1990CLC55 (PLP)

"13th March, 1983. Dr. Saeed Makhdumi. M/s. Maqbool Associates Limited Engineers & Contractors, 255 Panorama Centre, Fatima Jinnah Road, Karachi‑

4. M/s. Sind Sugar Corporation Ltd., 6th Floor, Shaikh Trust Building, Beaumont Road, Karachi. Sub: Arbitration proceedings between M/s. Maqbool Associates Ltd. v. Sind Sugar Corporation Ltd. Dear Sirs, I have received the claims of M/s. Maqbool Associates Ltd. in connection with Dadu Sugar Mills. The claim amounting to Rs.1,61,73,980/30 (Rupees one crore sixty‑one lacs seventy three thousand nine hundred eighty and thirty paisas only). The fee for the arbitration would be one per cent of the amount claimed and will be shared equally by the parties. The share for each party would therefore be Rs.80;000 (Rupees eighty thousand only) approximately. I would appreciate if fifty per-cent of the share be paid by both parties at the earliest. This would amount to Rs. 40,000 (Rupee Forty thousand only) each. Thanking you, Yours faithfully, Sd/ (Dr. Saeed Makhdumi) Arbitrator." Annexure `B' to the objections is a handwritten voucher and is said to have been signed by the arbitrator and two officers of the defendants acknowledging receipt of Cheque No. 263277, dated 17‑4‑1983 of Rs. 24,250 as under:‑ "Net amount of 50% bill in respect of professional charges in the arbitration case of Maqbool Associates Limited Rs.

24,

250. According to the defendants, their share, of the agreed fee i.e. Rs.50,000 was paid in two equal instalments on 17‑4‑1983 and 15‑5‑1984. Rs. 24,250 reflects 50`7 of their share of fee after adjustment of income‑tax deduction at source. The defendant have also filed Annexure `C' which is a letter from the arbitrator demanding balance fee of Rs. 30,

000. This letter reads as under: "Dr. Saeed M. Makhdumi. Dated 13th May, 1984. M/s. Sind Sugar Corporation Ltd., 6th Floor, Shaikh Sultan Trust Bldg., Beaumont Road, Karachi‑4 Subject: Arbitration fee for arbitration proceedings between M/s. Maqool Associates Ltd. v. SSCL. Dear Sir, I acknowledge the receipt of Cheque No. 263289 dated 12‑5‑1984 for amount of Rs. 24,250.00 (Twenty‑four thousand two hundred fifty only). Please refer to my previous letters of 13th March 1983 and 27th March, 1984 the fee to be paid by each party was fixed as Rupees eighty thousand only. M/s. Maqbool Associates Ltd., have already paid their share. I would request you to pay balance of the fee which works out to be Rs. 30,000 (Rupees Thirty thousand only). Thanking you, Yours faithfully, Sd/ (Dr. Saeed M. Makhdumi). " Thus it is averred that the arbitrator by receiving secretly and behind the back of the defendants additional fees of Rs.30,000 has committed misconduct of worst kind. In support of has contention Mr. Khalid M. Ishaque, learned counsel for the defendants, has relied upon (1) Pherumal & Co. v. Union of India, A I R 1966 Cal. 461, (2) A. Irani v. State of Madhya Paradesh, 1974 Madhya Paradesh p. 199, (3) Jeeran Industries v. Lt. B. Madhusdan, A I R 1975 Delhi 215.

6. In Pherumal & Co. v. Union of India, A I R 1966 Cal. 461, the General Manager, South Eastern Railway, pursuant to an arbitration agreement appointed an arbitrator who behind the back of the petitioners/ contractors communicated to the General Manager whether the dispute related to same 5 claims as well. The petitioners/contractors requested the arbitrator to supply the copy of their letter addressed to the General Manager which he failed to do. The apprehension of the petitioners was that the arbitrator being a subordinate officer of the General Manager would not think it proper to go beyond the directions given by him and would not act judicially as an impartial officer. The Court under the circumstances held that "a communication by the Arbitrator to a party behind the back of the other parties amounted to misconduct." The next case cited by the learned counsel for defendants is A. Irani v. State of Madhya Paradesh, A I R 1974 Madhya Pradesh

