M/s.Indian Oil Corporation Limited v. M/s.Devi Constructions, Engineering Contractors, H-102, Periyar Nagar, Erode

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 02.04.2009CORAM :THE HONOURABLE MR.JUSTICE D.MURUGESANandTHE HONOURABLE MR.JUSTICE C.S.KARNANO.S.A. No.365 of 2008M/s.Indian Oil Corporation Limited,Rep. by its Chief LPG Manager (Engg.)S.Chandran... Appellant-vs-1. M/s.Devi Constructions, Engineering Contractors, H-102, Periyar Nagar, Erode.2. P.K.Kutty Deputy General Manager (LPG), TWSD, Sole Arbitrator, 139, Mahatma Gandhi Road, Chennai... RespondentsAppeal against the Order dated 26.2.2008 made in O.P.No.461 of2005 dismissing the petition and thereby upholding the Award dated20.12.2004 passed by the 2nd respondent.For Appellant:Mr.Abdul Hameedfor M/s.Anand AbdulFor Respondents:Mr.A.L.Somayaji, S.C.For Mr.V.P.Sengottuvel for R-1J U D G M E N T(Delivered by D.MURUGESAN, J.)This appeal is directed against the judgment and decree passed inO.P.No.461 of 2005 dated 26.02.2008. The appeal arises under thefollowing circumstances.2.A works contract dated 18.8.2001 was entered into between theIndian Oil Corporation Limited, the appellant herein (hereinafterreferred as 'the Corporation') and M/s.Devi Constructions, Erode, the https://hcservices.ecourts.gov.in/hcservices/ first respondent herein, for execution of certain constructions. Inview of the questions raised in the appeal, we are not inclined toelaborate the terms and conditions of the contract, except referringto clause 18 of the contract, which provides for an arbitration incase of a dispute and passing an award within a period of twelvemonths after entering upon the reference or within such extended timenot exceeding further four months.3.A dispute arose and the matter was referred to a SoleArbitrator. The respondent-Devi Constructions made a claim ofRs.22,82,600/-. The appellant-Corporation also made a counter-claimfor a sum of Rs.1,80,56,815/-. By award dated 20.12.2004, the claimmade by Devi Constructions was accepted and an award was passed tothe said effect. The counter-claim of the appellant-Corporation wasnegatived. The said award was questioned by the appellant-Corporation and the challenge was under Section 34(2)(V) read withSection 16(6) of Arbitration and Conciliation Act, 1996 (hereinafterreferred to as 'the Act') and the said petition was dismissed by thelearned single Judge by order dated 26.02.2008. Hence, theappellant-Corporation is before this Court.4.Mr.Abdul Hameed, the learned counsel appearing for theappellant raised the following contentions:-(i)Inasmuch as the word "proceeding" contained in Section 69(3)of the Indian Partnership Act, 1932, also includes anarbitration proceeding pending before an Arbitrator, therespondent-Devi Constructions, a non-registered firm cannotmaintain the arbitration proceeding, as it is hit by Section69(3);(ii)As the Arbitrator had looked into and relied upon thedocument (Registration Certificate), after the argumentswere over and without any opportunity to the appellant-Corporation, the same would result in legal misconduct;(iii)The failure on the part of the Arbitrator to look intomaterial documents which would have relevance and bearing onthe issue, would affect the award; and(iv)Lastly, the Arbitrator had passed the award beyond thestipulated period and hence, the award is withoutjurisdiction.For all the above reasons, the learned counsel contended that theaward is vitiated and accordingly, it is liable to be quashed. Thelearned counsel extensively drew our attention to the material papersin support of the above submissions. https://hcservices.ecourts.gov.in/hcservices/

5.Mr.A.L.Somayaji, learned counsel for the first respondent-DeviConstructions, submitted that the Arbitrator is obligated to decidethe reference within the four corners of the contract and theparties, namely the appellant-Corporation as well as the respondent-Devi Constructions, are also bound by the terms of the contract.Inasmuch as the reference was made in terms of clause 18 of thecontract, it does not lie in the mouth of the appellant-Corporationto question the jurisdiction of the Arbitrator to entertain such aclaim from the respondent-Devi Constructions solely on the groundthat the firm was not registered. The provisions of Section 69 cannotbe made applicable to the reference to arbitral proceedings andconsequently, the word "proceeding" cannot be made applicable to areference to the Arbitrator. Insofar as the filing of registrationcertificate, the learned senior counsel would submit that though itwas