CASE ANALYSIS

M/S. LADLI CONSTRUCTION CO. (P) LTD. Vs. PUNJAB POLICE HOUSING CORPN. LTD. & ORS.

PREPARED BY- Group 12 Sandeep Kumar B Kumar Mayur Prashasti Singh Saurav Prasad Salonee Gupta PGP28399 PGP28019 PGP28023 PGP28008 PGP28021

INTRODUCTION The law is a set of rules used to control the behaviour of people in society. The law: tells you what you are entitled to tells you what you must do tells you what you must not do tells you what others may not do to you tells you what your rights are against the state and others tells you what your responsibilities are as a member of society

To implement and enforce the law and provide services to the public, a government's bureaucracy, the military and police are vital. While all these organs of the state are creatures created and bound by law, an independent legal profession and a vibrant civil society inform and support their progress Kinds of law There are various ways of categorising law; the major categorisation is CRIMIINAL LAW and CIVIL LAW. CRIMINAL LAW: Criminal Law, also known as penal law, pertains to crimes and punishment and is an aspect of public law that relates to conduct which the State seeks to control and/or eradicate. Criminal law involves the enforcement of particular forms of behaviour, and the State acts positively to ensure compliance and physically prevents people from committing a crime in the first place. In a criminal case the state prosecutes the accused person for committing a crime or breaking the law. 'Prosecutes' means the state makes a charge against someone. CIVIL LAW: Civil law is a form of private law and set of rules for your private relationships with other people. It is the legal system through which individuals can claim against others and have those rights settled or enforced. The purpose of civil law is to settle disputes between individuals and to provide remedies; it is not concerned with punishment as such. Modern civil law systems essentially derive from the legal practice of the 6th-century Eastern Roman Empire whose texts were

rediscovered by late medieval Western Europe. Much of contemporary Indian law shows substantial European and American influence. Introduction to the Case The current case we are dealing with belongs to the Contract Law, which is a part of Law of Obligations. The law of obligations is one of the component private law elements of the civil system of law. The contract has be made between two parties M/s Ladli Construction Co. (P) Ltd. (hereinafter referred to as 'the Contractor'), and the respondent Nos. 1 and 2, namely, Punjab Police Housing Corporation Limited and Executive Engineer (Civil), Punjab Police Housing Corporation Limited (hereinafter referred to as 'the Corporation') for construction of 240 houses Type II-A at Urban Estate, Ludhiana at an estimated cost of Rs. 273.84 Lakhs. The appellant filed a case saying that the executive engineer who was made as the arbitrator (in case of any disputes between the parties) was biased and hence should be removed from the position of arbitrator. The Chief Engineer is chosen despite knowing his role in the affairs relating to the contract but nevertheless both the parties agreed for him to be arbitrator and name him in the agreement to adjudicate the dispute/s between the parties. The contract says that time was essence of the contract and the contractor should follow time given for carrying out work as entered in the tender. As the Contractor could not maintain the time schedule and the progress of the work was not observed, the Contractor was pushed to make progress in the work but that also the Contractor failed to do. The Contractor was notified that if it failed to take any action to show requisite progress by 30th of April, 1991, action against it under Clause 3 of the agreement would be taken. Even after notification from the said Corporation, there was no required progress in execution of the work by the Contractor. On May 8, 1991, the Corporation decided to take action under Clause 3 of the contract, cancelled the contract and assigned further course of work to another contractor. Thus the disputes have arisen between the parties, the Contractor appealed to the court of Sub Judge, First Class, Chandigarh, for appointment of the arbitrator in terms of Clause 25A of the contract, pertaining to the bias of the arbitrator, the executive engineer.

Clause 25A: Arbitration etc. If any question, difference or objection whatsoever shall arise in any way connected with or arising out of this instrument of the meaning of operation of any part thereof or the rights duties or liabilities of either party, then save in so far as the decision of any such matter is hereinbefore provided for and has been so decided, every such matter including whether its decision has been otherwise provided for and/or whether it has been finally decided accordingly, or whether the contract should be terminated or has been rightly terminated and as regards the rights and obligations of the parties as the results of such termination shall be referred for arbitration to the Chief Engineer of the Punjab Police Housing Corporation, Chandigarh or acting as such at the time of reference within 180 days or in six months from the payment of the final bill to the contractor or from the date registered notice is sent to the contractor to the effect that his final bill is ready for payment and his decision shall be final and binding and where the matter involves a claim for or the payment or recovery or deduction of money, only the amount, if any, awarded in such arbitration shall be recoverable in respect of the matter so referred. On the application made by the Contractor for appointment of the arbitrator, the Sub Judge, on May 13, 1992, ordered that matter in dispute may be referred for arbitration as per Clause 25A of the agreement and, accordingly, as per the agreement and the statement of parties, the Sub Judge ordered the Chief Engineer of the Corporation to act as an arbitrator as provided under Clause 25A of the agreement. Both the parties were permitted to file claim and counter claim before the arbitrator. The Contractor is legally competent when he agreed for the disputes between the parties will be referred for arbitration to the Chief Engineer of the Corporation. The Contractor, at the time of agreement, was in full knowledge of the fact that the Chief Engineer is under full control and supervision of all civil engineering affairs of the Corporation, yet it agreed for resolution of disputes between the parties by the Chief Engineer as an arbitrator. The fact provided is that the Chief Engineer has inspected the progress of the work given to the Contractor along with other engineers of the Corporation on October 26, 1990 as part of the contract. During inspection, the slow progress of the work was noticed and was made aware to the Contractor on that date. It was the Contractor

