1999 (1) TMI 513 - SC - Companies Law

Whether there is any clause in the contract which provides for arbitration between the parties? Held that - In the present case the Managing Director is more in the category of an expect who will decide claims rights on 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 paragraph 18.067 of Volume 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 consequence 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. Since Clause 24 does not contemplate any arbitration the application of the appellant under Section 8 of the Arbitration Act 1940 was misconceive. The appeal is therefore dismissed though for reasons somewhat different from the reasons given by the High Court.

Summary

Issues:
1. Existence of arbitration clause in the contract.

Analysis:
The judgment involves a dispute regarding the existence of an arbitration clause in a contract between the parties. The contract contained Clauses 23 and 24, which outlined the decision-making authority regarding various matters. Clause 23 specified that the Executive Engineer's decision would be final on certain issues related to the contract, while Clause 24 stated that the Managing Director's decision would be final on other matters not covered by Clause 23. The appellant sought arbitration under Section 8 of the Arbitration Act, 1940, challenging the appointment of the Managing Director as the arbitrator. The High Court held that the appointment was not valid under Section 8, leading to the appeal before the Supreme Court.

The Supreme Court analyzed the clauses in detail to determine if they constituted an arbitration agreement. Referring to previous case law, the court emphasized that for an arbitration clause to exist, it must contemplate the determination of substantive rights by an agreed tribunal in an impartial and judicial manner, enforceable in law. The court distinguished between expert determination and arbitration, highlighting that the decision-makers in this case were expected to base their decisions on their own investigations and material, not following the formalities of arbitration.

The court cited precedents where similar clauses were held not to be arbitration clauses, emphasizing that the intention was administrative control rather than a judicial function. The court referenced legal texts to distinguish between a certifier and an arbitrator in a construction contract, noting that the Managing Director's role aligned more with an expert decision-maker rather than an arbitrator handling disputes. Ultimately, the court concluded that Clause 24 did not contemplate arbitration, rendering the appellant's Section 8 application misconceived. The appeal was dismissed based on these findings, with no order as to costs.

In conclusion, the judgment delves into the interpretation of contract clauses to determine the nature of decision-making authority provided therein and whether it amounts to an arbitration agreement. The court's analysis focused on distinguishing between administrative control and formal arbitration, ultimately leading to the dismissal of the appeal due to the absence of a valid arbitration clause under Clause 24 of the contract.