ORAL JUDGMENT

A non-speaking Award dated 27th May, 1990 is the subject matter of the present petition. The petitioners who were constructing a Hotel had given a contract to the respondent for providing music and public address system. The respondents completed the work in respect of about 165 rooms out of 350 rooms. Disputes and differences arose between the parties pursuant to which the respondents in terms of the Arbitration Clause appointed their Arbitrator. The petitioners appointed their Arbitrator. Counter-claims were also filed by the present petitioners. The Arbitrators by the impugned Award partly allowed the claim of the respondents and also counterclaims filed on behalf of the petitioners herein.

At the time of hearing of the petition on behalf of the petitioners it is contended that the Award is liable to be set aside for the following reasons:

(a)The reference to Arbitration was contrary to the provisions of Clauses 40 and 41 of the Agreement. It is contended that before making reference to Arbitrators the aggrieved party had to take recourse to clause 40 and 41. In the instant case it has not been done and, therefore, the Award is not in terms of the Agreement and consequently liable to be set aside.

(b)Letter dated 28th October, 1987 it is contended is not invocation of Clause 40 and 41 by the respondents, but a reference of payment under clause 35. In the alternative it is pointed out that the reference was not to the Consultant as it was made to a Consultant whose services had already been terminated. Reference is made to letter dated October 27, 1987 whereby the respondents were informed of the termination of the services of the previous consultant and appointment of the new Consultant. It is, therefore, contended that the Award to that extent is also beyond the terms of the agreement and liable to be set aside.

(c)It is contended that the claims by the petitioners were for liquidated damages and the same have been rejected without considering the principles in awarding damages or not following the law in awarding damages.

2.On behalf of the respondents it is contended that the Award is a non-speaking award. It is not open to this Court, therefore, to probe into the reasons for the Award. It is further contended that the requirements of clauses 40 and 41 are merely procedural requirements. It is, therefore, contended that even assuming that the respondents had not moved the Consultant, though in fact they have so moved by letter dated 28th October, 1987 it would not be a ground at this stage to set aside the Award. The learned Counsel relied on the judgment of the Apex Court in the case of M/s. Construction India vs. Secretary, Works Department, Government of Orissa and others, A.I.R 1998 S.C. 717 to contend that the petitioners having not opted for reference to arbitration it is deemed that they acquiesced for the appointment of Arbitrator and as such it is not open to them to raise the said objection. To the same effect reliance is placed on the judgment of the Single Judge of this Court in M/s. Asiatic Salvors vs. Dodsal Private Limited, A.I.R 1998 Bombay 335. That was a case where bias was alleged, but yet the parties participated in the Arbitration proceedings without raising objections. The learned Single Judge in that case held that the plea of bias in the circumstances is deemed to have been waived.

3.It would, therefore, be essential to first decide whether the objections raised by the respondents namely that the petitioners having acquiesced for the appointment of the Arbitrator can be sustained. In reply to the said contention, it if pointed out on behalf of the petitioners that in terms of the agreement once the respondents had appointed their Arbitrator they were perforced to appoint their Arbitrator as otherwise in terms of the agreement the Arbitration would have been by the sole Arbitrator appointed by the respondents. The mere fact that the Arbitrator is appointed, it is contended, cannot amount to acquiescence as the issue pertaining to jurisdiction was raised before the Arbitrators. Reliance is placed on the judgment of the Apex Court in the case of U.P. Rajkia Nirman Nigam vs. Indure Pvt. Ltd. & Ors. JT 1996 (2) S.C. 322 to contend that the issue pertaining to jurisdiction has to be finally decided by the Court where the petition to challenge the Award is filed and that decision of the Arbitrators and jurisdiction is not final. My attention has been invited to the Minutes of the proceedings which took place on 17th September, 1991 where the issues were settled by the Arbitrator. Once of the issues so settled was as under:

"Whether the claimants statement of claim cannot be arbitrated upon by the learned Arbitrator as the claimants have failed to obtain any decision from the Consultant as provided under the contract agreement dated 24th October, 1985 and as contended by the respondents in their reply."

It is, therefore, clear that the petitioners by appointing an Arbitrator had not submitted themselves to the jurisdiction on that count. All that it did was to protect their rights. Therefore, the appointment of an Arbitrator by the petitioners and their participation in the proceedings cannot be said to amount to acquiescence on their part which would bar them from raising a ground that the Arbitrators were not competent to decide the issue in view of the failure by the respondents to obtain a decision of a Consultant.

4.Once having held that the petitioners are entitled to raise objection their first contention may now be considered. Clauses 40 and 41 read as under:

"40. Matters to be finally determined by Consultant:

The Consultants decision, opinion, direction, Certificates (except for payments) with respect to all or any of the matters under Clauses 2, 7, 9, 17, 23, 31 (a), (b), (c), (d), (f) hereof and as to the exercise by him under clause 12 of the rights to have any work opened up, (which matters are herein referred to as the excepted matters) shall be final and conclusive and binding on the parties hereto and shall be without appeal. Any other decision, opinion, direction, Certificate of Valuation of the Consultant or any refusal of the consultant to give any of the same shall be subject to the rights of Arbitration and review in the same way in all respects including the provision as to opening the reference) as if it were a decision of the Consultant under the following clause.