who made an application for appointment of arbitrator in terms of Clause 25A of the agreement, as a matter of fact, on the contract being terminated on May 8, 1991. As that the inspection by the arbitrator did not disqualify him to be arbitrator, the case has been filed by the contractor. There was no allegation by the arbitrator against the appeal of the contractor. Instead the Chief Engineer of the Corporation said that the appointment was made as the Contractor himself prayed for appointing an arbitrator. Also the advocate appearing for the Contractor submitted the appointment for arbitrator as mentioned in the agreement. No allegation was made before the court as the contract was terminated at the instance or behest of the Chief Engineer. The Corporation also filed its counter-claim against the Contractor on June 15, 1992. Upon receipt of the claim by the Corporation, the arbitrator called upon the Contractor to appear before him on June 25, 1992. But the Contractor did not appear and instead sent a letter to the arbitrator on June 29, 1992 intimating him that his appointment as arbitrator was not acceptable. No steps were taken by the Contractor for removal of the arbitrator immediately. The application for removal of the arbitrator was made almost after 26 days. As there was neither stay order from the court nor appearance of the Contractor, the arbitrator proceeded from his side and concluded the arbitral proceedings. Because of this the arbitrator cannot be accused of being biased as the arbitrator went ex parte and made his decisions, which will be done by any person in his position. Also the two main aspects highlighted by the learned counsel for the Contractor, regarding (i) non-availability of the agreement before the arbitrator, and (ii) the award of return of unutilised amount of secured advance by him, as grounds of bias have no merit at all. Because the photocopy of the agreement was produced before the court on May 13, 1992 and the order was passed by the Sub judge. Just because the copy of agreement was found missing by the District Judge, it cannot be assumed that the copy of agreement is not placed at all. The total amount of unutilised secured advance came out to Rs. 9,63,635.25/- including the interest on the amount that is given to the Contractor as a secured advance, which the arbitrator has claimed as there was no work progress noticed.

Though the contractor is bound by that contract, still he has a right to demand that, notwithstanding those pre-formed views of the engineer, that gentleman should listen to argument, and should determine the matters submitted to him as fairly as he can, as an honest man; and if it be shown in fact that there is any reasonable prospect that he will be so biased as not to decide fairly upon those matters, then the contractor is allowed to escape from his bargain, and to have the matters in dispute tried by one of the ordinary tribunals of the land. But he has more than that right.

STATUS OF THE PROBLEM The Supreme Court rejected the challenge of the M/s Ladli construction firm to the award of arbitration stating that when the parties enter into a contract making the Chief Engineer the arbitrator, knowing his role, authority or power, they are bound by the choice. The Chief Engineer is chosen by both the parties in spite of knowing his role in the affairs relating to the contract, agree for him to be arbitrator and name him in the agreement to settle the disputes between the parties, they stand bound by it unless there is a good or valid legal point for elimination the court stated in this case, M/s Ladli Constructions Ltd vs Punjab Police Housing Corporation. This case first appealed in the Punjab and Haryana high court but resulted in failure and hence moved to the Supreme Court for the final judgement. Before the Supreme Court, it argued that the arbitrator, who was the Chief Engineer, was biased. The executive engineer cancelled the contract at his instance and therefore the firm had reasonable apprehension of bias. The court did not accept this, remarking that except some vague statements, there was nothing to show bias on the part of the arbitrator The Supreme Court adjudicated that the appellant M/s Ladli Construction raised vague and general objections that the arbitrator was biased and had inclination to decide against the Contractor; no materialistic evidence has been placed by the Contractor to show bias of the arbitrator. Also no satisfactory reason was provided as to why the arbitrator should not have continued with the arbitral proceedings. Regarding the appeal by the learned counsel for the Contractor saying the arbitrator is biased as he filed a case against the Contractor taking the side of the Corporation, the Supreme Court stated that What would have the arbitrator done

when he has been personally impleaded as respondent in the Appeal and the allegations of bias have been made against him. He was left with no choice but to rebut the allegations by filing his affidavit. The court implied that the arbitrator has done what any other person in his place would have done in such circumstances.

Existing laws Arbitration has a long history in India. In ancient times, people often voluntarily submitted their disputes to a group of wise men of a communitycalled the panchayatfor a binding resolution. Modern arbitration law in India was created by the Bengal Regulations in 1772, during the British rule. The Bengal Regulations provided for reference by a court to arbitration, with the consent of the parties, in lawsuits for accounts, partnership deeds, and breach of contract, amongst others. The government enacted the Arbitration and Conciliation Act, 1996 (the 1996 Act) in an effort to modernize the outdated 1940 Act. The 1996 Act is a comprehensive piece of legislation modeled on the lines of the UNCITRAL Model Law. This Act repealed all the three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act).Its primary purpose was to encourage arbitration as a cost-effective and quick mechanism for the settlement of commercial disputes. The 1996 Act covers both domestic arbitration and international commercial arbitration. International Conventions on Arbitration India is a party to the following conventions: the Geneva Protocol on Arbitration Clauses of 1923 the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927; and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. It became a party to the 1958 Convention on 10th June, 1958 and ratified it on 13th July, 1961. There are no bilateral Conventions between India and any other country concerning arbitration.

