TMI Blog2013 (11) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to claim, right in any way arising out of or relating to the contract designs, drawings etc. or failure on the contractor’s part to execute the work, whether arising during the progress of the work or after its completion, termination or abandonment has to be first referred to the Chief Engineer or the Designated Officer of the Department. The Chief Engineer or the Designated Officer is not an independent authority or person, who has no connection or control over the work. As a matter of fact, he is having over all supervision and charge of the execution of the work. He is not required to hear the parties or to take evidence, oral or documentary. He is not invested with the power to adjudicate upon the rights of the parties to the dispute or difference and his decision is subject to the right of the aggrieved party to seek relief in a Court of Law. The decision of the Chief Engineer or the Designated Officer is treated as binding on the contractor subject to his right to avail remedy before an appropriate Court. The use of the expression ‘in the first place’ unmistakably shows that non-adjudicatory decision of the Chief Engineer is subject to the right of the aggrieved pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d then lodged claim for payment of the amount allegedly due to him. After some time, the appellant filed an application under Section 11(6) and (8) of the Arbitration and Conciliation Act, 1996 (for short, the 1996 Act ) for appointment of an Arbitrator for adjudication of all the disputes pertaining to Contract No.5/96-97 dated 8.5.1996. The Chief Justice of the High Court assigned the application to the Designated Judge, who dismissed the same vide order dated 14.9.2001 by relying upon the judgment in Mysore Construction Company v. Karnataka Power Corporation Ltd. ILR 2000 KAR 4953. Paragraphs 5 and 6 of that order read as under: 5. The above clause requires the contractor specifically to approach the civil court, if he is not satisfied with the decision of the Chief Engineer. It does not provide for reference to arbitration. But contrary to the specific term of clause 29, the petitioner has sought appointment of Arbitrator instead of approaching the Civil Court. 6. I had occasion to consider the question whether such a clause is an arbitration agreement in Mysore Construction Company Vs. Karnataka Power Corporation Ltd. [ILR 2000 KAR 4953] and held that the said clause is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... error by refusing to appoint an Arbitrator. 9. Shri Naveen R. Nath, learned counsel, who appeared on behalf of Krishna Bhagya Jala Nigam Limited and Karnataka Neeravari Nigam Limited, who are the appellants in the five appeals and respondents in some of the other cases argued that Clause 29 of the agreement executed between the appellant and the Government of Karnataka in Civil Appeal No.1586 of 2004 and similar clauses in other agreements are in the nature of departmental dispute resolution mechanism and the same cannot be treated as an arbitration clause. He pointed out that Clause 29 and similar clauses contained in other agreements neither postulate hearing of the parties by the Chief Engineer nor he can adjudicate the dispute. Shri Nath pointed out that the relevant clauses in the agreements entered into between the parties provide for settlement of disputes through Court and, therefore, the decision, if any, taken by the Chief Engineer cannot be treated as an award of the Arbitrator. 10. We have considered the respective submissions. Clause 29 of the Agreement entered into between the parties (the appellant and the respondents in Civil Appeal No.1586/2004) and majority of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Contractors request in writing for settlement of any dispute or difference as aforesaid, the contractor may within ninety days after the expiry of the first named period of ninety days approach the Law Courts at giving due notice to the Chief Engineer. Contractor to execute and complete work pending settlement of disputes; (f) Whether the claim is referred to the Chief Engineer or to the Law Courts, as the case may be, the contractor shall proceed to execute and complete the works with all due diligence pending settlement of the said dispute or differences. Obligations of the Executive Engineer and Contractor shall remain unsettled during consideration of dispute. (g) The reference of any dispute or difference to the Chief Engineer or the Law Court may proceed notwithstanding that the works shall then be or be alleged to be complete, provided always that the obligations of the Executive Engineer and the Contractor shall not be altered by reason of the said dispute or difference being referred to the Chief Engineer or the Law Court during the Progress of the works. (emphasis supplied) 11. Clause 7 of the Agreement, which was subject matter of consideration in Civi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim is referred to the Engineer or the law courts, as the case may be, the contractor shall proceed to execute and complete the works with all due diligence pending settlement of the said dispute or differences. The reference of any dispute or difference to the engineer or law courts may proceed not withstanding that the works shall then be or be alleged to be complete, provided always that the obligations of the Engineer and the contractor shall not be altered by reason of the said dispute or difference being referred to the engineer or law courts during the progress of the works. Neither party is entitled to bring a claim to resolution of disputes if the dispute or differences are not notified in writing within thirty (30) days after expiration of the maintenance period. (emphasis supplied) 13. Clause 67 of the contract, which is subject matter of consideration in the appeal arising out of SLP(C) No.12553/2006, reads thus: SETTLEMENT OF DISPUTES 67) If any dispute or difference of any kind whatsoever shall arise between the Engineer and the Contractor in connection with, or arising out of the Contract, or