2018 (11) TMI 1229 - SC - Indian Laws

Supreme Court: Clause 16.3 not arbitration agreement. Appointment under Section 11(6) inappropriate. Appeal allowed.

South Delhi Municipal Corporation Versus SMS AAMW Tollways Private Ltd.

The Supreme Court held that Clause 16.3 of the Agreement did not amount to an arbitration agreement. The High Court's appointment of an Arbitrator under ... Proceeding amounting to arbitration or not - Appointment of an arbitrator - Whether Clause 16.3 which provides for an appeal really provides for an arbitration and therefore whether the High Court was entitled to appoint an Arbitrator under Section 11(6) of the Act? Held that:- Arbitration has always been understood to mean the process by which a dispute is resolved by an arbitrator chosen or acceptable to both sides under an arbitration agreement between the two parties. In the present case, under Clause 16 of the Agreement only the party dissatisfied by the order of the Competent Officer can approach the Commissioner. It is, therefore, not possible to hold that the proceedings before the Commissioner constitutes as an arbitration. The present Clause 16 and in particular Clause 16.3 does not provide for the reference of any dispute that may arise between the parties to an Arbitrator. The purpose of this Clause is to vest the Competent Officer and the Commissioner with supervisory control over the execution of work and administrative control over it from time to time and thus to prevent disputes. The intention is not to provide for a forum for resolving disputes. Thus, in the present circumstances no Arbitrator could have been appointed by the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996. Appeal allowed. Issues Involved:1. Whether Clause 16.3 of the Agreement dated 14.05.2011 between the Appellant-SDMC and the Respondent-SMS AAMW contains an agreement for arbitration.2. Whether the High Court was entitled to appoint an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.Issue-wise Detailed Analysis:1. Agreement for Arbitration under Clause 16.3:The core issue was to determine if Clause 16.3 of the Agreement dated 14.05.2011 constituted an arbitration agreement. The Agreement outlined mutual rights, liabilities, and obligations for toll tax collection. Clause 16 detailed the dispute resolution process, which involved two stages:- First Stage: The Contractor could request the Competent Officer to give instructions or decisions within 30 days if the work demanded was outside the Agreement's scope or if any decision was disputed.- Second Stage: If dissatisfied with the Competent Officer's decision, the Contractor could appeal to the Commissioner within 15 days. The Commissioner would then provide a decision within 30 days.Clause 16.3 was described as an appeal mechanism, not arbitration. It was emphasized that the appeal could only be invoked by the Contractor, not the Competent Officer, indicating a departmental appeal rather than an arbitration process. The language and structure of Clause 16.3, providing for an appeal to the Commissioner, were consistent with departmental appeals commonly found in various administrative rules.2. High Court's Authority to Appoint an Arbitrator:The High Court had appointed an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, based on the assumption that Clause 16.3 provided for arbitration. However, the Supreme Court scrutinized Clause 16 and found no express or implied reference to arbitration. The clause did not involve a judicial enquiry or an impartial adjudicator, which are essential attributes of arbitration. The Commissioner, being a higher officer in the same organization, was not intended to act as an arbitrator.The Court referenced established legal principles, emphasizing that an arbitration agreement must clearly indicate an intention to resolve disputes through arbitration. The interpretation of Clause 16.3 as a departmental appeal was reinforced by precedents, such as the decision in State of U.P. v. Tipper Chand, which highlighted the necessity of an explicit or implied arbitration agreement within the contract.The Court concluded that Clause 16.3 did not provide for arbitration but was meant to prevent disputes through supervisory and administrative control. Consequently, the High Court's appointment of an Arbitrator under Section 11(6) was deemed inappropriate, and the impugned order was set aside.Conclusion:The Supreme Court found that Clause 16.3 of the Agreement did not constitute an arbitration agreement and that the High Court erred in appointing an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. The appeal was allowed, and the impugned order was set aside.