TaxTMI 
TaxTMI 
2013 (11) TMI 632
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....ms of the clauses relating to settlement of disputes. One appeal has been filed by the contractor who was awarded construction contract by Nagarika Yogbakashema Mathu Gruha Nirmana Sahakara Sangha. The remaining 5 appeals have been filed by Karnataka Neeravari Nigam Limited and Kirshna Bhagya Jala Nigam Limited for setting aside the orders passed by the learned Designated Judge whereby he directed the concerned Chief Engineer to act as an Arbitrator. 3. For the sake of convenience, we shall notice the facts from the record of Civil Appeal No.1586 of 2004 - M/s. P. Dasaratharama Reddy Complex v. The Government of Karnataka and another because arguments were advanced with reference to that case. 4. The appellant is a contractor engaged in executing work contracts awarded by the Government of Karnataka and its instrumentalities. In 1996, the appellant was awarded contract for construction of bridge between Yethabadi- Buyyanadoddi across Shimsha river in Malavalli. The appellant did not complete the work by alleging lack of cooperation on the part of Chief Engineer, Communication and Building (South), Bangalore (respondent No.2) and then lodged claim for payment of the amount all....
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....s of the agreements. She further argued that in view of the judgment of the Division Bench of the High Court in Karnataka State Road Transport Corporation and another v. M. Keshava Raju 2004 (1) Arb. LR 507 and of this Court in Smt. Rukmanibai Gupta v. Collector, Jabalpur and others (1980) 4 SCC 556, Krishna Bhagya Jala Nigam Limited v. G. Harishchandra Reddy and another (2007) 2 SCC 720, Punjab State and others v. Dina Nath (2007) 5 SCC 28, State of Orissa and others v. Bhagyadhar Dash (2011) 7 SCC 406, Bharat Bhushan Bansal v. U. P. Small Industries Corporation Ltd., Kanpur (1999) 2 SCC 166 and K. K. Modi v. K. N. Modi and others (1998) 3CC 573, the judgment in Mysore Construction Company v. Karnataka Power Corporation Limited (supra) cannot be treated as laying down correct law. Mrs. Suri also relied upon Section 20 of the Arbitration Act, 1940 (for short, 'the 1940 Act') and argued that Clause 29 of the agreement executed between appellant P. Dasaratharama Reddy Complex and the Government of Karnataka and similar clauses contained in other agreements provide for resolution of disputes by arbitration and the High Court committed serious error by refusing to appoint an Arbitrator....
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....hall be final and binding upon the Contractor. The said decision shall forthwith be given effect to and contractor shall proceed with the execution of the work with all due diligence. Remedy when Chief Engineer's decision is not acceptable to Contract (c) In case the decision of the Chief Engineer is not acceptable to the contractor, he may approach the Law Courts at for settlement of dispute after giving due written notice in this regard to the Chief Engineer within a period of ninety days from the date of receipt of the written notice of the decision of the Chief Engineer. Time limit for notice to approach law Court by Contractor (d) If the Chief Engineer has given written notice of his decision to the Contractor and no written notice to approach the law court has been communicated to him by the Contractor within a period of ninety days from receipt of such notice, the said decision shall be final and binding upon the Contractor. Time limit for notice to approach law court by contractor when decision is not given by CE as at (b) (e) If the Chief Engineer fails to give notice of his decision within a period of ninety days from the receipt of the Contractors request in ....
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....e final and binding upon the contractor. The said decision shall forthwith be given effect to, and the contractor shall proceed with the execution of the works with all due diligence. In case the decision of the Engineer is not acceptable to the contractor, he may approach the law courts for settlement of dispute after giving due written notice in this regard to the Engineer within a period of forty five days form the date of receipt of the written notice of the decision of the Engineer. If the Engineer has given written notice of his decision to the contractor and no written notice to approach the law courts has been communicated to him by the contractor within a period of forty five days from receipt of such notice, the said decision shall be final and binding upon the contractor. If the Engineer shall fail to give notice of his decision within a period of forty five days form the receipt of the contractor's request in writing for settlement of any dispute or difference as aforesaid, the contractor may within forty five days after the expiration of the first named period of forty five days approach the law courts, giving due notice to the Engineer. Whether the claim is referred t....
