ISS CONSTRUCTIONS Vs. NEERAJ CEMENT STRUCTURAL LTD

JUDGEMENT

(1.) THIS application has been moved by the Petitioner ISS Construction, a partnership firm, invoking jurisdiction of this Court under Section 11 (6) of the Arbitration & Conciliation Act, 1996 to appoint an arbitrator.

(2.) BRIEF facts of the case are that the Petitioner is a partnership firm having expertise in construction of roads & it has undertaken & successfully completed number of Government & Semi -Government works. The Opposite Party which is a Maharashtra based company claims to have undertaken major construction projects in the country. Government of Orissa floated tender for construction of Cuttack -Paradeep road & the Opposite Party was awarded with the construction of a stretch of 43 Kms of the said road. After obtaining the contract, it entered into sub -contract with three contractors including the Petitioner which was entrusted with construction of the road from 13/000 Kms to 28/000 Kms. The work entrusted to the Petitioner involved construction of embankment with sand or earth, laying of sub grade & topping of with granular sub base so as to improve two lanes rigid pavement carriage with paved shoulders of 1.5 Mts. on both sides along with C.D.(Cross Drainage) works in the allotted stretch of 15 KMs. For this purpose an agreement was executed between the Petitioner & Opposite Party at Cuttack on 11.9.2007. As per the terms of the agreement, the Petitioner was required to carry out the construction work as per the plans prepared & supplied by the Opposite Party. It was agreed that the work would be completed within a period of seven months. The Opposite Party promised to reward the Petitioner with 0.5% to a maximum of 1.0% of the final bill as bonus for timely completion of the work. Therefore, time was essence of the contract. It is the further case of the Petitioner that the terms of the contract between the State & the Opposite Party was not known to the Petitioner & even after Petitioner's insistence to know the same, Opposite Party avoided to disclose the same. Opposite Party paid a sum of Rs. 7,00,000 to the Petitioner as mobilization advance & to secure the amount, Petitioner furnished a bank guarantee of Union Bank of India for Rs. 40,00,000 in favour of the Opposite Party for a period of one year. As per the agreement, Opposite Party was required to pay the running bills every month. The Opposite Party was required to clear the bill within 7 days from the date of its receipt. Such bills were to be prepared after measurement made/certified by the Opposite Party. The Petitioner was required to work according to the schedule prepared & given by the Planning Department of the Opposite Party. The schedule of work was not given to the Petitioner in time & only verbal instructions were given based on which the Petitioner proceeded to execute the work. The first schedule was given to the Petitioner in March, 2008 by which time the work had progressed substantially. Though the Petitioner was assigned construction of 15 Kms stretch, no clear stretch was provided to it & it was asked to begin work only with 4 Kms. stretch, i.e. from 24/000 to 28/000 Kms. Which was handed over to it. Since the Petitioner had mobilized men & machinery for completing the assigned stretch of 15 Kms. within the schedule time, a lot of inconvenience was caused to the Petitioner as it was handed over only a stretch of 4 Kms. to work on. After starting execution of the work, the Petitioner discovered that the original ground level was not fit for work, As it was slushy, the Petitioner had to prepare the ground by engaging excavators to remove the loose earth & slush & achieve the initial ground level which would be fit for laying the embankment. Since the same was beyond the scope of work entrusted to the Petitioner & was carried out on the verbal instruction of Mr. V.K. Chopra, the Managing Director of the Opposite Party who issued necessary instruction after personally inspecting the site, the Petitioner wanted a supplementary work order to be issued. The Petitioner was, however, advised to proceed with the work without waiting for such supplementary work order. The Opposite Party had also promised to bear the cost of the extra work to be executed by the Petitioner. The work commenced in 1st week of November, 2007 but the Petitioner faced numerous hurdles which were brought to the notice of the Opposite Party & on the verbal assurances of the Project Manager, the Petitioner went on doing the preliminary ground clearing work. However, no plans/specification, drawing etc. were provided