the Corporation and also to the
Contractor on 21.12.1996. The arbitrator filed the award in the

Court on 9.1.1997. On 6.1.1997 the Corporation, employer filed
Arbitration Application No. 1/1997 under sections 33 of the Act.
In Regular Civil Suit No. 5/1997 which was registered on the
basis of award filed by the arbitrator, exparte decree was given
by the Court and this decision was challenged by filing
application for setting aside the exparte decree along with
application for condonation of delay. In Civil Revision Application
No. 69/1998 which was allowed, this Court directed the trial
Court to decide the R.C.S. No. 5/1997 and Arbitration Application
No. 1/1997 together and the decision given by the trial court in
the past was set aside. After making such order by this Court,
written statement was filed in the suit also by the employer,
Corporation and objection to the jurisdiction, authority of the
arbitrator was taken.
6) The Civil Court has rejected the application filed
under section 33 of the Act by observing that the previous order
made by the Court, in the year 1996 comes in the way of
employer to challenge the jurisdiction of the arbitrator again. It
is held that the objection taken by the employer, Corporation is
not within limitation. It is also held that the objection to the
jurisdiction cannot be considered in a proceeding filed under
section 30 of the Act.

7) The Court below has considered the following
clauses of the main contract as arbitration clauses :-
"Clause 29 - All works to be executed under the
contract shall be executed under the direction and
subject to the approval in all aspects of the
Superintending Engineer of the Circle, for the time
being, who shall be entitled to direct at what point
or points and in what manner they are to be
commenced and from time to time carried on.
Clause 30 (1) - Except where otherwise specified in
the contract and subject to the powers delegated
to him by Government under the Code, rules then
in force the decision of the Superintending
Engineer of the Circle for the time being shall be
final, conclusive, and binding on all parties to the
contract upon all questions relating to the
meaning of the specifications, designs, drawings,
and instructions, hereinbefore mentioned and as
to the quality of workmanship, or materials used
on the work, or as to any other question, claim,
right, matter or thing whatsoever, if any way
arising, out of, or relating to or the contracts
designs, drawings, specifications, estimates,
instructions, orders, or these conditions or
otherwise concerning the works, or the execution,
or failure to execute the same, whether arising,
during the progress of the work, or after the

completion or abandonment thereof.
(2) The contractor may within thirty days of
receipt by him of any order passed by the
Superintending Engineer of the Circle as aforesaid
appeal against it to the Chief Engineer concerned
with the contract, Work or Project provided that --
(a) The accepted Value of the Contract
exceeds Rs. 10 Lakhs (Rs. Ten Lakhs).
(b) Amount of claim is not less than Rs. 1.00
lakh (Rupees One Lakh)
(3) If the contractor is not satisfied with the
order passed by the Chief Engineer as aforesaid,
the contractor may, within thirty days of receipt by
him of any such order, appeal against it to the
concerned Secretary, Public Works
Department/Irrigation Department who if
convinced that prima-facie the contractor's claim
rejected by Superintending Engineer/Chief
Engineer is not frivolous and that there is some
substance in the claim of the contractor as would
merit a detailed examination and decision by the
Standing Committee, shall put up to the Standing
Committee at Government level for suitable
decision (Vide P.W. circular No. CAT-1086/CR-
110/Bidg-2 dt.7.5.86)."
There was one more agreement between the parties like Deed of

Pledge and at clause 13 of the Deed of Pledge there is specific
reference of referring some dispute to arbitrator though it is only
in respect of the contract made in the Deed of Pledge and it runs
as under :-
"13. In the event of any conflict between the
provisions of these presents and the said
Agreement, the provisions of the said Agreement
shall prevail and in the event of any dispute or
difference arising over the constructions effect of
these presents the settlement of which has not
hereinbefore provided for the same shall be
referred to the arbitration of two persons one to be
nominated by the Government and the other by
the Contractors, and failing agreement between
these two arbitrators to an umpire appointed by
them before entering upon the reference whose
decision thereon shall be final and the provisions
of the Arbitration Act, 1940 (X of 1940) or any
notification thereof for the time being in force shall
apply to any such reference."
The contractor did not dispute that this clause is not arbitration
clause in respect of work executed and this clause is not used to
refer the dispute to Shri. Mahurkar, Retired Superintending
Engineer.
8) In Chapter 4 of the main contract, Special Conditions

