Arbitration and conciliation Act - contract disputes - absence of arbitration clause - High court held that there is an arbitration clause as per clause 48 and read with clause 4.1 of agreement and as such appointed an arbitrator - Apex court held that In fact, clause 48, even if it is stretched, cannot be regarded as an arbitration clause. The elements and attributes to constitute an arbitration clause, as has been stated in Jagdish Chander (supra), are absent.Therefore, the irresistible conclusion is that the High Court has fallen into grave error by considering the said clause as providing for arbitration. Consequently, the appeals are allowed and the judgments and orders passed by the High Court are set aside. =
During the performance of the contract,
the respondent raised a claim before the engineer as per clause 48 of
the general conditions of the contract and called upon the engineer to
settle certain disputes arising in connection with the contract. As
the concerned engineer did not do anything within the prescribed
period of thirty days as provided under clause 48.2, the respondent
filed CMP No. 62 of 2011 under Section 11(5) and (6) of the
Arbitration and Conciliation Act, 1996 (for brevity “the Act”) before
the High Court of Karnataka at Bangalore for appointment of an
arbitrator.
4. The said application was resisted by the present appellants on the
singular ground that clause 48 does not provide for arbitration and
the same, under no circumstances, could be construed as an arbitration
clause. To substantiate the said submission, reliance was placed on
clause 4.1 of the agreement. It was put forth that as there is no
arbitration clause, no arbitrator could be appointed. =
The designated
Judge of the Chief Justice placed reliance on the proceedings in W.P.
No. 28710/09 (M/s. Subhash Projects & Marketing Limited v. Karnataka
Power Transmission Corporation Limited) disposed of on 10.6.2010
wherein the appellant-company, being a State owned Corporation, had
not disputed clause 48.2 as an arbitration clause and, on that
foundation, opined that it was precluded from denying the same in the
case under consideration. The learned designated Judge interpreted
clauses 48 and 4.1 of the agreement and came to hold that a plain
reading of clause 48 would indicate that it partakes the character of
an arbitration clause and, accordingly, appointed a sole arbitrator to
adjudicate the matters in dispute.=
It really means
that the disputes and differences are left to be adjudicated by the
competent civil court.
Thus, clause 48, as we have analysed, read in
conjunction with clause 4.1, clearly establishes that there is no
arbitration clause in the agreement.
The clauses which were
interpreted to be arbitration clauses, as has been held in Ram Lal
(supra) and Dewan Chand (supra) which have been approved in Tipper
Chand (supra), are differently couched.
As far as Rukmanibai Gupta
(supra) is concerned, as has been opined in Damodar Das (supra) and
also in Bhagyadhar Dash (supra), it has to rest on its own facts.
Clause in Dina Nath (supra) is differently couched, and clause 48,
which we are dealing with, has no similarity with it.
In fact, clause
48, even if it is stretched, cannot be regarded as an arbitration
clause.
The elements and attributes to constitute an arbitration
clause, as has been stated in Jagdish Chander (supra), are absent.
Therefore, the irresistible conclusion is that the High Court has
fallen into grave error by considering the said clause as providing
for arbitration.
25. Consequently, the appeals are allowed and the judgments and orders
passed by the High Court are set aside.
2014 ( April. Part ) http://judis.nic.in/supremecourt/filename=41394
ANIL R. DAVE, DIPAK MISRA
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4424 OF 2014
(Arising out of S.L.P. (C) No. 20558 of 2013
Karnataka Power Transmission
Corporation Limited and another ... Appellants
Versus
M/s. Deepak Cables (India) Ltd. ...Respondent
With
CIVIL APPEAL NO. 4425 OF 2014
(Arising out of S.L.P. (C) No. 29008 of 2013)
With
CIVIL APPEAL NO. 4426 OF 2014
(Arising out of S.L.P. (C) No. 29009 of 2013)
With
CIVIL APPEAL NO. 4427 OF 2014
(Arising out of S.L.P. (C) No. 29010 of 2013)
With
CIVIL APPEAL NO. 4428 OF 2014
(Arising out of S.L.P. (C) No. 29011 of 2013)
With
CIVIL APPEAL NO. 4429 OF 2014
(Arising out of S.L.P. (C) No. 29012 of 2013)
With
CIVIL APPEAL NO. 4430 OF 2014
(Arising out of S.L.P. (C) No. 29013 of 2013)
With
CIVIL APPEAL NO. 4431 OF 2014
(Arising out of S.L.P. (C) No. 29014 of 2013)
J U D G M E N T
Dipak Misra, J.
Leave granted in all the special leave petitions.
2. The controversy involved in these appeals, preferred by special leave,
being similar, they were heard together and are disposed of by a
common judgment. For the sake of convenience, we shall state the
facts from Civil Appeal arising out of Special Leave Petition 29011 of
2013.
3. The appellant No. 1 is a company wholly owned by the Government of
Karnataka and, being a State transmission utility, is a deemed
licencee in the State. It invited tenders for establishing 2x8 MVA,
66/11 Sub-stations at Tavarekere in Channagiri Taluk, Davanagere
District, which included the supply materials, erection and civil
works on partial turnkey basis. The respondent-company participated
in the bid and it was successful in the tender and, accordingly, a
letter of intent was sent to it. After taking recourse to certain
procedural aspects, a contract was entered into between the appellant-
company and the respondent. During the performance of the contract,
the respondent raised a claim before the engineer as per clause 48 of
the general conditions of the contract and called upon the engineer to
settle certain disputes arising in connection with the contract. As
the concerned engineer did not do anything within the prescribed
period of thirty days as provided under clause 48.2, the respondent
filed CMP No. 62 of 2011 under Section 11(5) and (6) of the
Arbitration and Conciliation Act, 1996 (for brevity “the Act”) before
the High Court of Karnataka at Bangalore for appointment of an
arbitrator.
4. The said application was resisted by the present appellants on the
singular ground that clause 48 does not provide for arbitration and
the same, under no circumstances, could be construed as an arbitration
clause. To substantiate the said submission, reliance was placed on
clause 4.1 of the agreement. It was put forth that as there is no
arbitration clause, no arbitrator could be appointed. The designated
Judge of the Chief Justice placed reliance on the proceedings in W.P.
