1999 Supreme(SC) 145

1999(1) Supreme 344
Supreme Court of India
(From Madhya Pradesh High Court)
Mrs. Sujata V. Manohar & R.C. Lahoti, JJ.
M/s. M.K. Shah Engineers & Contractors etc. -Appellants
versus
State of Madhya Pradesh -Respondent
Civil Appeal No. 5961 of 1983
with
Civil Appeal No. 5962 of 1983
Decided on 5-2-1999
Counsel for the Parties :
For the Party-in-person : M.K. Shah, Advocate.
For the Respondents in C.A. No. 5961-62/83 : A.K. Chitale, Sr. Advo­cate, (Sakesh Kumar) Advocate for S.K. Agno­hotri, Advocate.
For the Appellant in C.A. No. 5962/83 : G.L. Sanghi, Sr. Advocate (Aseem Meh­rotra) Advocate for S.K. Gambhir, Advocate.

Important Point
Where agreement provides for taking certain steps preceding the coming into force of the arbitration clause, though such steps are essential if one party has by its own conduct or the conduct of its officials disabled such preceding steps being taken, it will be deemed that the procedural pre-requisites were waived. The party at fault cannot be permitted to set up the bar of non-performance of pre-requisite obligation so as to exclude the applica­bility and operation of the arbitration clause.

Headnote:Arbitration Act, 1940-Sections 16 and 30-Arbitration proceedings-Validity of-Agreement providing for reference of dispute to Superintending Engineer first-Aggrieved party could seek arbitra­tion thereafter within time stipulated in contract-Appellant’s dis­pute not decided by Superintending Engineer-At request of appellant Government appointing sole arbitrator - Subsequent objection before arbitrator by Government that disputes not arbitrable as they were not processed by Superintending Engineer-Proceed­ing u/s 33 initiated but got dismissed as infructuous on death of arbitrator - Subsequent appointment of arbitrator by Court u/s 8(2) -Government submitting to arbitration - Award challenged on ground condition precedent to arbitration of disputes i.e. processing of dispute first by Superintending Engineer not complied with and there­fore award not sustainable-Lower Court and High Court upholding plea-Whether correct?-No-Steps preceding operation of arbitration clause essential are capable of being waived-Conduct of Government amounts to waiver-Having acquiesced Govt. cannot turn around and plead invalidity of arbitration proceedings.

       Held : The Superintending Engineer unreasonably delayed the decision and in spite of persuasion and protests by the contractor, did not promptly take and communicate his decision on the disputes. The State Govern­ment ultimately yielded to the demand of the contractor by appointing an arbitrator. Once the arbitrator commenced the arbitration proceed­ings, the State of M.P. gave a second thought and receded its steps by choosing to raise an objection to the maintainability of the arbitration. The arbitrator allowed time to the Government of Madhya Pradesh for securing a judicial pronouncement on its objection under Section 33 of the Act. The State of M.P. initiated proceedings under Section 33 of the Act, but did not pursue the same. Rather it agreed to the appointment of a new arbitrator in place of the previous one. (Para 15)

       No one can be permitted to take advantage of one’s own wrong. The respondent-State of M.P. cannot and could not have been heard to plead denial of the two appellants’ right to seek reference to arbitration for non-compliance with the earlier part of clause 3.3.29. In this case of M/s. Chabaldas & Sons, the clause was complied with. Alterna­tively, even if it was not complied with in the case of M/s. Chabaldas & Sons but certainly in the case of M/s. M.K. Shaw, the fault for non-compliance lies with the respondent-State of M.P. through its offi­cials. The plea of bar, if any, created by the earlier part of Clause 3.3.29 cannot be permitted to be set up by a party which itself has been responsible for frustrating the operation thereof. It will be travesty of justice if the appellants for the fault of the respondents are denied right to have recourse to the remedy of arbitration. A closer scrutiny of Clause 3.3.29 clearly suggests that the parties intended to enter into an arbitration agreement for deciding all questions and disputes arising between them through arbitration and thereby excluding the jurisdiction of ordinary civil courts. Such reference to arbitration is required to be preceded by a decision of the Superintending Engineer and a challenge to such decision within 28 days by the party feeling aggrieved therewith. The steps preceding the coming into operation of the arbitration clause though essential are capable of being waived and if one party has by its own conduct or the conduct of its officials disabled such preceding steps being taken, it will be deemed that the procedural pre-requisites were waived. The party at fault cannot be permitted to set up the bar of non-performance of pre-requisite obligation so as to exclude the applica­bility and operation of the arbitration clause. (Para 17)

       The subsequent conduct of the respondents in voluntarily agreeing to the appointment of the arbitrators in both the cases and not pursuing their objections under Section 33 of the Arbitration Act amounts to waiver on their part of the plea of non-compliance with the earlier part of clause 3.3.29, if only there was such non-compliance. The respondent-State of M.P. has acquiesced in the appointment of arbitrators and the proceedings for settlement of disputes by arbitration. The respondent cannot be permitted to turn around and plead invalidity or non-maintainability of arbitration proceedings by reference to clause 3.3.29. (Para 18)

       For the foregoing reasons, we are of the opinion that the trial Court and the High Court were not justified in setting aside the awards and remitting them back for decision afresh by the arbitrator on the ground of non-compliance with the earlier part of clause 3.3.29. The award except to the extent to which it allows interest, was not liable to be interfered with by the Court. (Para 19)

       Held, consequently both the appeals are allowed. The impugned judgments of the High Court and the trial Court-both are set aside in both the appeals. Instead it is directed that both the awards dated 26.9.1978 shall be made rule of the court subject to the modification that the contrac­tor-claimants shall not be entitled to interest up to the date of the reference. (Para 22)

       (ii) Arbitration Act, 1940-Time limit to invoke arbitration clause-When get relaxed.

       Held : The arbitration agreements may contain a clause which requires a certain act to be completed within a specified period and which provides that if that act is not done either the claim or the ability to commence an arbi­tration will be barred. Such clauses are sometimes known as ‘Atlantic Shipping’ clauses. The consequences of the expiry of a contractual limitation period before the completion of the specific act may howev­er be avoided in three circumstances : (i) if the Court exercises its discretion statutorily conferred on it, to extend the period to avoid undue hardship; (ii) if the arbitration clause confers a discretion on the arbitrator to extend the period and he exercises it; (iii) if the conduct of the either party precludes his relying on the time bar against the claimant. (Para 14)

       (iii) Arbitration Act, 1940-Arbitrator-Scope of power-Power to award pendente lite interest. (Paras 21 & 21.1)