9911796707
TMI Blog2013 (10) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... ged loss suffered by him. 4. After four years, the appellant served notice under Section 80 CPC and then filed Civil Suit No.995/1989 before the trial Court for declaring the recovery proceedings initiated by the defendants as illegal, null and void. 5. During the pendency of the suit, the appellant filed an application under Section 21 of the Arbitration Act, 1940 (for short, 'the 1940 Act') and prayed that the matter may be referred to an Arbitrator by appointing the Superintending Engineer or any other Arbitrator as the sole Arbitrator in terms of Clause 30 of B-1 Agreement. The same was dismissed by the trial Court vide order dated 29.7.1994 on the ground that both the parties had not given consent for making a reference to an Arbitrator. 6. Soon thereafter, the appellant filed an application under Order VI Rule 17 CPC for leave to amend the plaint and incorporate an additional prayer for reference of the dispute to an Arbitrator. The same was allowed by the trial Court vide order dated 27.9.1994. 7. The respondents challenged the aforesaid order in Civil Revision Application No.153/1995, which was partly allowed by the learned Single Judge of the High Court and the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions expressed by the co-ordinate Benches. However, vide order dated 8.12.2010, the Constitution Bench declined to decide the matter and directed that the case be listed before the three Judge Bench. 13. Shri Rana Mukherjee, learned counsel for the appellant argued that the impugned order is liable to be set aside because the High Court's interpretation of Clause 30 of B-1 Agreement is contrary to the law laid down in Mallikarjun v. Gulbarga University (2004) 1 SCC 372 and Punjab State v. Dina Nath (2007) 5 SCC 28. Learned counsel emphasized that Clause 30 of B-1 Agreement makes the decision of the Superintending Engineer binding on all parties to the agreement and, therefore, the trial Court was right in treating the same as an arbitration clause. Shri Mukherjee further argued that in view of circulars dated 9.5.1977, 12.8.1982 and 21.5.1983 issued by the State Government, Clause 30 of B-1 Agreements has to be treated as an arbitration clause and the respondents had no right to challenge the reference made by the trial Court and thereby question the wisdom of the State Government. 14. Shri Manish Pitale, learned counsel for the respondents relied upon the judgments of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aharashtra Public Works Manual, as amended by Government C.M. No. CAT-1070/460 - DSK.2, dt.9/5/1977, reads as under: "Para 224 - Clause 30 of B-1 and B-2 Agreement forms lays down that the decision of the Superintending Engineer in certain matters relating to the contract would be final. The Superintending Engineer's decision taken under this clause should be considered as that taken as an Arbitrator and this should be considered as the decision taken under the Arbitration Act. The decisions taken by the Superintending Engineer under the other clauses should be considered different from his decision taken under clause 30 of B-1 and B-2 tender agreement as an arbitrator." 17. We shall first consider the question whether Clause 30 of B-1 Agreement can be construed as an arbitration clause. A conjoint reading of Clauses 29 and 30 of B-1 Agreements entered into between the parties shows that the appellant had to execute all works subject to the approval in all respects of Superintending Engineer of the Circle, who could issue directions from time to time about the manner in which work was to commence and execute. By virtue of Clause 30, decision of the Superintending Engineer of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... although not always conclusive.... Where there is no express wording, the court will refer to certain guidelines. Of these, the most important used to be, whether there was an 'issue' between the parties such as the value of an asset on which they had not taken defined positions, in which case the procedure was held to be expert determination; or a 'formulated dispute' between the parties where defined positions had been taken, in which case the procedure was held to be an arbitration. This imprecise concept is still being relied on. It is unsatisfactory because some parties to contract deliberately choose expert determination for dispute resolution. The next guideline is the judicial function of an arbitral tribunal as opposed to the expertise of the expert; .... An arbitral tribunal arrives at its decision on the evidence and submissions of the parties and must apply the law or if the parties agree, on other consideration; an expert, unless it is agreed otherwise, makes his own enquiries, applies his own expertise and decides on his own expert opinion...." 19. A clause substantially similar to Clause 30 of B-1 Agreement was interpreted by a three Judge Bench in State of U.P v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the contract. 