No. 28710/09 (M/s. Subhash Projects & Marketing Limited v. Karnataka
Power Transmission Corporation Limited) disposed of on 10.6.2010
wherein the appellant-company, being a State owned Corporation, had
not disputed clause 48.2 as an arbitration clause and, on that
foundation, opined that it was precluded from denying the same in the
case under consideration. The learned designated Judge interpreted
clauses 48 and 4.1 of the agreement and came to hold that a plain
reading of clause 48 would indicate that it partakes the character of
an arbitration clause and, accordingly, appointed a sole arbitrator to
adjudicate the matters in dispute.
5. We have heard Mr. K.V. Vishvanathan, learned senior counsel appearing
for the appellants, and Mr. Dushyant Dave and Mr. Shyam Divan, learned
senior counsel appearing for the respondents.
6. Mr. Vishvanathan, learned senior counsel appearing for the appellants,
assailing the impugned order, has submitted that clause 48 of the
agreement cannot be remotely construed as an arbitration clause and
hence, the designated Judge could not have invoked the power under
Section 11(5) & (6) of the Act for appointment of an arbitrator. It
is urged by him that an order passed in a writ petition, which was
instituted in a different context, could not have been placed reliance
upon for construing the said clause as an arbitration clause. It is
submitted by him that in the absence of an express intention for
referring the matter to an arbitrator, it cannot be so inferred from
such a clause and, more so, when there is a specific clause, i.e.,
clause 4 in the agreement which provides for settlement of disputes
that stipulates that all the references and disputes arising out of
the agreement or touching the subject-matter of the agreement shall be
decided by a competent court at Bangalore. To bolster his
contentions, he has commended us to the decisions rendered in M.K.
Shah Engineers & Contractors v. State of M.P.[1], Wellington
Associates Ltd. v. Kirit Mehta[2] and Jagdish Chander v. Ramesh
Chander and others[3].
7. Mr. Dushyant Dave and Mr. Shyam Divan, learned senior counsel
appearing for the respondents in all the appeals, in oppugnation, have
submitted that when clause 48 is read as a whole, it is clear as
crystal that the intention of the parties is to get the matter
referred to an arbitrator and clause 4.1 only determines the place of
territorial jurisdiction and has nothing to do with any stipulation
for arbitration. It has been strenuously urged that clause 48 has to
be interpreted on the touchstone of the language employed in Section 7
of the Act and when it is scrutinized on that anvil, there remains no
trace of doubt that clause 48 has all the attributes and
characteristics of an arbitration agreement. Learned senior counsel
have placed reliance on Smt. Rukmanibai Gupta v. Collector, Jabalpur
and others[4] and Punjab State and others v. Dina Nath[5].
8. Before we advert to the rival submissions advanced at the Bar, we
think it appropriate to refer to Section 7 of the Act and what it
conveys and, thereafter, refer to few authorities to understand what
constitutes an arbitration clause in an agreement entered into between
two parties. Section 7 of the Act reads as follows:
“7. Arbitration agreement. – (1) In this Part, “arbitration
agreement” means an agreement by the parties to submit to arbitration
all or certain disputes which have arisen or which may arise between
them in respect of a defined legal relationship, whether contractual
or not.
2) An arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement.
3) An arbitration agreement shall be in writing.
4) An arbitration agreement is in writing if it is contained in –
a) a document signed by the parties;
b) an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement; or
c) an exchange of statement of claim and defence in which the
existence of the agreement is alleged by one party and not
denied by the other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the
contract is in writing and the reference is such as to make that
arbitration clause part of the contract.”
9. From the aforesaid provision, it is graphically clear that unless an
arbitration agreement stipulates that the parties agree to submit all
or certain disputes which have arisen or which may arise in respect of
defined legal relationship, whether contractual or not, there cannot
be a reference to an arbitrator. To elaborate, it conveys that there
has to be intention, expressing the consensual acceptance to refer the
disputes to an arbitrator. In the absence of an arbitration clause in
an agreement, as defined in sub-section (4) of Section 7, the
dispute/disputes arising between the parties cannot be referred to the
arbitral tribunal for adjudication of the dispute.
10. In Smt. Rukmanibai Gupta (supra), while considering Clause 15 of the
agreement therein, a two-Judge Bench opined that the clause spelt out
an arbitration agreement between the parties. The said clause was as
follows:-
“Whenever any doubt, difference or dispute shall hereafter arise
touching the construction of these presents or anything herein
contained or any matter or things connected with the said lands or the
working or non-working thereof or the amount or payment of any rent or
royalty reserved or made payable hereunder in the matter in difference
shall be decided by the lessor whose decision shall be final.”
The learned Judges, to appreciate the tenor and purport of the said
clause, referred to Section 2(a) of the 1940 Act and reproduced a passage
from Russell on Arbitration, 19th Edn., P. 59 which reads as follows: -
“If it appears from the terms of the agreement by which a matter is
submitted to a person’s decision that the intention of the parties was
that he should hold an inquiry in the nature of a judicial inquiry and
hear the respective cases of the parties and decide upon evidence laid
before him, then the case is one of an arbitration”
11. The Court also referred to Chief Conservator of Forest v. Rattan
Singh[6] and ruled that:
“In the clause under discussion there is a provision for referring the
disputes to the lessor and the decision of the lessor is made final.
On its true construction it spells out an arbitration agreement.”
12. At this juncture, it is apposite to refer to a three-Judge Bench
decision in State of U.P. v. Tipper Chand[7] where the Court was
interpreting Clause 22 in the agreement which was under consideration
so as to find out whether the stipulations therein spelt out an
arbitration clause. The clause involved in the said case read as
follows:-
“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.”
Interpreting the said clause, the Court opined thus:-
“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 if from time to time.”
13. In that context, the three-Judge Bench approved the decisions of the
High Courts in Governor-General v. Simla Banking and Industrial
Company Ltd.[8], Dewan Chand v. State of Jammu and Kashmir[9] and Ram
Lal v. Punjab State[10] wherein the clauses were different. In that
context, it was opined that the High Courts had rightly interpreted
the clause providing for arbitration. We think it apt to reproduce
the delineation by the learned Judges:-
“In the Jammu and Kashmir case the relevant clause was couched in
these terms:
“For any dispute between the contractor and the Department the
decision of the Chief Engineer PWD Jammu and Kashmir, will be
final and binding upon the contractor.”
The language of this clause is materially different from the clause in
the present case and in our opinion was correctly interpreted as
amounting to an arbitration agreement. In this connection the use of
the words “any dispute between the contractor and the Department” are
significant. The same is true of the clause in Ram Lal case which ran
thus:
“In matter of dispute the case shall be referred to the
Superintending Engineer of the Circle, whose order shall be
final.”
