2005 Supreme(Kar) 61

Karnataka High Court
KRISHNA BHAGYA JALA NIGAM LIMITED, BANGALORE - Appellant
Versus
G.HARISCHANDRA REDDY - Respondent
Decided On : 01-28-05
M.F.A. : 1785 of 2002

Headnote:Coercion

       INDIAN CONTRACT ACT, 1872

       Section 15 - Coercion - Payment of revised workable rates for works done beyond contract period - Payments sanctioned below what was recommended - supplementary agreement made under protest - Arbitrator recorded a finding that, the agreement is vitiated on amount of coercion - Held, findings of arbitrator proper.

       [S. R. Nayak and Ram Mohan Reddy, JJ]: The Arbitrator while placing reliance on the letter, Ex. R. 13 of the Chief Engineer of KBJNL, accepting the reasons for the delay, answered point 1 in the affirmative. While recording the findings on point 2, the Arbitrator, in great elaboration, has discussed the material on record. The claimant laid stress on the letter Exhibit R. 13 of the Chief Engineer recommending payment of rates based on KBJNL SR (Dam and Allied Works), while the Finance Director accorded sanction for a rate for below what was recommended and payment made after insisting and securing an undertaking, though under protest, from the claimant in terms of the Supplemental Agreement. The Arbitrator recorded a finding that the Supplementary Agreement was vitiated on account of coercion, falling under Section 15 of the Contract Act, following the observations of his Lordship P. Venkatarama Reddi, J., as he then was, speaking to a Division Bench of the High Court of Andhra Pradesh in the case of Superintending Engineer, Irrigation Department, Nizamabad and Another v Progressive Engineering Company, Hyderabad and Others (1997)2 ALT 701 (DB) : 1997(4) ALD 489 (DB). The findings of the Arbitrator on point 3 is based on consideration of the relevant materials on record, the nature of work entrusted to the claimant under the contract, the fact that the SR of 1996-97 was not revised, coupled with the Technical Advisor Committee s (Irrigation Projects) proceedings, Exhibit C. 86, approving escalation at the rate of 10% for every year.

       Cases Referred: C.M.P. No. 26 of 1999 DD: 10-9-1999; (1994)6 SCC 485: 1994 AIR SCW 5061; AIR 2001 SC 1171: (2001)3 SCC 397; (1989)9 SCC 410: (1998)3 Raj 378(1) (SC); AIR 2002 SC 258: (2002)1 SCC 659: 2001(8) Sup 481; AIR 2003 SC 3688: (2003)7 SCC 418; AIR 1962 SC 1810; AIR 1963 SC 1685; AIR 1963 SC 90: (1963)3 SCR 209; (1997)2 ALT 701 (DB): 1997(4) ALD 489 (DB).

       Followed: 2001(2) Kar. L.J 411L ILR 2000 Kar 4953 ; ILR 2004 Kar 1817 (DB); M.F.A No. 3683 of 2000 DD: 27-8-2003 (DB) ; AIR 1990 Cal 75 ; AIR 2002 Cal. 65; (1998) 9 SCC 407; AIR 2001 SC 846: (2001)2 SCC 680; (1994)4 SCC 214: 1999(4) Sup 161; AIR 1989 SC 890: (1989)2 SCC 38; AIR 1984 SC 1072; CMP No. 31 of 2000 DD: 14-7-2000; (1992)2 Arb L.R 405 (Bom); (2002)1 Arb L.R 493(SC): AIR 2002 SC 1139: (2002)3 SCC 572: 2002(2) Sup 69.

       Additional claims

       ARBITRATION AND CONCILIATION ACT, 1996 - Section 34 -Additional claims - Plea that, additional claims are beyond terms of agreement - Not raised under Section 16 - Hence, the party has waived the right - Cannot be raised under the section. [S. R. Nayak And Ram Mohan Reddy, JJ]: Applying the well-established principles enunciated by the Supreme Court and the words of Benjamin N. Cardozo that and Arbitrator has to exercise a discretion, informed by tradition, methodised by analogy, disciplined by system and subordinated to "the primordial necessity of order in social life", we are of the considered view that the appellant having not raised the plea under Section 16 was deemed to have waived its right to object and therefore cannot be permitted to raise the plea that the additional claims were beyond the terms of the agreement.

