Amiraj Construction Co. v. State Of Maharashtra And Others

1. I thought that charging of exorbitant remuneration by the Arbitrations was a privilege of the legal fraternity. But I find, now, that this is no longer their monopoly. Such phenomenon has now crept into Government Arbitrations. The petitioners have taken out this petition to supersede the reference and the arbitrations, on the ground that to charge such unreasonable and exorbitant fees by the Arbitrators is per se misconduct. I am inclined to agree with the petitioners. Fortunately the petitioners have come at an initial stage, as otherwise this arbitration would have been a glaring illustration of becoming counterproductive of any meaningful result, which is wholly contrary to the object of arbitration under the Arbitration Act.

2. Before I come to the petition I must set out the history. The petitioners were the contractors for construction of a tunnel of about 35 k.ms in length of Warna Left Bank Canal in Sangli District. There was an agreement executed by the parties on November 10, 1981. It provided for settlement of disputes through arbitration. A dispute arose during the execution of the said contract. The petitioners appointed their Arbitrator. But the respondents would not With the result, ultimately, the petitioners had to file a suit in this Court being Arbitration Suit No. 2693 of 1985 under section 20 of the Arbitration Act. By an order dated April 7, 1986 Mr. Justice Pendse granted a decree as prayed for and directed the respondent-State Government to appoint their arbitrators within a period of four weeks from that day and in case of failure, the Chairman of Central Water Commission, New Delhi, to appoint two Arbitrators within four weeks thereafter. He further directed that the Arbitrators, appointed by the State Government or the Chairman, should enter upon a reference along with the Arbitrator appointed by the petitioners and dispose of the claim within a period of three months from the date of entering upon the reference. Thereafter for a considerable length of time the Arbitrators would not enter upon the reference. As a result of which the petitioners were forced to file another petition, being Arbitration Petition No. 148 of 1986, for a prayer that the Board of Arbitrators be ordered to enter upon to arbitrate and decide the disputes, and also include certain disputes which are not incorporated in the resolurion of the Government, dated July 22, 1986. That petition is dated September 23, 1986 and that is also pending in this Court.

3. However, during the pendency of the said petition the Arbitrators entered upon their reference and held their first meeting on December 8, 1986. The Arbitrators are respondents Nos. 2 and 3, appointed by the State Government of Maharashtra, and respondent No. 4, appointed by the petitioner. Respondent No. 2 is ex-member of Central Water Commission and he resides at New Delhi. Respondent No. 3 is still in Government Service and is a Superintending Engineer of Kolhapur Irrigation Circle.

4. In the first meeting held on December 8, 1986, the Arbitrators fixed their schedule of fees. The relevant portion of the minutes in this behalf is as follows:

“Accordingly the Board of Arbitration held its First meeting at Pune on Monday 8th December, 1986 and it was agreed that the terms and conditions for payment of Arbitration charges and fees etc., to each Arbitrator will be as below:

i) Study of documents pertaining to the case Rs. 7,500/- (Rs. Seven thousand and five hundred) ii) Making and signing of award & giving notice to the parties to that effect Rs. 10,000/- (Rs. Ten thousand) iii) Sitting fee per day or part thereof Rs. 750/- (Rs. Seven hundred and fifty) iv) Expenses on travelling by the highest class by Air, train or Road including expenses for arranging tickets, reservations, cancellations etc. As per actuals plus 10% v) Daily allownace to cover Boarding & Lodging charges per day or part thereof. (a) at Delhi/Bombay (b) at Kolhapur (c) at Pune Rs. 750/- Rs. 300/- Rs. 400/- plus 10%

vi) Forced halt enroute or at destination on days when there was no meeting/sitting (in addition to v above) including days spent on journey Rs. 250/- vii) Sundry expenses (in the 1st instance) (a) Arbitrator convenor (b) Other Arbitrators (each) Rs. 250/- Rs. 3,500/- Rs. 2000/- viii) Trunk Calls. actuals. ix) (a) Incidental charges like hiring of meeting hall etc. (b) Remuneration to stenographer at Pune/Kolhapur at Bombay/Delhi. (c) Stamp paper for writing the award & filing the award. (d) For Publishing the award. as per actuals. Rs. 100/- per day as per actuals. as per actuals. as per actuals.

Note:—

(a) The above (i) to (viii) will be shared equally by the Claimants and Respondents and shall be paid on the last date of each meeting for items (iii), (iv), (v), (vii) and (viii).

(b) In respect of items Nos. (i) and (vii) the full amount is to be paid by each party according to his share in advance to each Arbitrator.

(c) In respect of item (ii) the full amount shall be paid by each party according to his share to each arbitrator on receiving notice that the award has been made but before it is published.

(d) Expenses on items (ix) a, b, c, and shall be paid by the party directed to do so by the Arbitrators.

