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Saturday, October 5, 2013

Arbitration Act - No Arbitration clause = Vishnu (dead) by L.Rs. ...Appellant versus State of Maharashtra and others ...Respondents published in judis.nic.in/supremecourt/filename=40853

     Arbitration Act - No Arbitration  clause =
 Whether Clause 30  of  B-1  Agreements  entered  into  between  the
      Government of Maharashtra and the appellant is in  the  nature  of  an
      arbitration clause is the question which arises for  consideration  in
      this appeal filed against  judgment  dated  6.5.2004  of  the  learned
      Single Judge of the Bombay High Court, Aurangabad Bench. =
   In view of the above discussion,  we  hold  that  the  High
      Court had rightly held that Clause 30  of  B-I  Agreement  is  not  an
      Arbitration Agreement and the trial Court was not right in  appointing
      the Chief Engineer as an Arbitrator.

      32.        Before concluding, we may observe that circulars issued  by
      the State Government may provide useful guidance  to  the  authorities
      involved in the implementation of the project but  the  same  are  not
      conclusive of the correct interpretation of the  relevant  clauses  of
      the agreement and, in any case, the Government’s interpretation is not
      binding on the Courts.

      33.        In the result, the appeals are dismissed.

                                                          REPORTABLE
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO. 3680 OF 2005


      Vishnu                 (dead)                 by                 L.Rs.
      ...Appellant


                                   versus


      State          of           Maharashtra           and           others
      ...Respondents


                                    WITH


                        CIVIL APPEAL NO. 3681 of 2005


                               J U D G M E N T




      G.S. SINGHVI, J.



      1. Whether Clause 30  of  B-1  Agreements  entered  into  between  the
      Government of Maharashtra and the appellant is in  the  nature  of  an
      arbitration clause is the question which arises for  consideration  in
      this appeal filed against  judgment  dated  6.5.2004  of  the  learned
      Single Judge of the Bombay High Court, Aurangabad Bench.

      2. The tenders submitted by the appellant, who is now  represented  by
      his legal representatives, for Tondapur Medium Project, Jalgaon Medium
      Project Division, Jalgaon and Hatnoor  Canal  Division  No.3,  Chopda,
      District Jalgaon were accepted by the  Competent  Authority  and  five
      agreements  were  executed  between  the  parties  on  19.5.1983   and
      5.10.1983 (hereinafter referred to as ‘B-1 Agreements’).

      3. In January 1985, the appellant abandoned the  works  and  submitted
      bills for the works already done.  He also claimed damages in lieu  of
      the alleged 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  of  the  trial  Court
      granting leave to the appellant to amend the  prayer  clause  was  set
      aside.

      8. In the meanwhile, the appellant filed  application  dated  3.2.1995
      under Section 20 of the 1940 Act for settlement of accounts and prayed
      that respondent Nos.3 and  4  may  be  directed  to  file  Arbitration
      Agreement in terms of Clause 30 of B-1 Agreement executed between  the
      parties and an Arbitrator may be appointed to decide all the disputes.
      On 17.6.1995, the trial Court directed the parties to adduce  evidence
      on the nature of Clause 30 of B-1 Agreement.

      9. After considering the  evidence  adduced  by  the  parties  and  by
      placing reliance on some judgments of the High Courts, the trial Court
      allowed the application and declared that Clause 30 of  B-1  Agreement
      is an arbitration clause.  The trial Court also  appointed  Shri  D.G.
      Marathe, Chief Engineer (PWD) as an Arbitrator and  referred  all  the
      disputes to him.

      10.        Civil Revision Application No.447  of  1997  filed  by  the
      respondents against the order of the trial Court was  allowed  by  the
      learned Single Judge of the Bombay High Court and  it  was  held  that
      Clause 30 of B-1 Agreement cannot be treated as an arbitration clause.
      In support of this conclusion, the High Court relied upon the judgment
      of this Court in Civil Appeal No. 4700/1985 – State of Maharashtra  v.
      M/s. Ranjeet Construction.

