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M/S.Ivrcl Infrastructures And … vs M/S.National Highways Authority … on 24 January, 2011

Madras High Court
M/S.Ivrcl Infrastructures And … vs M/S.National Highways Authority … on 24 January, 2011
       

  

  

 
 
 BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT

DATED: 24/01/2011

CORAM
THE HONOURABLE MR. JUSTICE N.KIRUBAKARAN

CMA.(MD).No.669 of 2009

M/s.IVRCL Infrastructures and Projects Ltd.,
Having Registered Office at M22/3RT,
Vijayanagar Colony,
Hyderabad-500057,
Andhrapradesh		 				          ... Appellant

Versus

1.M/s.National Highways Authority of India Ltd.,
  Represented by its Project Director,
  H.No.831/1, SBI First Colony Extension,
  Bye Pass Road, Madurai-625 016.
2.The Chief Vigilance Officer,
   M/s.National Highways Authority of India
   Ministry of Shipping, Road Transport and Highways,
  G-5 & 6, Sector 10, Awarks,
  New Delhi-110 075.
3.Scott Wilson India Private Limited,
  Represented by its Resident Engineer,
  Having their office at
  A-41, Ramabardan Street,
  Madurai-625 006.  				         	 ... Respondents


	This Civil Miscellaneous Appeal is filed under Section 37(1) (a) of the
Arbitration and Conciliation Act, 1996 against the fair and decreetal order
dated 7.7.2009 made in Arbitration O.P.No.3 of 2009 on the file of the Principal
District Judge, Madurai.

!For Appellant   ...   Mr.Murari
		       for M/s.Sarvabhuman Associates	
^For Respondents ...   Dr.R.Rajagopal

:ORDER

This appeal has been preferred against the common order passed Ar.O.P.No.3
of 2009 and I.A.Nos.937 and 938 of 2009.

2. The facts of the case are as follows:

The appellant was awarded a contract for laying four lane road between Madurai
and Kanyakumari KM-80 to KM-120. The letter of acceptance was issued on
20.4.2005. The agreement was entered into between the appellant and the first
respondent on 12.8.2005. Pursuant to that the appellant proceeded to execute the
work and is stated to have completed about 80% of the total value of the work as
per the instructions given by the third respondent. There was a surprise visit
of the site by the second respondent between 10th October and 13, October 2007
and collected samples from Bitumen were collected for testing. After 8 months, a
show-cause notice dated 10.6.2008 was issued by the second respondent relating
to the issue of process of bitumen and use of sub-standard bitumen. A reply was
issued on 10.7.2008 and it was stated that the bitumen used in the execution of
contract were not substandard. Subsequently, the third respondent through letter
dated 11.7.2008 recommended to the first respondent to withhold a sum of Rs.3.09
crores from the appellants bill for the alleged use of substandard bitumen in
the execution of contract. Therefore the first respondent withheld
Rs.4,27,65,826/- from the appellants bill amount. In view of the that, the
appellants moved the court under Section 9 of the Arbitration Act to safeguard
its interest.

3. The respondent contested the matter stating that:

1) There is no jurisdiction for the court to entertain an application in view of
prohibition under National Highways Authorities of India Act 1988.

2) NHAI Act is a special Act and a special machinery is provided for the relief
under the Act.

3) In terms of Section 28 of the NHAI Act, 1988 no suit or proceedings can be
allowed against the authority;

4) Any contravention of terms and conditions has to be brought out and redressed
only as per the provisions of contract.

5) The vigilance cell, NHAI inspected site and found substandard bitumen of
80/100 was used instead of bitumen 60/70 as per the agreement.

6) The converted bitumen, when tested in the M/s. IOC’s lab from where original
bitumen was procured, failed in all the parameters.

7) The appellant neither objected for the recovery nor referred the matter under
arbitration for Dispute Review Board under clause 67.1 of the contract agreement
in the month of July 2008 and August 2008.

4. The civil court after hearing both the parties, held that:

a) Section 28(2) of the NHAI Act bars jurisdiction of the Civil Court and that
the dispute with regard to use of substandard materials by the appellant cannot
be decided by the civil court as the civil court has got no jurisdiction to
entertain the same.

b) Under Section 2(i) ( e) of the Arbitration Act, the High Court alone has got
jurisdiction.

c) Section 9 of the Arbitration and Conciliation Act would not confer
jurisdiction on the civil court.

d) The intention of the government is to vest the jurisdiction on the higher
forums, since the amount involved in the transaction is high.

Hence the civil court, on the ground of jurisdiction, returned the O.P. papers
to be presented before the appropriate forum. The said order the civil court is
being challenged before this court.