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....aid decision shall be final and binding upon the contractor. If the Engineer shall fail to give notice of his decision within a period of ninety days from the receipt of the Contractor's request in writing for settlement of any dispute of difference as aforesaid, the Contractor may within ninety days after the expiration of the first named period of ninety days approach the law Courts at Bangalore, giving due notice to the Engineer. However the claim is referred to the Engineer or to the law Courts, as the case may be, the Contractor shall proceed to execute and complete the works with all due diligence pending settlement of the said dispute or differences. The reference of any dispute or difference to the Engineer or law Courts may proceed not withstanding that the works shall then be or be alleged to be complete, provided always that the obligations of the Engineer and the Contractor shall not be altered by reason of the said dispute or difference being referred to the Engineer or law Courts during the progress of the works." (emphasis supplied) 14. In Mysore Construction Company v. Karnataka Power Corporation Limited and others (supra), the learned Designated Judge referred t....
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....connection or control over the work. In other words, the decision of Chief Engineer is a decision by a person who has overall supervision and charge of the execution of the work. This gives an indication that the decision of the Chief Engineer is not intended to be an adjudication of the rights of the parties to the dispute, but intended to be a decision of one party in regard to the claim of the other party, to enable the other party to seek relief in a Court of law, if he is not satisfied with the decision. (d) Sub-clause (b) provides that subject to other form of settlement provided in the ensuing sub-clause, the Chief Engineer's decision in respect of every dispute or difference so referred, shall be final and binding upon the Contractor. This clause makes it clear that the final remedy of the Contractor is to approach the law Court for decision on the dispute. It is also significant that the decision given by the Chief Engineer is made final and binding upon the Contractor (subject to other remedies specified) and not KPC. Any decision, which is made binding only on one party and not on both the parties, cannot be an adjudicatory decision. The very principle of adjudication....
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.... way of arbitration but to get adjudicated the dispute only through the normal procedure of approaching law Courts. The said clause does not also contemplate or require the Chief Engineer to hold any enquiry or hear the parties before deciding the matter. On the other hand, the clause merely requires the Chief Engineer to consider the claim of the Contractor and give his decision thereon. Such decision being on behalf of KPC, the Contractor can either accept it or approach the Civil Court for adjudication. Thus the petitioner has failed to make out two of the three ingredients -- requirement of enquiry by the named Authority and requirement of finality by a binding decision." 15. The distinction between an expert determination and arbitration has been spelt out in Russell on Arbitration, 21st Edn., 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 ....
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....lating to the contract, designs, drawing 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." 16. In State of Maharashtra v. M/s. Ranjeet Construction (Civil Appeal No.4700 of 1985), a two Judge Bench of this Court interpreted Clause 30 of the agreement entered into between the parties, which is almost ....
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....n or not". Indisputably, there is no recital in the above clause 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 r....
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....ke any dispute final and binding on the contractor. A careful reading 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) 18. In K.K. Modi v. K.N. Modi (supra), 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 referr....
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....ecision upon a dispute which is already formulated at the time 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....
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....nd 24 of the agreement entered into between the parties 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 ....
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....nsidered the question 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. That clause was substantially similar to the clauses being considered in these cases. After noticing precedents on the subject, the Court observed: "In terms 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 coul....
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....ence irrespective of its nomenclature in matters relating to specifications, designs, drawings, quality of workmanship or material used or any question relating to claim, right in any way arising out of or relating to the contract designs, drawings etc. or failure on the contractor's part to execute the work, whether arising during the progress of the work or after its completion, termination or abandonment has to be first referred to the Chief Engineer or the Designated Officer of the Department. The Chief Engineer or the Designated Officer is not an independent authority or person, who has no connection or control over the work. As a matter of fact, he is having over all supervision and charge of the execution of the work. He is not required to hear the parties or to take evidence, oral or documentary. He is not invested with the power to adjudicate upon the rights of the parties to the dispute or difference and his decision is subject to the right of the aggrieved party to seek relief in a Court of Law. The decision of the Chief Engineer or the Designated Officer is treated as binding on the contractor subject to his right to avail remedy before an appropriate Court. The use of ....
