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PETITIONER: M/S. PREMIER FABRICATORS, ALLAHABAD

       Vs.

RESPONDENT: HEAVY ENGINEERING CORPN. LIMITED, RANCHI

DATE OF JUDGMENT:       21/03/1997

BENCH: MADAN MOHAN PUNCHI

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Punchhi, J.      The sole  and subtle question arising in this appeal is whether in  the facts  and circumstances, it was required of the Umpire  making the  award to  formally express  in terms that items  nos.2 to 5 of the dispute were arbitrable on the terms of the contract?      The appellant herein M/S. Premier Fabricators Allahabad is the  contractor. The  Respondent Corporation  engaged the contractor to execute some works. On May 25, 1971, a deed of agreement was  executed  in  writing  between  the  Parties. Clause 78  thereof made provision for settlement of disputes by arbitration. That clause reads as follows:      "SETTLEMENT    OF    DISPUTES    BY      ARBITRATION      78(1) All  questions,  disputes  or      difference of any kind, whatsoever,      arising out  of, or  in  connection      with, the  contract, at  any  time,      whether during the progress of work      of after its completion, or whether      before or  after the  determination      of   the   contract,   other   than      questions, disputes  or differences      for the  decision of which specific      provisions have  been made  in  the      foregoing    clauses    of    these      conditions (hereinafter referred to      as "excepted matters") according to      the said  specific provisions shall      be  final   and  binding   on   the      contractor and  shall  not  be  re-      opened  on   the  ground   of   any      informality,  omission,   delay  or      error in the proceeding in or about      the same  or on  any  other  ground      whatsoever, shall  be submitted  in      writing by  the contractor  to  the      employer, and  the  employer  shall      within a reasonable time, after the

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    submissions of  the same,  make and      notify  its  decisions  thereon  in      writing.      (2)   If    the    contractor    be      dissatisfied with  the decision  of      the  employer   on  any  matter  in      question, dispute or difference, on      any   ground,    or   as   to   the      withholding by the employer of  any      certificate to which the contractor      may claim  to be entitled to, or if      the  employer   fails  to   make  a      decision within  a reasonable time,      then and  in any  such case but not      including  any   of  the   excepted      matters, the contractor may, within      ten days  of the  receipt  of  such      decision or  after the  expiry of a      reasonable period  of time,  as the      case may be, demand in writing that      such matter in question, dispute or      difference    be     referred    to      arbitration.   Such    demand   for      arbitration shall  be delivered  to      the employer  by the contractor and      shall employer  by  the  contractor      and shall specify the matters which      are   in   question,   dispute   or      difference and  only such question,      dispute or  difference of which the      demand has  been made  and no other      shall be referred to arbitration.      (3) The  further  progress  of  any      work  under   the  contract  shall,      unless otherwise  directed  by  the      Engineer,   continue   during   the      arbitration  proceedings,   and  no      payment  due   or  payable  by  the      employer  shall   be  withheld   on      account   of    such   proceedings,      provided however that it shall also      be  open  to  the  arbitrators,  to      consider and  decide whether or not      such work shall continue during the      arbitration proceedings.      (4)  (a)   Matters   in   question,      dispute   or   difference   to   be      submitted   to    arbitration    as      aforesaid  shall  be  referred  for      decision to two arbitrators, one to      be nominated  by the  Chairman  and      the other  to be  nominated by  the      contractor. In the event of the two      arbitrators being  divided in their      opinion, the  matter under  dispute      shall be  referred for  decision to      an umpire  to be  appointed by  the      two arbitrators  not later than one      month from the latest date of their      respective appointments and, in any      case, before  they enter  upon  and      proceed with the reference.      (b) The   Arbitrators or the umpire      shall have  power to  call for such      evidence by  way of  affidavits  or

