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HIGH COURT OF CALCUTTA
P. C. Mallick
ARBN. SETH KERORIMAL ADWANI - Appellant
Versus
UNION OF INDIA - Respondent
Award Case 384 Of 1954
Decided On : AUGUST 28, 1957
ARBITRATION - Validity of Arbitration Agreement - Uncertainty - Appointment of Arbitrator - Existence of Dispute - Scope of Arbitration Clause - Penalty - Determination by Superintending Engineer - Question of Law.
Fact of the Case:
The petitioner, a contractor, entered into a contract with the Government for the construction of a runway at Gauhati Airfield. The contract contained an arbitration clause providing for the reference of disputes to the sole arbitration of the Chief Engineer/Additional Chief Engineer, Central Public Works Department. The petitioner completed the work after the stipulated time and claimed a refund of the security deposit, including the earnest money. The Government deducted 3% of the cost of the work as penalty for the delay, which the petitioner disputed. The petitioner requested the Government to refer the dispute to arbitration, which was done. The arbitrator, appointed by the Additional Chief Engineer, passed an award against the petitioner. The petitioner challenged the validity of the arbitration agreement and the award.
Finding of the Court:
The Court held that the arbitration agreement was void for uncertainty as it was not clear who was to act as arbitrator, the Chief Engineer or the Additional Chief Engineer. The Court also held that the appointment of the arbitrator by the Additional Chief Engineer was invalid as there was no evidence that the Chief Engineer or the Additional Chief Engineer was unable or unwilling to act as arbitrator. The Court further held that there was a dispute between the parties prior to the reference to arbitration as the petitioner had disputed the deduction of 3% of the cost as penalty. The Court also held that the question of penalty was covered by the arbitration clause and that the arbitrator was competent to entertain the dispute, even though it involved the determination of a question of law.
Issues: 1. Whether the arbitration agreement was void for uncertainty. 2. Whether the appointment of the arbitrator was valid. 3. Whether there was a dispute between the parties prior to the reference to arbitration. 4. Whether the question of penalty was covered by the arbitration clause. 5. Whether the arbitrator was competent to entertain the dispute, even though it involved the determination of a question of law.
Ratio Decidendi: 1. An arbitration agreement is void for uncertainty if it is not clear who is to act as arbitrator. 2. The appointment of an arbitrator is invalid if there is no evidence that the person who appointed the arbitrator was unable or unwilling to act as arbitrator. 3. A dispute exists between the parties if one party disputes the claim of the other party. 4. A question of penalty is covered by an arbitration clause if the contract provides for the determination of such disputes by arbitration. 5. An arbitrator is competent to entertain a dispute, even though it involves the determination of a question of law, unless the question of law is so difficult that a lay arbitrator is not competent to decide the question.
Final Decision: The Court declared the arbitration agreement and the award passed thereunder to be void.
( 1 ) THIS is an application under Section 33 of the Indian Arbitration Act challenging the validity of an arbitration agreement and an award passed thereunder. The petitioner undertook the construction of a runway at Gauhati Airfield under a contract with the Government evidenced by a tender submitted by him and accepted on behalf of the President, Indian Union by the Chief Engineer, C. P. W. D. , Aviation Wing, on or about October 28, 1950. Time allowed for completion of the work was six months from the date of the written order: to commence the work, which, in the instant case, is November 15, 1950. Work of construction was not completed within time and it is alleged in the petition that not only the petitioner cannot be held responsible for this delay but that it has been recognised in writing by the senior Government officials-that this delay is not attributable to any fault OF laches on the part of the contractor. The construction work was actually completed on October 29, 1951. On April 25, 1952, the contractor by his letter to the Executive Engineer claimed refund of the security deposit including the earnest money deposited by the contractor. It is alleged by the Government that by an order dated August 30, 1952, the Chief Engineer directed that the security deposit may he refunded after deducting 3 per cent of the cost of the work as penalty. On October 9, 1952, the security deposit was actually refunded to the petitioner after deducting Rs. 16,512/- and the amount was received by the petitioner under protest. The said sum of Rs. 16,512/- represents 3 per cent of the total cost. The petitioner's case is that he was never told that the deduction had been made as and by way of penalty. In fact the petitioner does not admit the imposition of the penalty at all. The petitioner repeatedly demanded the refund, of the amount and also wanted to know on what account the said sum had been deducted but to no effect, according to this petitioner. By a letter dated May 5, 1954 addressed by the petitioner's Advocate, the Government was requested to refer the dispute to arbitration in terms of the arbitration clause in the contract. By a letter dated July 23, 1954, the Additional Chief Engineer referred the dispute to arbitration. The petitioner did not attend the arbitration proceedings. In due course, an award was published by the Superintending Engineer who was appointed arbitrator. Thereupon the present proceedings have been started by the petitioner.
( 2 ) IT is convenient at this stage to state the two clauses in the agreement which are relevant for the purpose of this application. Clause 25 of the agreement is the arbitration; Clause 2 is the penalty clause which read as follows:--Clause 25: "except where otherwise provided-in the contract all questions and disputes * * * in any way arising out of or relating to the contract * * * shall be referred to the sole arbitration of the Chief Engineer/additional Chief Engineer, Central Public Works Department and if the Chief Engineer/additional Chief Engineer is unable or unwilling to act to the sole arbitration of some other person appointed by the Chief Engineer/ Additional Chief Engineer willing to act as arbitrator * * * Clause 2 : The time allowed for carrying- out the-work as entered in the tender shall be strictly observed by the contractor * * * * and the-contractor shall pay as compensation an amount equal to 1 per cent or such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide, on the amount of estimated cost of the whole work as shown by the tender for every day that the work remains uncommenced or unfinished after the proper dates. * * * Provided always that the entire amount of compensation to be paid under the provisions of this clause shall not exceed 10 per cent on the estimated cost of the work as shown in the tender. "
( 3 ) MR. U. C. Law, the learned Counsel for the petitioner urged the followin
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