5. Learned counsel for the appellant submitted that the civil court
committed error in returning the papers on the question of jurisdiction,
especially when the court is clothed with powers under Section 9 of the
Arbitration Act. Secondly he submitted that Section 28 of the NHAI Act cannot be
a bar for the appellant to maintain Section “9” application under Arbitration
Act
. Thirdly, the civil court wrongly concluded that only the High Court has got
jurisdiction. Fourthly, there is no bar for the civil court to entertain the
application. Therefore he seeks for setting aside the order of the civil court.

6. On the other hand, learned counsel for the respondent supported the
order of the civil court stating that:

1) The contractor used substandard quality bitumen,

2) the appellant did not object the recovery of money or refer the matter for
Dispute Review Board under clause 67.1 of the contract agreement.

3) The appellant failed to avail alternative remedy by way of reference to
Dispute Review Board.

4) The first respondent already appointed DRE and therefore the proceedings
under Section 9 of the Arbitration Act are premature.

5) The bank guarantee of Rs.8.65 crores is only the guarantee for any lapse
found at the time of completion of project and the present recovery is only for
the amount already paid by the NHAI for the work done in which substandard
bitumen was used.

6) The appeal proceedings are intended to bypass or override the provisions of
the agreement.

7. Heard the rival contentions and perused the records. The only
question before this Court is whether the civil court was right in returning the
papers for want of jurisdiction.

8. The allegation against the appellant is that it used substandard
bitumen for laying the road which was denied by the appellant. As stated above
if the dispute arises, what is the course open to the appellant to get
redressal? As per clause 67.1 of contract agreement, the party has to approach
the Dispute Review Board which will give its recommendations. In case of
dissatisfaction about the recommendations, arbitration proceedings are provided
under clause 67.3 of the contract agreement.

9. As the amount was sought to be withheld for the alleged use of sub-
standard bitumen the appellant approached the civil court seeking interim
measures under Section “9” of the Arbitration and Conciliation Act, which reads
as follows:

“Section-9. Interim measures, etc., by Court– A party may, before or
during arbitral proceedings or at any time after the making of the arbitral
award but before it is enforced in accordance with Section 36, apply to a
Court:–

(i) for appointment of a guardian for a minor or a person of unsound mind
for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the
following matters, namely–

(a) the preservation, interim custody or sale of any goods which are the
subject-matter of the arbitration-agreement;

(b) securing the amount in dispute in the arbitration;
( c) the detention, preservation or inspection of anyl property or thing
which is the subject-matter of the dispute in arbitration, or as to which any
question may arise therein and authorising for any of the aforesaid purposes any
person to enter upon any land or building in the possession of any party, or
authorizing any samples to be taken or any observation to be made, or experiment
to be tried, which may be necessary or expedient for the purpose of obtaining
full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the court to
be just and convenient,
and the Court shall have the same power for making orders as it has for the
purpose of, and in relation to, any proceedings before it.

10. It is evident from the above Section that any party can approach the
civil court before or prior to arbitration proceeding and the same has been
recognized by the Hon’ble Supreme Court in Sundaram Finance Limited NEPC India
Limited reported in AIR 1999 Supreme Court 565. In this case there is an
agreement, in which there is a provision for arbitration. According to the
appellant, the dispute has already arisen. Section 9 application before the
Civil Court is to safeguard its interest only. However, the Civil Court
returned the papers on the question of jurisdiction holding that the arbitration
and Conciliation Act confers jurisdiction only on the High Court and not on the
Subordinate Civil Court.

11. To test the correctness of the Trial Court order regarding
jurisdiction, this court has to consider Section 2(1) (e) of the Act.
Section 2(1) ( e) of the Arbitration and Conciliation Act 1996 reads as follows:
“(e) “Court” means the principal civil Court of original jurisdiction in a
district, and includes the High Court in exercise of its ordinary original civil
jurisdiction, having jurisdiction to decide the questions forming the subject
matter of the arbitration if the same had been the subject-matter of a suit, but
does not include any civil court of a grade inferior to such principal civil
Court, or any Court of Small Causes”

The above Section specifically states that the Principal Civil Court of
original jurisdiction in a District includes the high court in exercise of its
original civil jurisdiction. The Trial Court which is the District Court, the
Principal Civil Court of a particular district. A Division Bench of this Court
in The State of Tamil Nadu rep. By the Superintending Engineer, Madurai and
another vs. R.Sundaram and another
reported in 2006 (1) CTC 178 held that under
the provisions of The Arbitration and Conciliation Act 1996, “Court” means the
District Court which is the Principal Civil Court in a District. When such is
the position of law, there is no basis for the conclusion of the trial court
that it has no jurisdiction to decide the issue. Therefore the conclusion
reached by the civil court that Section 9 of the Arbitration and Conciliation
Act
will not confer jurisdiction on the civil court is fundamentally wrong and
the said finding is liable to be set aside.

