Dismissed

M/S.Kulkarni and Co. v. Mun.Corpn.of Greater Bombay and Anr.

Bombay HC2 Dec 2016APP/264/1999

Case brief

AI extract

What is this about?

Appeals by the Municipal Corporation challenging an arbitration award. The High Court held that the Corporation could not raise a technical plea regarding the invalidity of the contract after it had itself invoked the arbitration clause and acted upon it for years.

What did the court decide?

Appeals dismissed; interim relief to continue for twelve weeks; costs refrained due to non-appearance of respondent.

M/S.Kulkarni and Co. Vs Mun.Corpn.of Greater Bombay and Anr. — Arbitration | Bombay HC (2016)

osapp106 and 264

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.106 OF 1999 IN

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ARBITRATION PETITION NO.298 OF 1996

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Municipal Corporation of
Greater Mumbai & another ...Appellants
vs.
M/s.Kulkarni & Co. & anr. ...Respondents

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ALONG WITH APPEAL NO.264 OF 1999 IN ARBITRATION PETITION NO.298 OF 1996

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M/s.Kulkarni & Co. & anr. ...Appellants
vs.
Municipal Corporation of
Greater Mumbai & another ...Respondents

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None for the appellants in Appeal No.264 of 1999
Mr.Kevin Setalvad, Senior Counsel a/w Mr.Sadeep
Patil and Mr.Anupak Surve and Mr.R.V.Sirsekar for
the appellants in Appeal No.106 of 1999 and for the
first respondent in Appeal No.264 of 1999

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CORAM : A.S.OKA, &
 SMT.ANUJA PRABHUDESSAI,JJ.
 DATE : DECEMBER 2, 2016

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ORAL JUDGMENT: (PER A.S.OKA,J.)

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1These appeals were called out for final hearing
day before yesterday, when submissions of the
learned senior counsel for the appellant in Appeal
No.106 of 1999 were heard. However, none appeared
for the respondent in the said appeal as well as
appellants in Cross Appeal No.264 of 1999. The

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2 osapp106 and 264

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controversy in Appeal No.106 of 1999 very narrow.
Before we go into the actual controversy, a brief
reference to the facts of the case will be
necessary. The first appellant in Appeal No.106 of
1999 is the Municipal Corporation of Greater Mumbai
(for short `Municipal Corporation') and the first
respondent is a contractor appointed by the
Municipal Corporation. The second respondent is the
learned Arbitrator.

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2The Municipal Corporation entrusted the work
of construction of a school building at Malvani,
Malad to the contractor. The case is that the work
was entrusted without calling for tenders. By a
letter dated 6th May 1985, the Municipal Corporation
called upon the contractor to take possession of the
plot for commencing the work. Formally, the date
for commencing of the work was fixed as 11th July
1985. According to the case of the Municipal
Corporation, the time fixed for completion of work
was 30 months. The value of the work was
Rs.1,23,20,500/-. On 8th May 1985, the contractor
addressed a letter to the Municipal Corporation for
releasing payment for steel work. In the said
letter, the contractor stated that it will be
necessary to permit his own RCC consultant to do the
work of RCC design for the entire school building.
It was pointed out that the lay out of the building
proposed to be constructed is similar to the lay out
of another municipal building i.e at Gandhi Gram
School at Juhu which was subsequently approved.
Various details of R.C.C Design of the said school

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at Juhu were set out. A request was made to
approve the said proposal. The additional Municipal
Commissioner gave approval to the said proposal. The
date of commencement of the work was fixed and on
11th July 1985, the construction commenced. On 31st
July 1985 the Municipal Corporation stopped the
work. Thereafter, on 6th August 1985 according to
the case made out by the contractor, the Municipal
Engineer accepted the proposal for designing the
structure along with basement on IS 456-1978 and
also approved RCC design after obtaining sanction of
the Accounts Department and the Additional Municipal
Commissioner which was validated by the Education
Committee of the Municipal Corporation. On 24th
October 1985, the Municipal Corporation informed the
contractor to commence the work. Admittedly, on 7th
March 1986 a formal work order was issued by the
Municipal Corporation to the contractor calling upon
the contractor to deposit a sum of Rs.2,46,401/-. On
6th May 1986, the work was again ordered to be
stopped by the Municipal Corporation. The Contractor
claimed that on 3rd July 1986, a resolution was
passed by the General Body of the Municipal
Corporation bearing No. 203 by which it was resolved
to award the contract to the said contractor.
Accordingly, the contractor allegedly forwarded one
copy of the formal contract document duly singed to
the Municipal Corporation.