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    otherwise as the arbitrators or the      umpire, as  the case  may be, shall      think proper,  and it  shall be the      duty of  the parties to do or cause      to be  done all  such things as may      be   necessary    to   enable   the      arbitrators or  umpire to  make the      award without any delay.      (c) Unless otherwise agreed upon by      the  parties,   the  venue  of  the      arbitration proceedings under these      conditions shall  be at  Ranchi  in      the State of Bihar.      (d)  Subject   to  aforesaid,   the      provisions of  the Arbitration Act,      1940 or  any statutory modification      or enactment   thereof  and of  the      rules force,  shall  apply  to  all      arbitration proceeding  under  this      clause.      provided,   however,    that    the      arbitrators or, as the case may be,      the umpire  may, from time to time,      with the  consent of  the  parties,      enlarge the  time  for  making  the      award."      The appellant-contractor  laid claim  for  payments  in terms of  items nos. 1 to 5, as mentioned in its claim, from the Corporation which was rejected by the latter. Thereupon, the contractor  asked for arbitration in terms of Clause 78. The Corporation  denied  arbitration  in  respect  of  items 2,3,4, and  5 as being not referable to arbitration in terms of  the   contract.  On   the  basis  of  the  disputes  and differences thus  existing between the parties in respect of the claims  of the  contractor, the Managing Director of the Corporation nominated  Shri K.N.  Mehra, its  Works  Manager (Production) as  an arbitrator  to give a joint award on all the above  claims after  deciding whether claims referred to in items  2,3,4  and  5  were  or  were  not  referable  for arbitration in  terms of the contract. The contractor on its part nominated Shri S.B. Gadodia as the arbitrator to make a joint award  in respect of the terms of the arbitration made by the Corporation.      On entering  upon arbitration,  the arbitrators on 6-2- 1973 recorded  on their respective files their decision that items nos.  2,3,4 and  5 of the claim of the contractor were referable and  could be  decided by  the  arbitrators.  This meant that  all the items 1 to 5 were arbitrable. Proceeding further went  on but  the joint arbitrators ultimately could not arrive  at a  joint award.  Therefore by  a joint letter dated November  2, 1973,  they requested Professor G.B. Pant of Birla  Institute of  Technology, Ranchi to enter upon the reference as  Umpire and  give his  award. As  given out  in their  joint   letter  they   forwarded   separately   their respective files  for perusal of the Umpire, as also rest of the record.      The Umpire  then went  into the  matter. As  is evident from the  record, he  took into  account the  fact that  the matter had  come to him in pursuance of a contract dated May 25, 1971  executed between  the parties and that the parties in terms thereof had referred to S/Shri Mehra and Gadodia by letter of  reference the  matters of difference between them concerning items  1 to  5 (as  detailed out)  and that since there was  reported failure  by  the  joint  arbitrators  to arriver at a joint award in respect of the referred matters,

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the case  was referred  to him  as the  Umpire. Therefore he observed in his award that having heard both the parties and having seen all the documents submitted and having given the matter  a   careful  consideration   he  would   direct  the Corporation to  Pay a sum of Rs. 80, 000/- to the contractor bearing interest  at the  rate of  6 per cent per annum from the date of order till the date of decree.      The contractor  applied for  the award  of  the  Umpire being made  Rule of Court, which was registered as a suit in the  Court   of  Third  Additional  Sub-Judge,  Ranchi.  The Corporation objected  on a  number of  grounds of  the award being made  Rule of  Court. Despite objection the award, all the same,  was made Rule of Court. The Corporation then went up in appeal before the High Court of Patna which was placed before a  Bench of  two Hon’ble Judges of the High Court. It was contended  on behalf of the Corporation before the Bench that there  was error  of law  apparent on  the face  of the award because  the Umpire,  who was  the substitute  of  the arbitrators,  had   not  recorded  the  preliminary  finding whether items  nos. 5  to 5  of the  claim could  be subject matter of  arbitration under  the terms  of the contract an, therefor, the  award was  vitiated. It  was urged  that  the Umpire could  give his  award on  merits only after deciding the preliminary question as to whether claim under item nos. 2 to  5 were arbitrable. Both the Hon’ble Judges of the High Court constituting the Division Bench were in agreement that the   order passed  by the  arbitrators on  6 2 1973 to that affect could  not, on  its own,  be said to have disposed of the preliminary  question once for all and that on reference to the  Umpire the  entire dispute including the question of referability was  required to  be decided  by him. Upto this point  the  Hon’ble  Judges  were  in  concurrence  but  not thereafter. One  Hon’ble Judge took the view that the Umpire must in  the facts  and  circumstances  be  deemed  to  have decided the  question of referability of items 2 to 5 in the affirmative and  the award  must therefore  be  accepted  as valid. The  other Hon’ble  Judge differed by stating that in the facts and circumstances of the case, it was not possible to inferentially  hold that the Umpire must have decided the preliminary question  about referability  while  making  the award to  the tune  of Rs.  80,000/- only,  a sum much below than what  was claimed.  The matter then had to be, and was, referred to a Third Hon’ble Judge of that High Court.      The controversy before the Third Hon’ble Judge was thus narrowed to  the facts  and  circumstances of the case, i.e. whether a  deemed decision  on referability should or should not be inferred? The Third Hon’ble Judge noticing that since the members of the Division Bench had agreed that it was for the Umpire  to have  considered and  decided the preliminary question, went  on to  opine that  the Umpire  may not  have appreciated the  position as to his obligation and there was a possibility that he might not have considered it necessary to form  his opinion on the point due to the decision of the Arbitrators. The  Third Hon’ble  Judge also  was of the view that inference  in favour  of the  contractor could  not  be drawn from  the conclusion  merely because an award in terms of money  had been  made, unless he had stated so in express terms in  the award.  On this basis, the Third Hon’ble Judge agreed with  the view  of one  of the  Hon’ble Judges of the Division Bench  holding that  the contractor  had failed  to show that the Umpire had decided the preliminary question in its favour  before  proceeding  to  consider  the  claim  on merits. It  is on  that account that the Award was set aside leaving it  for the  parties to  move  the  court  below  to proceed  further  in  the  matter  in  accordance  with  the

