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Section 34 in THE ARBITRATION AND CONCILIATION ACT, 1996
Section 34(2)(a)(iv) in THE ARBITRATION AND CONCILIATION ACT, 1996
Section 28 in THE ARBITRATION AND CONCILIATION ACT, 1996
THE ARBITRATION AND CONCILIATION ACT, 1996
Section 34(2) in THE ARBITRATION AND CONCILIATION ACT, 1996

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Bombay High Court
Union Of India (Uoi) vs Moti Enterprises And Anr. on 27 August, 2002
Equivalent citations: 2003 (2) ARBLR 229 Bom, 2003 (2) BomCR 737, (2003) 1 BOMLR 639, 2003 (1) MhLj 930
Author: D Chandrachud
Bench: D Chandrachud

ORDER

D.Y. Chandrachud, J.

1. Admit. The learned counsel for the respondents waives service. By consent taken up for hearing and final disposal.

2. The Arbitration Petition in these proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 seeks to impugn an award of a sole arbitrator, dated 23rd March, 2002. The sole arbitrator in the present case was an Additional Director General Works, Pune.

3. In August 1996, the petitioners invited tenders for providing accommodation for 42 officers at Colaba by the construction of a building consisting of a ground and six upper floors together with related work. The tender submitted by the first respondent was accepted on 19th September, 1996. An agreement was entered into between the parties. Under the contract as originally executed, the work was required to be completed on or before 11th May, 1998. By a letter dated 30th April, 1998, the first respondent sought extension of time to complete the work. The petitioners granted an extension until 22nd November, 1998 by a letter dated 5th August, 1998. Insofar as the facts of the present case are concerned, it would be material to note that the letter of approval records that an extension of time was being granted in terms of contractual Condition 1 l(A)(vii) subject to the condition that the other conditions of the contract shall hold good in all respects. The financial effect of the extension was stated to be nil. The first respondent submitted its final bill on 21st December, 1998, reserving its right to claim additional charges in respect of the lift and for a change in the Works Contract Tax. Disputes and differences arose between the parties and in terms of Condition 70 of the General Conditions of Contract, the disputes came to be referred to the arbitration of Shri M. K. Chitkara, Additional Director General, Works, Pune. Under the terms of the arbitration agreement, the arbitrator had to be appointed by the Engineer-in-Chief. Army Headquarters which was done in the present case. The first respondent initially raised its claims before the Chief Engineer on 8th February, 2000 and on 22nd March, 2000, requested the appointing authority to appoint a sole arbitrator in accordance with the claims detailed in Annexure A to the letter. The claims of the first respondent were denied by the Chief Engineer in a letter dated 10th June, 2000. On 4th July, 2000, an arbitration petition was filed in this Court under Section 11 of the Act for the appointment of an arbitrator. On 9th August, 2000, the Engineer-in-Chief appointed an arbitrator for disputes other than those listed in Appendix B to his letter. On 31st August, 2000, the first respondent requested the Engineer-in-Chief to include the claim at Appendix B within the scope of the reference. By an order dated 9th February, 2001 passed by this Court in the petition under Section 11, a direction was issued to the effect that the remaining claims shall also be referred to arbitration. Accordingly, on 14th October, 2000, the first respondent submitted a statement of case. The Union of India also submitted its defence to the claim in arbitration on 25th June, 2001. The arbitral proceedings were conducted on several dates until 12th January, 2002. The award was published on 23rd March, 2002.

4. The award of the sole arbitrator has been challenged both on the preliminary ground that the disputes which were raised were not arbitrable as well as on merits. Each of the submissions can now be taken up for consideration.

Arbitrability

5. Insofar the arbitrability of the dispute is concerned, the learned counsel appearing on behalf of the petitioners has sought to rely upon the provisions of Condition 11(C) of the General Conditions of Contract. In order to appreciate the submission that has been urged, it would be necessary to refer to Condition 11 which includes Clauses A, B and C.

"11. Time, Delay and Extension -

(A) Time is of the essence of the Contract and is specified in the contract documents or in each individual Works Order.