199. In this case a Superintending Engineer who was a servant of State Government was appointed as sole Arbitrator. By his memo he demanded a sum of Rs.10,000 as his fees to be shared equally by the parties. On receiving this demand, the officer incharge of the State Government replied that he had forwarded the arbitrator's demand to the State Government. Subsequently, by another memo, the arbitrator gave a notice to the parties under Section 14 of the Arbitration Act stating that he had made and signed the award and further the award would be made available to either of the parties on payment of the full fees. By another memo, the arbitrator informed the State Government that the plaintiffs were anxious to proceed further and were willing to pay not only their share of the fees but also the share of the fees of the State Government in order to obtain the Award. The arbitrator warned that unless State Government pays its share of fees within ten days, he would be free to accept the full fees from the plaintiffs and hand over the award to them. On receiving this communication, the State of Madhya Pradesh filed an application on 17‑11‑1969 with the Court stating that the arbitrator was a Government servant and fees demanded by the arbitrator were exorbitant and prayed for fixation of fees, if any, payable to the arbitrator with direction to the arbitrator to file the award in the Court. A telegram as well as a confirmation copy of the telegram was also sent by the State Government to the arbitrator that the said application had been filed in the Court. The full amount of fees as demanded by the arbitrator was also simultaneously delivered by the State Government in the Court under Section 38 of Arbitration Act along with another application to the same effect. In spite of this, the arbitrator accepted payment of full fees from the plaintiffs and handed over the award to them. It was held by the Court that the arbitrator's memo had indicated that some talk between the arbitrator and the plaintiffs in this connection had taken place behind the back of the defendants (State Government). There had been indecent haste on the part of the arbitrator in accepting the entire fees from the plaintiffs without waiting for the Court's decision on the plaintiffs' application. There was, however, another aspect of the case. The arbitrator being a Government servant, his remuneration was to be fixed under Section 15 (5) of Madhya Pradesh Government Contract (Central) Rules, 1959 which states that Government Servant who may be permitted to act as arbitrator for settlement of disputes will accept such fees as may be fixed by the Court. It was further observed by the Court that "the effect of such a demand made by the arbitrator before making the award was to give an opportunity to a party so minded to gain the favour of the arbitrator by offering to pay the entire amount even though the same was considered exorbitant by both the parties". The Court accordingly set aside the award on the ground of misconduct of arbitrator under clauses (a) and (c) of Section 30 of Arbitration Act. The next case relied upon by Mr. Khalid M. Ishaque, Advocate, is AIR 1975 Delhi

215. In this case the Umpire was alleged to have committed misconduct in drawing fees from stage to stage unrelated to the work in hand. After receiving the payment of Rs.1,500 he demanded additional fee of Rs.500 from the parties which the appellant declined to pay whereby the Umpire was alleged to have become prejudiced against the appellant. The respondent also declined to pay the additional fees of arbitrator. The Court while dismissing the appeal held as follows: "As a result of the analysis of the provisions of law and the relevant authorities, our conclusion is that there is nothing illegal or improper in the demand made before the award by the arbitrator or umpire of fees and expenses from the parties provided they are fair and reasonable and are not extravagant or excessive and they are made on both the parties equitably within the knowledge of both the parties. It would not he illegal and improper if on the failure of one of the parties to make the payment, he either stays the proceedings or directs the other party to pay the whole amount pending the decision of the dispute by arbitration. The if arbitrator would also be justified in waiting till the making of the award and then proceed in accordance with Section 14 (2) or Section 38 of the Act and have the matter determined by the Court. The arbitrator, in cut opinion, however, is likely to be charged with misconduct for having been illegally induced to make an award if he accepts any money on any account whatsoever from one of the parties without the knowledge of the other party. Such a charge would also be open, if the amount demanded is exorbitant having no relation to the work done or anticipated, nor to the standard of fees normally payable to arbitrators for such a work. In order to avoid such a charge and also to avoid having to give evidence before the Court to justify the payment of fees, the best course to adopt for the arbitrator is to make accord about his fees and the reasons, therefore, if any, in the record of the proceedings itself within the knowledge of both the parties. If he does not do so he will be involved in defending himself against the allegations of misconduct, if made:'

