Arbitration agreement test: contractual clauses must clearly show intent to submit disputes to a binding private tribunal.

A contractual clause amounts to an arbitration agreement only if it shows a clear intention to refer present or future disputes to a private adjudicatory forum for a binding decision. A provision empowering the engineer to settle disputes only until completion of the works, without a procedure reflecting judicial determination or natural justice, does not satisfy that test. Clause 4.1, which reserved disputes to a competent court at Bangalore, reinforced that the parties intended civil court adjudication rather than arbitration. The SC therefore held that clause 48 was not an arbitration clause and that appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 was unsustainable.

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Issues: Whether clause 48 of the contract constituted an arbitration agreement so as to justify appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, and whether clause 4.1 negatived such a construction by reserving disputes to a competent court at Bangalore.

Analysis: An arbitration agreement must disclose the parties' intention to submit present or future disputes to a private tribunal for adjudication in an impartial manner, with a decision intended to bind the parties. A clause requiring the engineer to settle disputes and make a decision final and binding only until completion of the works, without any procedure indicating judicial determination or compliance with principles of natural justice, does not satisfy those attributes. Clause 4.1 further stated that all differences or disputes arising out of the agreement or touching its subject matter shall be decided by a competent court at Bangalore, which supported the construction that the parties had reserved dispute resolution to the civil court rather than to arbitration.

Conclusion: Clause 48 was not an arbitration clause, and the appointment of an arbitrator under Section 11 was unsustainable.

Final Conclusion: The appeals succeeded and the orders appointing an arbitrator were set aside, as the contract did not evince an agreement to arbitrate.

Ratio Decidendi: A contractual clause constitutes an arbitration agreement only if it evinces a clear intention to refer disputes to a private adjudicatory tribunal for a binding decision; clauses conferring administrative settlement powers or reserving disputes to a court do not amount to arbitration agreements.

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