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CASE NO.: Appeal (civil)  9136-9137 of 2003 Special Leave Petition (civil)  2096-2097 of 2002

PETITIONER: M/s.Sathyanarayana Brothers (P) Ltd.         

RESPONDENT: Tamil Nadu Water Supply & Drainage Board  

DATE OF JUDGMENT: 18/11/2003

BENCH: Brijesh Kumar & (Arun Kumar.

JUDGMENT: JUDGMENT

BRIJESH KUMAR,J

               Leave granted.

These appeals are the outcome of an arbitration  proceedings initiated at the instance of the appellant  M/s.Sathyanarayana Brothers (P) Ltd. raising certain claims  against the respondent Tamil Nadu Water Supply &  Drainage Board (for short ’the Board’).  The claim was  ultimately partly allowed by the Umpire.  The objections  against the Award preferred by the appellant were allowed  by the learned single Judge  but the Division Bench set aside  the order of the learned single Judge.  Hence, this appeal by  M/s.Sathyanarayana Brothers (P) Ltd. In view of the acute scarcity of water in the  State of Tamil Nadu a project known as Veeranam project  was undertaken by the State Government after its clearance  by the Planning Commission for bringing the water from the  left bank of the Coleroon at Lower Anicut to the city of  Madras covering a distance of 155 miles through the  pipelines to be laid for the purpose.  The work required to be  done was for manufacturing, supplying, delivering 1676  mm. (66") Diameter Prestressed Concrete Pipes and fittings  including transporting to site, laying, jointing and testing for  raw water and clear water conveying mains from Veeranam  Tank to Madras city.   The tenders submitted by the appellant  M/s.Sathyanarayana Brothers (P) Ltd. for carrying on the  job detailed above was accepted for a lump sum amount of  Rs.16,55,87,300/- subject to clearance of the foreign  collaboration arrangement and release of necessary foreign  exchange and also subject to other conditions and issued  G.O.Ms.No.1607 Public (TWAD) Department dated  13.7.1970.  While submitting the tender the petitioner had  also written a letter dated 22.1.1970 to the Chief Engineer  (Buildings) and City Water Supply, Veeranam Project,  Public Works Department, Chepauk, Madras with a request  for foreign exchange requirement for import of     equipments from foreign manufacturers.  The contractor had  requested the government to give all assistance in  procurement of foreign exchange and other necessary  central government clearances. Articles of agreement was  executed between the State of Tamil  Nadu and  M/s.Sathyanaraya Brothers specifying the terms and  conditions of the contract.  The work was required to be  completed within 36 months from the date of the

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entrustment of the site which was to be done within 30 days  after the date of acceptance of the tender.  It also provided  that if there was any delay in handing over the site there  should be extension of time for completion of the contract.   The time for completion was liable to be extended on the  request of the contractor for justifiable reasons.   The contractor required Rs.1.2 crores of foreign  exchange for importing necessary equipments for  manufacture of Prestressed Concrete Pipes from Switzerland  since the exporters insisted on payment in Doutecha Marks.  The contractor was advised to approach the Integral Credit  and Investment Corporation of India (ICICI) who insisted  that the contractor should be in the form of an incorporated  company so as to be able to  avail facilities of foreign  exchange instead of a partnership firm. The contractor,  therefore, converted into a private limited company as per  the advise on 24.2.1971.  The imported equipment landed in  Madras in February 1972 whereafter a factory at  Thirukalikundram and another factory at Panruti were  commissioned by June 1972 and January 1973 respectively.   There was thus already a delay of one year four months in  commencing production of prestressed concrete pipes.  The  contractor therefore, requested for extension of time up to  31.12.1975.  It was, however, extended up to 30.06.1975 by  the Chief Engineer.  The contractor wrote a letter dated  11.11.1974 refusing to accept the offer and further indicated  that he would be prepared to work on the condition that  contractor would be paid at the rate to be worked out taking  into account the increase in the cost and which may further  increase during the course of the work.  It was also indicated  that necessary time may be given for completion of the work  keeping in mind the capacity of equipment and the rate of  production.  He also wanted to be compensated for the  losses resulting from the delay and default on the part of the  government.  The contractor stopped the work with effect  from June 30, 1975.  The Chief Engineer extended time for  completion of the work by 31.12.1975 and again upto  31.3.1976 but did not agree to the other conditions as  indicated in the letter of the contractor dated 11.11.1974.   The dispute thus arose and the work stood stopped with  effect from 30.06.1975.  The contractor invoked the  arbitration clause and appointed one Mr.P.S.Subramaniam, a  Chartered Engineer as its Arbitrator.  After some litigation at  the instance of the Board it also nominated its arbitrator.   The arbitrators entered upon the reference on 18.3.1978.   The arbitrators disagreed.  Mr.P.S.Subramaniam, the  arbitrator appointed by the appellant partially awarded the  claim to the extent of about Rs.7.00 crores whereas the  arbitrator appointed by the Board only said that he did not  agree with the award.  Since there was no agreement  between the two arbitrators hence the matter was referred to  the Umpire - Justice Palaniswamy, a retired Judge of the  High Court who started the proceedings on 2.4.979. The  Umpire gave its award on 10.9.1979 and filed it in the court  on 26.11.1979. The appellant contractor filed objections for  setting aside of the Award given by the Umpire and  challenged the conclusions and findings arrived at by him to  the effect that it was not obligatory upon the State  Government to get foreign exchange cleared from  Government of India for the contractor and that the  contractor had abandoned the work on June 30, 1975 despite  the extension of time up to March, 1976 as well as the  finding that non-production of inter-departmental  correspondence and documents as requested by the  contractor would not vitiate the award.  The Board, on the

