1999 (5) TMI 592 - SC - Companies Law

Supreme Court upholds arbitration referral over contractual adjudication waiver.

The Supreme Court upheld the High Court's decision to refer all disputes, including those under 'excepted matters', to arbitration. The Court emphasized ... Inclusion of Claim whether the defendants are not liable to pay to the plaintiffs a sum of Rs.70,000/- in respect of the transport of Rice from Madras to Ronigunta from June to August 1979 objected Held that:- In the normal circumstances, course of events as they are, this court would not have dealt with the matters as is being presently dealt with but as has been pointed out by the High Court itself that the matters have been dealt with upon consideration of the cause of justice and to sub-serve the need of justice, we also do deem it fit and proper that by reason of the factual situation in the matter, the High Court was not left with any option but to direct such a course of action more so by reason of an express ‘abandonment of right’ as noticed above. In the normal course of events if this particular clause 12 was not available in the contract between the parties the disputes in its entirety by reason of the scope and purview of the Arbitration Clause, could have been referred to arbitration and there would not have been any necessity for delving into a matter in the manner as we have, herein before, but it is by reason of the factum of incorporation of clause 12 and the subsequent abandonment thereof by reason of a decision to have the claim covered under clause 12 to be adjudicated by a forum different from that of the Senior Regional Manager, we also have no option left but to record our concurrence with the finding of the High Court that the fourth dispute being the subject matter of a civil suit initiated by the Food Corporation of India be also referred to arbitration. Be it noted that this order is passed in the peculiar facts and circumstances of the facts in issue and the issue as regards the excepted matters have not been delved into in detail excepting however as above.Appeal dismissed. Issues Involved:1. Effect of the 'excepted clause' vis-`a-vis the arbitration clause in a Government contract.2. Jurisdiction of courts in matters covered under 'excepted clauses'.3. Adjudication of disputes by the Senior Regional Manager as per the contract.4. The impact of initiating a civil suit on the arbitration agreement.5. The High Court's referral of 'excepted matters' to arbitration.Analysis:1. Effect of the 'excepted clause' vis-`a-vis the arbitration clause in a Government contract:The Supreme Court examined the interplay between the 'excepted clause' and the arbitration clause in Government contracts. The 'excepted clause' typically excludes certain matters from arbitration, assigning them to a senior officer of the Department whose decision is final and binding. The Court noted that these 'excepted matters' do not require further adjudication through arbitration, as the parties have agreed to a specific adjudicator in the contract.2. Jurisdiction of courts in matters covered under 'excepted clauses':The Court reiterated that for disputes falling within the 'excepted matters', courts lack jurisdiction to entertain applications for reference to arbitration. The parties have predetermined that such matters will be adjudicated by a designated officer, thereby excluding the possibility of arbitration or court intervention.3. Adjudication of disputes by the Senior Regional Manager as per the contract:Clause 12 of the contract specified that the Senior Regional Manager's decisions regarding contractor failures and liabilities are final and binding. The Court emphasized that this clause precludes arbitration or court adjudication for such matters, as the parties have agreed to this mechanism within the contract.4. The impact of initiating a civil suit on the arbitration agreement:The Food Corporation of India (FCI) initiated a civil suit to recover losses, despite the contract stipulating adjudication by the Senior Regional Manager. The Supreme Court observed that this action represented a positive relinquishment or abandonment of the right to have the matter adjudicated by the Senior Regional Manager. The FCI's decision to seek civil court adjudication indicated a departure from the agreed contractual process.5. The High Court's referral of 'excepted matters' to arbitration:The High Court referred all disputes, including 'excepted matters', to arbitration. The Supreme Court upheld this decision, noting that the FCI's initiation of a civil suit constituted an abandonment of the contractual adjudication process. The Court agreed with the High Court that referring all disputes to arbitration would avoid conflicting decisions and ensure comprehensive resolution.Conclusion:The Supreme Court concurred with the High Court's decision to refer all disputes, including those initially covered under 'excepted matters', to arbitration. This was deemed necessary due to the FCI's abandonment of the contractual adjudication process by initiating a civil suit. The appeals were dismissed, and no costs were awarded.