      11.        While issuing notice  of  the  special  leave  petition  on
      4.1.2005, this Court passed the following order:

           “The learned counsel for the petitioner places  reliances  on  a
           three Judge Bench decision of  this  Court  in  Mallikarjun  Vs.
           Gulbarga University 2004 (1) SCC, 372 wherein a similar  clause,
           as arises for consideration in the present case, was held to  be
           an arbitration clause.


           The abovesaid decision seems to be at divergence from  the  view
           taken by a two Judge Bench decision  in  Bharat  Bhushan  Bansal
           Vs.U.P. Small Industries Corporation Ltd., Kanpur 1999 (2)  SCC,
           166 wherein reliance has been placed on two judgments,  of  this
           Court, each by three Judges, namely, State of Orissa Vs. Damodar
           Das 1996 (2) SCC, 216 and State of U.P. Vs. Tipper Chand 1980(2)
           SCC, 341.


           Issue notice to the respondents and place for hearing  before  a
           three Judge Bench.


           Issue notice also on the prayer for grant of interim relief.”



      12.         By  an  order  dated  11.07.2005,  the  three-Judge  Bench
      referred the matter  to  the  Constitution  Bench  for  resolving  the
      conflicting opinions 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 in State  of  U.P.  v.  Tipper
      Chand (1980) 2 SCC 341, State of Orissa v. Damodar Das  (1996)  2  SCC
      216 and Bharat Bhushan Bansal v.  U.P.  Small  Industries  Corporation
      Ltd., Kanpur (1999) 2 SCC  166  and  argued  that  Clause  30  of  B-1
      Agreement cannot be construed as an arbitration clause simply  because
      the decision of the Superintending Engineer is  made  binding  on  all
      parties to the contract.  Learned counsel submitted that the  judgment
      in   Mallikarjun   v.   Gulbarga   University   (supra)   is   clearly
      distinguishable  because  Clause  30  of  the  Agreement,  which   was
      interpreted in that case was  substantially  different  from  the  one
      under consideration.  Shri Pitale pointed out that the  Superintending
      Engineer of Gulbarga Circle was not directly involved in the execution
      of  contract  between  the  University  and  the  appellant,   whereas
      Superintending Engineer, who has been named as the officer  in  Clause
      30 of B-1 Agreement entered into between the appellant and  the  State
      Government is overall incharge of the work.

      15.        We have considered the respective  arguments.   Clauses  29
      and 30 of the B-1 Agreement entered into between the parties  read  as
      under:

           “Clause 29.—All works to be executed under the contract shall be
           executed under the direction and subject to the approval in  all
           respects of the Superintending Engineer of the  Circle  for  the
           time being, who shall be entitled to direct  at  what  point  or
           points and in what manner they are to  be  commenced,  and  from
           time to time carried on.


           Clause 30 —Except where otherwise specified in the contract  and
           subject to the powers delegated to him by Government  under  the
           Code rules then in force  the  decision  of  the  Superintending
           Engineer of the Circle  for  the  time  being  shall  be  final,
           conclusive, and binding on all parties to the contract upon  all
           questions,  relating  to  the  meaning  of  the  specifications,
           designs, drawings, and instructions, hereinbefore mentioned  and
           as to the quality of workmanship, or materials used on the work,
           or as to any other question,  claim,  right,  matter,  or  thing
           whatsoever, if any way arising, out of, or relating  to  or  the
           contracts   designs,   drawings,   specifications,    estimates,
           instructions,  orders,  or   these   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.”