of Contract, condition No. 53 is there and it is also relevant and it
runs as under :-
"53.0 In case of any disputes between
Contractor and the Government in the matter,
whatsoever those shall be resolved as per
provision of Clause-30 of tender and in no
circumstances the reference to Arbitration Act will
be entertained."
Thus, there was specific prohibition to refer dispute
to Arbitrator.
9) "Arbitration agreement" is defined in the Act in
section 2 (a) as under :-
"(a) "arbitration agreement" means a written
agreement to submit present or future differences
to arbitration, whether an arbitrator is named
therein or not'"
Whether particular agreement amount to arbitration
or not depends upon the intention of the parties to make
submission to arbitration. In view of the definition of the
"arbitration agreement", the agreement must be in writing and it
must be accepted by the parties. In the cases reported as AIR
1981 Supreme Court 479 [Rukminibai Vs. Collector] and
::: Uploaded on - 27/11/2015 ::: Downloaded on - 25/06/2016 22:01:49 :::Bombay High Court
AO 9/99 & CRA 125/99
11
(2014) 1 SCC 516 [Vishnu Vs. State of Maharashtra &
Ors.], the Apex Court has referred Russell on Arbitration,
21st Edition in which distinction between expert determination
and arbitration has been spelt out. It is laid down by the Apex
Court that :-
"If it appears from terms of the agreement by
which matter is submitted to a person's decision
that the intention of the parties was that he should
hold inquiry in the nature of judicial inquiry and
here the respective cases of the parties and
decided upon the evidence read before him, then
the case is one of a arbitration." In the case of
Vishnu cited supra, the Apex Court considered the
relevant clauses of the agreement and the
agreement was between Irrigation Department of
the State Government and the contractor and the
clauses are quoted in para No. 15 of the judgment
as under :-
"15. We have considered the respective
arguments. Clauses 29 and 30 of the B-1
Agreement entered into between the parties read
as under :
Clause 29.- All works to be executed under the
contract shall be executed under the direction and
subject to the approval in all respects of the
Superintending Engineer of the Circle for the time
being, who shall be entitled to direct at what point

or points and in what manner they are to be
commenced, and from time to time carried on.
Clause 30- Except where otherwise specified in the
contract and subject to the powers delegated to
him by Government under the Code rules then in
force the decision of the Superintending Engineer
of the Circle for the time being shall be final,
conclusive, and binding on all parties to the
contract upon all questions relating to the
meaning of the specifications, designs, drawings,
and instructions, hereinbefore mentioned and as
to the quality of workmanship, or materials used
on the work, or as to any other question, claim,
right, matter or thing whatsoever, if any way
arising, out of, or relating to or the contracts
designs, drawings, specifications, estimates,
instructions, orders, or these conditions or
otherwise concerning the works, or the execution,
or failure to execute the same, whether arising,
during the progress of the work, or after the
completion or abandonment thereof."
At para 26 of the judgment, the Apex Court has observed that
when the Superintending Engineer of the Circle was invested
with the authority to approve all work to be executed under the
contract, the Superintending Engineer was to supervise
execution of all works. The power conferred upon him to take

decision on the matter enumerated in Clause 30 did not involve
adjudication of any dispute or lis between the State Government
and the contractor. It is observed that when the Superintending
Engineer was to supervise the work and he was to take decision
about the work, he cannot be expected to pass award by acting
as arbitrator. It is observed that such a man could not be
expected to adjudicate the matter with unbiased mind. More
observations are made in para No. 28, the underline portion
therein is as under :-
"A clause which is inserted in a contract
agreement for the purpose of prevention of
dispute will not be an arbitration agreement. Such
a provision has been made in the agreement itself
by conferring power upon the Engineer-in-Charge
to take a decision thereupon in relation to the
matters envisaged under clauses 31 and 32 of the
said agreement. Clauses 31 and 32 of the said
agreement provide for a decision of the Engineerin-Charge
in relation to the matters specified
therein. The jurisdiction of the Engineer-in-Charge
in relation to such matters are limited and they
cannot be equated with an arbitration agreement.
Despite such clauses meant for prevention of
dispute arising out of a contract, significantly.
Clause 30 has been inserted in the contract
agreement by the parties."