As soon as possible after Contract is let or any substantial Works Order is placed and before Work under it is begun, the G. E. and the Contractor shall agree upon a Time and Progress Chart. The Chart shall be prepared in direct relation to the time stated in the contract documents or the Works Order for completion of the individual items thereof and/or the contract or Works Order as a whole. It shall indicate the forecast of the dates for commencement and completion of the various trade processes or sections of the work, and shall be amended as may be required by agreement between the G. E. and the Contractor within the limitation of time imposed in the contract documents or Works Order. If the Works be delayed :--

(i) by force majeure, or

(ii) by reason of abnormally bad weather, or

(iii) by reason of serious loss or damage by fire, or

(iv) by reason of civil commotion, local combination of workmen, strike or lockout, affecting any of the trades employed on the work, or

(v) by reason of delay on part of nominated sub-contractors, or nominated suppliers which the Contractor has, in the opinion of G. E., taken all practicable steps to avoid, or reduce, or

(vi) by reason of delay on the part of Contractors or tradesmen engaged by Government in executing works not forming part of the contract, or

(vii) by reason of any other cause, which in the absolute discretion of the Accepting Officer is beyond the Contractor's control;

then, in any such case the Officer hereinafter mentioned may make fair and reasonable extension in the completion dates of individual items or groups of items of Works for which separate periods of completion are mentioned in the contract documents or Works Order, as applicable.

Upon the happening of any such event causing delay, the Contractor shall immediately, but not later than 30 days of the happening of the event, give notice thereof in writing to the G. E. but shall nevertheless use constantly his best endeavour to prevent or make good the delay and shall do all that may reasonably be required to the satisfaction of the G. E. to proceed with the works. Extension of time shall be granted as under :--

(a) by G. E. for all Term Contracts;

(b) by Accepting Officer of the contract for all other Contracts.

In case the Contractor fails to notify the G. E. of happening of an event(s) causing delay within the period of 30 days stipulated in sub-para 3 above, he shall forfeit his right to claim extension of time for the delay caused due to such event(s).

Extension of time, as granted above, shall be communicated to the Contractor by G. E. in writing and shall be final and binding. PROVIDED THAT in the case of contracts (other than Term Contracts) accepted by the G. E., in the event of the Contractor not agreeing to the extension granted by the G. E., the matter shall be referred to the C.W.E. whose decision shall be final and binding.

(B) If the Works be delayed :

(a) by reason of non-availability of Government stores shown in Schedule B,

(b) by reason of non-availability or breakdown of Govt. Tools and Plant listed in Schedule 'C'.

then, in any such event, notwithstanding the provisions hereinbefore contained, the Accepting Officer may in his discretion grant such extension of time as may appear reasonable to him and the same shall be communicated to the contractor by the G. E. in writing. The decision so communicated shall be final and binding and the Contractor shall be bound to complete the works within such extended time. (c) No claim in respect of compensation or otherwise, howsoever arising, as a result of extensions granted under Conditions (A) and (B), above shall be admitted."

6. In the present case, the arbitration agreement between the parties is contained in Clause 70 of the General Conditions of Contract which provides thus:

"70. Arbitration.--All disputes, between the parties to the Contract (other than those for which the decision of the C.W.E. or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents.

Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Works or termination or determination of the Contract under Condition Nos. 55, 56 and 57 hereof.

Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalized by the government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies.

Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against the Government's right or recovery from the contractor as provided in Condition 67 hereof.

If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place.

The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence.

The Arbitrator may proceed with the arbitration, ex parte, if either party, in spite of a notice from the arbitrator fails to take part in the proceedings.

The Arbitrator may, from time to time with the consent of the parties, enlarge, the time upto but not exceeding one year from the date of his entering on the reference, for making and publishing the award.

The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the case may be on all matters referred to him and shall indicate his findings, along with sums awarded, separately on each individual item of dispute.

The venue of Arbitration shall be such place or places as may be fixed by the arbitrator in his sole discretion.

The Award of the Arbitrator shall be final and binding on both parties to the Contract."