We need hardly say that this clause refers not only to a dispute
between the parties to the contract but also specifically mentions a
reference to the Superintending Engineer and must therefore be held to
have been rightly interpreted as an arbitration agreement.”
14. At this stage, it is useful to refer to a three-Judge Bench decision
in State of Orissa and another etc. v. Sri Damodar Das[11] wherein the
Court posed the question whether there was an agreement for the
resolution of disputes as enshrined under Clause 25 of the agreement.
The said clause read as follows:-
“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.”
The three-Judge Bench referred to the principles stated in Tipper
Chand (supra) and observed as follows:-
“We are in respectful agreement with the above ratio. It is obvious
that for resolution of any dispute or difference arising between two
parties to a contract, the agreement must provide expressly or by
necessary implication, a reference to an arbitrator named therein or
otherwise of any dispute or difference and in its absence it is
difficult to spell out existence of such an agreement for reference to
an arbitration to resolve the dispute or difference contracted between
the parties. The ratio in Smt. Rukmanibai Gupta v. Collector does not
assist the respondent.”
15. In K.K. Modi v. K.N. Modi and others[12], a two-Judge Bench was
interpreting Clause 9 of the agreement which read as follows:-
“Implementation will be done in consultation with the financial
institutions. For all disputes, clarification 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 court referred to a passage from Russell on Arbitration, 21st
Edn., at p. 37, para 2-014 and the decisions in Rukmanibai Gupta (supra)
and M. Dayanand Reddy v. A.P. Industrial Infrastructure Corporation Limited
And Others[13] and came to hold that the said clause was not an arbitration
clause and hence, the proceedings before the Chairman, IFCI could not have
been treated as arbitration proceedings. It was so held on the following
ground:-
“Undoubtedly, in the course of correspondence exchanged by various
members of Groups A and B with the Chairman, IFCI, some of the members
have used the words “arbitration” in connection with clause 9. That by
itself, however, is not conclusive. The intention of the parties was
not to have any judicial determination on the basis of evidence led
before the Chairman, IFCI. Nor was the Chairman, IFCI required to base
his decision only on the material placed before him by the parties and
their submissions. He was free to make his own inquiries. He had to
apply his own mind and use his own expertise for the purpose. He was
free to take the help of other experts. He was required to decide the
question of valuation and the division of assets as an expert and not
as an arbitrator. He has been authorised to nominate another in his
place. But the contract indicates that he has to nominate an expert.
The fact that submissions were made before the Chairman, IFCI, would
not turn the decision-making process into an arbitration.”
16. In Bharat Bhushan Bansal v. U.P. Small Industries Corporation Ltd.,
Kanpur[14], clauses 23 and 24 of the agreement were projected to make
the foundation of an arbitration clause. That read as follows:-
“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.”
Interpreting the said clauses, the Court opined thus:-
“In the present case, reading clauses 23 and 24 together, it is quite
clear that in respect of questions arising from or relating to any
claim or right, matter or thing in any way connected with the
contract, while the decision of the Executive Engineer is made final
and binding in respect of certain types of claims or questions, the
decision of the Managing Director is made final and binding in respect
of the remaining claims. Both the Executive Engineer as well as the
Managing Director are expected to determine the question or claim on
the basis of their own investigations and material. Neither of the
clauses contemplates a full-fledged arbitration covered by the
Arbitration Act.”
17. In Bihar State Mineral Development Corporation and another v. Encon
Builders (I) (P) Ltd.[15],while dealing with the arbitration clause of
an arbitration agreement under the Act the Court stated thus:
“(1) There must be a present or a future difference in connection with
some contemplated affair.
(2) There must be the intention of the parties to settle such
difference by a private tribunal.
(3) The parties must agree in writing to be bound by the decision of
such tribunal.
(4) The parties must be ad idem”.
In the said case, it has also been opined that the Act does not
prescribe any form of an arbitration agreement. The term ‘arbitration’ is
not required to be specifically mentioned in the agreement but what is
required is to gather the intention of the parties as to whether they have
agreed for resolution of the disputes through arbitration.
18. In Dina Nath (supra), the clause in the agreement read as follows: -
“4. Any dispute arising between the department and the
contractor/society shall be referred to the Superintending Engineer,
Anandpur Sahib, Hydel (Construction) Circle No. 1, Chandigarh for
orders and his decision will be final and acceptable/binding on both
parties.”
The two-Judge Bench, basically relying on Tipper Chand (supra) which
has approved the view of Jammu and Kashmir High Court in Dewan Chand
(supra), treated the aforesaid clause as providing for arbitration because
it categorically mentioned the word “dispute” which would be referred to
the Superintending Engineer and further that his decision would be final
and acceptable to/binding on both the parties.
19. In Jagdish Chander (supra), the Court, after referring to the earlier
decisions, culled out certain principles with regard to the term
“arbitration agreement”. The said principles basically emphasize on
certain core aspects, namely, (i) that though there is no specific
form of an arbitration agreement, yet the intention of the parties
which can be gathered from the terms of the agreement should disclose
a determination and obligation to go to arbitration; (ii) non-use of
the words “arbitration” and “arbitral tribunal” or “arbitrator” would
not detract from a clause being interpreted as an arbitration
agreement if the attributes or elements of arbitration agreement are
established, i.e., (a) The agreement should be in writing. (b) The
parties should have agreed to refer any disputes (present or future)
between them to the decision of a private tribunal. (c) The private
tribunal should be empowered to adjudicate upon the disputes in an
impartial manner, giving due opportunity to the parties to put forth
their case before it. (d) The parties should have agreed that the
decision of the private tribunal in respect of the disputes will be
binding on them; and (iii) where there is specific exclusion of any of
the attributes of an arbitration agreement or contains anything that
detracts from an arbitration agreement, it would not be an arbitration
agreement. In this context, the two-Judge Bench has given some
examples and we think it apt to reproduce the same: -
“For example, where an agreement requires or permits an authority to
decide a claim or dispute without hearing, or requires the authority
to act in the interests of only one of the parties, or provides that
the decision of the authority will not be final and binding on the
parties, or that if either party is not satisfied with the decision of
the authority, he may file a civil suit seeking relief, it cannot be
termed as an arbitration agreement.”