The Types of Arbitrations The Indian Arbitration and Conciliation Act, 1996 applies to both domestic arbitration in India and to international arbitration. Section 2(1)(f) of the Act defines "International Commercial Arbitration" as arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India where at least one of the parties is: an individual who is a national of, or habitually resident in any country other than India; or a body corporate which is incorporated in any country other than India; or a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or the Government of a foreign country. Requirements of an Arbitration Agreement Section 7(3) of the Act requires that the arbitration agreement must be in writing. Section 7(2) provides that it may be in the form of an arbitration clause in a contract or it may be in the form of a separate agreement. Under Section 7(4), an arbitration agreement is in writing, if it is contained in : (a) a document signed by the parties, (b) an exchange of letters, telex, telegrams or other means of telecommunication, providing a record of agreement, (c) or an exchange of claims and defense in which the existence of the agreement is alleged by one party and not denied by the other. In section 7(5), it is provided that a document containing an arbitration clause may be adopted by "reference", by a contract in writing. Validity of an Arbitration Agreement Section 16 of the Act empowers the arbitral tribunal to rule on its jurisdiction:

Under the Act, the arbitration tribunal can rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for this purpose:

an arbitration clause which forms part of a contract will be treated as an agreement independent of the other terms of the contract; and a decision by the arbitral tribunal that the contract is null and void will not entail, ipso jure, the invalidity of the arbitration clause. A plea that the arbitral tribunal does not have jurisdiction will, however, have to be raised not later than the submission of the statement of defense. However, a party shall not be precluded from raising such a plea merely because he has appointed, or participated in the appointment of an arbitrator.

A plea that the arbitral tribunal is exceeding the scope of its authority has to be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

The arbitral tribunal may, in either of the cases referred to above, admit later a plea if it considers the delay justified.

The arbitral tribunal has to decide on a plea about lack of jurisdiction or about the tribunal exceeding the scope of its authority and where the arbitral tribunal takes a decision rejecting the plea; it shall continue with the arbitral proceedings and make the arbitral award.

A party aggrieved by such an arbitral award is free to make an application for setting aside the award under section 34 of the Act. Section 34(2)(a) inter alia permits a challenge to an award on the above grounds.

In SummaryArbitration is an alternate means of settlement of a dispute in place of approaching a court. However, this does not amount to a working out of compromise between the parties. Arbitration law is based on the substantive law. Arbitration and Conciliation Act, 1996, provides the details for all matters related to arbitration. An arbitration clause in a contract does not completely oust the access to the courts. Awaiting arbitration, a party can approach a court for interim relief and measures. This can be for protection of goods, restoring money or protection and preservation of evidence. A party can approach the Chief Justice of the High Court for appointing the arbitrator if the other party does not respond to his duties towards moving for arbitration. The parties are free to set the procedure to be followed by the arbitration tribunal. However, each party has to be treated with equality and must be given full opportunity to present his case. The arbitration has to be done in accordance with the substantive law. However, if the parties provide otherwise, the arbitration tribunal can also do an amicable settlement. A party cant be an arbitrator in its own cause. This is a violation of the principles of natural justice.

Implementation Issues Arbitrations conducted in India are mostly ad hoc. The concept of institutional arbitration, though gradually creeping in the arbitration system in India, has yet to make an impact. The advantages of institutional arbitration over ad hoc arbitration in India need no emphasis and the wide prevalence of ad hoc arbitration has its ramifications in affecting speedy and cost-effectiveness of the arbitration process.

There are a number of advantages of institutional arbitration over ad hoc arbitration in India, some of which are discussed below: In ad hoc arbitration, the procedures have to be agreed upon by the parties and the arbitrator. This requires co-operation between the parties and involves a lot of time. When a dispute is in existence, it is difficult to expect cooperation among the parties. In institutional arbitration, on the other hand, the procedural rules are already established by the institution. Formulating rules is therefore no cause for concern. The fees are also fixed and regulated under rules of the institution. In ad hoc arbitration, infrastructure facilities for conducting arbitration pose a problem and parties are often compelled to resort to hiring facilities of expensive hotels, which increase the cost of arbitration. Other problems include getting trained staff and library facilities for ready reference. In contrast, in institutional arbitration, the institution will have ready facilities to conduct arbitration, trained secretarial/administrative staff, as well as library facilities. There will be professionalism in conducting arbitration. In institutional arbitration, the arbitral institutions maintain a panel of arbitrators along with their profile. The parties can choose the arbitrators from the panel. Such arbitral institutions also provide for specialized arbitrators. These advantages are not available to the parties in ad hoc arbitration. In institutional arbitration, many arbitral institutions such as the International Chamber of Commerce (ICC) have an experienced committee to scrutinize the arbitral awards. Before the award is finalized and given to the parties, the experienced panel scrutinizes it. As a result, the possibilities of the court setting aside the award is minimal, because the scrutiny removes possible legal/technical flaws and defects in the award. This facility is not available in ad hoc arbitration, where the likelihood of court interference is higher. In institutional arbitration, the arbitrators are governed by the rules of the institution, and they may be removed from the panel for not conducting the arbitration properly.