7. By Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996, the specific ground of challenge that has been contemplated is that "the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration." Under sub-section (1) of Section 34 recourse to a court against an arbitral award can be made only by an application for setting aside the award in accordance with Sub-section (2) and Sub-section (3). Sub-section (2) provides that an arbitral award may be set aside by the court only if either of the provisions of Clause (a) or Clause (b) thereof are shown to be fulfilled. In the present case, the challenge is specifically under Section 34(2)(a)(iv).

8. In considering, the challenge it would be necessary to note that in the present case, the arbitration agreement specifies that all disputes between the parties to the contract, save and except those for which the decision of the Commander Works Engineer (CWE) or any other person is by the contract expressed to be final and binding shall be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents. In other words, all disputes which arise between the parties to the contract save and except those in respect of which the decision of the CWE or any other person is expressed to be final and binding are arbitrable. In the present case it has not been the contention of the petitioners, as it cannot be, that the dispute was not arbitrable on the ground that there was a decision of the CWE or any other person which had been made final and binding by the contract. Insofar as Clause 11 is concerned, the only term of finality that is found to be contained is insofar as the ground of an extension of time is concerned. Clause (A) of condition 11 contemplates an extension of time inter alia on account of reasons of force majeure and other analogous reasons. Similarly Condition 11(B) contemplates an extension where the work is delayed due to non availability of Government stores or by reason of non availability or breakdown of Government Tools and Plant as listed. In such an eventuality an extension of time can be granted. Under Clause (A) such an extension shall be final and binding. In Clause (B) it has been submitted that the decision communicated shall be final and binding.

9. In the present case, there is no dispute about the fact that an extension of time was given. The first respondent did not contest the extension on the ground that a longer period of extension should have been granted. That the first respondent could not have done because once an extension is granted under Clause A of Condition 11 or a decision is communicated under Clause B thereof that extension or, as the case may be, the decision is final and binding. In the present case, the exclusion contained in Clause 70 of the General Conditions of contract is clearly not attracted and, in fairness, it must be recorded that it was not the submission of the petitioners that the disputes were not arbitrable on the ground that a decision of the CWE or other named person which was sought to be disputed has been made final and binding under the contract. That being the position. I am of the view that the provisions of Section 34(2)(a)(iv) are not attracted at all to the facts of the present case. The dispute which has been determined by the arbitrator cannot be regarded as one not contemplated by or not falling within the terms of the submission to arbitration. Similarly, the award cannot be assailed on the ground, in the present case, that it contains decisions on matters beyond the scope of arbitration.

10. Be that as it may, for the sake of completeness and since point has been urged before the Court, I have considered it appropriate to deal with the submissions of the learned counsel. In the present case, the submission that was urged on behalf of the Union of India in defence to the claim in the arbitration, was that an extension has been granted under Sub-clause (vii) of Clause A of condition 11 of the General Conditions. That Sub-clause deals with a situation where the work is delayed by reason of any other cause which in the absolute discretion of the Accepting Officer is beyond the contractor's control. The Arbitrator has construed the provisions of Condition 11(A). The Arbitrator was entitled to interpret the contract and to construe the provisions of the contract. The Arbitrator has held that the provisions contained in Sub-clause (vii) of condition 11(A) envisage a situation where the work has been delayed for any other cause which is beyond the contractor's control. Sub-clauses (i) to (vi) of Clause (A) of condition 11 deal with eventualities such as force majeure, abnormally bad weather, loss or damage by fire, civil commotion, local combination of workmen, strike or lockout, delay on the part of nominated subcontractors or delay on the part of contractors engaged by the government for executing the work not forming part of the contract. Consequently, when sub-clause (vii) refers to any other cause it must necessarily be read in the context of Sub-clauses (i) to (vi) which envisage a situation which is truly beyond the control of the contractor and not involving default of the Government either. Consequently, where the extension of the time has been warranted on account of the delay on the part of the Union of India in, performing its part of the contractual obligations, the extension cannot be construed as an extension under Sub-clause (vii) of Clause (A) of Condition 11. Condition 11 (C) provides that no claim in respect of compensation or otherwise, which has arisen out of an extension granted under Clauses (A) and (B) shall be admitted. In other words, where the extension is referable not to Clauses (A) and (B) of Condition 11 but to a delay or default on the part of the Union Government, the prohibition which is contained in Condition 11(C) would not be attracted.