the execution of works, whether during the progress of the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udge referred to the passage from Russell on Arbitration (19th Edition, page 59), the judgments of this Court in K. K. Modi v. K. N. Modi and others (supra), Chief Conservator of Forests, Rewa v. Ratan Singh Hans AIR 1967 SC 166; Smt. Rukmanibai Gupta v. the Collector, Jabalpur (supra); State of Uttar Pradesh v. Tipper Chand (1980) 2 SCC 341; State of Orissa v. Damodar Das (1996) 2 SCC 216; Bharat Bhushan Bansal v. Uttar Pradesh Small Industries Corporation Limited, Kanpur (1999) 2 SCC 166 and observed: The above decisions make it clear that an agreement or a clause in an agreement can be construed as an arbitration agreement, only if, (i) it provides for or contemplates reference of disputes or difference by either party to a private forum (other than a Court or Tribunal) or decision; (ii) it provides either expressly or impliedly, for an enquiry by the private forum giving due opportunity to both parties to put forth their cases; and (iii) it provides that the decision of the forum is final and binding upon the parties, without recourse to any other remedy and both would abide by such decision. Where there is no provision either for reference of disputes to a private f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of a dispute is that it is binding on both the parties. (e) Clause (c) provides that if the Contractor is not satisfied with the decision of the Chief Engineer, he can approach the law Court at Karwar for settlement of the dispute The clause requires the Contractor to approach the law Court for settlement of disputes. If as contended by the petitioner, the disputes are to be settled by way of arbitration by the Chief Engineer, acting as Arbitrator, then the question of one of the parties being permitted to approach the law Courts for settlement of the disputes does not arise. If the Chief Engineer is the Arbitrator and his decision is an award, then a party can approach the Civil Court only for setting aside the award and not for settlement of the disputes. This provision makes it clear that the decision of the Chief Engineer is not intended to be a decision by way of adjudication of the disputes/differences between the parties by way of arbitration but is intended to be merely a decision of the party (employer) which, when intimated to the other side, gives rise to a cause of action to the other party (Contractor) to approach the Civil Court for adjudication of its dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribunal , arbitration or the formula as an expert and not as an arbitrator are used to describe the manner in which the dispute resolver is to act, they are likely to be persuasive 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to the clauses under consideration, relied upon the judgment in State of U.P. v. Tipper Chand (supra) and held that Clause 30 cannot be relied upon for seeking a reference to an Arbitrator of any dispute arising under the contract. 17. In State of Orissa v. Damodar Das (supra), a 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 sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support thereof he relied on Ram Lal Jagan Nath v. Punjab State through Collector AIR 1966 Punj 436. It is further contended that for the decision of the Public Health Engineer to be final, the contractor must be given 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man, IFCI or his nominees whose decisions will be final and binding on both the groups. The Chairman, Industrial Finance Corporation of India (IFCI) formed a committee of experts to assist him in deciding various 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. One of the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... divided in accordance with a scheme to be prepared by Bansi S. Mehta Co. In the implementation of the Memorandum of Understanding which is to be done in consultation with the financial institutions, any disputes or 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 determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UPSIC shall be final, conclusive and binding on both the parties to the contract upon all questions relating to any claim, right, matter or thing in any way arising out of or relating to the contract or these conditions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntending Engineer. He could not be expected to make adjudication with an un-biased mind. Even if he may not be actually biased, the contractor will always have a lurking apprehension that his decision will not be free from bias. Therefore, there is an inherent danger in treating the Superintending Engineer as an Arbitrator. This facet of the problem was highlighted in the judgment of the two Judge Bench in Bihar State Mineral Development Corporation and another v. Encon Builders (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 well-settled principle of law that a person cannot be a judge of his own cause. It is further well settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akably shows that non-adjudicatory decision of the Chief Engineer is subject to the right of the aggrieved party to seek remedy. Therefore, Clause 29 which is subject matter of consideration in most of the appeals and similar clauses cannot be treated as an Arbitration Clause. 22. As a corollary to the above, we hold that the judgment of the Designated Judge in Mysore Construction Company v. Karnataka Power Corporation Ltd. (supra) lays down the correct law. 23. Before parting with the case, we may notice the judgments relied upon by the learned counsel for the contractors and find out whether the proposition laid down therein supports their argument that Clause 29 and other similar clauses in the agreements entered into between the parties should be treated as arbitration clause. 