Startus Construction Company Vs Government of Bangladesh (Zubayer Rahman Chowdhury, J.)

HIGH COURT DIVISION

(ORIGINAL STATUTORY JURISDICTION)

Mr. Zubayer Rahman Chowdhury,   J.   Judgment 01.06.2010.

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Startus Construction Company .…. Petitioner VS Roads and Highways Department, Ministry of Communication, Government ofBangladesh … Respondent & Roads and Highways Department, Ministry of Communication, Government ofBangladesh. – –  -Petitioner VS Startus Construction Company . . . Respondent

Arbitration Act (I of 2001)

Section 42 (2) and 43 (1) (a) (IV)

It appears that no counter claim was filed by the Department concerned. The Arbitral Tribunal travelled beyond its jurisdiction in entertaining and deciding issues which had not been referred to by the contending sides. It would become difficult, if not impossible to sever the determinable issues from the non determinable issues referred to the Tribunal from the final Award which is not before the Court. The impugned order including the modified order are set aside.

From the observation quoted above, it appears that no counter claim was filed by the Roads and Highways Department, but the Tribunal never-theless proceeded to make an Award in their favour which was beyond their terms of reference. It is also admitted by Mr. Hassan Ariff, learned Advocate appearing on behalf of the Roads and Highways Department that only three disputes were referred to the Tribunal and upon commenc-ement of the proceeding, the Tribunal framed as many as seven issues, as has been quoted earlier in this judgment. However, from a reading of the same, it does not appear that it relates to any counter claim filed by the Department.                …(25)

It also appears that certain issues, which were not referred to the Tribunal, were taken up and decided by the Tribunal on its own accord. In my view, it would be reasonable to infer that in such circumstances, the Tribunal had indeed acted beyond its jurisdiction. The Tribunal exceeded its jurisdiction by abrogating to itself issues which were not referred to it by the contending sides. The issues relating to, advance, cost of bitumen, retention of advance money, advance income tax are some of the issues which, admittedly, were not referred to the Tribunal, but upon which the Tribunal made a pronouncement and gave an Award in favour of the  Department.            …(26)

Having regard to the statements made in the application before this Court, the relevant provision of law, the submissions advanced by the learned Advocate for the contending sides and last, but not least, having considered the decisions referred to above, with which I find myself in total and respectful agreement, I am inclined to hold that the Arbitral Tribunal travelled beyond its jurisdiction by entertaining and deciding issues which had not been referred to by the contending sides and the impugned order is liable to be set aside.                                                         . . .(34)

Varat Cooking Coal Limited, 200 C 8 SCC 154; West Bengal Industrial Infra-Strictire Develop-ment Corporation v. M/s. Star Engineering Co., AIR 1987 Calcutta 126; Chetandas and others v. Radhakrisson Ramchandra and others, AIR 1927 Bombay 553; Bengal Jute Mills vs. Jewraj Heeralal, reported in AIR 1943 Calcutta 13 ref.

Dr. Kamal Hossain, Senior Advocate with

Mr. Ashraful Hadi, Advocate with

Mr. Tanim Hussain Shawon, Advocate

… For the petitioner

Mr. A.F. Hassan Arriff, Senior Advocate with

Ms. Khaleda Zaman, Advocate with

Mr.Md.Ashik Al Jalil, Advocate with

Ms. Ruhi Naz, Advocate

….. For the respondent

Mr. A.F. Hassan Arriff, Senior Advocate with

Ms. Khaleda Zaman, Advocate with

Mr.Md.Ashik Al Jalil, Advocate with

Ms. Ruhi Naz, Advocate

. . . For the petitioner

Dr. Kamal Hossain, Senior Advocate with

Mr. Ashraful Hadi, Advocate with

Mr. Tanim Hussain Shawon, Advocate

… For the respondent

Judgment

Mr. Justice Zubayer Rahman Chowdhury

Arbitration Application No. 02 of 2004 relates to an application for setting aside an arbitration Award under section 42(2) and section 43 of the Arbitration Act, 2001 at the instance of Startus Construction company, a company incorporated in Iran and having its local office Apartment- 5A, House No. 15, Road no. 17, Sector No. 7, Uttara Model Town, Dhaka 1230, Bangladesh. The application is being opposed by the sole respondent, namely Roads and Highways Depar-tment, Ministry of Communications, Government of People’sRepublicofBangladesh, Sarak Bhavan,Dhaka,Bangladesh.