7. Mr. Nasim Farooqi, learned counsel for the plaintiffs, urged before me that the arbitrator had demanded equal fees from both the parties as is evident from Annexures `A' & `C' to the objections filed by the defendants. The allegation that the plaintiffs behind the back of the defendants had accepted additional fee from them was an afterthought and made with ulterior motives. He pointed out that the arbitrator was defendant's own nominee and demanded equal fees from both the parties in terms of arbitration clause 12 of agreement dated 15‑9‑1976 which states that "the matter in dispute shall be referred at the equal cost of the parties to a sole arbitrator". Hoping for a favourable award from their appointed arbitrator they now challenge in desperation his very integrity and honesty with their uncalled for accusations. It was contended by Mr. Nasim Farooqi that this objection was never raised by them before the arbitrator nor before the Court, when the matter came up for extension of time for giving award. Learned counsel urged that in a similar case, namely, The Chief Engineer, Building Department Provincial PWD Government of Sindh v. M/s. Pak‑National Construction Co. reported in P L D 1981 Karachi 553 a Division Bench of this Court had held that the principles of acquiescence waiver and estoppel would operate against the appellant who had participated in arbitration proceedings and consented to extension of time for giving award by the arbitrator. It was next urged by him that there is nothing in law which prohibits an arbitrator from raising or refixing his fee and referred to a full Court decision of the Allahabad High Court reported in A I R 1970 All. 525, as under: "The obvious implication and effect of section 32 (1) therefore, is that the mere fact that the fee of the arbitrator has been fixed does not preclude the arbitrator from demanding an amount in excess of what has been fixed nor does it preclude the Court from ordering payment of a fee in excess of what has been fixed even though there may be nothing to expressly indicate that the fixation was only of a tentative nature. In determining what would be the reasonable fee of the arbitrator the Court will certainly take into account what fee, if any, has been previously fixed but it has the power to order payment of such higher fee as it considers reasonable. It will also be seen that if a party making an application under Section 38 (1) has agreed by means of a written agreement between himself and the arbitrator to pay the fee demanded by the arbitrator, section 38 (2) bars the making of such an application. This agreement may, as far as the application is concerned, fix the fee for the first time or even vary the fee originally fixed and in either case it will prevent the making of an application under Section 38 (1)." Further it was held:‑‑ "The arbitrator candidly mentioned in his award that the parties had paid him Rs.100 each on account of his fee. This statement of arbitrator, like a statement of a judge as to what took place before him in relation to a proceeding should be regarded as almost conclusive and at any rate its correctness has to be presumed unless there is a strong proof to the contrary." In AIR 1924 Mad. 274, it was held that there is nothing in Section 11 of Arbitration Act, 1889, which precludes the Arbitrator from either fixing the fees or receiving the fees beforehand. Reference was also made to A I R 1975 All.

215. Learned counsel for the plaintiffs therefore urged before me that the defendants did not at any time before the arbitrator raise any objection as to the alleged fixation of exorbitant fee or refixation of additional fees. Besides the arbitrator's full fee in the sum of Rs.1,60,000 is not at all excessive in a matter involving more than one crore sixty lacs when the matter also proceeded for a long span of time. Mr. Nasim Farooqi, learned counsel for the plaintiffs, then referred to Annexure `B' to the defendants' objections which is said to be a photostat copy of a pay slip not in the handwriting of the arbitrator but alleged to have been signed by him showing receipt of 50% of the share of his fee from the defendants. It was contended by him that the defendants with ulterior motive have withheld the arbitrator's other letter dated 27‑3‑1984 and defendants' covering letter dated 12 5‑1984 reference of which is found in Annexure `C' to the objections showing that the arbitrator throughout had been demanding equal fees from both the parties, and that there was nothing at all to suspect that he had acted behind the back of the defendants. While going through the defendants' objections I came across para. (7) thereof in which the defendants have stated as follows: "After the receipt of the aforesaid letter of the arbitrator i.e. letter dated 13‑5‑1983 negotiations were held between the arbitrator and the defendants relating to the fees. After negotiations it was mutually agreed that the share of fees of each party shall be Rs.50,000 out of which 50% will be payable immediately and the balance on the conclusion of the arbitration."

8. The abovenamed statement of the defendants leaves no doubt in my mind that the defendants being the appointing authority and a party to arbitration proceedings are themselves guilty of misconduct by holding meetings with the arbitrator behind the back of the plaintiffs and therefore I have no hesitation in holding that they are estopped from approbating their objections at one time and reprobating them at another or taking up pleas inconsistent with their own conduct. This statement further falsifies their stand that as early as 14‑4‑1983 the arbitrator had agreed to charge the so‑called fee of Rs.50,000 from each party vide Annexure B' to their objection. In all fairness to the plaintiffs it may also be clarified that unless an award is challenged on the grounds of misconduct coupled with want of jurisdiction a document extraneous to the award cannot be looked into as has been held in P L D 1980 Lah.

