Difference of opinion having arisen between the two learned Members of the Division Bench hearing Letters Patent Appeal No.8 of 1971, the following questions of law have been referred to the third Judge, under section 98 of the Code of Civil Procedure, 1908.
(i) Whether the ground of incompetence or invalidity of reference to arbitration can, after once it has been raised by a party and decided against him in proceedings under section 20 of the Arbitration Act, 1940, be a ground for the setting aside of an award under section 30 of that Act?
(ii) Whether in the circumstances of the case there was substantial compliance with the provisions of clause 56 of the contract deed?
(iii) Whether the provisions of clause 56 of the contract deed could be waived and were in point of fact waived by the owner, respondent herein?
By way of this Judgment, I propose to answer the questions.
2. The appellant, herein referred to as contractor, and the respondent, herein referred to as the owner, entered into a construction contract, which provided for the mode of settlement of disputes by way of clauses 56 and 57. Differences having arisen, the contractor filed an application under section 20- of the Arbitration Act, 1940, (hereinafter referred to as the Act). This application was resisted by the owner on the ground that the application was incompetent, inasmuch as, the contractor has not availed of the procedure laid down in clause 56. It is pertinent to note that in nutshell clause 56 provided that in the event of any dispute between the contractor and the architect, the matter shall be referred to the owner for decision. The trial Court by its order, dated 6- 3-1968, allowed the application under section 20 of the Act, directed the filing of the agreement in Court and thereafter appointed an arbitrator. The order, dated 6-3-1968, although appealable under section 39(i)(iv) of the Act, was not appealed against. Subsequently, the arbitration proceedings continued and at one stage the original arbitrator was changed with the consent of the parties. The arbitrator delivered his award to which the objections were filed. These objections were duly tried but overruled vide order, dated 4-6-1970. The Court directed the award to be made rule of the Court and consequently passed a decree in the sum of Rs.12,26,547.50.
3. Against the order, dated 4-6-1970, F.A.O., No. 158 of 1970 under section 39 of the Act was filed in this Court by the owner. The award was attacked on the ground that reference to arbitrator itself was incompetent, the contractor having not abided by the provision of clause 56 of the agreement. On behalf of the contractor it was canvassed that this question having been decided by order of the trial Court, dated 6-3-1968, which attained finality, could not be urged in appeal against the order making the award the rule of the Court. Learned Single Bench took the view that the validity of the reference itself could be examined under section 30 of the Act notwithstanding the earlier order of the trial Court, dated 6-3-1968 having not been appealed against under section 30 of the Act. The Appeal was allowed solely on this question without touching the merits of the award otherwise. A Letters Patent Appeal was filed by the contractor and, as noted, the two Honourable Members of the Division Bench disagreed on the legal question and, therefore, the reference to the third Judge.
4. During the hearing of this reference the arguments made before the Division Bench, for and against, have been repeated. The contractor has supported the view taken by Honourable Mr. Justice Fazal Karim, while the owner has supported the view taken by the Honouable Mr. Justice Mian Allah Nawaz. With the profoundest respects I am inclined to agree with the opinion of Justice Fazal Karim for the reasons which follow but first let us recapitulate the facts.
5. The application under section 20 of the Act was resisted on the ground of non-compliance by the contractor with the procedure laid down in clause 56 of the agreement. In other words, according to the owner, the dispute between the contractor and the architect ought to have been referred to him for decision and, without such reference and decision, the contractor could not have invoked the arbitration clause 56 of the agreement and as such the application in Court was not maintainable. The Court overruled the objections and vide order, dated 6-3-1968, allowed the application under section 20 of the Act. This order, although appealable under section 39(i)(iv) of the Act, was not challenged in appeal. Thereafter, the owner joined the arbitration proceedings, which culminated in the award and the order of t9te Court, dated 4-6-1970 making the award the rule of the Court. While challenging the making of the award the rule of the Court, the owner also challenged the reference and the order of the trial Court, dated 6-3-1968 by which it allowed the application under section 20 of the Act. The trial Court disallowed the challenge. The learned Single Bench hearing appeal of the owner against order, dated 4-6-1970, allowed the challenge. As noted, the Division Bench has differed.