by the Opposite Party so as to enable the Petitioner to complete the work within the time stipulated. The Petitioner by letter dated 3.1.2008 (Annexure -2) intimated the Opposite Party the impediments it was facing in executing the work & the fact that it had not received drawings for the Hume pipes, culverts & the slab culverts so also the methodology for earth work. The Opposite Party did not take any action on the representation made by the Petitioner. On the contrary, it issued a fresh schedule & scope of work & forced the Petitioner to complete the work as per the new schedule. Though the work order was given in September, 2007, the work started in November, 2007 upon receipt of initial verbal instruction from Opposite Party out proper utilization of machinery could only be done in February, 2008. As the site was not handed over till then nor were the drawing & specifications in its entirety supplied, the Petitioner could only do the basic work of clearing the ground. Petitioner received payment of the first bill on 15.3.2008. The Petitioner continued with the work as per schedule though the Opposite Party did not supply the required document &, therefore, the progress of work could not be achieved at the pace so as to be completed as per schedule. After completion of the embankment the Petitioner was required to lay the sub -grade over the embankment. Laying of the sub -grade is of paramount importance as it had to withstand the heavy traffic that the road would be subjected to. Originally, it was contemplated that laying of sub -grade would be through earth only which was required to be compacted. Subsequently Opposite Party No. 1 in consultation with the State Government wanted that the sub -grade would be a mixture of sand & moram in the ratio of 50:50 which was later changed to the ratio of 67:33. Such a change had financial implications for which the Petitioner informed Opposite Party that the price had to be revised to Rs. 526.00 per cubic meter. Though the Opp. Party had verbally assured the Petitioner that he would be duly compensated for the extra price implication on account of the sub -grade but in the statement furnished to the Petitioner the rate of sub -grade (i.e. earth) initially calculated at Rs. 310 per cubic meter was subsequently revised to Rs. 360 per cubic meter. During execution of the work, there was increase in the price of petrol & diesel for which the Petitioner faced difficulties to mobilize machineries to work site. On 9.6.2008, the Petitioner requested the Opposite Parties to pay the running bills in time & at the same time, pay the differential escalation price, but to no effect. Thereafter, the Petitioner requested Opposite Parties to extend the time for completion of work, who in turn asked the Petitioner to furnish certain information & particulars for extension of time. After a lapse of four months, the Opposite Party extended the time till 31.5.2009. therefore, the delay was due to the negligence & indifference of the Opp. Party. Although the time was extended for no fault of the Petitioner but Opposite Party required the Petitioner to extend the bank guarantee for a further period of one year because of which the Petitioner incurred unnecessary expenses of lakhs of rupees for processing the same. The Petitioner requested the Opp. Party to release a sum of Rs. 39.65 lakhs for the work already done by it but the said request did not yield any result. While the request of the Petitioner for measurement & payment remained unheeded, the Opposite Party insisted upon expeditious execution of the work & at times beyond the scope of work allotted to it. The Petitioner went on carrying out the instructions with a view to complete the work early in order to have early release of payments. On 31.10.2008, the Petitioner was served with a statement of account from which it was found that the same had been prepared in a manner so as to defeat his legitimate claim for the work which he did pursuant to the verbal instruction issued to him. The extra work & the changed specification involving extra expenditure had not been taken into account though the Opposite Party had claimed escalated price & obtained it from the Government. Such escalation cost was not passed on to the Petitioner thereby causing it huge loss. Even though the Opposite Party was aware that earth had never been used as sub -grade, the calculation had been based on the basis of rate for earth work. Though the Petitioner had categorically made it clear to the Opposite Party that it would not be possible to execute the sub -grade work at a rate