       Appeal - New plea - A plea not taken at the earliest - Cannot be raised in appeal.

       Object of the Act

       ARBITRATION AND CONCILIATION ACT, 1996 - Preamble - Object of the Act - Stated.

       [S. R. Nayak And Ram Mohan Reddy, JJ]: It is a settled position of law, that one of the objects of the Act is to minimize the role of Courts in Arbitral proceedings. The award can be set aside by the Courts only on the grounds envisaged in Section 34 of the Act the grounds of challenge under the Act being very limited, the award can be set aside only on the ground set out under Sections 12, 13 and 16 provided such a challenge is first raised before the Arbitral Tribunal and rejected by the Tribunal. If no such objection is raised, the party should be deemed to have waived its right to object.

       Cases Referred: C.M.P. No. 26 of 1999 DD: 10-9-1999; 2001(2) Kar. L.J 4; (1994)6 SCC 485: 1994 AIR SCW 5061; AIR 2001 SC 1171: (2001)3 SCC 397; (1989)9 SCC 410: (1998)3 Raj 378(1) (SC); AIR 2002 SC 258: (2002)1 SCC 659: 2001(8) Sup 481; AIR 2003 SC 3688: (2003)7 SCC 418; AIR 1962 SC 1810; AIR 1963 SC 1685; AIR 1963 SC 90: (1963)3 SCR 209; (1997)2 ALT 701 (DB): 1997(4) ALD 489 (DB).

       Followed: ILR 2000 Kar 4953; ILR 2004 Kar 1817 (DB); M.F.A No. 3683 of 2000 DD: 27-8-2003 (DB); AIR 1990 Cal 75; AIR 2002 Cal. 65; (1998) 9 SCC 407; AIR 2001 SC 846: (2001)2 SCC 680; (1994)4 SCC 214: 1999(4) Sup 161; AIR 1989 SC 890: (1989)2 SCC 38; AIR 1984 SC 1072; CMP No. 31 of 2000 DD: 14-7-2000; (1992)2 Arb L.R 405 (Bom); (2002)1 Arb L.R 493(SC): AIR 2002 SC 1139: (2002)3 SCC 572: 2002(2) Sup 69.

       Arbitration agreement

       ARBITRATION AND CONCILIATION ACT, 1996 - Section 7(4)(C) - Arbitration agreement - Party consented to appointment of arbitrator - This fact itself is a casualty to the plea that, a particular clause in the contract is not an arbitration agreement.

       [S. R. Nayak And Ram Mohan Reddy, JJ]: The appellant by letter denied the existence of an arbitration agreement. But, in CMP the appellant agreed to appoint the Chief Engineer as the Arbitrator to arbitrate on the disputes. Nothing prevented the appellant from contesting the said claim in the CMF proceedings, on the ground that Clause 29 was not an arbitration agreement and that the claimant s remedy was to approach the Civil Court. In this view of the matter, the statement made by the appellant by which the Chief Engineer was appointed as an Arbitrator can be said to be one made under clause (c) of sub-section (4) of Section 7 of the Act.

       Cases Referred: C.M.P. No. 26 of 1999 DD: 10-9-1999; (1994)6 SCC 485: 1994 AIR SCW 5061; (2001)3 SCC 397; (1989)9 SCC 410: (1998)3 Raj 378(1) (SC); AIR 2002 SC 258: (2002)1 SCC 659: 2001(8) Sup 481; AIR 2003 SC 3688: (2003)7 SCC 418; AIR 1962 SC 1810 ; AIR 1963 SC 1685; AIR 1963 SC 90: (1963)3 SCR 209; (1997)2 ALT 701 (DB): 1997(4) ALD 489 (DB).

       Followed: 2001(2) Kar. L.J 4; ILR 2000 Kar 4953 ; ILR 2004 Kar 1817 (DB); M.F.A No. 3683 of 2000 DD: 27-8-2003 (DB); AIR 1990 Cal 75; AIR 2002 Cal. 65; (1998) 9 SCC 407; AIR 2001 SC 846: (2001)2 SCC 680; (1994)4 SCC 214: 1999(4) Sup 161; AIR 1989 SC 890: (1989)2 SCC 38; AIR 1984 SC 1072; AIR 2001 SC 1171: CMP No. 31 of 2000 DD: 14-7-2000; (1992)2 Arb L.R 405 (Bom); (2002)1 Arb L.R 493(SC): AIR 2002 SC 1139: (2002)3 SCC 572: 2002(2) Sup 69.