12. It was further held by the court below that civil court’s
jurisdiction is barred under Section 28(2) of the NHAI Act, 1988. Section 28 of
the NHAI Act is extracted as follows:

” 28. Protection of action taken in good faith -(1) No suit, prosecution
or other legal proceeding shall lie against the Authority or any member or
officer or employee of the Authority for anything which is in good faith done or
intended to be done under this Act or the Rules or regulations made thereunder.

(2)No suit, prosecution or other legal proceeding shall lie against the
Authority or any member or officer or employee of the Authority for any damage
caused
(3) or likely to be caused by anything which is in good faith done or intended
to be done under this Act or the rules or regulations made thereunder”

13. The said section is only to give protection of action taken in good
faith. Therefore the said Section cannot extended to bar the civil court’s
jurisdiction under Section 9 of the Arbitration and Conciliation Act. The
National High Ways Authorities of India Act,1988 never overlapped with the
arbitration and conciliation Act and therefore there is no question of any
conflict or overriding of the other Act. When clause 67.3 of the agreement
itself speaks about the resolution of dispute by way of arbitration as per the
Arbitration and Conciliation Act 1996, the conclusion of the Trial Court that
the civil court’s jurisdiction under Section 28 of the NHAI Act is erroneous and
the same is liable to be set aside. The other finding of the court that the
intention of the government is to confer jurisdiction of the higher forum, since
the dispute involves higher value has no basis.

14. In view of that, this court holds that:

1) Section 28 of the National High Ways Authorities of India Act 1988 does not
bar the jurisdiction of the Civil Court to entertain Section 9 application under
the Arbitration and Conciliation Act, 1996.

2) As per Sections 2(1) (e), 9, 34 and 36 of the Arbitration and Conciliation
Act
1996, the Trial court has got jurisdiction to entertain an application under
Section ” 9 ” of the Act.

3) The conclusion of the Civil Court that the High Court alone has got
jurisdiction under Section 2 (1) (e) of the Act is erroneous. Therefore return
of petition for presentation before appropriate forum is set aside. In view of
the above reasoning, the civil court should not have returned the papers without
deciding the matter on merits. In this case, the dispute has already arisen. As
per clause 67.1 of the contract agreement, the parties have approached the
Dispute Review Board. Irrespective of the out come of the Board proceedings, the
out come would only be recommendatary in nature as seen in Clause 67.1 of the
contract. Moreover the Board has got no power to grant interim orders.
Therefore, the appellant rightly approached the civil court under Section ” 9 ”
of the Act for interim relief As per Section 9, the civil court has to entertain
the application and decide the matter on merits. The Civil Court after
considering prima facie case, balance of convenience granted interim order and
therefore the same order is required to be continued till the disposal of
Section 9 application.

15. In view of the above reasonings, the Civil Court should not have
returned the papers without deciding the matter. In this case, the dispute has
already arisen. As per clause 67.1 of the contract agreement it is stated that
the parties have approached the Dispute Review Board for settlement irrespective
of the out come of the Board proceedings, it is seen from the contract that the
out come would only be recommendatory in nature as seen in Clause 67.1 of the
contract. After Review Board proceedings, the parties are liberty to go for
arbitration. Moreover the Board has got no power to grant interim orders. Till
that time the parties’ rights are to be safeguarded as per law. Therefore the
appellant rightly approached the civil court under Section “9” of the Act for
interim relif, as the 1st respondent recommended withholding of Rs.3.07 crores
from the appellant’s bill through letter dated 11.6.2008. The Civil Court after
considering prima facie case, balance of convenience granted interim order in
this matter. The interim order granted by the Civil Court is as follows:
“1. The 1st respondent is a liberty to work out the amount to be recovered.

2. Such amount is to be intimated to the petitioner.

3. The 1st respondent is injuncted from recovering such amount from the
bill to be forwarded by the petitioner for the period ending 30th April 2009.

4. The petitioner is also directed to approach the Dispute Review Board or
Arbitration Tribunal on or before 15.6.2009 with repect to the amount quantified
as recoverable or with respect to any other dispute.

5. The 1st respondent is also injuncted from recovering such amount for
the period ending 31st May 2009 without further notice to the petitioner.”
Therefore the same order is required to be continued till the disposal of
Section 9 application.

16. Therefore without going into merits of the case, this court directs
the Trial Court to entertain the application and decide the matter on merits as
per law as expeditiously as possible. Till the matter is decided the interim
order as granted by the trial court will be in force.

17. With the above, the appeal is allowed. No costs.

vk/gsr

To
Principal District Judge, Madurai.

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