21. In State of Orissa v. Damodar Das (supra), the three Judge Bench interpreted Clause 21 of the contract entered into between the appellant and the respondent for construction of sump and pump chamber etc. for pipes W/S to Village Kentile. The respondent abandoned the work before completion of the project and accepted payment of the fourth running bill. Subsequently, he raised dispute and sent communication to the Chief Engineer, Public Health, Orissa for making a reference to an Arbitrator. The Subordinate Judge, Bhubaneswar allowed the application filed by the respondent under Section 8 of the 1940 Act and the order passed by him was upheld by the High Court. This Court referred to Clause 25 of the agreement, relied upon the judgment in State of U.P. v. Tipper Chand (supra) and held that the said clause cannot be interpreted as providing resolution of dispute by an Arbitrator. Paragraphs 9 and 10 of the judgment, which contain discussion on the subject, are extracted below: "9. The question, therefore, is whether there is any arbitration agreement for the resolution of the disputes. The agreement reads thus: "25. Decision of Public Health Engineer to be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven an opportunity to submit his case to be heard either in person or through counsel and a decision thereon should be given. It envisages by implication existence of a dispute between the contractor and the Department. In other words, the parties construed that the Public Health Engineer should be the sole arbitrator. When the claim was made in referring the dispute to him, it was not referred to the court. The respondent is entitled to avail of the remedy under Sections 8 and 20 of the Act. We find it difficult to give acceptance to the contention. A reading of the above clause in the contract as a conjoint whole, would give us an indication that during the progress of the work or after the completion or the sooner determination thereof of the contract, the Public Health Engineer has been empowered to decide all questions relating to the meaning of the specifications, drawings, instructions hereinbefore mentioned and as to the quality of workmanship or material used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of, or relating to, the contract drawings, specifications, estimates, instructions, orders or those conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious questions. The committee of experts and the Chairman held discussion with both the groups. On 8.12.1995, the Chairman, IFCI gave his detailed report / decision. In his covering letter, the Chairman indicated that the Memorandum of Understanding had been substantially implemented during 1989 to 1995 and with his decisions on the disputes / clarifications given by him, it will be possible to implement the remaining part. The report of the Chairman was neither filed in the competent Court as an award nor any application was submitted for making the report a rule or decree of the Court. However, the Chairman issued series of directions for implementing the report. On 18.5.1996, the appellants filed a petition under Section 33 of the 1940 Act in the Delhi High Court challenging report dated 8.12.1995 by asserting that it was an award in arbitration proceedings. The opposite parties filed civil suit in the High Court to challenge the report of the Chairman. 23. One of the questions formulated by this Court was whether Clause 9 of the Memorandum of Understanding constituted an Arbitration Agreement and whether the decision of the Chairman, IFCI constituted an award. The two Judge Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarifications relating to implementation are to be referred to the Chairman, IFCI or his nominees whose decision will be final and binding. The purport of clause 9 is to prevent any further disputes between Groups A and B. Because the agreement requires division of assets in agreed proportions after their valuation by a named body and under a scheme of division by another named body. Clause 9 is intended to clear any other difficulties which may arise in the implementation of the agreement by leaving it to the decision of the Chairman, IFCI. This clause does not contemplate any judicial determination by the Chairman of the IFCI. He is entitled to nominate another person for deciding any question. His decision has been made final and binding. Thus, clause 9 is not intended to be for any different decision than what is already agreed upon between the parties to the dispute. It is meant for a proper implementation of the settlement already arrived at. A judicial determination, recording of evidence etc. are not contemplated. The decision of the Chairman, IFCI is to be binding on the parties. Moreover, difficulties and disputes in implementation may not be between the parties to the M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions or concerning abandonment of the contract by the contractor and in respect of all other matters arising out of this contract and not specifically mentioned herein." It was argued on behalf of the appellant that Clause 24 should be construed as an arbitration clause because the decision of the Managing Director was binding on both the parties. The two Judge Bench analysed Clauses 23 and 24 of the agreement, referred to the judgment in K.K. Modi v. K.N. Modi (supra), State of U.P. v. Tipper Chand (supra), State of Orissa v. Damodar Das (supra) and observed: "In the present case, the Managing Director is more in the category of an expert who will decide claims, rights, or matters in any way pertaining to the contract. The intention appears to be more to avoid disputes than to decide formulated disputes in a