After making these observations, the Apex Court held that the
Superintending Engineer mentioned in Clause 30 of the
agreement already quoted was not there as arbitrator named
and there was no arbitration and that clause was not arbitration
clause.
10) In the present matter, there is one more important
circumstance. In Clause 30 (1), the officer mentioned is
Superintending Engineer of the Circle (underline added). Thus,
the Superintending Engineer who was actually working, could
have been appointed under Clause 30 for giving his decision if at
all this clause was arbitration clause. Admittedly, the contractor
of the present case appointed a retired Superintending Engineer.
This single circumstance shows that even if Clause 30 is taken as
arbitration clause, the retired Superintending Engineer
appointed by the contractor could not have acted as arbitrator.
For this reason, it can be said that there was no authority or
jurisdiction to Shri. Mahurkar to decide the dispute as Arbitral
Tribunal.
11) The learned counsel for contractor placed reliance on
some cases of this Court like Misc. Civil Application Nos.
1480 and 1481 of 2008 decide on 2.7.2010 and

Arbitration Application No. 41/2007 decided on
6.10.2010. Both the proceedings were filed for appointment of
arbitrator under section 11 of the Arbitration and Conciliation
Act, 1996 and while considering the prayer made by the
contractor to appoint arbitrator, this Court referred agreement
between the parties and held that the clause of the present
nature can be treated as an arbitration clause. In view of the
recent case of Vishnu cited supra of the Apex Court, the clause
considered by the Apex Court and the observations made by the
Apex Court in Rukminibai’s case and Vishnu’s case cited
supra, which are already quoted, this Court holds that the two
cases of this Court are of no help to the present contractor.
12) Clause 53 of the present contract already quoted
shows that arbitration itself is prevented under the present
contract. In the case reported as (1994) 4 Supreme Court
Cases 135 [K. Sasidharan Vs. Kerala State Film
Development Corporation], the Apex Court has laid down
that when the parties have specifically excluded the arbitration
clause in the contract, the Court cannot make contract between
the parties.
13) The Civil Court has held that the objection to the

award is not taken in time. On this point, it can be said that the
provisions of Limitation Act need to be read with section 14 (2)
of the Act. This provision runs as under :-
"14. Award to be signed and filed :- (1) .........
(2) The arbitrators or umpire shall, at the
request of any party to the arbitration agreement
or any person claiming under such party or if so
directed by the Court and upon payment of the
fees and charges due in respect of the arbitration
and award and of the costs and charges filing the
award, cause the award or a signed copy of it,
together with any depositions and documents
which may have been taken and proved before
them, to be filed in Court, and the Court shall
thereupon give notice to the parties of the filing of
the award."
Article 119 (b) of Limitation Act runs as under :-
Description of suit Period of
limitation
Time from which period
begins to run
119.Under the
Arbitration Act, 1940,-
(a) ........;
(b) for setting aside an
award or getting an
award remitted for
reconsideration
........
Thirty days
.................
The date of service of the
notice of the filing of the
award
14) In the case reported as (2005) 10 Supreme Court