In ad hoc arbitration, the arbitrators are not subject to such institutional removal sanctions. In the event the arbitrator becomes incapable of continuing as arbitrator in an institutional arbitration, substitutes can be easily located and the procedure for arbitration remains the same. This advantage is not available in an ad hoc arbitration, where one party (whose nominee arbitrator is incapacitated) has to reappoint the new arbitrator. This requires co-operation of the parties and can be time consuming. In institutional arbitration, as the secretarial and administrative staffs are subject to the discipline of the institution, it is easy to maintain confidentiality of the proceedings. In ad hoc arbitration, it is difficult to expect professionalism from the secretarial staff. In spite of the numerous advantages of institutional arbitration over ad hoc arbitration, there is currently an overwhelming tendency in India to resort to ad hoc arbitration mechanisms. This tendency is counterproductive, since there is considerable scope for parties to be aggrieved by the functioning of ad hoc tribunals. An empirical survey will reveal that a considerable extent of litigation in the lower courts deals with challenges to awards given by ad hoc arbitration tribunals. Some of the arbitral institutions in India are the Chambers of Commerce (organized by either region or trade), the Indian Council of Arbitration (ICA), the Federation of Indian Chamber of Commerce and Industry (FICCI), and the International Centre for Alternate Dispute Resolution (ICADR).

Hierarchy of courts in India

Supreme Court of India

High Court of the respective state

(Sessions Judge, Addl. Sessions Judge, Asst. Sessions Judges )

Chief Judicial Magistrate in districts

Chief Metropolitan Magistrate in cities

Judicial Magistrate of Second Class

Judicial Magistrate of First Class

Metropolitan Magistrate

Number of cases pending with courts:

Replying to a question in Rajya Sabha, law minister Salman Khurshid said around 3.2 crore cases were pending in high courts and subordinate courts across the country while 56,383 cases were pending in the Supreme Court.The number of pending cases for the month of june, 2012 in the Supreme Court of India is 63851. The backlog has been increasing at an average rate of 3.4 percent annually. This huge backlog of unresolved cases, experts claim, is directly proportional to a lack of

judges. First and foremost, poor pay for judges causes a huge talent crunch, which leads to delays and also is a cause of rampant corruption and bribery in the Indian judicial system. The increase in the salary will not serve as a solution to reduce the vacancies of judges or increase the quality of the people joining the legal services. Comparison between no. of cases registered for trial and the actual no. of trial completed

EXCERPTS FROM THE ADDRESS BY HONBLE SHRI K.G. BALAKRISHNAN,CHIEF JUSTICE OF INDIA,AT VIGYAN BHAWANON 8TH APRIL, 2007 There are serious concerns about the efficacy and ability of justice delivery system to dispense a speedy and affordable justice. Questions on the credibility of judiciary are being raised due to mounting arrears of cases, delays in disposal and high cost of obtaining justice. The growing population, increasing awareness of rights and

abiding confidence of the people in the judiciary saw a litigation boom which our judicial set up was not sufficiently equipped to handle. With the enactment of large number of laws, the volume of work in courts has increased enormously without any increase let alone corresponding increase in the strength of Judges at all levels. People have become more and more aware of their rights and are no longer willing to submit to arbitrariness anywhere.

The problem is much more acute in criminal cases, as compared to civil cases. Speedy trial of a criminal case considered to be an essential feature of right of a fair trial has remained a distant reality. A procedure which does not provide trial and disposal within a reasonable period cannot be said to be just, fair and reasonable. If the accused is acquitted after a long delay, one can imagine the unnecessary suffering he was subjected to. Many times, inordinate delay contributes to acquittal of guilty persons either because the evidence is lost or because of lapse of time, or the witnesses do not remember all the details or do not come forward to give true evidence due to threats, inducement or sympathy. Whatever may be the reason, it is justice that becomes a casualty. High Courts increased their annual disposal from 980474 cases in the year 1999 to 1450602 cases in the year 2006, the cumulative increase being 48% in seven years, without there being commensurate increase in the strength of judges. However, the institution increased from 1122430 cases in the year 1999 to 1589979 cases in the year 2006 leading to increase in pendency from 2757806 cases as on 31st December, 1999 to 3654853 cases as on 31st December, 2006. Subordinate Courts disposed of 15842438 cases in the year 2006 as against 12394760 cases in the year 1999, thereby, increasing the disposal by 28% in seven years without any substantial increase in the strength of Judges. However, the institution increased from 12731275 cases in the year 1999 to 15642129 cases in the year 2006, resulting in the pendency getting increased from 20498400 cases as on 31st December,1999 to 24872198 cases as on 31st December, 2006.

Vacancy Positions In India there are only 10 judges for every million people whereas the United States and Great Britain have around 150 judges for a million of its population.

Statement showing the Approved strength, Working Strength and Vacancies of Judges in the Supreme Court of India and the High Courts (As on 01.06.2012)

Sl. No.

Name of the Court

Approved Strength

Working Streng th

Vacancies as per Approved Strength

A.

