2013 (11) TMI 632 - SC - Companies Law

Appointment of arbitrator - Appellant was awarded contract for construction of bridge - Appellant did not complete the work by alleging lack of cooperation on the part of Chief Engineer, Communication and Building - Appellant lodged claim for payment of the amount allegedly due to him - Appellant filed an application under Section 11(6) and (8) of the Arbitration and Conciliation Act, 1996 for appointment of an Arbitrator for adjudication of all the disputes pertaining to Contract - Chief Justice of the High Court assigned the application to the Designated Judge, who dismissed the same - Whether there was a valid arbitration clause in the agreement entered - High Court held that Clause 29 of the Contract cannot be construed as an Arbitration Agreement or an Arbitration Clause for settlement of disputes - Held that - in terms of Clause 29(a) and similar other clauses, any dispute or difference irrespective of its nomenclature in matters relating to specifications, designs, drawings, quality of workmanship or material used or any question relating to claim, right in any way arising out of or relating to the contract designs, drawings etc. or failure on the contractor s part to execute the work, whether arising during the progress of the work or after its completion, termination or abandonment has to be first referred to the Chief Engineer or the Designated Officer of the Department. The Chief Engineer or the Designated Officer is not an independent authority or person, who has no connection or control over the work. As a matter of fact, he is having over all supervision and charge of the execution of the work. He is not required to hear the parties or to take evidence, oral or documentary. He is not invested with the power to adjudicate upon the rights of the parties to the dispute or difference and his decision is subject to the right of the aggrieved party to seek relief in a Court of Law. The decision of the Chief Engineer or the Designated Officer is treated as binding on the contractor subject to his right to avail remedy before an appropriate Court. The use of the expression in the first place unmistakably shows that non-adjudicatory decision of the Chief Engineer is subject to the right of the aggrieved party to seek remedy. Therefore, Clause 29 which is subject matter of consideration in most of the appeals and similar clauses cannot be treated as an Arbitration Clause - The orders passed by the Designated Judge are set aside - Decided in favour of appellants.

Summary

Issues Involved:
1. Validity of Clause 29 and similar clauses as arbitration agreements.
2. Interpretation of arbitration clauses in various contracts.
3. Jurisdiction and role of the Chief Engineer or designated officer in dispute resolution.
4. Applicability of previous judgments and legal precedents to the current cases.

Issue-wise Detailed Analysis:

1. Validity of Clause 29 and Similar Clauses as Arbitration Agreements
The primary issue in the appeals was whether Clause 29 and similar clauses in the contracts constituted arbitration agreements. The Supreme Court held that Clause 29 and similar clauses did not constitute arbitration agreements. The clauses were deemed to be departmental dispute resolution mechanisms rather than arbitration clauses. The Court emphasized that the Chief Engineer or designated officer was not an independent authority and was not required to adjudicate disputes in a judicial manner.

2. Interpretation of Arbitration Clauses in Various Contracts
The Court analyzed various clauses from different contracts to determine if they constituted arbitration agreements. For example, Clause 29(a) required disputes to be referred to the Chief Engineer, whose decision was binding on the contractor but could be challenged in a court of law. Similar clauses in other contracts were also examined, such as Clause 7, Clause 66, and Clause 67, which had similar provisions for dispute resolution by a designated officer or engineer.

3. Jurisdiction and Role of the Chief Engineer or Designated Officer in Dispute Resolution
The Court discussed the role of the Chief Engineer or designated officer in dispute resolution. It was noted that these officers were not independent arbiters but were part of the departmental hierarchy with supervisory roles. Their decisions were not final and binding in the sense required for arbitration awards, as they could be challenged in court. The Court highlighted the principle that a person cannot be a judge in their own cause, which applied to these officers.

4. Applicability of Previous Judgments and Legal Precedents to the Current Cases
The Court reviewed several previous judgments to determine their applicability to the current cases. It referred to judgments such as Mysore Construction Company v. Karnataka Power Corporation Ltd., State of U.P. v. Tipper Chand, and State of Orissa v. Damodar Das, which supported the view that clauses like Clause 29 did not constitute arbitration agreements. The Court also distinguished the current cases from other judgments where clauses were interpreted as arbitration agreements, such as Punjab State v. Dina Nath and Krishna Bhagya Jala Nigam Ltd. v. G. Harishchandra Reddy, based on the specific wording and context of the clauses.

Conclusion:
The Supreme Court dismissed the appeals challenging the rejection of applications for the appointment of arbitrators under Clause 29 and similar clauses, affirming that these clauses did not constitute arbitration agreements. The Court allowed the appeals filed by Karnataka Neeravari Nigam Limited and Krishna Bhagya Jala Nigam Limited, setting aside the orders directing the Chief Engineer to act as an arbitrator. The parties were given the liberty to seek appropriate legal remedies for recovery of amounts due.