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other hand supported the findings of the Umpire and prayed  for making the award a rule of the court.   The matter was considered by the learned single  Judge of the High Court.  According to the decision of the  learned single Judge the State Government was obliged to  get foreign exchange clearance for the contractor for import  of equipment from Switzerland for the purposes of  manufacturing prestressed concrete pipes.  Due to delay in  clearance for foreign exchange the time should have been  extended by the Board as requested by the contractor.  The  learned single Judge also found that extension of time after  stoppage of the work was of no avail,  thus there was no  breach on the part of the contractor.  Non-production of the  documents by the Board as requested by the appellant had  the effect of vitiating the award given by the Umpire.  The  award was thus set aside by the learned single Judge.   In the appeal preferred by the Board, the  Division Bench, found that the following points fell for its  consideration: "(1) Whether there is any obligation on the  part of the Government of Tamilnadu to get  foreign exchange clearance from  Government of India as per the terms of  contract entered into between the Contractor  and the State Government?

(2) Whether the contractor has not  committed breach of contract by abandoning  the work with effect from 30.06.1975?

(3) Whether the non-production of inter  departmental correspondence of confidential  nature as required by the contractor will  vitiate the Award passed by the Umpire?

(4) To what relief?"

The Division Bench held that no such clause in  the agreement has been disclosed to  indicate that it was the  obligation on the part of the State Government to get  clearance of Government of India for foreign exchange for  the purpose of import of equipment by the contractor from  Switzerland.  The acceptance of the tender was subject to  Government of  India clearance of foreign collaboration  arrangement and release of necessary foreign exchange.   While arriving at this finding the Division Bench quoted an  extract from one of the letter of the contractor dated  22.1.1970 Exh.D-557  to the following effect : "We understand that the Government should  give us all assistance in the procurement of  foreign exchange and necessary Central  Government clearance".

The Division Bench further observed that the Umpire was  right in coming to a conclusion that Government of  Tamilnadu had rendered all possible assistance to the  contractor for getting the foreign exchange clearance as the  Government of Tamilnadu had approached the I.C.I.C.I. for  that purpose, whom the contractor had approached on the  advise of Government of India. Thus the state shall not be  responsible for the delay in getting the foreign exchange.   On the other two points the Division Bench held that time  cannot be said to be the essence of the contract since the  agreement contained a clause for extension of time for  justifiable reasons.  It has also been found that the contractor

