High Court judgments overturned as arbitration clause not found, no justification for arbitrator appointment under Arbitration Act

The appeals were allowed, and the judgments and orders passed by the High Court were set aside. The court found that Clause 48, read in conjunction with Clause 4.1, does not constitute an arbitration clause. Consequently, the appointment of an arbitrator under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996, was not justified.

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Issues Involved:
1. Whether Clause 48 of the agreement constitutes an arbitration clause.
2. Interpretation of Clause 4.1 of the agreement.
3. Applicability of Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996.

Issue-wise Detailed Analysis:

1. Whether Clause 48 of the agreement constitutes an arbitration clause:
The primary issue was whether Clause 48 of the agreement between the parties could be considered an arbitration clause. The appellants contended that Clause 48 does not provide for arbitration and cannot be construed as an arbitration clause. They relied on Clause 4.1 of the agreement, which specifies that disputes should be decided by a competent court at Bangalore. The respondents, on the other hand, argued that Clause 48, when read in its entirety, indicates the intention of the parties to refer disputes to arbitration.

The court referred to Section 7 of the Arbitration and Conciliation Act, 1996, which defines an arbitration agreement. The court emphasized that an arbitration agreement must express the intention of the parties to submit disputes to arbitration. The court examined various precedents, including Smt. Rukmanibai Gupta v. Collector, Jabalpur, and others, and State of U.P. v. Tipper Chand, to understand what constitutes an arbitration clause.

Clause 48 was analyzed in detail. It provides for the amicable settlement of disputes and refers disputes to the engineer for a decision within thirty days. However, the court noted that the clause does not require the engineer to act judicially or follow principles of natural justice. The decision of the engineer is only binding until the completion of the works and primarily aims to avoid delays and ensure smooth progress. The court concluded that Clause 48 does not spell out the intention of the parties to get disputes adjudicated through arbitration and does not provide for the resolution of disputes in a manner consistent with arbitration.

2. Interpretation of Clause 4.1 of the agreement:
Clause 4.1 of the agreement was also scrutinized. It states that all disputes arising out of the agreement shall be decided by a competent court at Bangalore. The appellants argued that this clause indicates that disputes should be resolved by a civil court, not through arbitration. The respondents contended that Clause 4.1 only determines territorial jurisdiction and does not preclude arbitration.

The court interpreted Clause 4.1 to mean that disputes and differences are to be adjudicated by the competent civil court. This interpretation was consistent with the analysis of Clause 48, reinforcing the conclusion that the agreement does not contain an arbitration clause.

3. Applicability of Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996:
The court examined whether the designated Judge of the Chief Justice could invoke the power under Section 11(5) and (6) of the Act to appoint an arbitrator based on Clause 48. Given the conclusion that Clause 48 does not constitute an arbitration clause, the court held that the designated Judge erred in appointing an arbitrator under these provisions.

Conclusion:
The appeals were allowed, and the judgments and orders passed by the High Court were set aside. The court found that Clause 48, read in conjunction with Clause 4.1, does not constitute an arbitration clause. Consequently, the appointment of an arbitrator under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996, was not justified. There was no order as to costs.

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