1. 2.           Arbitration Application No. 03 of 2004 filed under section 42(2) read with section 43(1)(a)(iv) of the Arbitration Act, 2001, is at the instance of Roads and Highways Department, Ministry of Communi-cation, Government of the People’s Republic of Bangladesh, Sarak Bhaban, Ramna, Dhaka for setting aside portion of the Award dated 13.05.2004 (as modified by Award dated 23.06.2004) passed by the Arbitration Tribunal in an arbitration proceeding between the petitioner and the respondent/opposite-party. The aforesaid application is being opposed by Startus Constru-ction Company, the petitioner of Arbitration Application 2 of 2004.
2. 3.           Since both the applications arise out of the Award dated 13.05.2004 (as modified by order dated 23.06.2004) passed by the Tribunal, Dhaka in an arbitration proceeding between Startus Construction (claimant) and Roads and Highways, Government of People’s Republic of Bangladesh and furthermore, since both the petitioner and the respondent in the aforesaid two Arbitration Applications are the same, both the applications were taken up and heard simultaneously and they will be disposed of by this single judgment.
3. 4.           A brief summary of the relevant facts is required to be stated for the purpose of disposal of the two applications before this Court.
4. 5.           Startus Construction Company (hereinafter referred to as the company) entered into a contract with the Roads and Highways, Government of People’sRepublic ofBangladesh (hereinafter referred to as the Department) for construction/ rehabilitation of roads and highways between Joydebpur and Kaliakair measuring approximately 26.60 km. After completion of necessary formalities, the company commenced work under the contract and duly completed part of the work upto 5 km. However, while undertaking the work in the first 5 km of the project, the company faced certain obstacles with regard to underground gas pipe lines and requested the Department to take necessary steps for removal of the gas pipe lines in order to enable the company to undertake and complete the project work without any hindrance. Despite assurance from the respondents, the matter was not resolved and at one stage, the project work was suspended. The parties engaged in discussion and exchange of correspondences, which also invoved various other Ministry/Departments of the Government.
5. 6.           Ultimately, since there was no further progress in the matter which had comes to a standstill, the company issued a notice dated 14.08.2001 determi-ning the contract and claiming compensation as well as requesting for return of the Bank Guarantee which was furnished earlier. Subsequently, the company also served a notice of Arbitration on 20.08.2001. On the other hand, the Department by its letter dated 16.08.2001, approved various orders and voluntarily extended the contract period upto 06.05.2002, but three days later, it terminated the contract by letter dated 19.08.2001.
6. 7.           The dispute between the parties was referred to a three members Arbitration Tribunal compri-sing of Mr. Justice Sultan Hossain Khan as Chairman and Mr. Justice M.A. Karim and Mr. Justice M.M. Hoque as members of the Tribunal. The Department duly entered appearance and participated in the arbitration proceeding.
7. 8.           Upon commencement of the arbitration proc-eeding, the Tribunal framed the following issues

“(1)    Has the Employer committed breach of contract in not removing the gas pipeline and thus prevented SCC from performing the latter’s promise?

(2)    Has the Claimant sustained any loss in consequence of its non-performance of the contract ? If so, what compensation it is entitled to?

(3)      Is the certification of default of the Contractor issued by the Engineer baseless and illegal?

(4)      Is the contract liable to be terminated at the instance of SCC in view of Section 53 of the Contract Act ?

(5)      Has the termination of the contract by the Employer been legal and valid ?

(6)      Has the valuation of the variations by the engineer been legal and valid?