11. In the present case, the facts have been construed by the learned Arbitrator commencing from paragraph 44 of the award. The Arbitrator has noted that it was common ground that the extension had been granted by the Union of India on the basis of the letter of request submitted by the contractor at Exh. C-16. The ground on which the contractor had made his request for extension included several grounds which implicated a delay on the part of the Union of India in either fulfilling its part of the contract, making a change in the contractual stipulations or in finalizing the specifications. In this context, the learned Arbitrator upon discussing the evidence has found in paragraph 45 of the award that there were several delays on the part of the Union of India as a result of which the extension had to be and was in fact granted. Consequently, the delay could not be attributable to a ground specified either in Clause (A) or (B) of Condition 11, but was independent thereof. Having regard to these facts and circumstances, the Arbitrator has estimated that out of a total delay of six months, a delay of five months was on account of considerations which did not fall within the purview of Condition 11(A) or (B) and to which therefore condition 11(C) would not be attracted. Therefore, insofar as this period of five months was concerned, the Arbitrator concluded by holding that the Union of India would have to bear the consequences thereof. The view which has been taken by the learned Arbitrator accords, in my opinion, with a plain construction of the contractual conditions in the present case. The view which has been taken by the Arbitrator cannot be in any manner considered to be perverse or of a nature which would warrant an invocation of the defence of public policy. The Arbitrator was entirely justified in taking the view that if an extension that is granted is not referable to Conditions 11(A) and (B), the prohibition contained in condition 11(C) would not be attracted. However, I must add that even if the view which was taken by the learned Arbitrator was a possible view to take, this Court under Section 34 would not have interfered. In the present case it does so happen that the interpretation taken by the Arbitrator is a correct view to take.

12. The correctness of the decision of the Arbitrator on the question of interpretation is further fortified by a recent judgment delivered by a learned Single Judge of this Court on 17th June, 2002 in The Union of India v. M/s Mukesh Construction Co. (Arbitration Petition No. 141 of 1997 in Award No. 19 of 1997). Before the learned Single Judge, (S. A. Bobde J.) the same provision, as has arisen in the dispute in the present case came up for consideration. The learned Single Judge referred to an earlier judgment of the Division Bench of this Court in M/s Shyama Charam Agarwala and Sons v. Union of India - Appeal No. 1249 of 1996 decided on 8th January, 1997. A learned Single Judge of this Court had in that case set aside an arbitral award relying on the provisions of Clause 11(c) of the conditions of contract which was the same as that in the present case. The Division Bench affirmed the view of the learned Single Judge holding that since the extension of time was granted by the Union of India on the request of the contractor and for reasons beyond the control of the contractor, the extension was under condition 11(A) in which event the prohibition contained in 11(C) was attracted. The Judgment of the Division Bench was, however, set aside in appeal by the Supreme Court on 7th September, 1998 in Civil Appeal No. 4665 of 1998. In setting aside the judgment of the Division Bench, the Supreme Court relied upon a decision of the Court in K. R. Raveendranathan v. State of Kerala, , where the Court had held that by purporting to construe the contract, the Court could not take upon itself the burden of saying that the award was contrary to the contract and, as such, beyond jurisdiction. Relying upon the judgment of the Supreme Court in Reveendranathan 's case my learned Brother Mr. Justice S. A. Bobde has rejected a similar challenge to an arbitral award.

13. The second submission which has been urged before this Court is based on the provisions of Clause 65 of the General Conditions of Contract. Clause 65 provides as follows :

"65. Final Bill (Applicable only to Measurement and Lump Sum Contracts).--The Final Bills shall be submitted, by the Contractor on I.A.F.W.- 2262 in duplicate within three months of physical completion of the Works to the satisfaction of the Engineer-in-Charge.