Supreme Court of India High Court Allahabad Andhra Pradesh * Bombay Calcutta Chhattisgarh Delhi * Gauhati Gujarat * Himachal Pradesh

31

27

B. 1 2 3 4 5 6 7 8 9 10

Pmt. Addl. Total Pmt. Addl. Total Pmt. Addl. Total 76 84 160 49 75 58 18 48 24 42 11 14 58 28 42 43 07 25 15 21 08 05 28 02 15 02 06 11 08 08 03 01 86 30 57 45 13 36 23 29 11 06 18 04 06 02 04 02 08 04 56 15 12 11 05 08 -1 05 04 74 19 18 13 05 12 01 13 08

#32 17 48 45 27 13

#07 11 29 17 29 19 07 13

#08 03 05

Jammu & Kashmir * 9

11 12 13 14 15 16 17 18 19 20 21 Total

Jharkhand Karnataka Kerala * Madhya Pradesh * Madras Orissa Patna Punjab& Haryana * Rajasthan Sikkim Uttarakhand

10

10

20 50 38 43 60 22 43 68 40 03 09 895

07 33 24 26 42 13 26 31 18 02 08

05 06 07 08 11 01 11 08 06 0 0

12 39 31 34 53 14 37 39 24 02 08 629

03 1 03 06 01 04 03 07 14 01 01 92

05 10 04 03 06 04 03 22 02 174

08 11 07 09 07 08 06 29 15 01 01 266

#34 16 27 32 11 11

#43 17 17 29 38 32 03 09 05 14 30 08 0 0

574 321

482 147

* Acting Chief Justice # Temporary conversion of post

The average disposal per Judge comes to 2374 cases in High Courts and 1346 cases in Subordinate Courts if calculated on the basis of disposal in the year 2006 and working strength of Judges as on 31st December, 2006. Applying this average, we require 1539 High Court Judges and 18479 Subordinate Judges to clear the backlog in one year. The existing strength being inadequate, even to dispose of the actual institution, the backlog cannot be wiped out without additional strength, particularly, when the institution is likely to increase and not come down in the coming years.

Law Enforcement Agencies Central (federal) agencies Central Armed Police Forces Border Security Force Central Industrial Security Force Central Reserve Police Force Indo-Tibetan Border Police National Security Guards Railway Protection Force Special Protection Group Sashastra Seema Bal /SSB Central investigation and intelligence institutions Central Bureau of Investigations Indian Income-tax Department Directorate of Revenue Intelligence National Investigation Agency Narcotics Control Bureau Bureau of Police Research & Development (BPR&D) National Crime Records Bureau (NCRB) Central forensic institutions Central Forensic Science Laboratory National Institute of Criminology and Forensic Sciences (NICFSC) State agencies

Police force Metropolitan police Traffic Police State Armed Police Forces

Effectiveness of courts Our population is growing at a rapid pace and so is our awareness towards law. Now more and more people are registering complains against malpractices. But shortages of judges in courts are thwarting justice to the people. In June 2009, there were 3.8 lakh prisoners in Indian jails. Of these 2.6 lakh were under trails. Of the under trials, several inmates have been in jail for many years, in large measure because of delays in the justice delivery system. As per the information collected by First National Judicial Pay Commission, every state except Delhi has been providing less than 1% of the budget for subordinate judiciary whereas the figure is 1.03% in case of Delhi. Govt. needs to allocate more resource to judiciary to speed up the process. Various new initiatives have been taken like Gramnyayala, Ecourts etc. IT is being used in maintaining records and managing the process.

Role of judiciary in the case In this case the judiciary has played an advisory role. From the time the first application plea was filed by the contractor till the rejection of the same plea by the Supreme Court, the judiciary at each step has looked to uphold the sanctity of the contract law. The contract signed between the contractor and the corporation had a specific clause to deal with disputes. Clause 25A of the contract specified that in circumstances leading to disputes, the case will be referred for arbitration to the Chief Engineer of the Punjab Police Housing Corporation, Chandigarh.

Holding the above clause of the agreement as the essence of the contract the Sub Judge appoints the Chief Engineer of the Punjab Police Housing Corporation as the arbitrator. The contractor, who had willing agreed upon the agreement and all the clauses, was now not willing to comply with the rules of the contract. His concern that the chief engineer being an active member of the opposing party should not be nominated as the arbitrator was not in congruence with the contract. Though the conflict of interest was a valid point, the court took the view that since the contractor has agreed to the contract he cannot go back on the terms of the contract. The court took the view that the Chief Engineer is a legal arbitrator as per the agreement and his decision will be abiding to the parties involved. Only under certain circumstance when the arbitrator failed to perform his duties the court can interject and appoint a new arbitrator. The sequence of events in the case are a testimony to the stand taken by the judiciary right from the bottom level of the sub judicial magistrate to the senior most level of the Hon. Supreme Court. Once the contractor appealed to the Sub Judge for appointment of the arbitrator it was the prerogative of the Sub Judge to appoint an arbitrator as per the clause of the agreement. On the application made by the Contractor for appointment of the arbitrator, the Sub Judge, on May 13, 1992, ordered that matter in dispute may be referred for arbitration as per Clause 25A of the agreement and, accordingly, as per the agreement and the statement of parties, the Sub Judge ordered the Chief Engineer of the Corporation to act as an arbitrator as provided under Clause 25A of the agreement. Once the arbitrator was appointed as per the pre existing agreement, the onus was now on the contractor and the corporation to present their case in front of the arbitrator and follow the guidelines given by the arbitrator. The appointed arbitrator was presumed to act in the benefit of both parties. The contractor not appearing before the arbitrator only weakened his cause in the case. Since the arbitrator was appointed by the Sub Judge in accordance with the agreement the contractor should have appeared before the arbitrator and presented his case. The contractor should