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could not carry on the work in accordance with its  commitment of manufacturing 28 prestressed concrete pipes  per day and laying of 72 pipes per day.  Whereas according  to the contractor the target could not be achieved due to  frequent failures of electricity and dropping of voltage.  The  Division Bench ultimately came to the conclusion that the  contractor alone had committed the breach of contract in  executing the work of Veeranam project.  In so far it related  to non-production of the file containing inter-departmental  correspondence including the handing over note by former  Chief Engineer, Veeranam project Exh.D-660, it was  observed by the learned single Judge that it was a secret  document which was not available on the record of the  Board. The case of the Board was that the note of the former  Chief Engineer while handing over the charge to his  successor would not bind the Board in any respect and other  inter-departmental correspondence may not be admissible in  evidence and it would also not advance the case of the  contractor.  The Division Bench seems to have agreed with  the submissions made on behalf of the Board.  The Division  Bench, after discussing the case law, came to the conclusion  that the Award given by the Umpire cannot be set aside  except on the ground that the arbitrator or the umpire had  mis-conducted himself or the arbitration proceedings having  become invalid or the Award was procured improperly.    The Court would not re-appraise the evidence.  The Award  of the Umpire awarding only a sum of Rs.2,67,41,079  has  been upheld by the Division Bench.  Thus it set aside the  order passed by the learned single Judge.         Shri Deepankar Gupta, learned senior counsel  appearing for the appellant has first tried to submit that the  Arbitration Tribunal has not been constituted in accordance  with the arbitration clause.  In that connection he has drawn  our attention  to Clause 70 of the agreement which provides  that the dispute shall be referred to the arbitration of three  persons, one of whom shall be  nominated by the contractor,  the second by the Governor and the third shall be an  independent person selected by other two persons so  nominated and this provision shall be deemed to be a  submission to the arbitration within the meaning of Indian  Arbitration Act 1940.  It is therefore submitted  that there  should have been three arbitrators instead of two arbitrators   and an umpire chosen by the arbitrators,  in the present case.   It appears that this point was never raised  by the appellant  before any forum earlier as pointed out by Shri Nageshwar  Rao, learned senior counsel appearing for the respondent.  It  is submitted that such a question cannot be allowed to be  raised in this Court for the first time after the appellant had    himself submitted to the jurisdiction of the arbitrators and  the umpire.  There is no dispute about the appointment of  two arbitrators and the umpire having been appointed by the  arbitrators.  The arbitration proceedings concluded before  the two arbitrators in which both parties participated without  any objection.  Thereafter all matters having been referred to  the umpire, there too parties submitted to the proceedings  before the umpire.  No such objection was raised in the  objections filed against the award nor before the High Court.   That being the position, it is submitted that it is too late in  the day to say that the dispute should have been decided by  three arbitrators  and not by two and then by umpire in the  event of difference between the two arbitrators.  No good  reason could be indicated  on behalf of the appellant for  having kept silent on this point  all throughout the  proceedings.  They still rely upon the award given by the  arbitrator Shri Subramaniam in their favour.  It is still their

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stand that the order passed by the learned Single Judge of  the High Court records the correct finding.  We find that the  stage to have raised such an objection as to whether the  dispute was liable to be decided by two arbitrators or a  Board of three arbitrators had passed long before.  The two  arbitrators were appointed in accordance with the provisions  of arbitration clause as well as the third arbitrator called  umpire.  The mode of hearing was adopted in the manner  that the dispute was heard by two arbitrators appointed by  the respective parties.  The matter was referred to  umpire  since there was no agreement between the two arbitrators.   There is no justification  now at this stage to raise such an  objection that Board of three arbitrators should have decided  the matter.  Such a plea contradicts their own action, and it  seems to be taken now to wriggle out of  the award  ultimately given by the umpire, but it would not be  permissible at this stage. Shri Nageshwar Rao, learned  senior counsel,  has placed reliance upon  Russel on  Arbitration "Loss of right to object".  It states as under: "A party who objects to the award on the  ground that the tribunal lacks substantive  jurisdiction, should not only act promptly,  but should also take care not to lose his right  to object.  A party who takes part or  continues to take part in the proceedings is  in a different position from someone who  takes no part in the proceedings.  The latter  cannot lose his right to object as long as he  acts promptly to challenge the award once it  is published.  The former must, however,  state his objection  to the tribunal’s  jurisdiction "either forthwith or within such  time as is allowed by the arbitration  agreement or the tribunal".  That statement,  which should be recorded in writing and sent  to the tribunal  and the other parties, should  not only mention the jurisdiction objection  but  also make  clear that any further  participation in the arbitration will be  without prejudice to the objection.  If that is  not done, the party concerned  may not be  able to raise that objection before the court  "unless he shows that, at the time he took  part or continued to take part in the  proceedings, he did not know or could not  with reasonable diligence have discovered  the grounds for the objection".  A person  alleged to be a party to arbitral proceedings  but who takes no part in those proceedings  may at any time apply to the court for a  declaration, an injunction or other relief  concerning the validity   of the arbitration  agreement, the proper constitution of the  arbitral tribunal and any matter submitted to  arbitration in accordance with the arbitration  agreement."    