      16.        Para 224 of the Maharashtra 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 Circle was made  final,
      conclusive and binding on all the parties in respect of all  questions
      relating to the meaning  of  the  specifications,  designs,  drawings,
      quality of workmanship or materials used on  the  work  or  any  other
      question relating to claim, right, matter or things arising out of  or
      relating to the contract designs, drawings, specifications, estimates,
      instructions,  orders,  etc.  These   two   clauses   by   which   the
      Superintending Engineer was given over all  supervisory  control  were
      incorporated for smooth execution of the works in accordance with  the
      approved designs and specifications and also to ensure that quality of
      work is not compromised. The power conferred upon  the  Superintending
      Engineer of the Circle was in the nature  of  a  departmental  dispute
      resolution mechanism and was meant  for  expeditious  sorting  out  of
      problems which could crop up during execution of the work.  Since  the
      Superintending Engineer was made overall in-charge of all works to  be
      executed under the contract, he was considered by the  parties  to  be
      the  best  person  who  could  provide  immediate  resolution  of  any
      controversy relating to specifications, designs, drawings, quality  of
      workmanship or material used, etc. It was felt that if  all  this  was
      left to be  decided  by  the  regular  civil  Courts,  the  object  of
      expeditious execution of work of the project would be frustrated. This
      is the primary reason why the Superintending Engineer  of  the  Circle
      was entrusted with the task of taking  decision  on  various  matters.
      However, there is nothing in the language of Clause 30 from  which  it
      can be inferred that the parties had agreed  to  confer  the  role  of
      arbitrator upon the Superintending Engineer of the Circle.

      18.        In Russell  on  Arbitration,  21st  Edn.,  the  distinction
      between an expert determination and arbitration has been spelt out  in
      the following words:

           “Many cases have been fought over whether  a  contract’s  chosen
           form  of  dispute  resolution   is   expert   determination   or
           arbitration. This is a matter of construction of  the  contract,
           which involves an objective enquiry into the intentions  of  the
           parties. First, there are the  express  words  of  the  disputes
           clause.  If  specific  words  such  as  ‘arbitrator’,  ‘arbitral
           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 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.
      Tipper Chand (supra) and it was held that the same cannot be construed
      as an arbitration clause.  Paragraphs 2 and 3 of  the  judgment  which
      contain the reasons for the aforesaid conclusion are reproduced below:

           “2. The suit out of which this appeal has arisen  was  filed  by
           the respondent before us for recovery of Rs. 2000 on account  of
           dues  recoverable  from  the  Irrigation   Department   of   the
           petitioner State for work done by the plaintiff in pursuance  of
           an agreement, clause 22 of which runs thus:


                “Except where  otherwise  specified  in  the  contract  the
                decision of the Superintending Engineer for the time  being
                shall be final, conclusive and binding on  all  parties  to
                the contract upon all questions relating to the meaning  of
                the  specifications,  design,  drawing   and   instructions
                hereinbefore mentioned. The decision of such Engineer as to
                the quality of workmanship, or materials used on the  work,
                or as to any other question, claim, right, matter or things
                whatsoever, in any way arising out of or  relating  to  the
                contract,  designs,  drawing   specifications,   estimates,
                instructions, orders, or  these  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  of  the
                contract by the contractor, shall also be final, conclusive
                and binding on the contractor.”


           3. After perusing the contents of the said  clause  and  hearing
           learned Counsel for the parties we find  ourselves  in  complete
           agreement with the view taken by the High Court. Admittedly  the
           clause does not contain any express arbitration  agreement.  Nor
           can  such  an  agreement  be  spelled  out  from  its  terms  by
           implication, there being no mention in it of any  dispute,  much
           less of a reference thereof. On the other hand, the  purpose  of
           the clause clearly appears to  be  to  vest  the  Superintending
           Engineer with supervision of  the  execution  of  the  work  and
           administrative control over it from time to time.”



      20.        In  State  of  Maharashtra  v.  M/s.  Ranjeet  Construction
      (supra), the two Judge Bench of this Court interpreted  Clause  30  of
      the agreement entered  into  between  the  parties,  which  is  almost
      identical to the clause 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.

      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 final.— Except
               where otherwise specified in this contract, the decision  of
               the Public Health Engineer  for  the  time  being  shall  be
               final, conclusive and binding on all parties to the contract
               upon  all  questions  relating  to  the   meaning   of   the
               specifications;  drawings  and   instructions   hereinbefore
               mentioned and as to the quality of workmanship or  materials
               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  these  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 the sooner determination
               thereof of the contract.”

