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Citation Codes
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Case Number
Attorney(S)
  • S.U Kamdar with R.C Dhru instructed by Bhasin and Co.
  • Hiralal Thakkar with B.S Chandnani
Judges
  • F.I Rebello, J.
Acts
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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • S.U Kamdar with R.C Dhru instructed by Bhasin and Co.
  • Hiralal Thakkar with B.S Chandnani
Judges
  • F.I Rebello, J.
Acts
See more information ...
Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The petition challenges a non-speaking arbitration Award dated 27 May 1996. The petitioners, who were constructing a hotel, contracted the respondent to provide music and public address systems. The respondents completed work for about 165 of the 350 rooms. Disputes arose and, pursuant to the Arbitration Clause, each party appointed an arbitrator; counter-claims were filed by the petitioners. The impugned Award partly allowed the respondents' claim and also allowed the petitioners' counter-claims. The petitioners sought setting aside of the Award on multiple grounds, leading to the present petition.

Legal Issues Presented

  1. Whether the arbitration reference and consequent Award were contrary to Clauses 40 and 41 of the parties' contract because the contractual procedure required reference to the Consultant before arbitration.
  2. Whether the petitioners' appointment of an arbitrator and their participation in the arbitration proceedings amounted to acquiescence, thereby barring them from raising jurisdictional objections later.
  3. Whether the respondents' letter dated 28 October 1987 constituted a valid invocation of Clauses 40 and 41 (i.e., a reference to the Consultant), or was merely a payment-related communication under Clause 35, especially in light of the Consultant's earlier termination.
  4. Whether the Award, being non-speaking and having apparently not had jurisdictional issues answered by the Arbitrator(s), was susceptible to being set aside for lack of jurisdiction or failure to comply with the contractual dispute-resolution procedure.

Arguments of the Parties

Petitioners' Arguments

  • The arbitration and Award were contrary to Clauses 40 and 41 of the Agreement because the contract required disputes to be referred to the Consultant first; that procedure was not followed.
  • The respondents' letter dated 28 October 1987 did not invoke Clauses 40 and 41 but related to payment under Clause 35; the letter was addressed to the Project Manager with only a copy to the (previously terminated) Consultant, so it could not be treated as a proper reference to the Consultant.
  • The petitioners' claims for liquidated damages were rejected by the Arbitrators without proper consideration of the legal principles governing damages.
  • Even though petitioners appointed an arbitrator, they raised jurisdictional objections before the Arbitrator and therefore did not acquiesce to the Arbitrator's jurisdiction.

Respondents' Arguments

  • The Award is a non-speaking award; the court should not probe the Arbitrators' reasons and should not set aside the Award on that basis.
  • The procedural requirements in Clauses 40 and 41 (referral to the Consultant) are directory; failure to follow them is not a ground for setting aside the Award at this stage.
  • Even if the respondents had not formally moved the Consultant, the petitioners' conduct amounted to acquiescence to arbitration by the appointment of an arbitrator and participation in proceedings.
  • Relied on authority (Construction India v. Secretary, Works Department, Government of Orissa) to argue that petitioners, by not opting to pursue reference to arbitration earlier, were deemed to have acquiesced; also relied on Asiatic Salvors… v. Dodsal Private Ltd. to support the proposition that participation can amount to waiver of objections such as bias.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Construction India v. Secretary, Works Department, Government of Orissa, (1998) 2 SCC 89 ; AIR 1998 SC 717 Proposition invoked by respondents that failure to opt for a particular remedy or procedure can be deemed acquiescence to arbitration; used to support waiver/acquiescence argument. The respondents relied on this case to contend acquiescence by the petitioners; the court considered the reliance but concluded, on the facts, that mere appointment of an arbitrator and participation did not amount to acquiescence where jurisdictional objections were raised before the Arbitrator.
Asiatic Salvors… v. Dodsal Private Ltd., AIR 1998 Bom. 335 Illustrates that a party's participation in arbitration proceedings without raising objections (including objections of bias) can lead to deemed waiver of such objections. Respondents invoked it to argue waiver; the court recorded the reliance but found the circumstances here different because petitioners raised the jurisdictional issue before the Arbitrator, and thus did not waive that objection.
U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd., JT 1996 (2) SC 322 Proposition that issues of jurisdiction of arbitrators may ultimately be decided by the court where the challenge to the Award is filed; the arbitrators' decision on jurisdiction is not necessarily final. The petitioners relied on this authority to support their right to have the court decide jurisdictional objections; the court accepted this principle and used it to support allowing the petitioners to raise the jurisdictional challenge.
M.S. Chavan Construction v. The Municipal Corporation of Greater Bombay (Single Judge judgment dated 30 Nov 1993; Division Bench order 10 July 1996) Demonstrates strict construction of contractual clauses requiring prior reference to a specified authority (the Commissioner/Consultant) before arbitration; a court declined to refer to arbitration where contractual procedure was not followed. The court relied on and expressed respectful agreement with this decision to hold that contractual dispute-resolution procedure (i.e., reference to the Consultant) must be followed and that absence of compliance deprived the Arbitrators of jurisdiction to decide the disputes in question.
Premier Fabricators, Allahabad v. Heavy Engineering Corpn. Ltd., Ranchi, (1997) 4 SC 319 Authority, specifically para 5, cited for the proposition that when jurisdictional issues are raised and referred to arbitrators, the arbitrators are bound to answer them. The judgment was invoked to note that an issue on jurisdiction had been framed in the arbitration but was not answered by the Arbitrators; the court treated that omission as a matter supporting setting aside the Award.