less than Rs. 448.00 per cubic meter, the Opposite Party had calculated the same at the rate of Rs. 310.00 per cubic meter when it was insisted that the sub -grade work was to be done with moram & sand at the ratio of 50:50. Certain deductions were also made illegally. By letter dated 3.11.2008., the Petitioner requested the Opposite Party to correct the statement so as to reflect the actual state of affairs on receipt of which assurance was given that correction would be made & corrected statement would be supplied to him which was never done. Therefore, the Petitioner has reasons to believe that such distorted incorrect statement was deliberately prepared to defeat the claims of the Petitioner & to cause it irretrievable loss & unjust enrichment to the Opp. Party. Although the Opp. Party has claimed much higher rate from the State Government, it does not intend to pass on such enhanced payment to the Petitioner. The statement also showed deduction On account of salaries paid to Senior Engineers, Junior Engineers & Supervisors who are employees of Opposite Party. Such deduction was beyond the scope & terms of the contract. Thereafter the Petitioner furnished a clarification giving details of the work done in executing the project. In order to make a solid base for construction, the site was required to be filled up with sand & on getting permission from Mr. V.K. Chopra, M.D. of the Opposite Party, the Petitioner filled the area with sand to make it ready for laying the gravel which is the basic ingredients for making the road. The Petitioner intimated that the measurement had been taken from the original ground level & not from the initial ground level even though Opposite Party was aware of the same. The Opposite Party claimed payments from Government for work done from the initial ground level. The Petitioner has been paid (c) Rs. 310.00 instead of Rs. 448.00 per cubic meter for the sub grade work. The Petitioner was entitled to be paid Rs. 526.00 in view of the changed specification while executing the sub -grade work. Again another statement was served on the Petitioner in February, 2009 of the work done as on 31.12.2008. Though in the initial statement, the rate of sub grade work was calculated at Rs. 310.00 per cubic meter in the later statement the same was revised to Rs. 360.00 unilaterally without any reference to the Petitioner. The later statement supplied in February, 2009 did not contain the correct state of affairs. In the first statement, Opposite Party claimed recovery of Rs. 33,17,909.98. Thereafter the Petitioner executed some more work during the next two months without being paid anything but curiously the amount of recovery rose to Rs. 88, 84, 449.41. On protest raised by the Petitioner, the Opposite Party revised the statement reducing the amount of recovery to Rs. 47, 38, 665.00. This shows that the Opposite Party is trying to exploit the Petitioner financially by playing fraud. Petitioner's repeated request for measurement of the work already executed by him has not yet been accepted by the Opposite Party. The Opposite Party has played fraud & mischief by artificially enhancing the prices & illegally charging the same from the Petitioner. The illegal & absurd calculation smacks of fraud & malice on the part of the Opposite Party. There is great variance of the quantities of work done & the quantities calculated. Though the Petitioner has not been paid his. bills since April, 2008, he is being served with erroneous statements one after the other. Therefore, by letter dated 28.1.2009 the Petitioner requested the Opp. Party that measurement of the work done be taken & be he paid his dues. Though the said letter was received by the Opp. Party on 10,2.2009, it has not taken any steps for doing the measurement. As the dues was not paid, the Petitioner was not able to make payment to his workers & therefore had to withdraw from the site. As the Petitioner suffered from irreparable injury due to non -payment of dues in time, by letter dated 24.2.2009 intimated the Opp. Party that as despite repeated requests his claims are not being paid a dispute had arisen between the parties & the Petitioner is entitled to receive Rs. 3,21,421,09.82. Therefore, it request for referring the dispute to arbitration for adjudication as there was no scope and/or avenue left open for amicable settlement of disputes. Opp. Party ignored the claim & on 4.3.20.09 served a letter dated 23.2.2009 on the Petitioner again raising a claim of Rs. 91,45,365.60 & surreptitiously approached the Bank & attempted to encash the bank guarantee furnished by the