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3 The contractor submitted Adhoc bill in the sum of Rs.15,18,360/- which led to a dispute. The case is that on 15^th March 1987, the Municipal Corporation

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issued a notice of termination. It is alleged that
there were negotiations between the parties and
somewhere in January 1991, the contractor vacated
the site.

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4The contractor filed a suit for injunction
against the Municipal Corporation restraining the
Municipal Corporation from getting the work carried
out through the another contractor. As temporary
injunction was denied, an appeal was preferred by
the contractor before this Court. In the said Appeal
from Order, the learned Single Judge passed an order
on 17th December 1992 referring the dispute to an
independent expert. On 7th March 1993, the Municipal
Corporation addressed a letter to the contractor
suggesting the names of five Arbitrators calling
upon the contractor to communicate in writing a
consent for any one of the five suggested
arbitrators within a period of seven days.

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5By a letter dated 29th October 1993 addressed by
the contractor to the City Engineer of the Municipal
Corporation, the contractor consented for appointing
Shri M.D.Tambekar as the sole arbitrator whose name
was at serial no.5 of letter dated 7th June 1993.
Accordingly, a reference was made to the arbitration
of Shri Tambekar. Ultimately, on 14th June 1996 an
Award was made by the Arbitrator by allowing some of
the claims of the contractor. An amount of
Rs.1,29,57,362/- was awarded to the Contractor.
Interest at the rate of 18% per annum was ordered to
be paid on the said amount.

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6Being aggrieved by the said award, the
Municipal Corporation filed a petition under section
30 of the Arbitration Act,1940 for setting aside the
Award. By a Judgment and Order passed by the
learned Single Judge on 5th November 1998, the said
petition was partly allowed by modifying the Award
to a certain extent. Even a direction regarding
payment of interest on certain claims was modified.
Being aggrieved by the said Judgment and Order,
these cross appeals have been preferred.

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7 Only one main submission has been canvassed by
the learned senior counsel for the Municipal
Corporation. His submission is based on sections 69
to 71 of the Mumbai Municipal Corporation Act,1888
(for short “the said Act of 1888”). The submission
is that unless a contract is executed in accordance
with sub-section 1 of section 70 of the said Act of
1888, there is no valid contract entered into by the
Municipal Corporation. Relying upon section 71 of
the said Act of 1888, he submitted that unless the
contract is executed in the manner provided under
sub-section 2 of section 70, the same will not be
binding on the Municipal Corporation. In support of
this contention, he relied upon the decision of the
Apex Court in the case of Piloo Dhunjishaw Sidhwa
vs. Municipal Corporation for the city of Poona1. He
submitted that the said decision of the Apex Court
as well as the decision of the learned Single Judge
in the case of Jayant Dharshi Shah Vs. Municipal

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1 1970 (1) SCC 213

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Corporation of Greater Bombay² hold that unless a contract is executed and sealed in accordance with sub-section 2 of section 70, the same does not become a valid contract. He submitted that pari materia provision of section 74 of the Bombay Provincial Municipal Corporations Act, 1949 has been interpreted by the Apex Court in the case of Piloo Sidhwa. He also relied upon decision of a Division bench of this Court in the case of Municipal Corporation vs. Ramadevi Shrinivas Ruia and another³ . He submitted that the said decision holds in so many words that no contract of a nature specified in sub-section 2 of section 70 can be valid and binding on the Municipal Corporation unless it is executed in accordance with sub-section 2 of section 70. He urged that plea of estoppel is not available against the Municipal Corporation. He relied upon the decision of the Apex Court in the case of Bhikraj Jaipuria vs. Union of India⁴ and the Bihar Eastern Gangetic Fishermen Co-operative Society Limited Vs. Sipahi Singh and others⁵ in this behalf. No other submission has been canvassed on merits except a submission attempted to be made on the basis of alleged variation of contract.