       Payment of revised workable rates for works done beyond contract period

       ARBITRATION AND CONCILIATION ACT, 1996 - Section 11 - Payment of revised workable rates for works done beyond contract period - Payments sanctioned below what was recommended - supplementary agreement made under protest - Arbitrator recorded a finding that, the agreement is vitiated on amount of coercion - Held, findings of arbitrator proper.

       [S. R. Nayak And Ram Mohan Reddy, JJ]: The Arbitrator while placing reliance on the letter, Ex. R. 13 of the Chief Engineer of KBJNL, accepting the reasons for the delay, answered point 1 in the affirmative. While recording the findings on point 2, the Arbitrator, in great elaboration, has discussed the material on record. The claimant laid stress on the letter Exhibit R. 13 of the Chief Engineer recommending payment of rates based on KBJNL SR (Dam and Allied Works), while the Finance Director accorded sanction for a rate for below what was recommended and payment made after insisting and securing an undertaking, though under protest, from the claimant in terms of the Supplemental Agreement. The Arbitrator recorded a finding that the Supplementary Agreement was vitiated on account of coercion, falling under Section 15 of the Contract Act, following the observations of his Lordship P. Venkatarama Reddi, J., as he then was, speaking to a Division Bench of the High Court of Andhra Pradesh in the case of Superintending Engineer, Irrigation Department, Nizamabad and Another v Progressive Engineering Company, Hyderabad and Others (1997)2 ALT 701 (DB) : 1997(4) ALD 489 (DB). The findings of the Arbitrator on point 3 is based on consideration of the relevant materials on record, the nature of work entrusted to the claimant under the contract, the fact that the SR of 1996-97 was not revised, coupled with the Technical Advisor Committee s (Irrigation Projects) proceedings, Exhibit C. 86, approving escalation at the rate of 10% for every year.

       Plea of bias

       ARBITRATION AND CONCILIATION ACT, 1996 - Section 12 - Plea of bias -Doubts as to independence or impartiality of arbitrator -Plea not raised before the arbitrator or in earlier proceedings -Party without demeure acquiesced in appointment of arbitrator - Cannot be allowed to raise the plea in appeal.

       [S. R. Nayak And Ram Mohan Reddy, JJ]: The challenge, on the ground of justifiable doubts as to the Arbitrator s dependence or impartiality is to be made before the Arbitrator, is a derivative of a conjoint reading of Sections 12 and 13 of the Act. If the plea is rejected, the only remedy available to the aggrieved party is to make an application to set aside the award under Section 34 of the Act. The plea that the Arbitrator was biased was actually taken by the claimant in CMP No. 26 of 1999 and this Court negatived the same in its Order dated 10-9-1999 while directing the Chief Engineer to "act as a sole Arbitrator fairly and reasonably". The plea of the appellant that the Arbitrator was biased was not taken either before this Court in CMP No. 26 of 1999 or the Arbitral Tribunal nor before the Civil Court as required under Sections 12 and 13 of the Act. The appellant having; participated in the proceedings before the Arbitrator, admittedly without demeure acquiesced in the appointment of the Chief Engineer, the appellant cannot be permitted to raise the said plea in this appeal.

       Additional claims

       ARBITRATION AND CONCILIATION ACT, 1996 - Section 16 - Additional claims - Plea that, additional claims are beyond terms of agreement - Not raised under the section - Hence, the party has waived the right - Cannot be raised Under Section 34.

       [S. R. Nayak and Ram Mohan Reddy, JJ]: Applying the well-established principles enunciated by the Supreme Court and the words of Benjamin N. Cardozo that and Arbitrator has to exercise a discretion, informed by tradition, methodised by analogy, disciplined by system and subordinated to "the primordial necessity of order in social life", we are of the considered view that the appellant having not raised the plea under Section 16 was deemed to have waived its right to object and therefore cannot be permitted to raise the plea that the additional claims were beyond the terms of the agreement.