Petitioner. Petitioner apprehending foul play approached the Learned District Judge, Cuttack for restraining the Opp. Party from encashing the bank guarantee & the Learned District Judge, Cuttack by Order Dated 31.7.2009 restrained the Opp. Party from encashing the bank guarantee till disposal of the arbitration proceeding. When the matter stood thus, the Petitioner received two registered letters posted from College Square Post Office on 8.4.2009. In one letter Sri Gulshan Chopra, Director of the Opp. Party, has intimated the Petitioner that by invoking clause 16 of the agreement, they have appointed Mr. V.K. Chopra as the Arbitrator. The other letter was sent by Sri V.K. Chopra intimating the Petitioner that he has already assumed jurisdiction as an arbitrator & fixed the meeting to 24.4.2009. The case of the Petitioner is that its letter dated 1.4.2009 sent by fax invoking clause 11 of the agreement proposing the name of retired High Court Judge has not yet been disputed by the Opp. Party. He has submitted that the contract was executed at Cuttack, the local office of the Opp. Party is situated within the jurisdiction of Cuttack so also the work is to be executed within Cuttack jurisdiction. The Opp. Party has entered into the agreement with Orissa Government. Hence, the Cuttack Court has jurisdiction to arbitrate the dispute between the parties. As no part of the cause of action has taken place in Mumbai, the parties even by consent cannot clothe the Court with jurisdiction since it has none. Since Mr. V.K. Chopra is the M.D. of the Opp. Party & has instructed the Petitioner from time to time to execute the work, he cannot give a just & impartial decision in the case. Therefore, the Petitioner has filed this petition invoking jurisdiction of this Court Under Section 11 (6) of the Act for appointment of an arbitrator.

(3.) IN the counter affidavit, it has been averred that the Petitioner has not approached this Court with clean hand & has suppressed material facts. It is stated that pursuant to clause 16 of the agreement, the Opp. Party has appointed Mr. V.K. Chopra as the sole arbitrator who has already entered into the reference & the Petitioner has challenged his impartiality which is pending for decision before the arbitrator. The Petitioner vide Annexure -5 requested the Opposite Party for amicable settlement of the dispute raised by it but due to the stubborn attitude of the Petitioner no settlement could be reached. Therefore, the Opposite Party invoked the arbitration clause & referred the matter to Mr. V.K. Chopra & the appointment having been made in accordance with Section 11 (2) r/w Section 11 (8) of the Act, the present petition is thoroughly misconceived. The disability pleaded by the Petitioner in the petition if taken in toto, the same can at best be adjudged as a challenge under Section 12(3) of the Act & can only be adjudicated by the arbitrator himself for which the present petition is not maintainable. It is further stated that in view of clause 17 of the agreement which provided that any dispute between them would be subject to the jurisdiction of the Courts at Mumbai &, therefore, this Court has no jurisdiction to entertain the Petitioner's application. The original of the cause of action had accrued by issuance of letter of intent dated 18.5.2007 from Mumbai. Hence although the subsequent documentation & communication were made from the Cuttack branch office of the Opp. Party, it cannot be held that the Courts at Cuttack alone have jurisdiction to decide the dispute. It is their further case that the Courts at Cuttack & Mumbai have jurisdiction as part of cause of action has arisen in both the laces. Referring to the law laid down by the Apex Court that where two or more Courts have under the Code of Civil Procedure, jurisdiction to try a suit or a proceeding, an agreement between the parties that the dispute between them shall be tried in one of such Courts is not contrary to public policy, the Opp. Party has contended that in view of clause 17 of the agreement wherein the parties have consciously ousted the jurisdiction of the Courts at Cuttack, they can only approach the Court at Bombay &, therefore, this petition is not maintainable for want of jurisdiction. The facts mentioned in the different paragraphs of the petition have either been denied as untrue & false or twisted. Be that as it may, in view of the preliminary objection raised by the Opposite Parties, I do not think it necessary to mention in details the averments of the Opp. Party with regard to the facts mentioned in the petition paragraph -wise.