       In view of the above position, we repel the  contention raised on behalf of the appellant pertaining to the  jurisdiction of the arbitrators and the umpire to decide the  matter.         It is next submitted on behalf of the appellant  that it is no doubt  that period of contract was specified to be  36 months in the agreement itself but it has been rightly held

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by the learned Single Judge that time was not essence  of the  contract for the reason that as per the terms of the contract  time could be extended for justifiable reasons and it is for  this reason that the time was extended by the respondent but  they initially extended the time in an unreasonable manner.   It is submitted that despite the best efforts made, the  equipment could not be imported prior to February 1972 at  the first instance.  The result was that there was a delay of  one year and 4 months as found by the courts also, in  starting the work itself.  It is submitted that there was clear  understanding  that the State Government would get the  clearance from the Central Government for foreign  exchange necessary for import of the equipment.  The State  Government did not provide proper assistance in the matter  and the appellant was referred to ICICI by the Central  Government for foreign exchange.  As per conditions of  ICICI, the appellant had to change its constitution  converting into a company  as desired. After the clearance of  the foreign exchange, due to other intervening factors of Pak  war etc., the import could not be possible.  Therefore, the  appellant was not responsible for the delay caused.  It is then  further submitted that after the factories were installed on  receipt of  foreign exchange, equipment were installed  promptly.  There have been problems of  availability of  electrical energy and low voltage which was so necessary  for carrying on the work in the factory.  For such difficulties  the appellant could not be held responsible.  It is also  submitted that according to the agreement, trenches etc.   were also to be dug out by the Board.  It is submitted that  the finding as recorded by the umpire and the Division  Bench that the Board was not responsible for the delay, it  will not necessarily lead to the inference that the appellant  was responsible for it.  For good reasons time was liable to  be extended reasonably.  It could not be cut short  unreasonably. It is further submitted that the Board itself  later on extended the time beyond 31.3.1975 but initially it  was refused. It indicates that partial extension given by the  Board was insufficient and not justified.  Time was even  thereafter extended but by that time the appellant was  compelled to stop the work.  The effort therefore which has  been made before us by the appellant is that  it was not a  case of abandonment of contract on the part of the appellant  rather the delay occurred for justifiable reasons on account  whereof extension of reasonable time as prayed for by the  contractor was not allowed by the respondent.          Shri Nageshwar Rao, learned counsel for the  respondent submits that the Board had extended all possible  assistance which was needed for the foreign exchange to  import the machinery by the appellant but so far electricity  is concerned it was to be arranged by the contractor himself.   In this connection learned counsel for the appellant has  drawn our attention to the observations made by the umpire  in his award where it has been observed that no doubt failure  of electricity or low voltage would have caused some  dislocation   but  that  cannot  absolve  the   contractors   from   their  contractual  liability  and  certainly     the   failure of electricity cannot be the sole reason for the  dismally poor performance of the contractors.  It is  submitted that the case of the appellant is not that the Board  failed  to arrange for the electricity but there is no denial  of  the fact that due to interrupted electric supply and low  voltage the progress of the work got slowed down, may be  Board is not responsible for it but it also cannot be said to be  the responsibility of the contractor.  Such a reason would be  a justifiable reason to be considered for appropriate

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extension of time to complete the job.           Learned counsel for the appellant then submitted  that the arbitrator failed to summon the document, namely  the inter-departmental correspondence of the Board and the  "handing over note" of the Chief Engineer of the Project to  his successor.  It is submitted that these documents  contained relevant and authentic material and facts and  provide proper background to correctly appreciate the points  regarding obligation of the State Government to get the  foreign exchange, late arrival of equipments imported, the  interrupted electric supply , digging of trenches etc. by  looking into which alone the question could properly be  decided as to whether the appellant had abandoned the work  or how far the appellant was responsible for the delay and  stoppage of the  work.  It is submitted that there could not be  any confidentiality about such documents which related to  the work of the project.  So far the "handing over note" is  concerned, it is a document written by none else but the  Chief Engineer  of the Project who had first hand knowledge  of all that was going on pertaining to the work and he was  competent to prepare a record of the same in official  discharge of his duties.  It is submitted that the arbitrator  erred in not allowing the application moved before him for  summoning of the "handing over note" and the learned  Single Judge, it is submitted, rightly held that it vitiated the  award of the arbitrator.  It may be mentioned here that the  Umpire also refused to get the "handing over note" and  place it on record and peruse the same so as to realize the  relevance of the note for the purposes of arriving at a just  and correct finding on the questions involved.  It was  necessary to have the proper background as contained in the  note prepared by the Chief Engineer of the Project.   The learned counsel for the appellant has taken  us through some of the parts of the "handover note" just  with a view to emphasize the relevance and importance of  the said note which is document D-660.  A copy of the same  has been filed in this Court.  In Paragraph 6.1.7 and 6.1.7.1.  it is indicated  that Department had to carry out the work of  trench excavation, the service roads, river, rail and road  crossings besides many other things enumerated therein.   Para 6.1.10 deals with requirement of foreign exchange and  the details thereof.  In Paragraph 6.1.10.3 the delay in arrival   of the machinery imported due to Indo-Pakistan war is also  indicated.  Paragraph 6.11 deals  with the factors that  contributed to delay in execution of the project.  Thereunder   it is  mentioned about the availability of power.  Some  problem relating to trench excavation by the Board  also  finds mention in Para 7 onwards.  A bare look of some of  the parts  of the note indicates that it may have some  material bearing on the merits relating to the question of  delay in execution of the project, and throwing some light  on the share of responsibility of the parties to the contract  and extent of their responsibility as well.          Learned counsel for the appellant has placed  reliance upon a decision reported in (1975)  2 S.C.C. 236 \026  K.P. Poulose Vs. State of Kerala and Another to indicate  that where it is a speaking award and the arbitrator fails to  take note of the relevant documents or ignores the same, it  vitiates the award.  It was observed such documents which  were ignored were material documents to arrive at a just and  fair decision to resolve the  controversy between the parties.   Our attention has particularly been drawn to the  observations made in Paragraph 4 which reads as under: "We have been taken through  all the  relevant documents by the learned counsel