41. Settlement of disputes Arbitration:

All disputes and differences of any kind whatever arising out of or in connection with the Contract or the carrying out of the works, (whether during the progress of the works or after their completion and whether before or after the determination, abandonment or breach of the Contract) shall be referred to and settled by the Consultant who shall state his decision in writing. Such decision may be in the form of a Final Certificate or otherwise. The decision of the Consultant with respect of any of the excepted matters shall be final and without Appeal as stated in the preceding Clause. But if either the Employer or the Contractor be dissatisfied with the decision of the Consultant on any matter, question or dispute of any kind (except any of the expected matters) or as to the withholding by the Consultant of any Certificate to which the Contractor may claim to be entitled, then and in any such case either party (the Employer or the Contractor) may within twenty-eight days after receiving notice of such decision give a written notice to the other party through the Consultant requiring that such matter in dispute be arbitrated upon."

A reading of clause 40 would show that the decision of the Consultant in respect of some clauses is final and conclusive and binding on the parties and is without appeal. In respect of any other decision, opinion, direction, certificate of valuation of the Consultant or any refusal of the Consultant to give any of the same shall be subject to the rights of Arbitration and review including the provision as to opening the reference as if it were a decision of the Consultant under Clause 41. Therefore, in respect of decisions with the exception of the excepted matters is subject to arbitration under Clause 41.

Clause 41 provides that all disputes and differences arising out of or in connection with the contract, etc., shall be referred to and settled by the Consultant, who shall state his decision in writing. Such decision may be in the form of a final certificate or otherwise. In respect of the excepted matters the decision of the Consultant shall be final and without appeal as set out in clause 40. But if either the Employer or the Contractor be dissatisfied by the decision of the Consultant on any matter including withholding of any certificate in such an event the employer or the contractor could within twenty-eight days after receiving notice of such decision give a written notice to the other party through the Consultant requiring that such matter in dispute to be arbitrated upon. It is, therefore, clear by virtue of clause 41 that any decision of the Consultant except the excepted matters can be referred to arbitration through the consultant.

A cojoint reading of clauses 40 and 41 will indicate as under:

(1)Any matters which are referred to except the excepted matters, the decision of the Consultant shall be final and binding and not subject to Appeal.

(2)Any other matters including refusing to give a certificate the decision is not binding and the party can call upon the Consultant to refer the matter for arbitration, in which event the matter will be at large before the Arbitrator who has the power to open, to review, revise any certificate, opinion, decision, requisition or notice. The contract between the parties therefore, provides that before going to Arbitration any of the parties must refer the matter for decision in the first instance to the Consultant then only after the decision of the Consultant or failure to decide that the parties may call upon the consultant within 28 days of such decision to refer the matter for arbitration of the arbitrator. It is true that the period of 28 days may not be a mandatory provision but directory notwithstanding the procedure is provided therein. A question did arise as to what happens if the Consultant refuses to decide the matter. In such an event if inspite of reminder no decision is given within a reasonable time or notice to the consultant to decide the matter the matter could be referred for decision to the Arbitrator within 28 days or within the period of limitation considering the subject matter of the dispute, if the period of 28 days is held to be directory and not mandatory.

5.In the present case admittedly there has been no decision by the Consultant. It is, however, contended on behalf, of the respondents that their letter dated 28th October, 1987 should itself be construed as a reference for decision of the consultant. It was addressed to the Project Manager with only a copy forwarded to the Consultant. By the said letter the Project Manager was called upon to make payments. This would be in terms of clause 35. It would not mean that this was a letter to the Consultant to decide any dispute. Even otherwise by a letter of October 27,1987 the respondents were informed by the petitioners that M/s.Kudianwala & co. had been terminated as Consultant with effect from 14th October, 1987 and that M/s. P.M.C.E. Architects, had been appointed. Copy of the letter of October 27, 1987 was addressed to the previous Consultant whose services had already been terminated on 14th October, 1987. That letter, therefore, cannot be construed as a reference for settlement of the dispute by the Consultant. That such clauses are strictly construed has been so held in the judgment dated 30th November, 1993 in Arbitration Suit No 3550 of 1992 in the case of M/s. M.S. Chavan Construction v. The Municipal Corporation of Greater Bombay. Before the learned single Judge of this Court what was in issue was clauses 96 and 97 of a Contract of the Municipal Corporation of Greater Bombay to the same effect. Reference to arbitration was sought by filing a suit under Section 20 of the Arbitration Act, 1940. The learned Single Judge declined to refer the matter to arbitration without the plaintiff first getting the disputes settled by the Commissioner therein who was the Authority to decide the dispute. The said judgment came up in Appeal in Appeal No.50 of 1994. The Division Bench of this Court presided over by the learned Chief Justice by order dated 10th July, 1996 upheld the Judgment of the learned Single Judge considering clauses 96 and 97 of the contract therein. I am in respectful agreement with the views expressed therein. In matters like the present one where the parties have entered into an agreement and agreed to follow the procedure, it is that procedure which has to be followed. The respondent having not invoked the said procedure I am of the view that the Arbitrator; could not have invoked jurisdiction to pass an award in respect of the disputes referred to them without the said disputes having first been decided by the Consultant. The Arbitrators would have had before them the decision of the Consultant.

My attention was also invited to the judgment of the Apex Court in the case of Premier Fabricators v. Heavy Engineering Corporation Ltd., 1997 (4) S.C. 319 and more specifically para 5 of the judgment. This judgment was relied upon to point out that when the issues pertaining to jurisdiction are referred for decision of the Arbitrators, the Arbitrators are bound to answer the said issues. In the instant case though the said issue was framed has not been answered. This, according to the learned Counsel by itself should be a ground for setting aside the Award.

In view of my findings on question No.1 wherein the question No.2 has also been decided the Award is liable to be set aside. As the Award is liable to be set aside the counterclaim also has to be set aside as it cannot be separated from the rest of the award being a non-speaking award.

In view of that the Award dated 27th May, 1996 is quashed and set aside. In the circumstances of the case there shall be no order as to costs.