20. In State of Orissa and others v. Bhagyadhar Dash[16], the Court, while
discussing about the non-requirement of a particular form for
constituting an arbitration agreement and ascertainment of the
intention for reference to arbitration, as has been stated in
Rukmanibai Gupta (supra), observed thus: -
“16. While we respectfully agree with the principle stated above, we
have our doubts as to whether the clause considered in Rukmanibai
Gupta case would be an arbitration agreement if the principles
mentioned in the said decision and the tests mentioned in the
subsequent decision of a larger Bench in Damodar Das are applied. Be
that as it may. In fact, the larger Bench in Damodar Das clearly held
that the decision in Rukmanibai Gupta was decided on the special
wording of the clause considered therein: (Damodar Das case, SCC p.
224, para 11)
“11. … The ratio in Rukmanibai Gupta v. Collector does not
assist the respondent. From the language therein this Court
inferred, by implication, existence of a dispute or difference
for arbitration.”
21. Keeping in mind the principles laid down by this Court in the
aforesaid authorities relating to under what circumstances a clause in
an agreement can be construed as an arbitration agreement, it is
presently apposite to refer to clause 48 of the agreement. The said
clause reads as follows: -
“48.0 Settlement of disputes:
1. Any dispute(s) or difference(s) arising out of or in connection
with the Contract shall, to the extent possible, be settled
amicable between the parties.
2. If any dispute or difference of any kind whatsoever shall arise
between the owner and the Contractor, arising out of the
Contract for the Performance of the Works whether during the
progress of the Works or after its completion or whether before
or after the termination, abandonment or breach of the contract,
it shall, in the first place, be referred to and settled by the
Engineer, who, within a period of thirty (30) days after being
requested by either party to do so, shall give written notice of
his decision to the owner and the contractor.
3. Save as hereinafter provided, such decision in respect of every
matter so referred shall be final and binding upon the parties
until the completion of the works and shall forthwith be given
effect to by the contractor who shall proceed with the works
with all the due diligence.
4. During settlement of disputes and Court proceedings, both
parties shall be obliged to carry out their respective
obligations under the contract.”
22. On a careful reading of the said clause, it is demonstrable that it
provides for the parties to amicably settle any disputes or
differences arising in connection with the contract. This is the
first part. The second part, as is perceptible, is that when disputes
or differences of any kind arise between the parties to the contract
relating to the performance of the works during progress of the works
or after its completion or before or after the termination,
abandonment or breach of the contract, it is to be referred to and
settled by the engineer, who, on being requested by either party,
shall give notice of his decision within thirty days to the owner and
the contractor. There is also a stipulation that his decision in
respect of every matter so referred to shall be final and binding upon
the parties until the completion of works and is required to be given
effect to by the contractor who shall proceed with the works with due
diligence. To understand the intention of the parties, this part of
the clause is important. On a studied scrutiny of this postulate, it
is graphically clear that it does not provide any procedure which
would remotely indicate that the concerned engineer is required to act
judicially as an adjudicator by following the principles of natural
justice or to consider the submissions of both the parties. That
apart, the decision of the engineer is only binding until the
completion of the works. It only casts a burden on the contractor who
is required to proceed with the works with due diligence. Besides the
aforesaid, during the settlement of disputes and the court
proceedings, both the parties are obliged to carry out the necessary
obligation under the contract. The said clause, as we understand, has
been engrafted to avoid delay and stoppage of work and for the purpose
of smooth carrying on of the works. It is interesting to note that
the burden is on the contractor to carry out the works with due
diligence after getting the decision from the engineer until the
completion of the works. Thus, the emphasis is on the performance of
the contract. The language employed in the clause does not spell out
the intention of the parties to get the disputes adjudicated through
arbitration. It does not really provide for resolution of disputes.
23. Quite apart from the above, clause 4.1 of the agreement is worthy to
be noted. It is as follows: -
“4.1 It is specifically agreed by and between the parties that all
the differences or disputes arising out of the Agreement or touching
the subject matter of the Agreement, shall be decided by a competent
Court at Bangalore.”
24. Mr. Vishwanathan, learned senior counsel for the appellants, laying
immense emphasis on the same, has submitted that the said clause not
only provides the territorial jurisdiction by stating a competent
court at Bangalore but, in essence and in effect, it stipulates that
all the differences or disputes arising out of the agreement touching
the subject-matter of the agreement shall be decided by a competent
court at Bangalore. Mr. Dave, learned senior counsel for the
respondents, would submit that it only clothes the competent court at
Bangalore the territorial jurisdiction and cannot be interpreted
beyond the same. The submission of Mr. Dave, if properly appreciated,
would convey that in case an award is passed by the arbitrator, all
other proceedings under any of the provisions of the Act has to be
instituted at the competent court at Bangalore. This construction, in
our opinion, cannot be placed on the said clause. It really means
that the disputes and differences are left to be adjudicated by the
competent civil court. Thus, clause 48, as we have analysed, read in
conjunction with clause 4.1, clearly establishes that there is no
arbitration clause in the agreement. The clauses which were
interpreted to be arbitration clauses, as has been held in Ram Lal
(supra) and Dewan Chand (supra) which have been approved in Tipper
Chand (supra), are differently couched. As far as Rukmanibai Gupta
(supra) is concerned, as has been opined in Damodar Das (supra) and
also in Bhagyadhar Dash (supra), it has to rest on its own facts.
Clause in Dina Nath (supra) is differently couched, and clause 48,
which we are dealing with, has no similarity with it. In fact, clause
48, even if it is stretched, cannot be regarded as an arbitration
clause. The elements and attributes to constitute an arbitration
clause, as has been stated in Jagdish Chander (supra), are absent.
Therefore, the irresistible conclusion is that the High Court has
fallen into grave error by considering the said clause as providing
for arbitration.
25. Consequently, the appeals are allowed and the judgments and orders
passed by the High Court are set aside. However, regard being had to
the facts and circumstances of the case, there shall be no order as to
costs.
…..…………………………….J.
[Anil R.
Dave]
……………..………………….J.
[Dipak Misra]
New Delhi;
April 07, 2014.