not produced at the time of reference, it was produced on21.6.2004, on which date the arguments were concluded and the saiddocument was also received by the Deputy Manager of the appellant-Corporation. The learned senior counsel would further submit thatthe appellant-Corporation did not raise the question that thisdocument cannot be relied upon without opportunity to the appellantbefore the Arbitrator. As regards the last submission, the learnedsenior counsel would submit that though the clause 18 of the contractprovides that the Arbitrator shall make the award in writing and thesame should be published within 12 months after entering upon thereference or within such extended time not exceeding further fourmonths, even after the expiry of the said period, i.e. 9.1.2004, itwas extended by six months by a joint memo dated 24.3.2004 and eventhereafter, the time was extended upto 30.9.2004 on 30.7.2004.Factually, the Arbitrator did not pass the award on 30.9.2004, as theaward was passed only on 20.12.2004. The above act of the Arbitratorin not passing the award in the extended period cannot be a ground tointerfere with the award in exercise of power under Section 34 of theAct. Inasmuch as both the parties did not stick on to the period oflimitation, as they had extended the period stipulated under clause18 of the contract, the time was not considered as an essence andtherefore, merely because the Arbitrator has not passed the award inthe extended period, it cannot be contended that the very awarditself is invalid in the eye of law and consequently, is liable toset aside.6.We have carefully considered the submissions of both sides andperused the entire materials placed before us.Point No.1:7.Section 69 (2) of the Indian Partnership Act, 1932, reads asunder:-"69. Effect of non-registration https://hcservices.ecourts.gov.in/hcservices/ (1) ...(2) No suit to enforce a right arising from a contractshall be instituted in any court by or on behalf of a firmagainst any third party unless the firm is registered andthe persons suing are or have been shown in the register offirms as partners in the firm.(3) The provisions of sub-sections (1) and (2) shallapply also to a claim of set-off or other proceeding, toenforce a right arising from a contract, but shall notaffect - .... "8.The learned counsel appearing for the appellant wouldvehemently contended that in view of the said specific provision, asuit shall not be instituted in any Court by or on behalf of anyperson suing as a partner of the firm unless the firm is registered.He would also rely upon sub-section (3) of Section 69 to contend thatthe bar under Section 69(1) and (2) is also applicable to "otherproceeding" as well. 9.The provision of section 69 is a penal provision. In terms ofthe said provision, an unregistered firm cannot sue for enforcementof a contract and also cannot claim any set off or initiate any otherproceeding to enforce a right arising from a contract. Thisprovision is intended to prevent such suit or proceeding initiatedfor enforcement of the contract before any Court by an unregisteredfirm. The question is whether by virtue of the said provision,particularly the word "proceeding" used in sub-section 3 of section69 a reference to the Arbitrator by an unregistered firm is also notmaintainable. Though the provision contemplates suits orproceedings, in our opinion, the said provision could be madeapplicable to any suit or proceeding instituted in any Court andwould certainly not include a reference to an Arbitrator. Areference to the Arbitrator to adjudicate the dispute is governed bythe terms of the contract. As the terms of the contract aremutually agreed, the same are binding on the parties to the contract.As far as the case on hand is concerned, there is no dispute that byclause 18 of the contract, both the appellant-Corporation as well asthe respondent-Devi Constructions have agreed to refer the dispute,if arises in future out of the said contract, to a sole Arbitrator.Hence, the reference cannot be questioned by the appellant-Corporation, who is also a party to the contract, solely on theground that there is a bar under section 69 of the Indian PartnershipAct. 