(7)      Is the Claimant entitled to get the Award as prayed for including the additional claim against bitumen and cost of the proceeding ?”

1. 9.           Both sides filed written statements, replies, additional and further statements and replies thereto, documents and other related papers. The Tribunal also examined witnesses.
2. 10.       Upon conclusion of the arbitration proceeding, the Tribunal, by order dated 13.05.2004, dismissed the claim of the company and made a Award of Tk. 6,25,46,127.66 (Taka Six Crore Twenty Five Lac Forty Six Thousand One Hundred and Twenty Severn and Paisa Sixty Six) only in favour of the Roads and Highways Department. The Tribunal also ordered the release of the Bank Guarantee in favour of the company.
3. 11.       Subsequent thereto, upon an application filed by the company for correction of the Award dated 13.05.2004. Consequently, the Tribunal, by order dated 23.06.2004, allowed the application and corrected the Award by reducing the Award amount to Tk. 3,29,82,629.56 (Taka three corer twenty nine lac eighty two thousand six hundred twenty nine and pais fifty six) in favour of the Department. Being aggrieved by the aforesaid Award dated 13.05.2004 (as amended by order dated 23.06.2004), the company filed Arbitration Application No. 2 of 2004 praying for setting aside the award.
4. 12.       At the same time, the Roads and Highways Department, as petitioner, also preferred Arbitr-ation Application No. 03 of 2004 praying for correction of the Award by setting aside a part of the Award darted 13.05.2004 (as amended by order dated 23.06.2004), in particular, paragraph 18.6, 18.7, 18.8, 18.9, 22, 24, 25.4 26 and 27 of the Award under section 42 (2) read with section 43 (i)(a)(iv) of the Act and also for passing a corrected Award in terms of prayers A to E of paragraph 7 of the application.
5. 13.       At the very outset, this Court takes note of the fact that the pleading and documents annexed in the two arbitration applications runs into hundred, if not thousands of pages. In fact, the related documents had to be brought into the Court in a trunk, which at first sight, made the Court slightly apprehensive. However, having gone through most of the documents and papers, this Court was remind of an age old Bangla saying ÒhZ M‡R© ZZ e‡l© bv|Ó
6. 14.       Dr. Kamal Hossain, learned Senior Advocate appears for the Startus Construction Company in Arbitration Application No. 2 of 2004, while Mr. A.F. Hassan Ariff, Senior Advocate appears with Mr. Md. Ashik Al Jalil in support of the Arbitra-tion Application No. 3 of 2004.
7. 15.       During the course of his submission, Dr. Kamal Hossain has challenged the Award primarily on the issue of jurisdiction. Dr. Hossain submitted emphatically that although the respon-dents in the Arbitration proceeding i.e. the Roads and Highways Department did not make any counter claim before the Tribunal, the Tribunal, on its own volition, made an Award in favour of the Department upon rejecting the claim of the claimant. Dr. Hossain refers to the issues framed at the commencement the arbitration proceeding and submits categorically that no such issue relating to any counter claim was filed by the Department and therefore, in the absence of any claim in that respect, the Award made by the Tribunal allowing counter claim under several heads in favour of the Department is quiet clearly an Award which is beyond the jurisdiction of the Tribunal.
8. 16.       Dr. Hossain has also argued with some considerable force on the merit of the Award itself. However, I do not wish to enter into the merit of the Award for reasons that I shall state at a subsequent stage of this judgment.