-----------------------
[1] (1999) 2 SCC 594
[2] (2000) 4 SCC 272
[3] (2007) 5 SCC 719
[4] (1980) 4 SCC 556
[5] (2007) 5 SCC 28
[6] AIR 1967 SC 166 : 1966 Supp SCR 158
[7] (1980) 2 SCC 341
[8] AIR 1947 Lah 215 : 226 IC 444
[9] AIR 1961 J & K 58
[10] AIR 1966 Punj 436 : 68 Punj LR 522 : ILR (1966) 2 Punj 428
[11] AIR 1996 SC 942
[12] (1998) 3 SCC 573
[13] (1993) 3 SCCC 137
[14] AIR 1999 SC 899
[15] (2003) 7 SCC 418
[16] (2011) 7 SCC 406
-----------------------
23
During the performance of the contract,
the respondent raised a claim before the engineer as per clause 48 of
the general conditions of the contract and called upon the engineer to
settle certain disputes arising in connection with the contract. As
the concerned engineer did not do anything within the prescribed
period of thirty days as provided under clause 48.2, the respondent
filed CMP No. 62 of 2011 under Section 11(5) and (6) of the
Arbitration and Conciliation Act, 1996 (for brevity “the Act”) before
the High Court of Karnataka at Bangalore for appointment of an
arbitrator.
4. The said application was resisted by the present appellants on the
singular ground that clause 48 does not provide for arbitration and
the same, under no circumstances, could be construed as an arbitration
clause. To substantiate the said submission, reliance was placed on
clause 4.1 of the agreement. It was put forth that as there is no
arbitration clause, no arbitrator could be appointed. =
The designated
Judge of the Chief Justice placed reliance on the proceedings in W.P.
No. 28710/09 (M/s. Subhash Projects & Marketing Limited v. Karnataka
Power Transmission Corporation Limited) disposed of on 10.6.2010
wherein the appellant-company, being a State owned Corporation, had
not disputed clause 48.2 as an arbitration clause and, on that
foundation, opined that it was precluded from denying the same in the
case under consideration. The learned designated Judge interpreted
clauses 48 and 4.1 of the agreement and came to hold that a plain
reading of clause 48 would indicate that it partakes the character of
an arbitration clause and, accordingly, appointed a sole arbitrator to
adjudicate the matters in dispute.=
It really means
that the disputes and differences are left to be adjudicated by the
competent civil court.
Thus, clause 48, as we have analysed, read in
conjunction with clause 4.1, clearly establishes that there is no
arbitration clause in the agreement.
The clauses which were
interpreted to be arbitration clauses, as has been held in Ram Lal
(supra) and Dewan Chand (supra) which have been approved in Tipper
Chand (supra), are differently couched.
As far as Rukmanibai Gupta
(supra) is concerned, as has been opined in Damodar Das (supra) and
also in Bhagyadhar Dash (supra), it has to rest on its own facts.
Clause in Dina Nath (supra) is differently couched, and clause 48,
which we are dealing with, has no similarity with it.
In fact, clause
48, even if it is stretched, cannot be regarded as an arbitration
clause.
The elements and attributes to constitute an arbitration
clause, as has been stated in Jagdish Chander (supra), are absent.
Therefore, the irresistible conclusion is that the High Court has
fallen into grave error by considering the said clause as providing
for arbitration.
25. Consequently, the appeals are allowed and the judgments and orders
passed by the High Court are set aside.
2014 ( April. Part ) http://judis.nic.in/supremecourt/filename=41394
ANIL R. DAVE, DIPAK MISRA
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4424 OF 2014
(Arising out of S.L.P. (C) No. 20558 of 2013
Karnataka Power Transmission
Corporation Limited and another ... Appellants
Versus
M/s. Deepak Cables (India) Ltd. ...Respondent
With
CIVIL APPEAL NO. 4425 OF 2014
(Arising out of S.L.P. (C) No. 29008 of 2013)
With
CIVIL APPEAL NO. 4426 OF 2014
(Arising out of S.L.P. (C) No. 29009 of 2013)
With
CIVIL APPEAL NO. 4427 OF 2014
(Arising out of S.L.P. (C) No. 29010 of 2013)
With
CIVIL APPEAL NO. 4428 OF 2014
(Arising out of S.L.P. (C) No. 29011 of 2013)
With
CIVIL APPEAL NO. 4429 OF 2014
(Arising out of S.L.P. (C) No. 29012 of 2013)
With
CIVIL APPEAL NO. 4430 OF 2014
(Arising out of S.L.P. (C) No. 29013 of 2013)
With
CIVIL APPEAL NO. 4431 OF 2014
(Arising out of S.L.P. (C) No. 29014 of 2013)
J U D G M E N T
Dipak Misra, J.
Leave granted in all the special leave petitions.
2. The controversy involved in these appeals, preferred by special leave,
being similar, they were heard together and are disposed of by a
common judgment. For the sake of convenience, we shall state the
facts from Civil Appeal arising out of Special Leave Petition 29011 of
2013.
3. The appellant No. 1 is a company wholly owned by the Government of
Karnataka and, being a State transmission utility, is a deemed
licencee in the State. It invited tenders for establishing 2x8 MVA,
66/11 Sub-stations at Tavarekere in Channagiri Taluk, Davanagere
District, which included the supply materials, erection and civil
works on partial turnkey basis. The respondent-company participated
in the bid and it was successful in the tender and, accordingly, a
letter of intent was sent to it. After taking recourse to certain
procedural aspects, a contract was entered into between the appellant-
company and the respondent. During the performance of the contract,
the respondent raised a claim before the engineer as per clause 48 of
the general conditions of the contract and called upon the engineer to
settle certain disputes arising in connection with the contract. As
the concerned engineer did not do anything within the prescribed
period of thirty days as provided under clause 48.2, the respondent
filed CMP No. 62 of 2011 under Section 11(5) and (6) of the
Arbitration and Conciliation Act, 1996 (for brevity “the Act”) before
the High Court of Karnataka at Bangalore for appointment of an
arbitrator.
4. The said application was resisted by the present appellants on the
singular ground that clause 48 does not provide for arbitration and
the same, under no circumstances, could be construed as an arbitration
clause. To substantiate the said submission, reliance was placed on
clause 4.1 of the agreement. It was put forth that as there is no
arbitration clause, no arbitrator could be appointed. The designated
Judge of the Chief Justice placed reliance on the proceedings in W.P.
No. 28710/09 (M/s. Subhash Projects & Marketing Limited v. Karnataka
Power Transmission Corporation Limited) disposed of on 10.6.2010
wherein the appellant-company, being a State owned Corporation, had
not disputed clause 48.2 as an arbitration clause and, on that
foundation, opined that it was precluded from denying the same in the
case under consideration. The learned designated Judge interpreted
clauses 48 and 4.1 of the agreement and came to hold that a plain
reading of clause 48 would indicate that it partakes the character of
an arbitration clause and, accordingly, appointed a sole arbitrator to
adjudicate the matters in dispute.