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8We have carefully considered the submissions.
Firstly, it is pertinent to note that admittedly
arbitration clause is contained in the form of
contract provided by the Municipal Corporation which

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2 1990 Mh.L.J. 649

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3 1982 Mah LJ 377

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4 AIR 1962 SC 113

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5 (1977) 4 SCC 145

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was not executed in accordance with sub-section 2 of
section 70 of the said Act of 1888. There is no
dispute that the work order was issued by the
Municipal Corporation to the contractor. In terms
of the Judgment and order of this Court dated 17th
December 1992 in Appeal from Order No.1312 of 1992
preferred by the contractor, the Deputy City
Engineer, Building Construction, (Suburban) of the
Municipal Corporation addressed a letter dated 7th
July 1993 to the contractor. The names of five
arbitrators were set out in the said letter and a
request was made to the contractor to communicate in
writing his consent for appointment of one of the
five arbitrators named therein within a period of
seven days. Thus, the arbitration clause was invoked
by the Municipal Corporation itself. Perusal of the
annexures to both the appeals show that the
contractor responded and by a letter dated 29th
October 1993 consented for appointment of Shri
M.D.Tambekar as the sole arbitrator. That is how
the learned Arbitrator entered arbitration and
proceeded further. Thus, the Municipal Corporation
itself invoked the arbitration clause provided in
its own form of contract.

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9It appears that in the proceedings before the
learned Arbitrator certain claims were permitted to
be raised by the contractor to which an objection
was raised by the Municipal Corporation. Therefore,
an Arbitration Petition was filed by the Municipal
Corporation being Arbitration Petition No.26 of 1995
which was heard and disposed of an order dated 24th

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March 1995. The learned Single Judge came to the
conclusion that the Arbitrator had jurisdiction to
decide certain claims which are specified therein.
It was clarified that if the parties are entitled to
do so in law, they may invoke the Arbitration
Clause under the contract in respect of other
disputes and differences. Relevant portion of the
said order read thus:

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“With this clarification, the Arbitrator to
proceed. Also clarified that the Respondents,
if they are entitled to do so in law, may
invoke the Arbitration Clause under the
Contract, in respect of the other disputes
and differences and ask for a separate
Arbitration. The question whether they can do
so or not is not decided in this petition.”

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10 The reference to the contract in the said
order is to the contract which was to be signed by
the Municipal Corporation but was not signed. It
appears that the said order of the learned Single
Judge was challenged by the contractor by filing an
Appeal No.286 of 1995. The consent minutes of order
were filed by the Municipal Corporation and the
contractor in the Appeal. The Appeal was disposed
of on 24th July 1996 by passing an order in terms of
the minutes of order. Under the minutes of order,
the parties agreed to appoint a sole Arbitrator to
decide the claims which were excluded under the
orders of the learned Single Judge and that is how
in respect of the excluded claims, a separate

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arbitration proceeding commenced.

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11Thus, it is the Municipal Corporation which
invoked arbitration clause in the contract and
started the process of appointment of an arbitrator.
Both the orders dated 24th March 1995 (of the learned
Single Judge) and the order dated 24th July 1996 (of
the Division Bench in Appeal) reveal that not only
that the parties including the Municipal Corporation
relied upon the arbitration clause in the contract
but in fact acted upon the arbitration clause.