(e) Day will be counted from midnight to midnight and time will commence from the time of leaving Residence till reaching back.

3. It was agreed that the Convenor Arbitrator may communicate the above terms and conditions to the parties.”

5. The Arbitrator appointed by the petitioners viz. respondent No. 4, felt that the remuneration as fixed by them was exorbitant and, therefore, by a letter dated December 23, 1986, he wrote that he would not act as an Arbitrator on those fees. He further stated that he would not claim any fees as fixed in that meeting and that he would restrict his claim only to the expenses actually incurred by him in connection with the first meeting, which includes taxi fare of Rs. 11/-, from his residence to V.T Station, railway fare from Bombay to Pune and back of Rs. 202/-, and again Rs. 11/- for taxi fare from V.T Station to his residence; thus amounting to a sum of Rs. 224/-. I am referring to this to show as to how the other two Arbitrators have acted in this matter.

6. Respondent No. 2, on the other hand, insists on his remuneration which comes to above Rs. 15,000/- as set out in Ex. E. I would quote the entire bill as given by him.

“Bill No. 1

i) For study of documents pertaining to the case. Rs. 7,500.00 ii) Sitting fee 8-12-1986 Rs. 750.00 iii) (a) taxi fares at Delhi (b) Air fare 7/12 and 8/12 Delhi/Bombay/Pune and back (c) 10% Rs. 320.00 Rs. 2,326.00 Rs. 233.00

iv) Daily allowance 7/12 & 8/12. Rs. 800/- + 10% Rs. 880.00 v) halt on 7/12 Rs. 250.00 vi) Sundry expenses Rs. 2,000.00 vii) General for making drafts (two Nos.) for the meeting on 8-12-86 — one day Rs. 750.00 Total Rs. 15,000.00

Each party to pay Rs. 7,505/-

(Rs. Seven thousand five hundred & five only)”

7. The bill speaks for itself and does not speak well of the Arbitrator. For example, apart from the fees which are on the higher side, I cannot understand as to what could be the taxi fare at Delhi, which comes to Rs. 320/- before his departure from his Delhi residence to the Air-port. He has also thereafter added the air-fare which perhaps can be justified, but I cannot understand as to how there could be, in addition to the charges, 10% plus over the air-fare which comes to Rs. 223/-. He has also added the daily allowance for 7th and 8th December, perhaps from midnight to midnight, at Rs. 800/- plus 10% which comes to Rs. 880/-. Over and above this, what charge can be there for his halt on 7th December, at Rs. 250/-, which again does not stand to reason. In all probability the Arbitrators must have stayed in the Government Circuit House where the charge could be a small amount. In addition to these as fixed by the Arbitrators, in their meeting, he has claimed sundry expenses of Rs. 2,000/- which again remain inexplicable. But the worst is, for making the draft of the minutes of the meeting on December 8, 1986, which runs into hardly about 2¼ pages, he has charged fees of Rs. 750/-

8. I do not know whether respondent No. 3 has preferred any bill or not. But I would not be surprised if he had followed the example of respondent No. 2.

9. The petitioners have taken out this petition stating plainly that they are unable to pay such fees of the Arbitrators. They have already burnt their fingers when they had to file Arbitration suit in Court praying for the appointment of the Arbitrators by the Government, whereas the Government could have plainly consented to the appointment of the arbitration without filing the suit, which reasonable attitude would not be there on the part of the Government. Thereafter, even to refer the disputes the Government would not agree and the petitioners had to file another petition in this Court. In any event Mr. Murdeshwar, respondent No. 4, has declined to act as an arbitrator, as in his conscience, he cannot sustain such exorbitant charges. The petitioners, therefore, say that respondents Nos. 2 and 3 be removed as Arbitrators and the petitioners be given liberty to file a suit to enforce their rights under the said agreement, without compelling them to go for arbitration.

10. Mr. Thakore, on the part of the Government says that if the Arbitrators charged exorbitant fees, the case would fall within the scope of Section 38 of the Arbitration Act, 1940. I am afraid that in the circumstances of the case section 38 has no application whatsoever. Section 38 of the Arbitration Act applies when an Arbitrator or an Umpire makes the award but refuses to deliver the same except on payment of fees demanded by him and in such cases the Court can direct the Arbitrator or the Umpire to deliver the award to the applicant on payment into court by the applicant of the fees demanded and shall after such enquiry, if any, as it deems fit further order that out of the monies so deposited in Court a certain amount which the Court may consider reasonable be paid to the Arbitrators and the balance, if any, shall be refunded to the applicant. In the present case the arbitration is still at the initial stages and I am glad that the petitioners have taken the right step to come to the Court with a prayer to set aside the arbitration. Mr. Thakore relies on an Allahabad case reported in AIR 1970 Allahabad 525 (Shambhu Dayal v. Basdeo Sahai). I am afraid that authority has no relevance to the facts of the present case. It is true that there is no specific provision in the Act for fixation of the arbitration fees by the Court prior to the making of the reference. But the Court has powers to ultimately decide reasonable fees in the event of an application made under section 38(1) of the Act Similarly, in a given case, where the parties or any of them inform the arbitrators that they cannot afford their fees, in the beginning or at a very initial stage, I think the Court should not be so helpless as to compel them to go on with the Arbitration till the end and suffer the chance of footing the entire bill of the arbitrators.