5. We have heard Mr. K.V. Vishvanathan, learned senior counsel appearing
for the appellants, and Mr. Dushyant Dave and Mr. Shyam Divan, learned
senior counsel appearing for the respondents.
6. Mr. Vishvanathan, learned senior counsel appearing for the appellants,
assailing the impugned order, has submitted that clause 48 of the
agreement cannot be remotely construed as an arbitration clause and
hence, the designated Judge could not have invoked the power under
Section 11(5) & (6) of the Act for appointment of an arbitrator. It
is urged by him that an order passed in a writ petition, which was
instituted in a different context, could not have been placed reliance
upon for construing the said clause as an arbitration clause. It is
submitted by him that in the absence of an express intention for
referring the matter to an arbitrator, it cannot be so inferred from
such a clause and, more so, when there is a specific clause, i.e.,
clause 4 in the agreement which provides for settlement of disputes
that stipulates that all the references and disputes arising out of
the agreement or touching the subject-matter of the agreement shall be
decided by a competent court at Bangalore. To bolster his
contentions, he has commended us to the decisions rendered in M.K.
Shah Engineers & Contractors v. State of M.P.[1], Wellington
Associates Ltd. v. Kirit Mehta[2] and Jagdish Chander v. Ramesh
Chander and others[3].
7. Mr. Dushyant Dave and Mr. Shyam Divan, learned senior counsel
appearing for the respondents in all the appeals, in oppugnation, have
submitted that when clause 48 is read as a whole, it is clear as
crystal that the intention of the parties is to get the matter
referred to an arbitrator and clause 4.1 only determines the place of
territorial jurisdiction and has nothing to do with any stipulation
for arbitration. It has been strenuously urged that clause 48 has to
be interpreted on the touchstone of the language employed in Section 7
of the Act and when it is scrutinized on that anvil, there remains no
trace of doubt that clause 48 has all the attributes and
characteristics of an arbitration agreement. Learned senior counsel
have placed reliance on Smt. Rukmanibai Gupta v. Collector, Jabalpur
and others[4] and Punjab State and others v. Dina Nath[5].
8. Before we advert to the rival submissions advanced at the Bar, we
think it appropriate to refer to Section 7 of the Act and what it
conveys and, thereafter, refer to few authorities to understand what
constitutes an arbitration clause in an agreement entered into between
two parties. Section 7 of the Act reads as follows:
“7. Arbitration agreement. – (1) In this Part, “arbitration
agreement” means an agreement by the parties to submit to arbitration
all or certain disputes which have arisen or which may arise between
them in respect of a defined legal relationship, whether contractual
or not.
2) An arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement.
3) An arbitration agreement shall be in writing.
4) An arbitration agreement is in writing if it is contained in –
a) a document signed by the parties;
b) an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement; or
c) an exchange of statement of claim and defence in which the
existence of the agreement is alleged by one party and not
denied by the other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the
contract is in writing and the reference is such as to make that
arbitration clause part of the contract.”
9. From the aforesaid provision, it is graphically clear that unless an
arbitration agreement stipulates that the parties agree to submit all
or certain disputes which have arisen or which may arise in respect of
defined legal relationship, whether contractual or not, there cannot
be a reference to an arbitrator. To elaborate, it conveys that there
has to be intention, expressing the consensual acceptance to refer the
disputes to an arbitrator. In the absence of an arbitration clause in
an agreement, as defined in sub-section (4) of Section 7, the
dispute/disputes arising between the parties cannot be referred to the
arbitral tribunal for adjudication of the dispute.
10. In Smt. Rukmanibai Gupta (supra), while considering Clause 15 of the
agreement therein, a two-Judge Bench opined that the clause spelt out
an arbitration agreement between the parties. The said clause was as
follows:-
“Whenever any doubt, difference or dispute shall hereafter arise
touching the construction of these presents or anything herein
contained or any matter or things connected with the said lands or the
working or non-working thereof or the amount or payment of any rent or
royalty reserved or made payable hereunder in the matter in difference
shall be decided by the lessor whose decision shall be final.”
The learned Judges, to appreciate the tenor and purport of the said
clause, referred to Section 2(a) of the 1940 Act and reproduced a passage
from Russell on Arbitration, 19th Edn., P. 59 which reads as follows: -
“If it appears from the terms of the agreement by which a matter is
submitted to a person’s decision that the intention of the parties was
that he should hold an inquiry in the nature of a judicial inquiry and
hear the respective cases of the parties and decide upon evidence laid
before him, then the case is one of an arbitration”
11. The Court also referred to Chief Conservator of Forest v. Rattan
Singh[6] and ruled that:
“In the clause under discussion there is a provision for referring the
disputes to the lessor and the decision of the lessor is made final.
On its true construction it spells out an arbitration agreement.”
12. At this juncture, it is apposite to refer to a three-Judge Bench
decision in State of U.P. v. Tipper Chand[7] where the Court was
interpreting Clause 22 in the agreement which was under consideration
so as to find out whether the stipulations therein spelt out an
arbitration clause. The clause involved in the said case read as
follows:-
“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.”
Interpreting the said clause, the Court opined thus:-
“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 if from time to time.”
13. In that context, the three-Judge Bench approved the decisions of the
High Courts in Governor-General v. Simla Banking and Industrial
Company Ltd.[8], Dewan Chand v. State of Jammu and Kashmir[9] and Ram
Lal v. Punjab State[10] wherein the clauses were different. In that
context, it was opined that the High Courts had rightly interpreted
the clause providing for arbitration. We think it apt to reproduce
the delineation by the learned Judges:-
“In the Jammu and Kashmir case the relevant clause was couched in
these terms:
“For any dispute between the contractor and the Department the
decision of the Chief Engineer PWD Jammu and Kashmir, will be
final and binding upon the contractor.”
The language of this clause is materially different from the clause in
the present case and in our opinion was correctly interpreted as
amounting to an arbitration agreement. In this connection the use of
the words “any dispute between the contractor and the Department” are
significant. The same is true of the clause in Ram Lal case which ran
thus:
“In matter of dispute the case shall be referred to the
Superintending Engineer of the Circle, whose order shall be
final.”
We need hardly say that this clause refers not only to a dispute
between the parties to the contract but also specifically mentions a
reference to the Superintending Engineer and must therefore be held to
have been rightly interpreted as an arbitration agreement.”