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12At this stage, we may make useful reference to
the impugned order and the findings recorded by the
learned Single Judge in the impugned order.
Paragraph 4 of the impugned order refers to the
argument canvassed on behalf of the Municipal
Corporation that there was no concluded contract
between the parties and there could not have been an
arbitration proceedings. Argument was that in
absence of the concluded contract and arbitration
clause, the Award was invalid. In the same
paragraph, the learned Single Judge observed and in
our view rightly that the aforesaid orders were
passed by this Court practically by consent of the
parties. Some of the claims (further part of the
claims) were referred to another learned Arbitrator-
a retired Chief Justice of this Court. In fact, a
finding of fact has been recorded in paragraph 4 of
the impugned Judgment by the learned Single Judge
that further part of the claim was arbitrated and
the Municipal Corporation made payment to the

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contractor in terms of the Award. In short, after
having acted upon the arbitration clause in the
contract, and after having consented to the
appointment of two arbitrators to adjudicate upon
the claims arising out of the contract, it was not
open for the Municipal Corporation to raise a
technical contention that there was no concluded
contract between the parties.

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13The learned Single Judge has dealt with the
argument based on sections 69 to 71 of the said Act
of 1888. In paragraph 7 of the impugned Judgment,
the learned Single Judge noted that the proposal
made by the contractor was approved by the
AdditionalCommissioneroftheMunicipal
Corporation. By resolution dated 12th October 1985,
the Education Committee of the Municipal Corporation
approved the grant of contract to the said
contractor. There is a finding recorded that the
General Body of the Municipal Corporation approved
grant of contract as per the said resolution of the
Education Committee. We may note that the work
order was issued on 7th March 1986 by the Municipal
Corporation to the contractor. Thus, what remained
to be done was the execution of the contract in
terms of sub-section 2 of section 70. As stated
earlier, it is the Municipal Corporation which
invoked arbitration clause in the contract. At
least in two proceedings before this Court, not only
that the Municipal Corporation did not dispute the
existence of an arbitration clause in the contract
between the parties but also agreed to proceed on

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the basis of the arbitration clause in the contract
without raising a contention that the contract was
not binding.

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14As pointed out earlier, the arbitration clause
was in the contract which is relied upon by the
contractor which was duly forwarded to the Municipal
Corporation for execution. The Contract was in terms
of the draft provided by the Municipal Corporation.
The arbitration clause was invoked by the Municipal
Corporation itself and at various stages of
different proceedings, not only before two different
Arbitrators but before this Court, accepted and
acted upon the arbitration clause in the contract.
After having done so, it was not open for the
Municipal Corporation to raise a contention that the
contract on the basis of which the Municipal
Corporation itself acted was not a valid contract.
What is held by the learned Single Judge in
substance is that the issue of invalidity of
contract was not available to the Municipal
Corporation after having acted upon the contract.

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15The Apex Court has repeatedly held that the
Government and Public Authorities should not take up
technical plea to invalidate the contracts. The
Public Authorities should be transparent, fair and
just to the citizens and public. The Municipal
Corporation ought not to have raised the plea of
invalidity of contract as the same is unfair to the
Contractor.

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16We, therefore, agree with the view taken by the
learned Single Judge that there was no merit in the
objection raised by the Municipal Corporation on the
basis of the plea of invalidity of the contract.

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17Another contention tried to be raised by the
Municipal Corporation was that on the basis of the
proposal of 8th May 1995, there was a variation of
contract. As stated earlier, the proposal made by
the letter dated 8th May 1995 was approved by
various Departments of the Municipal Corporation and
ultimately on 12th December 1995, a resolution was
passed by the Education Committee approving grant of
contract. This resolution was ratified by the
General Body of the Municipal Corporation. The Work
order was issued on 7th March 1996. Hence, the said
contention has no merit.

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18 The decisions relied upon by the Municipal
Corporation as regards interpretation of section 69
to 71 of the said Act of 1888 are of no assistance
as in the present case, the Municipal Corporation
never disputed the existence of the contract
containing the arbitration clause. Thus, decisions
relied upon about the plea of estoppel are not
relevant in the present case as all along the
Municipal Corporation proceeded on the footing that
there was a contract executed in which there was an
arbitration clause. Hence, there is no merit in the
contentions raised by the Municipal Corporation and
therefore, its appeal must fail.

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