           10. Section 2(a) of the Act defines “arbitration  agreement”  to
           mean  “a  written  agreement  to  submit   present   or   future
           differences to  arbitration,  whether  an  arbitrator  is  named
           therein or not”. Indisputably, there is no recital in the  above
           clause of the  contract  to  refer  any  dispute  or  difference
           present or future to arbitration. The learned  counsel  for  the
           respondent sought to contend from the marginal note, viz.,  “the
           decision of Public Health Engineer to be final”  and  any  other
           the words “claim, right, matter or thing, whatsoever in any  way
           arising  out  of   the   contract,   drawings,   specifications,
           estimates,  instructions,  orders  or   these   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 the sooner determination thereof
           of the contract” and contended that this clause is  wide  enough
           to encompass within  its  ambit,  any  disputes  or  differences
           arising in the  aforesaid  execution  of  the  contract  or  any
           question or claim or right arising under the contract during the
           progress  of  the  work  or  after  the  completion  or   sooner
           determination thereof for reference to an arbitration. The  High
           Court, therefore, was right in its conclusion that the aforesaid
           clause  gives  right  to  arbitration  to  the  respondent   for
           resolution of the dispute/claims raised by  the  respondent.  In
           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 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 or otherwise concerning
           the works or the execution or failure to execute  the  same  has
           been entrusted to the Public Health Engineer  and  his  decision
           shall be final. In other words, he is nominated only  to  decide
           the questions arising in the quality of the work  or  any  other
           matters enumerated hereinbefore and his decision shall be  final
           and bind the contractor. A clause  in  the  contract  cannot  be
           split into two parts so as to consider one part to give rise  to
           difference or dispute and another part relating to execution  of
           work, its workmanship etc. It is settled now that  a  clause  in
           the contract must be  read  as  a  whole.  If  the  construction
           suggested by the respondent is given effect then the decision of
           the Public Health Engineer would become final and it is not even
           necessary  to  have  it  made  rule  of  the  court  under   the
           Arbitration Act. It  would  be  hazardous  to  the  claim  of  a
           contractor to give such instruction and give power to the Public
           Health Engineer to make any dispute final  and  binding  on  the
           contractor. A careful reading of  the  clause  in  the  contract
           would give us an indication that the Public Health  Engineer  is
           empowered to decide all the questions enumerated  therein  other
           than any disputes or differences that have  arisen  between  the
           contractor and the Government. But for clause 25,  there  is  no
           other  contract  to  refer  any  dispute  or  difference  to  an
           arbitrator named or otherwise.”

                                                         (emphasis supplied)



      22.        In K.K. Modi v. K.N. Modi (1998)  3  SCC  573,  this  Court
      interpreted Clause 9 of the Memorandum of Understanding signed by  two
      groups of Modi family. Group ‘A’ consisted of Kedar Nath Modi (younger
      brother of Seth Gujjar Mal Modi and his  three  sons)  and  Group  ‘B’
      consisted of five sons  of  Seth  Gujjar  Mal  Modi.  To  resolve  the
      disputes  and  differences   between   two   groups,   the   financial
      institutions, which  had  lent  money,  got  involved.  Ultimately,  a
      Memorandum of Understanding was signed by the  parties  on  24.1.1989,
      Clause 9 of which reads as under:

           “Implementation will be done in consultation with the  financial
           institutions. For all disputes, clarifications etc.  in  respect
           of implementation of this agreement, the same shall be  referred
           to the Chairman, 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.