quasi-judicial manner. In para 18.067 of Vol. 2 of Hudson on Building and Engineering Contracts. Illustration (8) deals with the case where, by the terms of a contract, it was provided that the engineer "shall be the exclusive judge upon all matters relating to the construction, incidents, and the consequences of these presents, and of the tender, specifications, schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders (I)(P) Limited (2003) 7 SCC 418. In that case, the agreement entered into between the parties contained a clause that any dispute arising out of the agreement shall be referred to the Managing Director of the Corporation and his decision shall be final and binding on both the parties. After noticing several precedents, the two Judge Bench observed: "There cannot be any doubt whatsoever that an arbitration agreement must contain the broad consensus between the parties that the disputes and differences should be referred to a domestic tribunal. The said domestic tribunal must be an impartial one. It is a wellsettled principle of law that a person cannot be a judge of his own cause. It is further well settled that justice should not only be done but manifestly seen to be done. Actual bias would lead to an automatic disqualification where the decision-maker is shown to have an interest in the outcome of the case. Actual bias denotes an arbitrator who allows a decision to be influenced by partiality or prejudice and thereby deprives the litigant of the fundamental right to a fair trial by an impartial tribunal. As the acts of bias on the part of the second appellant arose during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the quality of workmanship or material used on the work, or as to any other question, claim, right, matter, or thing whatsoever, in any way arising out of or relating to the contract designs, drawings, specifications, estimates, instructions, orders or those conditions, or otherwise concerning the works or the execution or failure to execute the same, whether arising during the progress of the work, or after the completion or abandonment thereof in case of dispute arising between the contractor and Gulbarga University." After analyzing the aforesaid clause and making a reference to essential elements of arbitration agreement enumerated in Bihar State Mineral Development Corporation v. Encon Builders (I)(P) Limited (supra), the three Judge Bench held: "Applying the aforesaid principle to the present case, clause 30 requires the Superintending Engineer, Gulbarga Circle, Gulbarga, to give his decision on any dispute that may arise out of the contract. Further, we also find that the agreement postulates present or future differences in connection with some contemplated affairs inasmuch as there also was an agreement between the parties to settle such difference by a private tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arbitration clause does not necessitate spelling out of a duty on the part of the arbitrator to hear both parties before deciding the question before him. The expression "decision" subsumes adjudication of the dispute. Here in the instant case, it will bear repetition to state, that the disputes between the parties arose out of a contract and in relation to matters specified therein and, thus, were required to be decided and such decisions are not only final and binding on the parties, but they are conclusive which clearly spells out the finality of such decisions as also their binding nature. A clause which is inserted in a contract agreement for the purpose of prevention of dispute will not be an arbitration agreement. Such a provision has been made in the agreement itself by conferring power upon the Engineer-in-Charge to take a decision thereupon in relation to the matters envisaged under clauses 31 and 32 of the said agreement. Clauses 31 and 32 of the said agreement provide for a decision of the Engineer-in-Charge in relation to the matters specified therein. The jurisdiction of the Engineer-in-Charge in relation to such matters are limited and they cannot be equated with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... binding in nature. The words "any dispute" appears in clause 4 of the Work Order. Therefore, only on the basis of the materials produced by the parties in support of their respective claims a decision can be arrived at in resolving the dispute between the parties. The use of the words "any dispute" in clause 4 of the Work order is wide enough to include all disputes relating to the said Work Order. Therefore, when a party raises a dispute for non-payment of money after completion of the work, which is denied by the other party, such a dispute would come within the meaning of "arbitration agreement" between the parties. Clause 4 of the Work Order also clearly provides that any dispute between the department and the contractor shall be referred to the Superintending Engineer, Hydel Circle No.1, Chandigarh for orders. The word "orders" would indicate some expression of opinion, which is to be carried our, or enforced and which is a conclusion of a body (in this case Superintending engineer, Hydel Circle No.1, Chandigarh). Then again the conclusion and decision of the Superintending Engineer will be final and binding on both the parties. This being the position in the present case an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