It shall be accompanied by all abstracts, vouchers, etc., supporting it and shall be prepared in the manner prescribed by the G.E.

No further claims shall be made by the Contractor after submission of the Final Bill and these shall be deemed to have been waived and extinguished.

The Contractor shall be entitled to be paid the final sum less the value of payments already made on account, subject to the certification of the final bill by the G.E.

No charges shall be allowed to the Contractor on account of the preparation of the final bill."

14. The Arbitrator has duly considered the provisions of Clause 65. In paragraph 22 of the award, the Arbitrator has discussed this issue at a considerable degree of length. The Arbitrator has noted that the contractor had submitted his bill on 21st December, 1998. This bill, according to the Arbitrator, could not be construed to be the final bill under condition 65 of the general conditions of contract. The Arbitrator has noted that as on 21st December, 1998, the Deviation Orders (D.O.) had not been finalized and issued by the competent authority of the Union of India. D. O. Nos. 14 to 44 are all dated between 11th January, 1999 and 30th October, 2000. The "measurable items of the contract have to be priced on prescribed formats of abstracts" and this was the responsibility of the Departmental Officials. Moreover, the recovery statements were also required to be supplied to the contractor by the Department in order to enable him to prepare the final bill. This had also not been done as of 21st December, 1998. The Arbitrator noted that there are certain prerequisites to the submission of the final bill by the contractor. All D.Os. to cover the changes are required to be completed and issued as and when the charges are ordered or at the latest upon the completion of the contract. The department failed to do so. Similarly, the final bill requires the priced abstracts and recovery schedules which is the responsibility of the department. These are required to be submitted to the contractor upon completion of the contract after which the contractor can submit the final bill. In the present case, these prerequisites that were required to be complied with, the department had not completed. Consequently, the Arbitrator concluded by holding that the final bill properly called could not have been submitted on 21st December, 1998 and condition 65 of the contract was not attracted. Apart from this, which is a finding based on a construction of the contract, the Arbitrator has relied upon the provisions of Section 28(B) of the contract Act in holding that every agreement which extinguishes the rights of any party or discharges any party thereto from any liability under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his right is void to that extent. It is not necessary for this Court to go into the correctness of the arbitral award to the extent that it is permissible under Section 34 in relation to the interpretation of Section 28(B) of the Contract Act. In my view, the award is liable to be sustained on the first finding as aforesaid, which was to the effect that condition 65 was not attracted in the facts and circumstances of the present case. The Arbitrator has interpreted the contract to mean that all the prerequisites for the submission of a proper final bill must be fulfilled by the Department before condition 65 is attracted. Inasmuch as the Deviation Orders (D. Os) and recovery schedules were not finalized by the Department before the submission of the final bill on 21st December, 1998, the provision of condition 65 were not attracted.

The challenge on merits :

15. The award of the Arbitrator is sought to be challenged on merits insofar as the Arbitrator has awarded claim Nos. 1, 3, 4, 5 and 6. I have heard the learned counsel appearing on behalf of the parties and I am of the view that it will be impermissible for this Court having regard to the provisions of Section 34(2)(v)(b) to accept any of these contentions in view of the fact that the petitioner has been unable to sustain the contention that the arbitral award is in conflict with the public policy of India. Now it is a settled principle of law, in view of the judgment of the Division Bench of this Court in Vijaya Bank v. Maker Development Services, (2000)(3) Bom.C.R. 652 that a mere error of law would not amount to a breach of public policy within the meaning of section 34(2)(v)(b). The Supreme Court held in Olympus Superstructures v. M. B. Khetan, (1999) 4 Bom.C.R. 355 that an arbitral award can be set aside only if the challenge falls under a ground that is contemplated by Section 34 of the Act. In the present case, each of the aforesaid claims, as discussed hereinafter, would demonstrate that the Arbitrator has had due regard to the material which was produced before him and to the relevant provisions of the contract. In the circumstances, it would be impermissible for this Court to interfere in the absence of the petitioner having demonstrably established that the award is in any manner in conflict with public policy.