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for both sides and we are satisfied that Ex.P- 11 and Ex.P-16 are material documents to  arrive at a just and fair decision to resolve  the controversy between the Department and  the contractor.  In the background of the  controversy  in this case even if the  Department did not produce these  documents before the Arbitrator it was  incumbent upon him to get hold of all the  relevant documents including Ex.P-11 and  P-16 for the purpose of a just decision.   Ex.P-11 dated September 8, 1966, is a  communication from the Superintending  Engineer  to the Chief Engineer with regard  to the objections raised by audit in  connection with the construction of the  reservoirs\005\005." (emphasis supplied by us)     Reliance has also been placed upon a decision reported in  (2001) 5 S.C.C. 629 \026 Sikkim Subba Associates Vs. State  of Sikkim, particularly to the observations made in  Paragraph 12  of the decision that an award, ignoring very  material and relevant documents throwing light on the  controversy to have a just and fair decision would vitiate the  award as it amounts to misconduct on the part of the  arbitrator.  The case of K.P. Poulose (supra) has also been  referred to. Yet another decision on the point referred to is  reported in 2003 (7) Scale Page 20 \026 Bharat Cocking Coal  Ltd. Vs. M/s. Annapurna Construction where also it has  been held  that passing award ignoring the material  document would amount to mis-conduct in law,  In such  circumstances the matter was remitted to a retired Judge of  the Jharkhand High Court instead of to the named arbitrator  since only  the question of law was involved and the parties  had also agreed for the same.         In so far the case in hand is concerned, learned  counsel appearing for the respondent first made a  submission that no application was moved by the appellant  before the arbitrator for summoning the document, namely,  the "handing over" note prepared by the Chief Engineer  while handing over the charge as Project in-charge to his  successor but after verification he conceded that such an  application was moved before the Arbitrator but no orders  had been passed on it.  The learned Single Judge has given it  as one of the reasons to hold that it vitiated the award.  We  again find that before the umpire also effort was made to get  the document on record for perusal of the same but the  request was not accepted.  We find that there is no question  of secrecy or confidentiality so far the "handing over note"  of the Chief Engineer is concerned.  It is a note prepared by  the Chief Engineer of the project in official discharge of his  duties.  It contains relevant facts and information regarding  questions involved in the case.  The appreciation of the  contents of the ’note’ and its effect would of course be a  matter to be decided by the appropriate  authority/arbitrator/umpire but its perusal or consideration  could not be shut out on the meek ground that the  department was not bound by it or on the ground of  confidentiality in the times when more stress is rather on  transparency. In our view, the learned Single Judge was  right in inferring that such an infirmity would vitiate the  award.   That being the position, in our view the order of the  Division Bench, reversing the decision of the Single Judge  is not sustainable and the matter may be required to be

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remitted to be considered in the light of the "handing over  note" of the Chief Engineer in respect whereof  an  application was moved by the appellant before the arbitrator  as well as before the Umpire which remained unattended to  by the forum and later did not accede to the request.         Considering the fact that it is an old matter and  it being a speaking award the matter having also been  considered by the learned single Judge,  it would better  serve ends of justice to ensure expeditious disposal of the  matter, therefore, the Division Bench of the High Court may  consider the matter afresh, taking into account the "handing  over note" of the Chief Engineer of the Project and other  relevant documents in respect of which request may have  been made but refused.         In the result, these appeals are allowed.  The  order of the Division Bench of the High Court is set aside  and the matter is remitted to the High Court for being  decided afresh by the Division Bench in the light of the  observations made above.  Costs easy.