14. At this stage, it is useful to refer to a three-Judge Bench decision
in State of Orissa and another etc. v. Sri Damodar Das[11] wherein the
Court posed the question whether there was an agreement for the
resolution of disputes as enshrined under Clause 25 of the agreement.
The said clause read as follows:-
“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.”
The three-Judge Bench referred to the principles stated in Tipper
Chand (supra) and observed as follows:-
“We are in respectful agreement with the above ratio. It is obvious
that for resolution of any dispute or difference arising between two
parties to a contract, the agreement must provide expressly or by
necessary implication, a reference to an arbitrator named therein or
otherwise of any dispute or difference and in its absence it is
difficult to spell out existence of such an agreement for reference to
an arbitration to resolve the dispute or difference contracted between
the parties. The ratio in Smt. Rukmanibai Gupta v. Collector does not
assist the respondent.”
15. In K.K. Modi v. K.N. Modi and others[12], a two-Judge Bench was
interpreting Clause 9 of the agreement which read as follows:-
“Implementation will be done in consultation with the financial
institutions. For all disputes, clarification 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 court referred to a passage from Russell on Arbitration, 21st
Edn., at p. 37, para 2-014 and the decisions in Rukmanibai Gupta (supra)
and M. Dayanand Reddy v. A.P. Industrial Infrastructure Corporation Limited
And Others[13] and came to hold that the said clause was not an arbitration
clause and hence, the proceedings before the Chairman, IFCI could not have
been treated as arbitration proceedings. It was so held on the following
ground:-
“Undoubtedly, in the course of correspondence exchanged by various
members of Groups A and B with the Chairman, IFCI, some of the members
have used the words “arbitration” in connection with clause 9. That by
itself, however, is not conclusive. The intention of the parties was
not to have any judicial determination on the basis of evidence led
before the Chairman, IFCI. Nor was the Chairman, IFCI required to base
his decision only on the material placed before him by the parties and
their submissions. He was free to make his own inquiries. He had to
apply his own mind and use his own expertise for the purpose. He was
free to take the help of other experts. He was required to decide the
question of valuation and the division of assets as an expert and not
as an arbitrator. He has been authorised to nominate another in his
place. But the contract indicates that he has to nominate an expert.
The fact that submissions were made before the Chairman, IFCI, would
not turn the decision-making process into an arbitration.”
16. In Bharat Bhushan Bansal v. U.P. Small Industries Corporation Ltd.,
Kanpur[14], clauses 23 and 24 of the agreement were projected to make
the foundation of an arbitration clause. That read as follows:-
“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.”
Interpreting the said clauses, the Court opined thus:-
“In the present case, reading clauses 23 and 24 together, it is quite
clear that in respect of questions arising from or relating to any
claim or right, matter or thing in any way connected with the
contract, while the decision of the Executive Engineer is made final
and binding in respect of certain types of claims or questions, the
decision of the Managing Director is made final and binding in respect
of the remaining claims. Both the Executive Engineer as well as the
Managing Director are expected to determine the question or claim on
the basis of their own investigations and material. Neither of the
clauses contemplates a full-fledged arbitration covered by the
Arbitration Act.”
17. In Bihar State Mineral Development Corporation and another v. Encon
Builders (I) (P) Ltd.[15],while dealing with the arbitration clause of
an arbitration agreement under the Act the Court stated thus:
“(1) There must be a present or a future difference in connection with
some contemplated affair.
(2) There must be the intention of the parties to settle such
difference by a private tribunal.
(3) The parties must agree in writing to be bound by the decision of
such tribunal.
(4) The parties must be ad idem”.
In the said case, it has also been opined that the Act does not
prescribe any form of an arbitration agreement. The term ‘arbitration’ is
not required to be specifically mentioned in the agreement but what is
required is to gather the intention of the parties as to whether they have
agreed for resolution of the disputes through arbitration.
18. In Dina Nath (supra), the clause in the agreement read as follows: -
“4. Any dispute arising between the department and the
contractor/society shall be referred to the Superintending Engineer,
Anandpur Sahib, Hydel (Construction) Circle No. 1, Chandigarh for
orders and his decision will be final and acceptable/binding on both
parties.”
The two-Judge Bench, basically relying on Tipper Chand (supra) which
has approved the view of Jammu and Kashmir High Court in Dewan Chand
(supra), treated the aforesaid clause as providing for arbitration because
it categorically mentioned the word “dispute” which would be referred to
the Superintending Engineer and further that his decision would be final
and acceptable to/binding on both the parties.
19. In Jagdish Chander (supra), the Court, after referring to the earlier
decisions, culled out certain principles with regard to the term
“arbitration agreement”. The said principles basically emphasize on
certain core aspects, namely, (i) that though there is no specific
form of an arbitration agreement, yet the intention of the parties
which can be gathered from the terms of the agreement should disclose
a determination and obligation to go to arbitration; (ii) non-use of
the words “arbitration” and “arbitral tribunal” or “arbitrator” would
not detract from a clause being interpreted as an arbitration
agreement if the attributes or elements of arbitration agreement are
established, i.e., (a) The agreement should be in writing. (b) The
parties should have agreed to refer any disputes (present or future)
between them to the decision of a private tribunal. (c) The private
tribunal should be empowered to adjudicate upon the disputes in an
impartial manner, giving due opportunity to the parties to put forth
their case before it. (d) The parties should have agreed that the
decision of the private tribunal in respect of the disputes will be
binding on them; and (iii) where there is specific exclusion of any of
the attributes of an arbitration agreement or contains anything that
detracts from an arbitration agreement, it would not be an arbitration
agreement. In this context, the two-Judge Bench has given some
examples and we think it apt to reproduce the same: -
“For example, where an agreement requires or permits an authority to
decide a claim or dispute without hearing, or requires the authority
to act in the interests of only one of the parties, or provides that
the decision of the authority will not be final and binding on the
parties, or that if either party is not satisfied with the decision of
the authority, he may file a civil suit seeking relief, it cannot be
termed as an arbitration agreement.”
20. In State of Orissa and others v. Bhagyadhar Dash[16], the Court, while
discussing about the non-requirement of a particular form for
constituting an arbitration agreement and ascertainment of the
intention for reference to arbitration, as has been stated in
Rukmanibai Gupta (supra), observed thus: -
“16. While we respectfully agree with the principle stated above, we
have our doubts as to whether the clause considered in Rukmanibai
Gupta case would be an arbitration agreement if the principles
mentioned in the said decision and the tests mentioned in the
subsequent decision of a larger Bench in Damodar Das are applied. Be
that as it may. In fact, the larger Bench in Damodar Das clearly held
that the decision in Rukmanibai Gupta was decided on the special
wording of the clause considered therein: (Damodar Das case, SCC p.