422. Similarly the defendants have failed to show that the arbitrator had refixed his fee or demanded additional fee from the plaintiffs. Even if it is so there is no misconduct on the part of an arbitrator to refix his fee or demand exorbitant fees from the parties.

9. Learned counsel for the defendants Mr. Khalid M. Ishaque ably argued out the case of the defendants but he has failed to convince me that the defendants had diligently pursued their grievances, if any, either inside and outside the Court or in any manner took timely steps for their redress as was done by the appellants/applicants in the above‑cited cases by him none of which is applicable to the facts and circumstances of this case. Next objection raised by Mr. Khalid M. Ishaque was that the arbitrator had acted in excess of his jurisdiction in awarding escalation claim made by the plaintiffs. He drew my attention to Clause IS‑13 of the Tender Document read with SBC‑4 on page SBC‑1 and note on page SBC‑2 which read as follows:‑ "IS‑

13. Contractor shall be responsible to complete the project in all respects within the required completion time. The contractor should forsee all future fluctuations in the availability and prices of various materials to be used for the completion of full project and should base his tender accordingly, and in no case owner shall be responsible for future fluctuations of the cost of materials and their availability." SBA: If after the date of this tender there occurs a change in the existing laws in the country affecting the direct cost of materials or if the cost of any of the direct materials to be used in the contract is increased under a governmental directive or the directive of any of the governmental agencies controlling in the procurement or supply of such materials as may be determined on the basis of a fair and reasonable assessment, will be payable. However, no increase shall be allowed due to any indirect taxation or duties or change in prices on other materials not being used in the contract. SBC‑

5. Extra items Note: No escalation either for labour or materials will be claimed if not increased as a result of fact of legislative or governmental action."

10. It is an admitted position that the plaintiffs had received ad hoc payment of Rs.3,40,000 against their escalation claim on the recommendation of the defendants' consultant and for the balance amount of Rs.11,848,209.00 the plaintiffs had lodged their claim before the arbitrator. The learned arbitrator while discussing escalation claim of the plaintiffs has stated in para. 7 of the award as under: "This omission on the part of the respondent in regard to their response to the claim of the claimant demonstrate that there was realisation on their part as well as on the part of their consultants that the escalation claim was maintainable and an obligation was cast upon the respondent to pay hence they of their own invited claimants to submit their escalation claims. These acts on the part of the respondent would amount to its waiving their right to resist the escalation claim on the basis of IS‑13 and SBC‑

2. Moreover, the respondent is precluded from resisting the claim as they by their acts are estopped from resisting the claim."

11. It was pointed out by the plaintiffs' counsel that after the closure of evidence and conclusion of arguments by the plaintiffs, the defendants as a measure of caution motivated by afterthought had taken a reversal in their stand, in that they questioned the arbitrator's jurisdiction to decide escalation claims of the plaintiffs. It was as late as 2‑2‑1984 that the defendants raised their objection vide their letter in respect of escalation claim filed by the plaintiffs in March, 1983. According to the award no such objection was taken in the written statement nor any issue in relation thereto was made nor any amendment was sought to include the same. Mr. Nasim Farooqi, learned counsel for the plaintiffs, therefore, urged before me that the defendants are estopped from challenging the jurisdiction of the arbitrator after their submission to him and participating fully in the proceedings for about a year without raising any objection whatsoever. In support of his contention he relied upon 1987 C L C 2198 (2201) wherein it ‑was held as follows:‑ ........ The pith and substance of all these authorities is that where a party participates in the proceedings before the arbitrator without raising objection to his jurisdiction, submits his claim and examines witnesses on disputed points without demur then in the end he cannot turn back to challenge the jurisdiction of the arbitrator on such submissions."