16. Insofar claim No. 1 is concerned, it was for an additional payment due for the provision of a lift. The Contractor had claimed an amount of Rs. 8,54,000/-. The Arbitrator has awarded a total amount of Rs. 4,18,000/-. The findings of the arbitrator are purely findings of fact. The Arbitrator has recorded that the specifications of the lift were altered by the Department as a result of which the petitioner was justified in preferring his claim for the additional work that was required to be carried out. In the circumstances, there is no merit in the challenge to the findings insofar as the first claim is concerned.

17. Counsel appearing on behalf of the petitioner has not pressed the challenge to the award under the second claim having regard to the fact that it awards only an amount of Rs. 47,884/- on account of extra and additional work.

18. The third claim was for payment due on account of additional work which was carried out by the contractor, which has not been paid. A total amount of Rs. 2,06,006/- has been awarded by the Arbitrator as against the original claim of Rs. 7,48,502/-. The findings of the Arbitrator are contained in paragraphs 78 and 79 of the arbitral award in particular. Though the contractor had initially agreed to carry out certain changes without any charges in respect thereof, the earlier letter dated 14th December, 1998 was withdrawn on 5th April, 1999. The Arbitrator has noted that the contractor has not only constructed a road with much guperior specifications than was originally contemplated under the contract, but also suffered an increase, in the quantity by merely four times. In these circumstances, the claim has been found to be justified. The question as to whether the earlier letter of the contractor dated 14th December, 1998 was purely a voluntary act on the part of the contractor or whether in fact he had been pressurized to do so as contended by the contractor was a question of fact. The findings of the learned Arbitrator cannot be disturbed in exercise of the jurisdiction under Section 34.

19. Claim No. 4 was on account of an increase in the liability of the contractor for the payment of the works contract tax resulting from a change in legislation. Counsel appearing on behalf of the first respondent has submitted before the Court that the finding of the arbitrator while awarding this claim has not been challenged in the Arbitration Petition. That apart, the only submission which was urged on behalf of the petitioner was that there was no provision in the contract for reimbursing the subsequent increase in the works contract tax. Both Counsel have placed before the Court their respective submissions in regard to Clause 1.24 of the Special Conditions of Contract. What Clause 1.24 postulated was that the tender received shall be inclusive of all taxes and levies payable under the respective statutes including sales tax imposed by the State Govt. pursuant to the 46th Amendment to the Constitution. No separate amount was to be indicated by the tenderer while submitting his tender. Clause 1.24 did not deal with the question as to what would be the consequence if a subsequent change in legislation increased the liability of the contractor on account of the tax on works contracts. The Arbitrator has noted that the relevant provisions of the Sales Tax Act were substantially amended on 1st May, 1998 which resulted in an enhancement of the tax liability of the contractor. The Arbitrator has taken the view that though the contract was silent in regard to a contingency of the enhancement of liability occasioned due to an amendment of the legislation, the contractor obviously had to be reimbursed for such enhancement of liability. The findings of the Arbitrator in para 87 of the award are not contrary to public policy. The construction of the contract by the learned Arbitrator must therefore prevail.

20. Insofar as claim Nos. 5 and 6 are concerned, these are respectively for the payment of balance escalation due on account of material and fuel and for additional overhead and supervision charges and head quarter expenses for the prolonged period of the contract. No separate submissions have been urged in so far as these two claims are concerned. The Counsel for the petitioner urged that over and above the preliminary objection which has been duly considered he does not seek to raise any further submission.

21. The Arbitrator has awarded interest @ 9% p.a. payable with effect from 1st April 2000 until the date of the award and directed that if payment was not made by 15th July, 2002 the amount awarded to the contractor shall carry simple interest @ 10% p.a. from 16th July, 2002 till payment. Having regard to the fact that the Union of India had preferred an Arbitration petition, it would be appropriate to direct that future interest shall be payable for the period after 15th July, 2002 at the same rate of 9%. In the circumstances, there is no merit in the Arbitration Petition which is accordingly dismissed.