11. But what is most regrettable in the present case is that as soon as the bill was submitted by the Arbitrator, respondent No. 2, the government was prompt enough to pay the same, and the Government comes forward to justify such charging of exorbitant fees. The justification is very interesting. It is better to quote what the Government says…

“I say that in arbitration matters like the present one involves study and reading of number of documents and voluminous files. I further say that the Arbitrators, particularly respondents Nos. 2 and 3 are highly placed and competent officers. In order to attend the arbitration, they are required to give up their busy schedule….

I submit that this department is faithfully complying with the order of this Hon'ble Court in the arbitration proceedings and in fact, this department has paid the amount of its share of the arbitrators' fee promptly.”

12. Mr. Thakore submitted that respondent No. 2 is a highly, technically, qualified person and having expertise, knowledge and experience and, therefore, he has a right to charge whatever he thinks proper. In this connection I must refer to a letter dated January 5, 1987, written by respondent No. 2. In this letter he tells Mr. Murdeshwar that the fees charged are reasonable and not at all high or exorbitant as sought to be suggested merely because the Bombay High Court has prescribed some fees in some matter in which he (i.e Mr. Murdeshwa) has been appointed as Arbitrator. He further says that exactly the same fees were decided and agreed upon by all concerned in an arbitration case of Upper Krishna Project Excavation of Left Bank Canal where the parties were a Contractor and the State of Karnataka. It was also a World Bank aided project and the Arbitration clause, it appears, was the same as in the present case.

13. This sounds strange. Just because a project is aided by the World Bank or by any foreign agency, why should the arbitrators think that they can charge any high fee? Similarly, just because the claim is large, why should the fee be so very fat? In my view if it is a Government Arbitration it is all the more necessary that the Arbitrators should charge the minimum possible and it should be absolutely reasonable. The arbitrators must remember that they are not there to make money but they are to render their services to the State as a matter of public cause. They must also remember that in all these arbitrations by and large the party has no choice but to go for arbitration of the arbitrators appointed by the Government. The idea is that as far as possible, in such matters, the Government should not waste public money and time in costly litigations, and instead avail of the cheaper and easier method of resolving disputes by arbitration. If the Arbitrators do not bring in a sense of service and dedication, but only have a mercenary approach, such arbitrations become a luxury which the public exchequer cannot afford, being ultimately a drain on the public at large. I would also suggest that wherever a Government servant who is still in service, is appointed as an arbitrator there is no question of his being paid any fees for the Arbitration. He is entitled to the salary which he gets. Of course, if he incurs any expenses such as travelling, stay, stationery etc. that can be remunerated and be given by way of actual reimbursement of the expenses incurred by him. Here again, such arbitrators cannot insist on Five Star Treatments while many arbitrations can be held conveniently in Government Rest Houses or Circuit Houses. In the present case it is not clear that respondent No. 2, who is still in service, has also been paid the fees or whether he has billed on the basis of the minutes of the Arbitration, and I wish the State realises the importance of these observations.

14. Mr. Thakore submitted that by no stretch of imagination can it be said that charging of exorbitant fees amounts to misconduct and he said that there is no known reported case on this subject. That should not matter. If in any arbitration, the arbitrators demand unreasonable and/or unconscionable fees and seek to inflate their bills by showing expenses which are apparently not genuine, such conduct is liable to be considered as misconduct within the meaning of the Arbitration Act. The reason is that such conduct amounts to unfair exploitation of the situation itself. In any case, in all arbitrations arising out of such contracts entered into by the Government, the principle of public accountability should invariably caution all concerned not to indulge in wasteful expenditure. Above all, in the present case, the petitioners cannot be Compelled to agree to such extravagant remuneration at all.

15. I, therefore, pass the following order:

16. The petition is made absolute in terms of prayers (a), (b) and (c). The respondents i.e the State Government shall pay the costs of this petition to the petitioners. I further direct that since the arbitration and the reference is superseded, the arbitrators will not be entitled to their remuneration, excepting the expenses actually incurred by them. If the State Government has paid such fees other than the actual expenses, the arbitrators to return the same, and the State to recall the amount.

Order accordingly.