Cases 575 [Gurbax Singh Vs. Punjab Mandi Board], the
Apex Court has discussed the provision of section 14 (2) and has
discussed the point of commencement of limitation for filing
objections. It is specifically laid down that the limitation period
under Article 119 (b) for filing objection commences from the
date of the notice mentioned in section 14 (2) of the Act. The
relevant facts are already quoted by this Court and they show
that within 30 days even from the date of supply of copy of the
award, the objection, Arbitration Application No. 1/1997 was filed
by the employer under section 33 of the Act. There are other
circumstances also like making of the award exparte by the Civil
Court and then setting aside the same by this Court and
remanding the matter and then filing written statement in that
matter by the employer. In any case, for the proceeding under
section 33, Article 119 (b) is not applicable and that can be seen
from section 33 itself.
14) The Civil Court has referred the order made on
previous application filed under section 33 of the Act and has
observed that the point of jurisdiction, authority is already
decided. This finding is not tenable. The previous order shows
that the objection to the jurisdiction was taken before the
Arbitral Tribunal and then during pendency of arbitration

proceeding, application was moved under section 33. The Court
held that there was some agreement and the employer has
submitted jurisdiction to the arbitrator and so application under
section 33 was not tenable. The submissions made by the
contractor that this objection can be considered after passing of
the award was accepted by the Civil Court at that time. Thus, it
can be said that the point was not decided. There is one more
angle to this point. While deciding proceeding No. 1/1996, the
Civil Court had referred the so called agreement which was
mentioned as Pledge Deed and the Court had observed that the
claims were probably in respect of machinery only mentioned in
the Pledge Deed when the claims were in respect of the work
executed and now the award is given in respect of the work.
Thus, the Civil Court has not properly appreciated the previous
objection, the stand taken by the contractor and the order made
by the Civil Court in the previous proceeding. When there was no
agreement at all to refer the present dispute to Arbitral Tribunal,
the so called award prepared by him cannot be recognized in
law. For this reason also, the reasoning given by the Civil Court
on this point is not tenable.
15) The other observations of the Civil Court that the
objection of jurisdiction cannot be considered in a proceeding

filed to get decree on the award cannot be considered, is also
not tenable. In that matter also written statement was filed and
objection to jurisdiction was taken. When there is such objection,
the Civil Court is expected to give decision on this objection also.
Further, separate proceeding under section 33 of the Act was
there and so, while deciding to give decree on the basis of
award, it was necessary for the Civil Court to decide as to
whether Arbitral Tribunal had jurisdiction, authority. Only after
deciding such objection, the Court can pronounce the judgment
in terms of award. Other observations of the Civil Court that the
participation of the employer in the arbitral proceeding amounts
to acquiescence is also not tenable. When there is initial want of
jurisdiction, the things cannot be cured by acquiescence and the
party who appeared before the arbitrator, but took objection to
its jurisdiction is not established from questing the validity of the
award on the ground of jurisdiction.
16) In view of the aforesaid discussion, this Court holds
that the Civil Court has committed error in giving decree on the
basis of award and it has committed error in rejecting the
objection application filed by the employer. Shri. Mahurkar could
not have been appointed as arbitrator and there was no such
arbitration agreement. Thus, award is liable to be set aside.

17) It appears that as per the order made by this Court
amount of award is deposited by the employer and that is
withdrawn by the contractor. In view of the present decision, the
employer is entitled to recover that amount. From the terms and
conditions of the contract, it can be said that the contractor had
agreed to give interest at the rate of 18% p.a. on the loan
advanced to it. In view of this clause of the contract, in ordinary
course right could have been given to the employer to recover
interest at the rate of 18% p.a. However, considering the rates of
nationalized banks and also the aforesaid circumstances and the
order made by this Court, this Court holds that the employer is
entitled to recover interest at the rate of 12% p.a. if there is no
undertaking in that regard for withdrawal of amount. In the
result, the following order.
O R D E R
(I) Both the proceedings are allowed. The decision of
the Court below of preparing decree on the basis of the award is
hereby set aside. The decision of the Court below of dismissal of
the objection filed by the employer is also set aside. Arbitration
Application No. 1/1997 is allowed. The award of the arbitrator is
set aside. Other civil applications are disposed of.
(II) The entire amount already collected will be

recoverable along with interest at the rate of 12% p.a. and the
interest will be chargable from the date of withdrawal of the
amount by the contractor from the Court till the date of
realization of entire amount. If there is undertaking, the interest
would be payable as per undertaking.
(III) The learned counsel for the contractor requested for
stay to the order of recovery. Stay of four weeks is granted.
 [ T.V. NALAWADE, J. ]

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