      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  Bench  first  culled  out  the  following
      attributes of an Arbitration Agreement:

           “(1)  The  arbitration  agreement  must  contemplate  that   the
           decision of the tribunal will be binding on the parties  to  the
           agreement,

           (2) that the jurisdiction of the tribunal to decide  the  rights
           of parties must derive either from the consent of the parties or
           from an order of the court or from a statute, the terms of which
           make it clear that the process is to be an arbitration,

           (3) the agreement must contemplate that  substantive  rights  of
           parties will be determined by the agreed tribunal,

           (4) that the tribunal will determine the rights of  the  parties
           in an impartial and judicial manner with the tribunal  owing  an
           equal obligation of fairness towards both sides,

           (5) that the agreement of the parties to refer their disputes to
           the decision of the tribunal must be intended to be  enforceable
           in law and lastly,

           (6) the agreement must contemplate that the tribunal will make a
           decision upon a dispute which is already formulated at the  time
           when a reference is made to the tribunal.

           The other  factors  which  are  relevant  include,  whether  the
           agreement contemplates that the tribunal will  receive  evidence
           from both sides and hear their contentions or at least give  the
           parties an opportunity to put them forward; whether the  wording
           of the agreement is consistent or  inconsistent  with  the  view
           that the process was intended to be an arbitration, and  whether
           the agreement  requires  the  tribunal  to  decide  the  dispute
           according to law.”



      The Court then referred to several precedents including English  cases
      and held:

           “In the present case, the Memorandum  of  Understanding  records
           the settlement of various disputes as between Group A and  Group
           B in terms of the Memorandum of  Understanding.  It  essentially
           records  a  settlement  arrived  at   regarding   disputes   and
           differences between the two groups  which  belong  to  the  same
           family. In terms of the settlement, the  shares  and  assets  of
           various companies are  required  to  be  valued  in  the  manner
           specified in the agreement. The valuation is to be done  by  M/s
           S.B. Billimoria & Co. Three companies which have to  be  divided
           between the two groups are to be 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 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  Memorandum
           of Understanding. It is possible that the valuers  nominated  in
           the Memorandum of Understanding or the firm entrusted  with  the
           responsibility of splitting some of the  companies  may  require
           some clarifications or may find difficulties in doing the  work.
           They can also resort to clause 9. Looking to the scheme  of  the
           Memorandum of Understanding and the purpose behind clause 9, the
           learned Single Judge, in our  view,  has  rightly  come  to  the
           conclusion that this was not an agreement to refer  disputes  to
           arbitration. It was  meant  to  be  an  expert’s  decision.  The
           Chairman, IFCI has designated his decision as a decision. He has
           consulted experts in connection with the valuation and  division
           of assets. He did not file his decision in court nor did any  of
           the parties request him to do so.”

                                                         (emphasis supplied)



      24.         In  Bharat  Bhushan  Bansal  v.  U.P.   Small   Industries
      Corporation Limited, Kanpur (1999) 2 SCC  166,  the  two  Judge  Bench
      interpreted Clauses 23 and 24 of the agreement  entered  into  between
      the parties for execution of work of construction  of  a  factory  and
      allied buildings of the respondent at India Complex, Rai Bareli. Those
      clauses were as under:

           “Decision of the Executive Engineer of the UPSIC to be final  on
           certain matters


           23. Except  where  otherwise  specified  in  the  contract,  the
           decision of the Executive Engineer shall  be  final,  conclusive
           and binding on both the parties to the contract on all questions
           relating to the meaning, the specification, design, drawings and
           instructions hereinbefore mentioned, and as to  the  quality  of
           workmanship or materials used on the work or  as  to  any  other
           question whatsoever in any way arising out of or relating to the
           designs,  drawings,  specifications,  estimates,   instructions,
           orders 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 thereof or  abandonment  of
           the contract by the contractor shall be final and conclusive and
           binding on the contractor.


           Decision of the MD of the UPSIC on all other  matters  shall  be
           final


           24. Except as provided in clause 23 hereof, the decision of  the
           Managing Director of the 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 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,  schedule  and
                drawings of the contract, and in regard to the execution of
                the works or otherwise arising out of or in connection with
                the contract, and also as regards all matters  of  account,
                including the final balance payable to the contractor,  and
                the certificate of the engineer for the time  being,  given
                under his hand, shall be binding  and  conclusive  on  both
                parties.”

           It was held that this clause was not an arbitration  clause  and
           that the duties of the  Engineer  were  administrative  and  not
           judicial.