10.In support of the first submission that the word "proceeding"used in Section 69 would also include arbitration proceedings, thelearned counsel for the appellant relied upon the followingjudgments:- https://hcservices.ecourts.gov.in/hcservices/ (i)AIR 1964 SC 1882 [ JAGDISH CHANDRA GUPTA v. KAJARIA TRADERS(IND.) LTD.];(ii) AIR 1989 SC 1769 [ M/S.SHREERAM FINANCE CORPN. v. YASINKHAN]; and(iii) 1998 (8) SCC 559 [DELHI DEVELOPMENT AUTHORITY v. KOCHHARCONSTRUCTION WORK]11.Insofar as Jagdish Chandra Gupta's case is concerned, the ApexCourt was considering the applicability of Section 69(3) of theIndian Partnership Act, in respect of an application filed underSection 8(2) of the Indian Aribitration Act, 1940. Inasmuch as anapplication was filed in the Court, such application was broughtunder the word "proceeding", the Supreme Court has held that such anapplication at the instance of an unregistered firm cannot beentertained, as it is hit by Section 69(3) of the Indian PartnershipAct. In M/s.Shreeram Finance Corporation's case also, the Apex Courtwas considering a suit filed by some of the partners when the newpartners were not shown in the Registrar of Firms and therefore, heldthat the suit is not maintainable. In Delhi Development Authority'scase also, the Apex Court was considering a proceeding initiatedbefore the Court under Section 20 of the Act in respect of place ofarbitration.All these cases are not applicable to the facts of thepresent case, as the applicability of Section 69(3) is sought to bemade in respect of a reference made to an Arbitrator pursuant to theterms of the contract.12.As we have already held that section 69 would be applicable toa suit or a proceeding initiated before the Court and that too forenforcement of a contract and the said provision is not applicable toa reference to an Arbitrator in terms of the contract, we are notinclined to accept the first submission of the learned counsel forthe appellant and accordingly, the same is rejected.Point No.2:13.With regard to the second submission of the learned counselfor the appellant-Corporation that the registration certificate wasaccepted and relied upon by the Arbitrator and hence, the same wouldamount to a legal misconduct, the said certificate was producedbefore the Arbitrator on 21.6.2004 and a perusal of the same showsthat a copy of which was also received by one G.Venkat Rao, DeputyManager (Law) TNSO on the same day. 14.That apart, factually the said registration certificate wasalso taken into consideration by the Arbitrator as could be seen fromparagraph 5.0. of the award, where the Arbitrator had said "Therespondent in their written arguments had submitted that the claimantis not registered with the Registrar of Firms and hence, the claim https://hcservices.ecourts.gov.in/hcservices/ statement filed by the claimant is liable to be dismissed. Furtherthe claimant had submitted that the signatory of the claim statementhas not produced any documents to show that he has been authorised tosign the statement on behalf of the claimant. The claimant hasresponded and submitted a copy of the registration document from theRegistrar of Firms, Erode, confirming that the claimant is aregistered firm with the Registrar of Firms. The claimant furthersubmitted that the respondent had accepted the tender offered by theclaimant represented by its partner Sh.Palaniswamy and executed theworks contract and accordingly addressed all correspondences. In viewof the clarifications and confirmation submitted by the Claimant, Ihold that the claim statement filed by the Claimant is maintainable." 15.The learned counsel for the appellant would rely upon thejudgment of this Court reported in A.I.R. 1935 Madras 184[VENKATASUBBIAH v. RAMAIAH], to contend that where a document,which is of vital importance, is not shown to one of the parties bythe Arbitrator, the Arbitrator is guilty of misconduct and the awardshould be set aside. The said judgment is not applicable to thefacts of this case. The registration certificate was filed before theArbitrator and a copy of the same was also furnished to the DeputyManager of the appellant-Corporation and the appellant-Corporationwas aware of the said document even before the award was passed.16.Further, the award came to be passed only on 20.12.2004 and inbetween the time for the Arbitrator to pass the award, it wasextended on 30.7.2004 to 30.9.2004. The contention that the saiddocument was filed behind the back of the appellant-Corporation isfactually incorrect. Further, having acknowledged the said document,the appellant had sufficient time to question that document beforethe Arbitrator, as the award was passed after nearly six months.Having failed to avail such an opportunity before the Arbitrator, itdoes not lie in the mouth of the appellant-Corporation now to contendthat the Corporation was not given opportunity to refute the saiddocument. Hence, in our opinion, the contention