have appealed in the court only if it was found that the arbitrator was unfair in his proceedings, which was not so. Hereafter, on July 24, 1992, the Contractor made an application before the Sub Judge, Chandigarh under Sections 5, 11 and 12 of the Arbitration Act, 1940 (for short, 'the 1940 Act') for removal of the arbitrator. Since the contractor did not appear before the arbitrator, the arbitrator proceeded with the arbitration ex parte and passed the award. It was purely legal for the arbitrator to look into the matter of the case as presented to by the corporation and pass the award accordingly. Meanwhile the contractor moved ahead with his appeal for removal of the arbitrator. The Sub Judge heard the two applications together - (i) application made by the Contractor for removal of the arbitrator and objections under Section 30, and (ii) application for making the award rule of the court - and by a common order dated May 8, 1995 dismissed the application made by the Contractor for removal of the arbitrator and made the award dated August 18, 1992 rule of the court and passed decree in terms thereof. Now the award passed by the arbitrator was made the rule of the court and passed as a decree. It was now the official ruling of the Sub Judicial Magistrate. Not receiving any relief from the Sub Judge the contractor challenged the ruling in the district court. The District court judge dismissed the petition. The Contractor challenged the common order dated May 8, 1995 passed by the Sub Judge, Chandigarh in appeal before the District Judge, Chandigarh. The District Judge dismissed the appeal on September 19, 1998. The contractor now filed and appeal with the High Court. Sighting the clause 25A of the agreement the High Court did not see any merit in the appeal of the contractor. It was therefore dismissed and the ruling of the Sub Judge was upheld. Against these two concurrent judgments, the Contractor filed civil revision before the High Court which too was dismissed on November 25, 2002. As noted above, it is from this order that the present Appeal, by special leave, has arisen.

With no relief from any of the judgments the contractor now filed a petition in the Supreme Court. The Supreme Court sighted judgments made in the past where in the Arbitrator had performed his duty with honesty and without bias. The court sighted that mere apprehension of bias is not a basis for removal of the arbitrator. Constitution Bench judgment of this Court in GullapalliNageswaraRao and Others Vs. Andhra Pradesh State Road Transport Corporation and Another1 and a judgment of the House of Lords in Bristol Corporation Vs. John Aird& Co.2 Where parties enter into a contract knowing the role, authority or power of the Chief Engineer in the affairs relating to the contract but nevertheless agree for him to be arbitrator and name him in the agreement to adjudicate the dispute/s between the parties, then they stand bound by it unless a good or valid legal ground is made out for his exclusion. The court did not find any bias in the order passed by the arbitrator. As the arbitrator was appointed by the clause of the agreement the court had no reason to quash the appointment of the arbitrator unless the arbitrator was proved to be biased. Henceforth the Supreme Court rejected the plea filed by the contractor and upheld the order passed by the Sub Judge.

Role of Industry / Business Associates in the case Generally speaking, unlike in Europe, where the manner of settling disputes has substantially evolved separately across various industry sectors, there is no marked difference in arbitration practice from one industry to another in India. The exceptions to this rule, however, are the construction industry and the IT industry. Due to the technical complexities and long term nature of relationships between parties in these industries, arbitration in construction and IT industry disputes are characterized by certain peculiarities quite distinct from other industries. The growth in the infrastructure and the IT industry in India is a recent development, and a result of the globalization of the Indian economy. An important secondary effect of this development is that arbitration has also streamlined a sector-specific

approach to cater to the technicalities and specific requirements of such specific sectors. Arbitration in the construction industry Construction/infrastructure is one of the fastest growing sectors of the Indian economy, and millions of dollars are spent in construction related disputes. According to a survey conducted in 2001 by the Construction Industry Development Council, the amount of capital blocked in construction sector disputes was over INR 540,000 million. Ad hoc arbitration is still very popular in the construction industry. Arbitration in the construction industry has a unique feature, which is quite distinct from the general arbitration practice seen in other industries. Standard Contracts of Central and State Governments and Industry Giants Over the last four decades in India, there has been a great deal of construction activity both in the public and private sectors. Central and state governments; state instrumentalities; and public and private companies have all been entering into contracts with builders as part of their commercial activities. The rights and obligations, privies and privileges of the respective parties are formally written. The central and state governments and instrumentalities of the states, as well as private corporations, have their own standard terms of contract, catering to their individual needs. Often, these contracts provide for remedial measures to meet various contingencies. Despite these extensive and time-tested contracts, disputes and differences often arise between the parties. To meet these situations, arbitration clauses are provided in the contract themselves, generally covering either all disputes arising from the contract or all disputes save a few excepted matters.

Unique Features of Arbitration in the Construction Industry In the standard forms adopted by the government departments like the Central Public Works Department (CPWD), Military Engineer Services (MES), railways and public enterprises, although an arbitration clause may include within its purview all the possible disputes relating to the transaction, there are exemption clauses or exclusion clauses that make the decision of an authority named in the agreement, final and binding on the parties. These clauses are included, because in construction contracts, situations arise for which immediate decisions on a point of difference or dispute is required to avoid costly delays. In these situations, the excepted matters or exclusion clauses, make the decision of a particular authority final and binding on both the parties, and not subject to arbitration. There has been a series of judicial decisions, which have held that if a particular matter has been excluded from the purview of arbitration incorporating excepted matter clause/exclusion clause, the same shall not be re-agitated in arbitration. There may be certain clauses in the contract which empower either the engineer-incharge or the consultant to take an on-the-spot decision regarding points of difference between the builder and the employer. Such clauses also provide a right of appeal to a superior officer within a particular time, and impose a liability on the officer to give a decision within a stipulated time. The clause further provides reference of the matter to arbitration, in case one of the parties is not satisfied with such decision, or if the officer does not render a decision. However, the provision expressly provides that if none of the parties opt for the choice to refer the matter to arbitration within the time limit thus prescribed, the decision last rendered shall be treated as final and binding upon both the parties. Dispute Review Board in the Construction Industry The concept of a Dispute Review Board (DRB) is quite common in the construction industry. The DRB is a panel of three experienced, respected and impartial reviewers. The DRB is organized before construction begins and meets periodically at the job site. The DRB members are kept abreast of the developments and