Court's Reasoning and Analysis

The court proceeded in a stepwise fashion, addressing first whether the petitioners had acquiesced to arbitration and thereby waived jurisdictional objections. The court examined the parties' conduct and the arbitration record:

  1. On the question of acquiescence, the court observed that the petitioners appointed an arbitrator only to protect their rights and that they had raised the jurisdictional issue before the Arbitrator. The court cited the arbitration minutes of 19 September 1991 which show that a specific jurisdictional issue was framed: whether the claimants' statement of claim could be arbitrated because they had failed to obtain a decision from the Consultant as provided under the contract. From this, the court concluded that appointment of an arbitrator and participation did not amount to acquiescence where the party expressly preserved objections to jurisdiction. The court relied on U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd. for the proposition that jurisdictional issues can ultimately be determined by the court hearing the challenge to the Award.
  2. Turning to Clauses 40 and 41 of the contract, the court analysed the text of those clauses at length. Clause 40 makes certain "excepted matters" final and conclusive as to the Consultant's decision. Other decisions of the Consultant are subject to arbitration/review under Clause 41. Clause 41 requires that disputes be referred to the Consultant who must state a decision in writing; if a party is dissatisfied, it may, within twenty-eight days after receiving notice of that decision, give written notice through the Consultant requiring arbitration.
  3. The court construed the clauses together and distilled their effect:
    • Certain matters (the excepted matters) are to be finally determined by the Consultant and are not subject to appeal.
    • Other matters can be referred to arbitration but only after being referred first to the Consultant (who may then refer to arbitration if a party so requires within the stipulated time). The arbitrator then has power to open, review and revise the Consultant's certificates, decisions or opinions.
    • The twenty-eight day period is directory (not mandatory) but the overall procedure of first seeking a Consultant's decision must be followed; if the Consultant refuses or fails to decide within a reasonable time despite reminders, the party may refer the dispute to arbitration (subject to limitation considerations).
  4. Applying that construction to the present facts, the court found that no decision had been given by the Consultant. The respondents' letter of 28 October 1987, relied upon by them as a reference to the Consultant, was addressed to the Project Manager (with a copy to the Consultant) and was in terms of Clause 35 (payment). Further, the consultant whose copy was sent had already been terminated on 14 October 1987, as conveyed by a letter dated 27 October 1987. On these bases, the court held that the 28 October letter could not be treated as a valid invocation of Clauses 40 and 41.
  5. The court noted authority (M.S. Chavan Construction v. Municipal Corporation of Greater Bombay) where a court declined to refer matters to arbitration because the contractual procedure (reference to the Commissioner) had not been followed. The court expressed agreement with the principle that where parties have contractually agreed to a procedure, that procedure must be followed.
  6. The court also observed that the jurisdictional issue had been framed in arbitration but not answered by the Arbitrators; applying Premier Fabricators, the omission to answer a jurisdictional question supported setting aside the Award.
  7. Having found that the petitioners had not acquiesced and that the contractual procedure (reference to the Consultant) had not been followed (and that no Consultant's decision existed), the court concluded that the Arbitrators lacked jurisdiction to pass the Award in relation to the disputes that should have first been decided by the Consultant.

Holding and Implications

Holding: The court quashed and set aside the arbitration Award dated 27 May 1996. The counter-claim contained in the Award was also set aside because it could not be separated from the rest of the non-speaking Award. The petition was allowed and there was no order as to costs.

Implications:

  • Direct effect on the parties: The impugned Award (including the counter-claim) is quashed and set aside; the petitioners' challenge succeeded and the respondents do not obtain relief under that Award.
  • Procedural consequence emphasised: Where a contract prescribes a specific internal decision-making process (here, initial reference to a named Consultant and a possible subsequent reference to arbitration), courts will enforce that procedure and may set aside arbitral awards made without compliance with it.
  • On precedent setting: The opinion did not purport to establish a novel legal principle beyond applying established authorities; the court expressly followed and relied on existing case law and contractual interpretation principles. No broader new precedent was announced beyond application of those principles to the facts of this dispute.
Petition allowed.

Note: This summary is drawn exclusively from the content of the provided opinion. No information has been added that is not contained in the opinion.

Show full summary ...

    Hotel Corporation Of India, Mumbai v. M/S Motwani (P) Limited

    1. A non-speaking Award dated 27th May, 1996 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 counter-claims filed on behalf of the petitioners herein.

    2. 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 clauses 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 Clauses 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.

    3. 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 Construction India v. Secretary, Works Department, Government of Orissa, (1998) 2 SCC 89 : AIR 1998 SC 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 Asiatic Salvors… v. Dodsal Private Ltd.…., AIR 1998 Bom. 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.

    4. 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 is 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 Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd., JT 1996 (2) SC 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 19th September, 1991 where the issues were settled by the Arbitrator. One 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.”

    5. 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 Consultant.

    6. 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 Consultant's 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 matter 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 excepted 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.”

    7. 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.

    8. 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.

    9. A conjoint 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 as provided therein. A question did arise as to what happens if the Consultant refuses to decide the matter. In such an event if in spite 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.

    10. 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 Kudianwala and Co. had been terminated as Consultant with effect from 14th October, 1987 and that 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. 3540 of 1992 in the case of 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 respondents having not invoked the said procedure I am of the view that the Arbitrators 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.

    11. My attention was also invited to the judgment of the Apex Court in the case of Premier Fabricators, Allahabad v. Heavy Engineering Corpn. Ltd., Ranchi, (1997) 4 SC 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.

    12. 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 counter-claim also has to be set aside as it cannot be separated from the rest of the award being a non-speaking award.

    13. 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.

    Petition allowed.
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    Comments

    Hotel Corporation Of India, Mumbai v. M/S Motwani (P) Limited
    (Oct 13, 1998)