24. The facts of Mallikarjun v. Gulbarga University case (2004) 1 SCC 372 were that the respondent-University had accepted the tender submitted by the appellant for construction of an indoor stadium. In pursuance of the work order issued by the competent authority, the appellant completed the construction. Thereafter, he invoked the arbitration clause for resolution of the disputes which arose from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifference by a private tribunal, namely, the Superintending Engineer, Gulbarga Circle, Gulbarga. It was also agreed between the parties that they would be bound by the decision of the Tribunal. The parties were also ad idem. In the aforesaid view of the matter, it must be held that the agreement did contain an arbitration clause. The Bench distinguished the judgment in Bharat Bhushan Bansal s case by making the following observations: A bare comparison of clause 30 of the contract agreement involved in the present matter and clauses 23 and 24 involved in Bharat Bhushan Bansal case would show that they are not identical. Whereas clause 30 of the agreement in question provides for resolution of the dispute arising out of the contract by persons named therein; in terms of clause 24, there was no question of decision by a named person in the dispute raised by the parties to the agreement. The matters which are specified under clauses 23 and 24 in Bharat Bhushan Bansal case were necessarily not required to arise out of the contract, but merely claims arising during performance of the contract. Clause 30 of the agreement in the present case did provide for resolution of the dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and they cannot be equated with an arbitration agreement. Despite such clauses meant for prevention of dispute arising out of a contract, significantly, clause 30 has been inserted in the contract agreement by the parties. The Superintending Engineer, Gulbarga Circle, Gulbarga, is an officer of the Public Works Department in the Government of Karnataka. He is not an officer of the University. He did not have any authority or jurisdiction under the agreement or otherwise either to supervise the construction works or issue any direction(s) upon the contractor in relation to the contract job. He might be an ex officio member of the Building Committee, but thereby or by reason thereof, he could not have been given nor in fact had been given an authority to supervise the contract job or for that matter issue any direction upon the contractor as regards performance of the contract. (emphasis supplied) 25. In Punjab State v. Dina Nath (supra), a two Judge Bench was called upon to consider whether clause 4 of work order No.114 dated 16.5.1985 constituted an arbitration agreement. The clause in question was as under: Any dispute arising between the department and the contractor/socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the position in the present case and in view of the fact that clause 4 of the Work Order is not under challenge before us, the decision that would be arrived at by Superintending Engineer, Hydel Circle No.1, Chandigarh must also be binding on the parties as a result whereof clause 4 must be held to be a binding arbitration agreement. The Bench distinguished the judgment in State of Orissa v. Damodar Das (supra) by making the following observations: From a plain reading of this clause in Damodar Das it is evident that the powers of the Public Health Engineer were essentially to supervise and inspect. His powers were limited to the questions relating to the meaning of the specifications, drawings and instructions, quality of workmanship or materials used on the work or as to any other question, claim, right, matter, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same. However, in the case before us, the Superintending Engineer was given full power to resolve any dispute arising between the parties which power in our view is wide enough to cover any nature of dispute raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties accepted that there was an arbitration agreement, they proceeded on that basis and, therefore, Jala Nigam cannot be now be allowed to contend that clause 29 of the contract did not constitute an arbitration agreement. 27. One of the questions which arose for consideration in Karnataka State Road Transport Corporation and another v. M. Keshava Raju (supra) was whether the appointment of Arbitrator under Section 11 of the 1996 Act was proper. The facts of that case show that on an application filed by the respondent under Section 11 of the 1996 Act, the Designated Judge appointed an Arbitrator. After hearing the parties, the Arbitrator passed award dated 15.10.1998 whereby he allowed some claims of the respondent. The objections filed by the appellant under Section 34 of the 1996 Act were rejected by VI Additional City Civil Judge, Bangalore. In the appeal filed against the judgment of the trial Court, the High Court formulated the following points: (1) Whether the appellant can be permitted to raise the ground regarding the alleged want of jurisdiction in this Court to refer the dispute between the parties to an Arbitrator under Section 11 of the Act, for the first time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Section 4 of the Act. Section 4 reads as follows :- "(4) Waiver of right to object A party who knows that - (a) any provision of this Part from which the parties may derogate, or (b) any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, without that period of time, shall be deemed to have waived his right to so object." 17. Section 4 narrates the circumstances in which the party, who knowingly fails to object the non-compliance of any non-mandatory provisions of Part-I or any requirement under the arbitration agreement by the other party, is deemed to have waived his right to object. This section is based on general principles such as "estoppel" or "venire contra factum proprium". It is intended to help the arbitral process function efficiently and in good faith. If there is non-compliance of any non-mandatory provision of Part I or of any requirement of the arbitration agreement by a party to an arbitration agreement of which the other party to the agreement though has the kno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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