progress in the job, and made familiar with the project procedures and the participants, and are provided with the contract plans and specifications. The DRB meets with the employer and the contractor representatives during regular site visits, and encourages the resolution of disputes at the job level. The DRB process helps the parties to solve problems before they escalate into major disputes. The proceedings of the DRB can be brought as evidence before an arbitral tribunal or other judicial forum. The board members could also be presented as witnesses. Recommendations made by the three experts known for their reputation, accepted by both the parties at the start of the work as neutral persons and having thorough knowledge of the project will not normally be changed by any such tribunal. It would therefore become difficult to go against the tribunal. On this consideration, due acceptance is given to the system worldwide, and almost no case goes up to arbitration. The statistics up to the year 2001 indicate that there were 818 projects with DRBs valued at US $ 41 billion; and that during that year, 1221 disputes were settled by the DRBs, and out of 1038 recommendations made, only 31 were taken by the parties to the arbitral tribunal. Specialized Arbitral Institutions in the Construction Industry In India, substantial sums amounting to several crores of Indian rupees (INR) are locked up in contractual disputes in the construction sector alone. Therefore, the construction industry felt the need to introduce new measures to resolve disputes in a fair, speedy and cost-efficient manner. Due to such requirements, the Construction Industry Development Council, India (CIDC), in cooperation with the Singapore International Arbitration Centre (SIAC), set up an arbitration centre in India called the Construction Industry Arbitration Council (CIAC).

This type of institution-administered arbitration has clear advantages over ad hoc arbitrations for construction companies, public sector undertakings and government departments that have construction contracts.

To illustrate the role of industry / Business Associates in the present case, the following 2 examples of previous cases are applicable: Case of N Radhakrishnan and M/s Maestro Engineers One of the questions to be asked in context of the case is that if an arbitration clause is valid, and it covers the dispute in question, should a court proceedings brought by one of the parties be stayed to arbitration? The answer, one would expect, should be yes. But no was the answer of the Supreme Court of India in last Octobers decision in the case of N Radhakrishnan and M/s Maestro Engineers. The implications of this Supreme Court decision on the construction industry and on arbitration practice in general are as follows: The growth of Indias economy, with a construction market worth US$50 billion per annum alone, is a major draw for foreign investment and domestic up-skilling alike. The facts NR, an Indian engineer, entered into a partnership agreement with others to form Maestro. The partnership agreement contained an arbitration agreement. A dispute arose between the parties when NR alleged that Maestro had misappropriated funds from the partnership accounts and had forged the books. NR offered to resign from the partnership, subject to payment of outstanding salary and profit share from Maestro. Maestros response was to begin a civil suit against NR requesting a declaration that NR had effectively resigned from the partnership and for an injunction to stop NR from interfering with the partnership. NRs response was to seek an application under Section 8 of the Arbitration Act for the civil proceedings to be stayed because there was an arbitration clause in the partnership agreement. Two sets of lower courts rejected NRs application, and NR moved the Supreme Court on appeal. The Supreme Court was of the same view as the lower courts, and it is to the why that I now turn. The issues The starting position is that any action brought in the courts, in breach of an arbitration agreement that covers the dispute in question, should be stayed. Despite

argument between the parties as to whether there was a valid arbitration agreement in this case, and whether that agreement covered the present dispute, the Supreme Court held that the arbitration agreement was valid and the dispute between the parties fell within its scope. However, the Supreme Court held that, given the allegations of forgery and misappropriation of funds, the level of enquiry into material evidence that would be needed made it inappropriate for an arbitrator to carry out that enquiry; only the court was in a position to do so. Accordingly, there would be no stay of the civil proceedings and Maestro could continue in the courts. The Supreme Court said this: The facts of the present case do not warrant the matter to be tried and decided by the Arbitrator, rather for the furtherance of justice, it should be tried in a court of law which would be more competent and have the means to decide such a complicated matter. The consequences Several troubling consequences arise from this decision. First, it undermines the certainty that parties can have in their choice of forum for resolution of their disputes arising from a particular transaction or contract. Leaving aside the relative speed and possibly increased technical expertise that an arbitral tribunal can bring to the resolution of specialist disputes when compared to the courts, (For instance, it took some three years for the procedural challenge to be resolved through three layers of court, and this is before any of the substantive matters in dispute have been heard) the desire to keep disputes out of the public eye can now be thwarted by a party seeking to raise a certain type of dispute. Secondly, the Supreme Court did not decide that the matters in dispute in Maestro were outside the jurisdiction of an arbitrator, merely that it would not be appropriate for an arbitrator to deal with the issues pleaded. This risks muddying the jurisprudence on the circumstances in which an arbitration tribunal can proceed.

