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IN THE HIGH COURT OF MADHYA PRADESH (JABALPUR BENCH)
Arun Mishra, J.
Shri Narmada Enterprises and Anr.
Vs.
State of M.P. and Ors.
Writ Petition No. 1055/2002
Decided On: 01.10.2002
Arbitration Agreement - Sand Extraction Contract - Clauses 2, 6, 7, 14 - The court quashed the arbitration award (P-4) and the order (P-5) passed by the Court of Vth ADJ. Costs of Rs. 5,000/- are imposed over the respondent No. 2 to be payable to petitioners. The respondent State Mining Corporation is directed to proceed in accordance with law to make fresh auction of quarries in question. No operation of quarries be done by respondent No. 3.
Fact of the Case:
The petitioners challenged the arbitration award (P-4) and the order (P-5) passed by the Court, contending that the Arbitrator had extended the period of operation of the quarry beyond the terms of the agreement, resulting in financial loss to the State Government and Corporation. The respondent No. 3 had operated the quarry for about 7 months when the agreement was terminated, leaving only 5 months and 7 days unexpired, but the Arbitrator extended the period to one year and 4 months, which was impermissible and against the interest of the exchequer.
Finding of the Court:
The court found the challenge to the arbitration award and the court order meritorious, quashing the award and the court order, and imposing costs of Rs. 5,000/- on respondent No. 2. The respondent State Mining Corporation was directed to proceed in accordance with the law to make a fresh auction of the quarries in question, and no operation of the quarries was to be done by respondent No. 3.
Issues: The main issue was whether the Arbitrator had the authority to extend the period of operation of the quarry beyond the terms of the agreement, resulting in financial loss to the State Government and Corporation. Another issue was the maintainability of the writ petition and the locus of the petitioner to file it.
Ratio Decidendi: The court held that the Arbitrator cannot travel beyond the terms of the agreement and cannot rewrite the terms of the contract agreed upon by the parties. The court also found that the petitioner had the locus to file the writ petition, as it was a matter of distribution of public largesse and the petitioner was not a stranger to the arbitration proceedings.
Final Decision: The court quashed the arbitration award (P-4) and the order (P-5) passed by the Court of Vth ADJ, imposed costs of Rs. 5,000/- on respondent No. 2, and directed the respondent State Mining Corporation to proceed in accordance with the law to make a fresh auction of the quarries in question, with no operation of the quarries to be done by respondent No. 3.
Arun Mishra, J.
1. Petitioners are assailing the award (P-4) dated 24-12-2001 which has been made a Rule of the Court by Vth A.D.J., Bhopal as per order P-5. Main challenge is on the ground that Arbitrator has exceeded the terms of contract and has virtually rewritten the contract between the parties M/s. B.D. Bhanot and M.P. State Mining Corporation to the detriment of right of other contractors and public exchequer.
2. In the year 2000 tenders were invited for 'one year' for extraction of sand as per advertisement (P-1), dated 24-10- 2000, Sand was to be extracted from the sand mines. Advertisement (P-1) provided that the tenderers would be required to remove 4,44,567 cubic meters of sand within 'one year' and would deposit royalty in accordance with the prescribed rates. The work order was given w.e.f. 8-11-2000, Respondent No. 3 worked the mines for about 4 months and made a request for reduction of the quantity of extraction of sand by at least 31045 cubic meters which was reduced to 413522 cubic meters. This was to be removed within the period of one year from 8-11-2000 to 7-11-2001 and the contract was executed between the parties on 19-3-2001. Respondent No. 3 was required to deposit a sum of Rs. 1,34,87,320/- as instalments for the period between 8-11-2000 and 20-5-2001. By 25-5-2001, the respondent No. 3 had deposited only Rs. 89,81,005.75 paisa. There was outstanding balance of Rs. 45,04,514 in the instalments, since it was not paid in time, the respondent No. 3 was liable to pay interest Rs. 1,27,994.00. The total amount of Rs. 46,94,308.25 was outstanding against the respondent No. 3. This was a clear breach of condition No. 6 of the agreement (P-2). Order P-3 for terminating agreement was passed on 30-5-2001.
3. Several letters were issued and the order P-3 was passed on 30-5-2001. The petitioner was also asked to deposit the outstanding amount. In accordance with Clause 6 of the agreement, the respondents State Mining Corporation Ltd., rescinded the agreement/contract for extraction of sand and forfeited the amount of security in the sum of Rs. 75,81,237/-. Respondent No. 2 directed respondent No. 3 to deposit the amount of Rs. 45,06,314.25 with interest as per order P-3. After the receipt of order P-3 dated 30-5-2001 respondent No. 3 applied for appointment of an Arbitrator. In the agreement (P-2) Clause 18 there is a provision for arbitration wherein it is provided that in the event of there being any dispute between the Corporation, (respondent No. 2) and the contractor (respondent No. 3), an Arbitrator has to be appointed by respondent No, 2 acting through its Managing Director. Respondent No. 4 Shri Ravindra Sharma was appointed as an Arbitrator.
4. Before the Arbitrator petitioners filed an application for intervention and to participate in the proceedings which application was rejected by learned Arbitrator. Arbitrator ultimately passed an award (P-4) on 24-12-2001. The Arbitrator has ordered that termination of contract by State Mining Corporation was not in accordance with law as well as the forfeiture of the security amount. As per agreement the quantity to be lifted is 4,13,522 cubic meters. Respondent No. 3 had lifted the quantity of 1,74,000 cubic meters only by the time the agreement was terminated. As such adequate time be given to respondent No. 3 M/s. B.D. Bhanot & Sons and respondent No. 3 be allowed to lift minimum of 17,000 cubic meters per month and possession of all the leased quarries be handed over to lift minimum of 17,000 cubic meters of sand per month. In case some of the quarries out of 59 are not available in lieu unavailable quarry thereof some other quarry be made available to M/s. B.D. Bhanot so that he is able to take out the requisite quantity of 17,000 cubit meters and to keep the separate account for that purpose. Other ancillary directions have also been issued which are to operate till respondent No. 3 is not able to lift the total quantity of 4,13,522 cubic meters of sand
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