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provision of the Indian Arbitration Act.      As is  evident, no abstract question of law or of legal import  has   arisen  herein.  It  is  from  the  facts  and circumstances of  the case  that one  would have to draw and record inferences. There are four reasons detailed hereafter which call  to infer  that (i)  the Umpire  was alive to his duties as  such, knowing  fully  well  that  he  was  not  a superior  between   the  two  arbitrators,  but  their  sole substitute assigned  their duties;  (ii). The Umpire did not consider the  decision of  the joint  arbitrators dated  6 2 1973 holding  that claims  under items 2 to 5 were referable to arbitration,  as binding on him as if in the nature of an interim award, nor was it treated as such by the arbitrators by delivery  and dispatch  to the  parties concerned;  (iii) that since  the said  order  was  part  of  the  proceedings recorded by  the joint  arbitrators, the Umpire on receiving the matter is presumed to have gone through the terms of the contract and  the arbitration  proceedings; and  (iv) it  is also  implied  that  the  Umpire  as  a  substitute  of  the arbitrators must  be presumed  to have  known that before he entered upon  reference to decided item nos. 2 to 5 on their merits, he  would have  to decide  whether those  items were arbitrable but the same need not have been in express terms. To hold it otherwise would be to negate his independence. It may be  true that  the joint  decision dated 6 2 1973 of the arbitrators regarding referability of those items might have been of  some support to his view. Yet it cannot be presumed that he  considered himself bound by those orders, absolving him of  the duty from going into the question. It would thus in the  circumstances be  seen that obligating the Umpire to make  a  speaking  award  in  so  far  as  the  question  of referability is concerned, lest it vitiates his non speaking award on merit, goes to the very root of the independence of the arbitrator. This is impermissible in law and against the spirit of  the Arbitration  Act,  1940.  The  award  of  the Umpire, as is plain, is a non-speaking award in entirety. He has preluded it with the recorded awareness that differences between  the  parties  had  arisen,  and  the  matter  stood referred to  arbitration in  pursuance of  the  contract  in writing dated may 25, 1971. He is then presumed to have real the terms  of the contract, the terms of reference and scope of items  2 to  5 of  the claim.  He  is  presumed  to  have examined whether  those claims were referable to arbitration in terms  of the  contract. He  is further  presumed to have read the respective files of the two arbitrators and to have heard both  parties at  length, screening  all the documents submitted, to  come to  the base  finding that  items 2 to 5 were referable.  All the  five items  were thus  arbitrable, resulting in  the award  for a sum of Rs. 80,000/- in favour of the  contractor. The  award must  therefore be upheld for the afore-reasons,  holding that  there is no error apparent on the face of the record which would justify its vitiation.      For the  afore-going reasons,  it must be held that the Third Hon’ble  Judge was  in error  in not agreeing with the view of  one of the Hon’ble Judges in the Division Bench who had held  that  there  was  a  deemed/presumed  decision  on referability  inferable   from  the  award  of  the  Umpire. Therefore, the  impugned order  of the  High Court   is  set aside by  allowing this  appeal, as a result of which appeal from original  order NO.  240 of 1975 in the Civil Appellate Jurisdiction of  Patna High Court shall stand dismissed with costs, maintaining that of the court of first instance.