S. Rajan v State of Kerala The agreement was entered into in 1966. It was terminated on 19.12.1968. The work was re- tendered and it was completed through another contractor. The State then worked out the loss suffered by it on account of the appellant's failure to carry out the work in accordance with the agreement and called upon the appellant to pay the same through the demand notice dated 30.5.1974. It is relevant to notice that this demand notice was questioned by the appellant by way of writ petition in the High Court of Kerala which was dismissed on 25.11.1978. Thus, the dispute had arisen in 1974 with the service of the demand notice. Only in the year 1983, did the appellant choose to request the Government to refer the dispute to the arbitrator in terms of the agreement which was rejected in the following year. Neither the arbitration clause nor a copy of the agreement was placed before them. Therefore, it could not be said whether the arbitration clause contemplated that a reference to arbitration can be made only by the Government and not by the appellant. Assuming that such was the requirement of the arbitration clause, even so it was held that the very request in 1983 was very much belated and cannot, in any event, be treated as the date on which the right to apply accrued. The differences had already arisen between the parties following the service of the demand notice. The challenge to the said demand notice made by the appellant by filing a writ petition in the Kerala High Court is the demonstrable proof of the dispute. Accordingly, it was agreed with the High Court that 30.5.1974 is the date on which the right to apply accrued in terms of article 137 read with Section 20(1) and that therefore the application filed in the year 1985 was clearly 657 barred by limitation. Only in cases where the agreement does not specify the arbitrator and the parties cannot also agree upon an arbitrator, does the court get the jurisdiction to appointment an arbitrator. It was, accordingly, said that in the present case, there was no occasion or warrant for the learned Subordinate Judge to call upon the parties to submit panels of arbitrators. He was bound to refer the dispute only to the arbitrator named and specified in the agreement. This aspect, however, was dismissed with costs. The appeal was, thus, dismissed.

APPENDIX I The Indian Arbitration and Conciliation Act, 1996 (No.26 of 1996): Preamble [16th August, 1996] An Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. PREAMBLE WHEREAS the United Nations Commission on International Trade Law (UNCITRAL) has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985; AND WHEREAS the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice; AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980; AND WHEREAS the General Assembly of the United Nations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek an amicable settlement of that dispute by recourse to conciliation; AND WHEREAS the said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations; AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules; Be it enacted by Parliament in the forty seventh year of the Republic as follows: PRELIMINARY

Short title, extent and commencement.(1) This Act may be called the Arbitration and Conciliation Act, 1996. It extends to the whole of India: Provided that Parts I, III and IV shall extend to the State of Jammu and Kashmir only in so far as they relate to international commercial arbitration or, as the case may be, international commercial conciliation. Explanation In this sub-section, the expression international commercial conciliation shall have the same meaning as the expression international commercial arbitration in clause (f) of sub-section (1) of section 2, subject to the modification that for the word arbitration occurring therein, the word conciliation shall be substituted. It shall be deemed to have come into force on the 25th day of January, 1996. Chapter 1 : General Provisions DefinitionsIn this Part, unless the context otherwise requires, arbitration means any arbitration whether or not administered by permanent arbitral institution; arbitration agreement means an agreement referred to in section 7; arbitral award includes an interim award; arbitral tribunal means a sole arbitrator or a panel of arbitrators; 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;

international commercial arbitration means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is an individual who is a national of, or habitually resident in, any country other than India; or a body corporate which is incorporated in any country other than India; or a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or the Government of a foreign country; legal representative means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting; party means a party to an arbitration agreement. Scope This Part shall apply where the place of arbitration is in India. This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration. This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder. Subject to the provisions of sub-section (4), and save in so far as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this Part shall apply to all arbitrations and to all proceedings relating thereto. Construction and References

Where this Part, except section 28, leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authorise any person including an institution, to determine that issue. An arbitral award made under this Part shall be considered as a domestic award. Where this Part refers to the fact that the parties have agreed or that they may agree, or in any other way refers to an agreement of the parties, that agreement shall include any arbitration rules referred to in that agreement. Where this Part, other than clause (a) of section 25 or clause (a) of sub-section (2) of section 32, refers to a claim, it shall also apply to a counter-claim, and where it refers to a defence, it shall also apply to a defence to that counter-claim. Receipt of written communications Unless otherwise agreed by the parties, any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and if none of the places referred to in clause (a) can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressees last known place of business, habitual residence or mailing address by registered letter or by any other means which provides a record of the attempt to deliver it. The communication is deemed to have been received on the day it is so delivered. This section does not apply to written communications in respect of proceedings of any judicial authority. Waiver of right to objectA party who knows that any provision of this Part from which the parties may derogate, or

any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object. Extent of judicial intervention Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part. Administrative assistance In order to facilitate the conduct of the arbitral proceedings, the parties, or the arbitral tribunal with the consent of the parties, may arrange for administrative assistance by a suitable institution or person.

References: http://articles.timesofindia.indiatimes.com/2011-1220/india/30537308_1_subordinate-courts-pendency-crore-cases http://supremecourtofindia.nic.in/pendingstat.htm http://en.wikipedia.org/wiki/Law_enforcement_in_India http://www.prsindia.org/administrator/uploads/general/1310014291~~Vital%20Stats %20%20Pendency%20of%20Cases%20in%20Indian%20Courts%2004Jul11%20v5%20%20Revised.pdf http://doj.gov.in/?q=node/90