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TMI Blog2013 (10) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the relevant clause of the work order was rightly treated as an Arbitration Agreement - 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 - Appeal dismissed. - Civil Appeal No. 3680 of 2005, Civil Appeal No. 3681 of 2005 - - - Dated:- 4-10-2013 - G. S. Singhvi, V. Gopala Gowda And C. Nagappan,JJ. JUDGMENT G. S. Singhvi,JJ. 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 Jan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Super ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k 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 jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 departm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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