9. 17.       Dr. Hossain has also referred to two expert’s opinions, which were framed before the Tribunal by the claimant company given by one Engineer A.B.M. Fazley Elahi, former Managing Director, Rupantorito Pakritik Gas Limited RPGL, Petro Bangla and former General Manager, Tital Gas Transmission and  Distribution Company Limited as well as the evidence of one Mr. Md. Mobarak Ali, former Chief Instructor of Explosives, Government of Bangladesh. Dr. Hossain has argued that the Tribunal erred and misconducted itself in not considering these two vital pieces of evidence upon which the claimant company had placed considerable reliance. Therefore, according to Dr. Hossain, the impugned Award in question is liable to be set aside, having been passed without jurisdiction and also because of the failure of the Tribunal to consider material evidence which was placed before the Tribunal.
10. 18.       Mr. A.F. Hassan Ariff, learned Senior Advocate appearing for the respondent in Arbitration Application No. 02 of 2004 and for the petitioner in Arbitration Application No. 3 of 2004 submits that the impugned Award does not call for any interference from this Court save and except to the extent to which it relates to issues not submitted before the Tribunal. Referring to the provision of section 42 and section 43(i)(a)(iv) of the Act, Mr. Ariff submits categorically that the Act itself makes provision for such cases and allows the Award to be separated from the issues which were not submitted before the Tribunal and empowers the Court to set aside the Award so far it relates to matter not referred to the Tribunal. Mr. Ariff argues with some force that having regard to the provision of section 43(i)(a)(iv), the Court has ample power and jurisdiction to severe the Award and set aside such portion of the Award which has been passed by the Tribunal beyond its jurisdiction.
11. 19.       During the course of his argument, Mr. Hassan Ariff acknowledged that the Tribunal had indeed acted beyond its jurisdiction to some extent by allowing the counter claim of the Department when, in fact, no such issues were framed before the Tribunal. Elaborating his submission, Mr. Hassan Ariff contends that although the claimant company had not referred certain disputes such as claim for refund against bitumen, the Tribunal allowed such claim in favour of the claimants, thereby acting beyond its jurisdiction. Mr. Hassan Ariff further submits that the issue of retention money or return of the same was not referred for adjudication before the Tribunal as per clause 67 of GCOC and therefore the Tribunal travelled beyond its jurisdiction in allowing the same in favour the claimant company. Similarly, according to Mr. Hassan Ariff, the Tribunal erred and consequently travelled beyond its jurisdiction in awarding a reduction of VAT or its return in favour of the claimant company as well as return of the Bank Guarantee submitted by the claimant company.
12. 20.       Lastly, Mr. Hassan Ariff contends that having regard to the provision of section 43(i)(a)(iv) of the Act, the Court is vested with ample power to correct and modify the Award in accordance with the prayer made by the petitioner in Arbitration Application No. 3 of 2004.
13. 21.       The moot question which calls for determin-ation by this Court relates to the jurisdiction of the Tribunal itself. A Tribunal is to decide only such issues as are referred to them by the contending sides. In fact, the power of the Tribunal is confined within the terms of reference made to it by the parties under the contract. Consequently, any deviation therefrom is bound to invoke the question of jurisdiction, as has been done in the instant case.
14. 22.       In the instant application before this Court, the petitioner i.e. the company has challenged the Award mainly on the ground that the Tribunal has travel beyond its jurisdiction by deciding issues which were not referred to it. This contention advanced by the company gains support from the affidavit-in-opposition dated 01.11.2009 filed by the respondent itself. In paragraph 4 of  the aforesaid affidavit-in-opposition, it has been stated as follows :