that the documentwas received by the Arbitrator and was relied upon behind the back ofthe appellant-Corporation, which would amount to a legal misconductis unacceptable. Accordingly, the said contention is rejected.Point No.3:17.Insofar as the next contention as to the failure of theArbitrator to look into the material documents, it is purely aquestion of fact and such a question cannot be agitated before theHigh Court under Section 34 of the Act and that too at the appellatestage. Hence, we are inclined to reject the said contention.Point No.4:18.Insofar as the last contention as to whether the Arbitrator https://hcservices.ecourts.gov.in/hcservices/ would be justified in not passing the award within the periodstipulated or agreed by both the parties and in the event of theaward not passed within the said period, it is liable to be set asideor not, in our opinion, the intention of the parties to the contractis relevant. Of course, under clause 18 of the contract, a period of12 months was prescribed initially for the Arbitrator to pass theaward from the date of reference. The said period also could beextended by four more months. Admittedly, the said period of 12months expired on 9.1.2004. Firstly, both the appellant-Corporationand Devi Constructions did not adhere to the terms of contract andnecessitated the Arbitrator to pass an award within the stipulatedperiod. Admittedly, the arbitration proceedings could not becompleted within the said period and both the appellant-Corporationand Devi Constructions filed a joint memo extending the period by sixmonths with effect from 9.1.2004. There is no dispute that even thesaid period of six months was further extended up to 30.9.2004. Inthese circumstances, a mere failure on the part of the Arbitrator topass an award after the expiry of the extended period would be only airregularity and cannot be considered as an illegality to be broughtunder Section 34 of the Act to quash the award. 19.In this context, it is also relevant to point out that under1940 Act, a specific provision was incorporated prescribing astatutory period of limitation for passing an award. Such period isnot provided under the new Act, namely, 1996 Act, thereby leaving theparties to mutually agree and fix the period by which the awardshould be passed. The intention of the parties, as stated above, byextending the period to pass an award would amount to incorporatingthe same in the original contract itself. When there was arelaxation of the said period as agreed mutually by both theappellant-Corporation and Devi Constructions, the condition relatingto passing award within a prescribed period by ipso facto will notinvalidate the award if the said condition is not abide by theArbitrator. A party to an arbitration agreement who voluntarily takespart in the arbitration proceedings after the expiry of the periodprescribed in the agreement and periodically extending the time forthe Arbitrator to pass an award, will be deemed to have waived theimplied condition as to time. In such circumstances, it cannot besaid that the Arbitrator has acted without jurisdiction.20.The grounds upon which an award can be set aside are limited,as provided under Section 34 of the Act. The Court should be verycircumspect about setting aside an award reached by an Arbitrator forparties who have agreed that the disputes that may arise and havearisen between them should be resolved not by a Court of law but byan Arbitrator. The approach of the Court must always to honour andsupport the award and not to find out reasons to set aside the same,when the reasons do not fall under any of the enumerated clausesunder Section 34 of the Act. In this context, useful reference canbe made to the following judgments of the Apex Court:- https://hcservices.ecourts.gov.in/hcservices/ (i) (1993) 2 SCC 106 [JAJODIA (OVERSEAS) (P) LTD. v. INDUSTRIALDEVELOPMENT CORPORATION OF ORISSA LTD.] and(ii) (2007) 7 SCC 679 [MARKFED VANASPATI & ALLIED INDUSTRIES v.UNION OF INDIA].As none of the grounds argued by the learned counsel for theappellant would attract any of the clauses of Section 34 of the Act,we are not inclined to interfere neither with the award nor with theorder of the learned single Judge.For all the above reasons, the appeal fails and the same isdismissed. No costs.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.sraToThe Sub Asst.Registrar,Original Side, High Court,Madras.+ 1 CC To M/s.Anand, Abdul & Vinodh, Associates, SR NO.12013+ 1 CC To Mr.V.P.Sengottuvel, Advocate SR NO.11634O.S.A.No.365 of 2008LA {CO}TP/21.4.2009.