12. It may be stated here that the plaintiffs among others have adduced the evidence of defendants' own employees and agents, including Mr. Ejaz Anis, Director Planning of defendants, Mr. Siddiq Essa, defendants' consultant/Chief Engineer and also Mr. Shoaib Ismail, Secretary Excalation Cell of P.W.D. These witnesses along with other witnesses have supported the claim of escalation made by the plaintiffs and their testimony has remained unshaken and irrebutted in cross‑examination. The plaintiffs had also adduced evidence of Sind Construction Company and Mehran Construction Company to whom escalation claims for construction work had been paid by the defendants. On the basis of evidence ocular and documentary before him it was held by the learned arbitrator that the escalation claim relates to abnormal fluctuations and not normal fluctuations which could not have been anticipated by the plaintiffs. As to what are normal fluctuations and what constitutes abnormal fluctuations are questions of facts and fall within the exclusive jurisdiction of the arbitrator. Reference may be made to P L D 1987 SC 393 (404) wherein it was held as under:‑ .....It was submitted on behalf of the appellant that bursting of KPT dredger pipe was not and could not be an anticipated risk. In any event this being a question of fact whether the work under this item was executed or not and whether it was an anticipated risk, was a matter within the exclusive jurisdiction of the Arbitrator to decide. We find force in this submission as there appears no error on the face of the award in view of the positive findings by the Arbitrator that the contractor had executed this item of work which finding was based on the evidence produced before the Arbitrator. The Court could not go behind the award and indeed no evidence has been pointed out for sustaining the conclusion that the contractor had opportunity of anticipating leakage from the dredger pipe, which is at best a conclusion based on surmises and conjectures ...."

13. A bare reading of the arbitration clause will reveal that the parties had conferred upon the arbitrator ail embracing power to interpret the clauses of contract. These clauses were considered by the arbitrator along with other record before him. The belated objection taken by the defendants to jurisdiction was also considered by him and there is nothing to show that the arbitrator had assumed his authority wrongly. The arbitration clause confers upon the arbitrator not only the power to decide any question or dispute arising under the agreement but also to interpret the meaning of any of the clauses of the agreement and determine the rights and liabilities of the parties under the agreement. The Court not sitting in appeal cannot encroach upon the jurisdiction of the arbitrator, go behind the award or reopen the whole case. Accordingly, I will not upset the finding of the arbitrator, on this issue, which is otherwise well reasoned, based upon record and fulfils the requirements of Section 26‑A of the Arbitraton Act. Next objection of the defendants is with regard to Rs.7,20,000 awarded to the plaintiffs as coordination charges againt their claim for Rs.18,04,455.28. Admittedly, the defendants have not brought any evidence to rebut the claim of the plaintiffs. On the contrary their own Director (Planning) Mr. Ejaz Anis who had appeared as plaintiffs' witness has supported the case of the plaintiffs as to lack of coordination on the part of the defendants and his deposition appears to have not been questioned by the defendants. With this background I hold that the arbitrator has stated reasons in sufficient details within the meaning of Section 26‑A of Arbitration Act and therefore I will refrain from interfering with the decision of the learned Arbitrator. Next objection raised by Mr. Khalid M. Ishaque, learned counsel for the defendants, is that in awarding interest on delayed payment the learned Arbitrator has travelled beyond his jurisdiction in that the arbitrator in lieu of loss has awarded interest to the plaintiffs. In Ghulam Abbas v. Trustees of Port of Karachi reported in P L D 1987 SC 393, it was held that the right to interest for the period prior to the date of suit or prior to the reference to arbitration is a matter of substantive law and arises in one of the four following ways, (i) agreement, express or implied between the parties, (ii) mercantile usage, (iii) statutory provisions, (iv) interest may be also allowed on equitable grounds in proper cases. There is nothing on the face of record to show that the plaintiffs' claim for interest falls within any of the four categories. I, therefore, hold that there is an error on the face of award in granting interest to the plaintiffs. Accordingly, I set aside the award of interest in the sum of Rs.95,000 to the plaintiffs by the learned Arbitrator. The contention of the defendants that the arbitrator has failed to decide each issue is also not correct as the arbitrator has substantially dealt with the issues involved. In 1989 C L C 885, it was held that the arbitrator was not bound to frame issues and to give separate findings on each issue in strict sense but the learned arbitrator, however, in this case has framed issues and in sufficient details given his findings on the issues.

14. As a result, the award stands modified so as to exclude the said amount of Rs.95,000 leaving a sum of Rs.48,68,300 (Rupees Four Million eight hundred and sixty‑eight thousand and three hundred only) payable by the defendants to E the plaintiffs thereunder. Accordingly the award as modified is hereby made rule of the Court together with cost and interest @ 14% per annum from the date of decree till the date of payment. AA./M‑929/K Award modified.