224, para 11)
“11. … The ratio in Rukmanibai Gupta v. Collector does not
assist the respondent. From the language therein this Court
inferred, by implication, existence of a dispute or difference
for arbitration.”
21. Keeping in mind the principles laid down by this Court in the
aforesaid authorities relating to under what circumstances a clause in
an agreement can be construed as an arbitration agreement, it is
presently apposite to refer to clause 48 of the agreement. The said
clause reads as follows: -
“48.0 Settlement of disputes:
1. Any dispute(s) or difference(s) arising out of or in connection
with the Contract shall, to the extent possible, be settled
amicable between the parties.
2. If any dispute or difference of any kind whatsoever shall arise
between the owner and the Contractor, arising out of the
Contract for the Performance of the Works whether during the
progress of the Works or after its completion or whether before
or after the termination, abandonment or breach of the contract,
it shall, in the first place, be referred to and settled by the
Engineer, who, within a period of thirty (30) days after being
requested by either party to do so, shall give written notice of
his decision to the owner and the contractor.
3. Save as hereinafter provided, such decision in respect of every
matter so referred shall be final and binding upon the parties
until the completion of the works and shall forthwith be given
effect to by the contractor who shall proceed with the works
with all the due diligence.
4. During settlement of disputes and Court proceedings, both
parties shall be obliged to carry out their respective
obligations under the contract.”
22. On a careful reading of the said clause, it is demonstrable that it
provides for the parties to amicably settle any disputes or
differences arising in connection with the contract. This is the
first part. The second part, as is perceptible, is that when disputes
or differences of any kind arise between the parties to the contract
relating to the performance of the works during progress of the works
or after its completion or before or after the termination,
abandonment or breach of the contract, it is to be referred to and
settled by the engineer, who, on being requested by either party,
shall give notice of his decision within thirty days to the owner and
the contractor. There is also a stipulation that his decision in
respect of every matter so referred to shall be final and binding upon
the parties until the completion of works and is required to be given
effect to by the contractor who shall proceed with the works with due
diligence. To understand the intention of the parties, this part of
the clause is important. On a studied scrutiny of this postulate, it
is graphically clear that it does not provide any procedure which
would remotely indicate that the concerned engineer is required to act
judicially as an adjudicator by following the principles of natural
justice or to consider the submissions of both the parties. That
apart, the decision of the engineer is only binding until the
completion of the works. It only casts a burden on the contractor who
is required to proceed with the works with due diligence. Besides the
aforesaid, during the settlement of disputes and the court
proceedings, both the parties are obliged to carry out the necessary
obligation under the contract. The said clause, as we understand, has
been engrafted to avoid delay and stoppage of work and for the purpose
of smooth carrying on of the works. It is interesting to note that
the burden is on the contractor to carry out the works with due
diligence after getting the decision from the engineer until the
completion of the works. Thus, the emphasis is on the performance of
the contract. The language employed in the clause does not spell out
the intention of the parties to get the disputes adjudicated through
arbitration. It does not really provide for resolution of disputes.
23. Quite apart from the above, clause 4.1 of the agreement is worthy to
be noted. It is as follows: -
“4.1 It is specifically agreed by and between the parties that all
the differences or disputes arising out of the Agreement or touching
the subject matter of the Agreement, shall be decided by a competent
Court at Bangalore.”
24. Mr. Vishwanathan, learned senior counsel for the appellants, laying
immense emphasis on the same, has submitted that the said clause not
only provides the territorial jurisdiction by stating a competent
court at Bangalore but, in essence and in effect, it stipulates that
all the differences or disputes arising out of the agreement touching
the subject-matter of the agreement shall be decided by a competent
court at Bangalore. Mr. Dave, learned senior counsel for the
respondents, would submit that it only clothes the competent court at
Bangalore the territorial jurisdiction and cannot be interpreted
beyond the same. The submission of Mr. Dave, if properly appreciated,
would convey that in case an award is passed by the arbitrator, all
other proceedings under any of the provisions of the Act has to be
instituted at the competent court at Bangalore. This construction, in
our opinion, cannot be placed on the said clause. It really means
that the disputes and differences are left to be adjudicated by the
competent civil court. Thus, clause 48, as we have analysed, read in
conjunction with clause 4.1, clearly establishes that there is no
arbitration clause in the agreement. The clauses which were
interpreted to be arbitration clauses, as has been held in Ram Lal
(supra) and Dewan Chand (supra) which have been approved in Tipper
Chand (supra), are differently couched. As far as Rukmanibai Gupta
(supra) is concerned, as has been opined in Damodar Das (supra) and
also in Bhagyadhar Dash (supra), it has to rest on its own facts.
Clause in Dina Nath (supra) is differently couched, and clause 48,
which we are dealing with, has no similarity with it. In fact, clause
48, even if it is stretched, cannot be regarded as an arbitration
clause. The elements and attributes to constitute an arbitration
clause, as has been stated in Jagdish Chander (supra), are absent.
Therefore, the irresistible conclusion is that the High Court has
fallen into grave error by considering the said clause as providing
for arbitration.
25. Consequently, the appeals are allowed and the judgments and orders
passed by the High Court are set aside. However, regard being had to
the facts and circumstances of the case, there shall be no order as to
costs.
…..…………………………….J.
[Anil R.
Dave]
……………..………………….J.
[Dipak Misra]
New Delhi;
April 07, 2014.
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[1] (1999) 2 SCC 594
[2] (2000) 4 SCC 272
[3] (2007) 5 SCC 719
[4] (1980) 4 SCC 556
[5] (2007) 5 SCC 28
[6] AIR 1967 SC 166 : 1966 Supp SCR 158
[7] (1980) 2 SCC 341
[8] AIR 1947 Lah 215 : 226 IC 444
[9] AIR 1961 J & K 58
[10] AIR 1966 Punj 436 : 68 Punj LR 522 : ILR (1966) 2 Punj 428
[11] AIR 1996 SC 942
[12] (1998) 3 SCC 573
[13] (1993) 3 SCCC 137
[14] AIR 1999 SC 899
[15] (2003) 7 SCC 418
[16] (2011) 7 SCC 406
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