“The calculation made under the heading “Final Position” is not an outcome of any counter claim made by the respondent rather it is outcome of an unwarranted arithmetic calculation made by the Tribunal on the basis of its discussion on the valid as well as invalid determinable disputes and Annexure 17 to the Award submitted by the claimant/petitioner before the Tribunal. The calculation under the head “Final Position” is not consequential of the adjudication of 3 (three) valid referred dispute under clause 67 of GCOC. The said calculation therefore is not relatable to the three valid referred disputes under clause 67 of GCOC. The “Final Position” is therefore relatable to issue, which were not referred to arbitration as dispute following the mechanism /procedure under clause 67 of GCOC. The “Final Position” is extraneous to the 3 (three) valid referred dispute.”

1. 23.       There is further corroboration of the issue in the impugned Award itself, where the Tribunal observed as under:

“We have noticed that the Respondent had claimed various amounts as shown by way submissions of summary of additional cost and amount due from the Contractor. These claims were not referred to the Arbitrators in terms of Clause 67 of the Contract”.

(emphasis added)

1. 24.       Moreover, from the dissenting Award dated 13.05.2004 passed by one of the Arbitrators (Mr. Justice M.M. Haque), it appears that the learned Arbitrator found as under :

“It may be mentioned here that there is no counter claim by the said ……………..”

(page 29 of the Award)

1. 25.       From the observation quoted above, it appears that no counter claim was filed by the Roads and Highways Department, but the Tribunal nevertheless proceeded to make an Award in their favour which was beyond their terms of reference. It is also admitted by Mr. Hassan Arifff, learned Advocate appearing on behalf of the Roads and Highways Department that only three disputes were referred to the Tribunal and upon commencement of the proceeding, the Tribunal framed as many as seven issues, as has been quoted earlier in this judgment. However, from a reading of the same, it does not appear that it relates to any counter claim filed by the Department.
2. 26.       It also appears that certain issues, which were not referred to the Tribunal, were taken up and decided by the Tribunal on its own accord. In my view, it would be reasonable to infer that in such circumstances, the Tribunal had indeed acted beyond its jurisdiction. The Tribunal exceeded its jurisdiction by abrogating to itself issues which were not referred to it by the contending sides. The issues relating to, advance, cost of bitumen, retention of advance money, advance income tax are some of the issues which, admittedly, were not referred to the Tribunal, but upon which the Tribunal made a pronouncement and gave an Award in favour of the Department.
3. 27.       From the supplementary affidavit dated 17.08.2009 filed by the petitioner, it has been stated on behalf of the petitioner that the expert evidence which was adduced on behalf of the claimant company, was also provided to the Department. From the Tribunal’s order sheet dated 06.02.2003, there is affirmation of the aforesaid statement made by the claimant company. However on a close scrutiny of the Award itself, it appears that the Tribunal has not referred to the expert evidences referred to above. On the issue of non-consideration of the expert report referred to above, it was argued forcefully by Mr. Ariff that such consideration will not invalidate the Award in view of the fact that the Tribunal is not bound to comply strictly with the provision of the Code of Civil Procedure and the provisions of the Evidence Act. Therefore, according to Mr. Hassan Ariff, even if the contention of the claimant company is accepted as to non-consideration of the expert opinion by the Tribunal, that, ifso facto, will not be a ground for setting aside the Award. In support of his contention, Mr. Hasan Ariff referred to section 24 of the Act, which provides that the Arbitral Tribunal was not bound to follow the provisions of the Code of Civil Procedure and the Evidence Act in disposing of a dispute under this Act.
4. 28.       To take up Mr. Hassan Ariff’s last contention first, in the case of Varat Cooking Coal Limited, reported in 200 C 8 SCC 154, the Supreme Court of India held that while making the Award, the Arbitrator cannot ignore very material and relevant documents relevant for determining the controversy, so as to render a just and fair decision.

In that case referred to above, it was further held :

“there lies a trial distinction between a year within the jurisdi-ction and error in excess of jurisdiction.”

1. 29.       The case of West Bengal Industrial Infra-Strictire Development Corporation, v. M/s. Star Engineering Co., reported in AIR 1987 Calcutta 126 related to a matter which had similar issues as in the present case pending before this Court in that no counter claim was filed in the reported case referred to above and the Court adjudicated on a imaginary counter claim. While setting aside the Award, the Court held :

“In my opinion, this gross mistake has arisen from culpable negligence amounting to legal misconduct in part of the arbitrator in making the Award and as such this Award cannot be upheld.”