           Since clause  24  does  not  contemplate  any  arbitration,  the
           application of the appellant under Section 8 of the  Arbitration
           Act, 1940 was misconceived. The appeal is, therefore,  dismissed
           though for reasons somewhat different from the reasons given  by
           the High Court. there will, however, be no order as to costs.”



      25.        The aforesaid judgments fully support the view taken by  us
      that Clause 30 of B-1 Agreement is not an arbitration clause.

      26.        The issue deserves to be looked into from another angle. In
      terms of Clause 29 of B-1 Agreement, the  Superintending  Engineer  of
      the Circle was invested with the authority to approve all works to  be
      executed under  the  contract.  In  other  words,  the  Superintending
      Engineer was to supervise execution of all works.  The power conferred
      upon him to take decision on the matters enumerated in Clause  30  did
      not involve adjudication of any  dispute  or  lis  between  the  State
      Government and the contractor.  It would have been extremely anomalous
      to appoint him as Arbitrator  to  decide  any  dispute  or  difference
      between the parties and pass an award.  How could he pass an award  on
      any of the issues already decided by him under Clause 30?  Suppose, he
      was to decline approval to the designs, drawings etc. or was to object
      to the quality of materials etc. and the contractor  had  a  grievance
      against his decision, the task of deciding the dispute could not  have
      been assigned  to  the  Superintending  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
           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 execution of the agreement, the question  as  to  whether
           the respondent herein entered into the agreement with  his  eyes
           wide open or not takes  a  back  seat.   An  order  which  lacks
           inherent  jurisdiction  would  be  a  nullity  and,  thus,   the
           procedural law of waiver or estoppel would have  no  application
           in such a situation.


           It will bear repetition to state that the action of  the  second
           appellant itself was in question  and,  thus,  indisputably,  he
           could not have adjudicated thereupon in terms of  the  principle
           that nobody can be a judge of his own cause.”



      27.        We may now notice the judgments relied upon by the  learned
      counsel for the appellant and find out whether  the  proposition  laid
      down therein supports his argument that Clause 30 should be treated as
      an arbitration clause.

      28.        The  facts  of  Mallikarjun  v.  Gulbarga  University  case
      (supra) 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 the
      execution of  the  project.  Superintending  Engineer,  PWD,  Gulbarga
      Circle was entrusted with the task  of  deciding  the  disputes.   The
      parties  filed  their  respective  claims  before  the  Superintending
      Engineer. He considered the same and passed an  award.  The  appellant
      filed execution petition in the Court of Principal Civil Judge (Senior
      Division), Gulbarga. The respondent filed an objection petition  under
      Section 47 of the CPC. The Executing Court rejected the objection. The
      University challenged the decision of the Executing Court and  pleaded
      that the agreement on the basis of which the dispute was  referred  to
      the Superintending Engineer was not an arbitration agreement  and,  as
      such, award made by him cannot be treated as one made under  the  1940
      Act. The High Court accepted the plea of the University and set  aside
      the order of the trial Court. Clause 30 of the agreement which came up
      for interpretation by this Court was as under:

           “The decision of the Superintending Engineer of Gulbarga  Circle
           for the time being shall be final, conclusive and binding on all
           parties to the contract  upon  all  questions  relating  to  the
           meaning   of   the   specifications,   designs,   drawings   and
           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  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, 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 dispute arising out of  the  contract  by  the
           Superintending Engineer, Gulbarga  Circle,  Gulbarga.  For  that
           reason, the case relied upon by  the  learned  counsel  for  the
           respondent is distinguishable.