6. My reasons for agreeing with Fazal Karim, J., are:--
(i) It has been argued on behalf of the owner that the award based on incompetent reference can be set aside under section 30 of the Act because it would be "otherwise invalid". Lot of case law has been cited in support of the above proposition. In my opinion there cannot be a dispute with the above proposition provided the arbitration has taken place without intervention of the Court and the objections to the reference have not been examined by the trial Court on an earlier occasion.
However, with profoundest respects to the view taken by Mian Allah Nawaz, J., the proposition is not true in cases where arbitration has taken place with intervention of Court and the Court has already examined the objections to the reference, as in this case.
(ii) The other very strong reason for disallowing challenge to reference in an appeal against the order making the award rule of the Court is that an order under section 20 of the Act is appealable and if a party does not appeal, it will be deemed to have accepted the validity and correctness of the order passed by the Court. In this case the trial Court allowed the application under section 20 of the Act on 6-3-1968. The owner had a right of appeal, but did not avail of the same with the result that the order, dated 6-3-1968 attained finality. If the order under section 20 of the Act was not made appealable by the legislature, the position might have been different and an aggrieved party could canvass the validity of reference made by the Court, in appeal against the making of the award the rule of the Court.
(iii) Further reason for this view is that by not appealing against the order of reference and by participating in the subsequent proceedings, the owner has taken a chance of success. Why should such a person be permitted to turn around and impeach the very proceedings, in which he fully participated and has also taken achance of success?
(iv) Learned counsel for owner failed to cite a single case where reference had been made by Court after overruling objections of defendant in proceedings under section. 20 of the Act and the same defendant was permitted to re-canvass the objections to reference in his 'challenge to award, either before the trial Court or in appeal against award.
(v) Parties have not stipulated that without compliance with the procedure, laid down in clause 56, invocation of arbitration clause and for that matter jurisdiction of Court under section 20 of the Act will be invalid.` No such stipulation was brought to my notice by learned counsel for owner. It is different matter whether such a stipulation could be valid in law.
(vi) Application under section 20 of the Act is treated as a suit and the order directing filing of agreement and making reference to arbitration being final, tray well amount to a decree, as observed by Privy Council in Ghulam Jillani's case. That explains the provisions of appeal under section 39 of the Act against the order under section 20. From this point of view, the order of trial Court, dated 6-3-1968 allowing agreement to be filed (after overruling objections based on non- compliance of clause 56 of the agreement) amounted to a "decree" and having not been appealed against, became final.
(vii) I also hold that provision of clause 56 of the agreement was substantially complied with, inasmuch as, the owner himself indicated to the contractor that if by the given date the construction was not completed, the same shall be done at the cost of the contractor by the owner. In no stage the owner insisted that the contractor's disputes with architect be referred to him for decision. I further agree with respect with Fazal Karim, J., that the stipulation in clause 56 was for the benefit of the owner and he could very well waive the same. In fact it can be said that this provision for referring the dispute with architect to the owner was also for the benefit of the contractor, inasmuch as, it provided him an additional forum for resolution of the dispute and he could as well have waived the same. It tray be recalled that neither clause 56 nor 57 contains any stipulation that without complying with the procedure laid down in clause 56, the jurisdiction of the Court cannot be invoked.
7. My answers to the three questions of law noted in the beginning of this judgment are as follows:- -
(i) Whether the ground of incompetence or invalidity of reference to arbitration can, after once it has been raised by a party and decided against him in proceedings under section 20 of the Arbitration Act, 1940, be a ground for the setting aside of an award under section 30 of that Act?--- --------------------------------------- No
(ii) Whether in the circumstances of the case there was substantial compliance with the provisions of clause 56 of the contract deed?------------------- Yes
(iii) Whether the provisions of clause 56 of the contract deed could be waived and were in point of fact Yes waived by the owner, respondent herein?--- Yes
8. I would therefore, also allow the appeal, set aside the judgment of the learned Single Bench, dated 8-7-1971 and remand the appeal for decision on merits, to the learned Single Bench. I would leave the parties to bear their own costs.