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2011 Supreme(Mad) 4277
High Court of Judicature at Madras
R. BANUMATHI & JUSTICE R. MALA
M/s. IVRCL Infrastructures & Projects Limited, rep.by Head Chennai Region
Versus
M/s. Alandur Municipal Corporation Alandur, rep.by Municipal Commissioner & Others
O.S.A.NO.61 of 2011
Decided on : 20-10-2011
For the Appellants:R. Murari, Advocate.
For the Respondents:R1 - K. Ramasamy, Sr. Counsel for M.P. Srinivas, Advocate.
The main legal point established is the significance of procedural compliance with the construction contract, particularly in obtaining a decision from the Engineer before referring disputes to the Adjudicator, and the necessity of oral hearings and adherence to the provisions of the Arbitration and Conciliation Act, 1996.
Headnote:
Arbitration - Construction Contract - Arbitration and Conciliation Act, 1996, Section 34 - 8.1, 8.2, 8.5, 8.6 - The judgment discusses the interpretation and application of clauses 8.1, 8.2, 8.5, and 8.6 of the Construction Contract in the context of disputes between the Contractor, Engineer, and Municipality. The court emphasizes the procedural requirements for referring disputes to the Adjudicator and Arbitral Tribunal, the role of the Engineer in decision-making, and the necessity of oral hearings in arbitration proceedings.
Fact of the Case:
The appellant, a construction contractor, raised disputes under the contract for a sewerage system construction. The Adjudicator decided in favor of the appellant, leading to arbitration. The Municipality challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, contending that the appellant bypassed the contract terms by directly referring the dispute to the Adjudicator.
Finding of the Court:
The court held that the appellant failed to follow the contract procedure by not obtaining a decision from the Engineer before referring the dispute to the Adjudicator. The court set aside the arbitral award and remitted the matter back to the Arbitral Tribunal for fresh consideration, emphasizing the need for oral hearings and adherence to the Act's provisions.
Issues: The issues revolved around the procedural compliance with the construction contract, the role of the Engineer in dispute resolution, and the Municipality's active participation in the arbitration proceedings.
Ratio Decidendi: The court emphasized the importance of following the contract's procedural requirements, including obtaining a decision from the Engineer before referring disputes to the Adjudicator. It also highlighted the necessity of oral hearings and adherence to the provisions of the Arbitration and Conciliation Act, 1996.
Final Decision: The appeal was dismissed, upholding the lower court's decision to set aside the arbitral award and remit the matter back to the Arbitral Tribunal for fresh consideration.
1. Challenge in this appeal is the order dated 7.12.2010 made in O.P.No.461 of 2009 allowing the Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, whereby the learned Judge set aside the award dated 30.4.2007 and remitting the matter back to Arbitral Tribunal for consideration of the matter afresh on merits.
2. The brief facts are as follows:-
For construction of underground sewerage system in the 1st respondent Municipality area, the 1st respondent - Alandur Municipal Corporation invited tenders from various bidders. The appellant was the highest bidder and their bid was accepted. The 1st respondent Municipality and appellant entered into an agreement on 2.3.2000. As per the agreement, the total value of the contract is Rs.2700 lakhs. The start date of the Contract was 1.3.2000, to be completed in two phases and spread over 60 months. During the performance of the Contract, the appellant/Contractor raised certain disputes under the Contract. Since the named Adjudicator had refused to act on the ground of personal inconvenience, the appellant/Contractor got the Adjudicator appointed from Institution of Engineers and the appellant/Contractor referred the dispute to Adjudicator appointed through the Institution of Engineers. The Adjudicator decided the issue exparte and by the proceedings dated 24.11.2004, Adjudicator passed the order admitting the claim of Rs.4,13,01,550/-. The appellant referred the matter to arbitration to pass an award in terms of the decision of the Adjudicator. The appellant filed a Claim Petition before the Arbitral Tribunal. The 1st respondent Municipality has not nominated its arbitrator. As per clause 8.6 of the Contract, the Arbitral Tribunal shall consist of three arbitrators, one each to be appointed by the Owner and Contractor, the third arbitrator shall be chosen by the two Arbitrators so appointed by the Parties and shall act as Presiding Arbitrator. Since the 1st respondent/Municipality has not nominated its Arbitrator, the appellant had approached the Institution of Engineers, Calcutta, which named 4th respondent Mr.N.D.Patel, consulting Engineer of Mumbai as Municipality's nominee. The nominees selected the 2nd respondent as the Presiding Officer.
3. The 1st respondent Municipality filed its reply to the Claim Statement. The 1st respondent Municipality contended that the appellant/contractor had bypassed the terms of the agreement and that the appellant would have to go before the Engineer and then Adjudicator for arrival of payments that are due to him. When that being so, the appellant had straight away referred the dispute to Adjudicator. The subsequent items of works that were not involved before the Adjudicator were raised for the first time in the claim before the Arbitrators.
4. There was some stalemate in the arbitral proceedings and the 1st respondent Municipality did not actively participate. To end the stalemate, the Arbitral Tribunal suggested to the parties on 17.8.2006 allowing six weeks time to meet and sort out the issues and differences partly/fully outside the Tribunal through mediation. Since the parties have not arrived at an amicable settlement, by a very brief order, the Arbitral Tribunal found that it is not necessary to hold oral hearings. The Tribunal proceeded to observe that the Adjudicator's decision is generally in tune with prevailing technical know-how and procedures and also in consonance with the terms of the contract. The Tribunal passed an award of Rs.3,56,04,759/- as under:-
Claims: Rs.1,95,01,881.00
Interest upto 30.04.2007: Rs.1,61,02,878.00
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Total: Rs.3,56,01,759.00
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The Tribunal directed that the above amount has to be paid within three months and thereafter with penal interest at 15 percent per annum and additionally directing the 1st respondent Municipality to reimburse an amount of Rs.1,28,186/- towards arbitrators' fees and expenses.
5. Being aggrieved by the award, the 1st