           Once  clause  30  is  constituted  to  be  a  valid  arbitration
           agreement, it would necessarily follow that the decision of  the
           arbitrator named therein would be rendered  only  upon  allowing
           the parties to adduce evidence in support  of  their  respective
           claims and counter-claims as also upon hearing  the  parties  to
           the  dispute.  For  the  purpose  of  constituting   the   valid
           arbitration agreement, it is not necessary that  the  conditions
           as regards adduction of evidence by the  parties  or  giving  an
           opportunity of hearing to them must  specifically  be  mentioned
           therein. Such conditions, it  is  trite,  are  implicit  in  the
           decision-making  process   in   the   arbitration   proceedings.
           Compliance with the principles of natural justice inheres in  an
           arbitration process.  They,  irrespective  of  the  fact  as  to
           whether recorded specifically in the  arbitration  agreement  or
           not are required to be followed. Once the principles of  natural
           justice are not complied with, the award made by the  arbitrator
           would be rendered invalid. We, therefore,  are  of  the  opinion
           that the 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   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)



      29.        In Punjab State v. Dina Nath (supra), the 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/society  shall  be  referred  to  the  Superintending
           Engineer, Anandpur Sahib,  Hydel  Circle  No.1,  Chandigarh  for
           orders and his decision will be final and acceptable/binding  on
           both the parties.”



      After noticing the judgment in K.K.  Modi  v.  K.N.  Modi,  the  Court
      observed:
           “Keeping the ingredients as indicated by this Court in  K.K.Modi
           in mind for holding a particular  agreement  as  an  arbitration
           agreement, we now proceed to examine the  aforesaid  ingredients
           in the context of the present case:


              a) Clause 4 of the Work Order categorically  states  that  the
                 decision of the Superintending engineer shall be binding on
                 the parties.

              b) The jurisdiction of the Superintending Engineer  to  decide
                 the rights of the parties has also been  derived  from  the
                 consent of the parties to the Work Order.

              c) The agreement contemplates that the Superintending Engineer
                 shall determine substantive rights of parties as the clause
                 encompasses  all  varieties  of  disputes  that  may  arise
                 between the parties and does not restrict the  jurisdiction
                 of the Superintending Engineer to specific issues only.

              d) That the agreement of the parties to refer  their  disputes
                 to the decision of the Superintending Engineer is  intended
                 to be enforceable in law as it is 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 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
           by the parties. The clause in  the  instant  case  categorically
           mentions the word “dispute” which would be referred to  him  and
           states “his decision would be final  and  acceptable/binding  on
           both the parties.”



      30.        In our opinion, neither of the  judgments  relied  upon  by
      Shri Mukherjee help the cause of his client.  In  Mallikarjun’s  case,
      this  Court  noted  that  Superintending  Engineer,  Gulbarga  Circle,
      Gulbarga was not an officer of the University and he did not have  any
      authority or jurisdiction either to supervise the construction work or
      issue any direction to the contractor in relation to the project.  The
      Court also emphasized that the parties had  agreed  that  any  dispute
      arising from the contract would be referred to  the  decision  of  the
      Superintending Engineer.  These factors are  missing  in  the  instant
      case.  Likewise, Clause  4  of  the  work  order  which  came  up  for
      interpretation in Punjab  State  v.  Dina  Nath  (supra)  contemplated
      resolution by the  Superintending  Engineer  of  any  dispute  arising
      between the department and the  contractor.  Therefore,  the  relevant
      clause of the  work  order  was  rightly  treated  as  an  Arbitration
      Agreement.

      31.        In view of the above discussion,  we  hold  that  the  High
      Court had rightly held that Clause 30  of  B-I  Agreement  is  not  an
      Arbitration Agreement and the trial Court was not right in  appointing
      the Chief Engineer as an Arbitrator.

      32.        Before concluding, we may observe that circulars issued  by
      the State Government may provide useful guidance  to  the  authorities
      involved in the implementation of the project but  the  same  are  not
      conclusive of the correct interpretation of the  relevant  clauses  of
      the agreement and, in any case, the Government’s interpretation is not
      binding on the Courts.

      33.        In the result, the appeals are dismissed.


                                 .........................................J.
                                                 (G.S. SINGHVI)


                                 .........................................J.
                                                     (V. GOPALA GOWDA)


                                                 ...........................
                                         ..............J.
                                                 (C. NAGAPPAN)
      New Delhi,
      October 4, 2013.




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