       Challenge to jurisdiction of Arbitral Tribunal

       ARBITRATION AND CONCILIATION ACT, 1996 - Section 16 - Challenge to jurisdiction of Arbitral Tribunal - Should be made in the statement of defence - The fact that, the party has agreed to appointment of arbitrator and participated in the proceedings does not preclude him from taking objection to the jurisdiction of the Tribunal - Rejection of plea - Remedy against - If not taken, cannot be permitted to raise the plea in appeal.

       [S. R. Nayak and Ram Mohan Reddy, JJ]: Provision clearly stipulates a challenge to the jurisdiction and the authority of the Arbitral Tribunal; sub-section (2) provides for raising a plea that the Arbitral Tribunal does not have jurisdiction, though the same is required to be done along with the statement of defence and a party shall not be precluded from raising such -a plea merely because he appointed an Arbitrator or participated in his appointment. Sub-section (3) provides that a plea that the Arbitral Tribunal is exceeding the scope of its authority should be raised as soon as the matter alleged to be beyond authority, is raised during the proceedings. Under sub-section (4) the Arbitral Tribunal is vested with the power to admit a later plea if it considers the delay justified. Under sub-section (5) it is imperative for the Arbitral Tribunal to decide a plea of lack of jurisdiction as a preliminary issue. It is for the Arbitral Tribunal alone which should decide the matter and continue with the proceedings. If it rejects the plea, and makes an award, the aggrieved party may make an application under Section 34 for setting aside the award. The important fact that needs to be noticed is that the appellant though alleged the award by filing an application under Section 34 of the Act conspicuously did not raise the plea that there was no arbitration clause, although such a ground was available to it and the challenge to the award was made well-within the period of limitation prescribed in Section 34 of the Act. Having not raised the plea that Clause 29 of the Contract is not an arbitration agreement, in the application under Section 34 of the Act, within the period of limitation, the appellant cannot be permitted to raise the plea at this distance of time without even setting out reasons justifying such omission both before the Arbitrator as well as the Court below.

       Existence arbitration clause

       ARBITRATION AND CONCILIATION ACT, 1996 - Section 16 - Existence of arbitration clause - Parties by their words and conduct consented to appointment of arbitrator - Hence, the appellant cannot turn round and say there is no arbitration agreement.

       [S. R. Nayak and Ram Mohan Reddy, JJ]: The appellant both by words and conduct having extended its consent to the appointment of the Arbitrator to decide the disputes, without offering any opposition, although such an appointment could not have been lawfully done without the appellants consent and having induced the Chief Engineer to do that which the Chief Engineer had no jurisdiction under the contract to decide the disputes, the appellant cannot question the legality of the act it had so sanctioned, to the prejudice of the claimant who had given faith to the said words and the fair inference drawn by the appellant s conduct.

       Challenge as to jurisdiction of Arbitral Tribunal

       ARBITRATION AND CONCILIATION ACT, 1996 - Section 34 - Challenge as to jurisdiction of Arbitral Tribunal - To be taken in the statement of defence - If rejected, the aggrieved party can make an application under the section.

       [S. R. Nayak and Ram Mohan Reddy, JJ]: Provision clearly stipulates a challenge to the jurisdiction and the authority of the Arbitral Tribunal; sub-section (2) provides for raising a plea that the Arbitral Tribunal does not have jurisdiction, though the same is required to be done along with the statement of defence and a party shall not be precluded from raising such -a plea merely because he appointed an Arbitrator or participated in his appointment. Sub-section (3) provides that a plea that the Arbitral Tribunal is exceeding the scope of its authority should be raised as soon as the matter alleged to be beyond authority, is raised during the proceedings. Under sub-section (4) the Arbitral Tribunal is vested with the power to admit a later plea if it considers the delay justified. Under sub-section (5) it is imperative for the Arbitral Tribunal to decide a plea of lack of jurisdiction as a preliminary issue. It is for the Arbitral Tribunal alone which should decide the matter and continue with the proceedings. If it rejects the plea, and makes an award, the aggrieved party may make an application under Section 34 for setting aside the award.