1. 30.       In the case of Chetandas and others v. Radhakrisson Ramchandra and others, reported in AIR 1927Bombay 553, it was held as under :

“In cases where an arbitrator enters into the consideration of matters which are not referred to him, or which he has no jurisdiction to try, Blackburn, J. in Ringland v. Lowndes (1) (1864) 12 W.R. 1010) said that

The question is not one of waiver or of estoppel, but of authority,

and a party continuing to attend the reference after objection taken and protest made down not give the arbitrator authority to make an award. Even if a party under protest continues to attend before arbitrators and cross-examines witnesses, he does not thereby waive his objection, nor is he stopped from saying that the arbitrators have exceeded their authority by awarding on the matter :”

1. 31.       In my view, the aforesaid decision referred to above, falls squarely with the scope and nature of the matter before this Court. As to Mr. Hassan Ariff’s contention that this Court has ample power under section 43(1)(a)(iv) of the Act to severe the Award and only set aside that portion of the Award which relates to issues not referred to the Tribunal, it has to be said that the Award which has been passed in the instant case stands embodied under the head “final position” as contained at page 58 of the Award, whereby an Award of Taka 6,00,00,000/- and odd (which was subsequently reduced to Tk. 3,00,00,000/- and odd by order dated 23.06.2004) was made in favour of the Roads and Highways Department, despite the absence of any counter claim filed on their behalf. The Roads and Highways Departments itself stated in their affidavit-in-opposition dated 01.11.2009 that

“The calculation made under the head “Final Position” is not an outcome of any counter claim made by the respondent rather it is outcome of an unwarranted arithmetic calculation made by the Tribunal on the basis of its discussion on the valid as well as invalid determinable disputes and Annexure 17 to the Award submitted by the claimant/petitioner before the Tribunal. The calculation under the head “Final Position” is not consequential of the adjudication of 3 (three) valid referred dispute under clause 67 of GCOC.”

1. 32.       Therefore, the statement made by the Department itself indicates that the Award made under the head of “Final Position” relates to issues, some of which have been referred under clause 67 of the GCOC. In my view, it would became difficult, if not impossible, to sever the determinable issues from the non determinable issues referred to the Tribunal from the final Award which is not before this Court.
2. 33.       I am fortified in my view by a decision pronounced more than half a century ago in the case of Bengal Jute Mills vs. Jewraj Heeralal, reported in AIR 1943Calcutta 13, where it was held, and I quote:

“Whilst it is correct that since the recent Arbitration Act there need to be no form of submission, and the authority and jurisdiction of the arbitrator is to be ascertained from the agreement for arbitr-ation, which in this case is contained in the contract, nevertheless when the parties set out specifically what disputes have arisen and what relief is sought in consequence of the alleged default by one party, it seems to me that those are the only matters upon which the arbitrators are required to inquire and to adjudicate. The only relief claimed in the present case was confined to an allowance being made in the price on account of the defective quality. The buyers never sought to have other awards given dealing with rejection and fresh tender of the goods. By adding to their award Para. 2(b) and (c), above, it seems to me that the arbitrators have gone beyond what the required for their consideration and have decided questions beyond which they were required to adjudicate. This being the case it must follow that the award is void in toto and must be set aside.”

1. 34.       Having regard to the statements made in the application before this Court, the relevant provision of law, the submissions advanced by the learned Advocate for the contending sides and last, but not least, having considered the decisions referred to above, with which I find myself in total and respectful agreement, I am inclined to hold that the Arbitral Tribunal travelled beyond its jurisdiction by entertaining and deciding issues which had not been referred to by the contending sides and the impugned order is liable to be set aside.
2. 35.       Accordingly, Arbitration Application No. 2 of 2004 stands allowed.
3. 36.       The impugned Award dated 13.05.2004 (as modified by order dated 23.06.2004) is hereby set aside.
4. 37.       Consequently, in view of the judgment and order passed in Arbitration Application No. 2 of 2004, Arbitration Application No. 3 of 2004 stands dismissed.
5. 38.       There will be no order as to cost.
6. 39.       The parties are at liberty to take necessary steps in the matter, if so advised, in accordance with law.

Before parting with case, this Court would like to put on record its profound appreciation for the valuable assistance rendered by the learned Advocates of the contending sides.

Ed.