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....ications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship or material used on the work, or as to any other question, claim, right, matter, or thing whatsoever, in any way arising out of or relating to the contract designs, drawings, specifications, estimates, instructions, orders or those 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 thereof in case of dispute arising between the contractor and Gulbarga University." After analyzing the aforesaid clause and making a reference to essential elements of arbitration agreement enumerated in Bihar State Mineral Development Corporation v. Encon Builders (I)(P) Limited (supra), a three Judge Bench held: "Applying the aforesaid principle to the present case, clause 30 requires the Superintending Engineer, Gulbarga Circle, Gulbarga, to give his decision on any dispute that may arise out of the contract. Further, we also find that the agreement postulates present or future differences in connection with some contemplated affairs inasmuch as there also was a....
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....the arbitrator would be rendered invalid. We, therefore, are of the opinion that the arbitration clause does not necessitate spelling out of a duty on the part of the arbitrator to hear both parties before deciding the question before him. The expression "decision" subsumes adjudication of the dispute. Here in the instant case, it will bear repetition to state, that the disputes between the parties arose out of a contract and in relation to matters specified therein and, thus, were required to be decided and such decisions are not only final and binding on the parties, but they are conclusive which clearly spells out the finality of such decisions as also their binding nature. A clause which is inserted in a contract agreement for the purpose of prevention of dispute will not be an arbitration agreement. Such a provision has been made in the agreement itself by conferring power upon the Engineer-in-Charge to take a decision thereupon in relation to the matters envisaged under clauses 31 and 32 of the said agreement. Clauses 31 and 32 of the said agreement provide for a decision of the Engineer-in-Charge in relation to the matters specified therein. The jurisdiction of the Engine....
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....to the decision of the Superintending Engineer is intended to be enforceable in law as it is binding in nature. The words "any dispute" appears in clause 4 of the Work Order. Therefore, only on the basis of the materials produced by the parties in support of their respective claims a decision can be arrived at in resolving the dispute between the parties. The use of the words "any dispute" in clause 4 of the Work order is wide enough to include all disputes relating to the said Work Order. Therefore, when a party raises a dispute for non-payment of money after completion of the work, which is denied by the other party, such a dispute would come within the meaning of "arbitration agreement" between the parties. Clause 4 of the Work Order also clearly provides that any dispute between the department and the contractor shall be referred to the Superintending Engineer, Hydel Circle No.1, Chandigarh for orders. The word "orders" would indicate some expression of opinion, which is to be carried our, or enforced and which is a conclusion of a body (in this case Superintending engineer, Hydel Circle No.1, Chandigarh). Then again the conclusion and decision of the Superintending Engineer....
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.... contract was not an arbitration clause. While rejecting the argument, the two Judge Bench observed: "We do not find any merit in the above arguments. The plea of "no arbitration clause" was not raised in the written statement filed by Jala Nigam before the arbitrator. The said plea was not advanced before the civil court in Arbitration Case No. 1 of 2001. On the contrary, both the courts below on facts have found that Jala Nigam had consented to the arbitration of the disputes by the Chief Engineer. Jala Nigam had participated in the arbitration proceedings. It submitted itself to the authority of the arbitrator. It gave consent to the appointment of the Chief Engineer as an arbitrator. It filed its written statements to the additional claims made by the contractor. The Executive Engineer who appeared on behalf of Jala Nigam did not invoke Section 16 of the Arbitration Act. He did not challenge the competence of the Arbitral Tribunal. He did not call upon the Arbitral Tribunal to rule on its jurisdiction. On the contrary, it submitted to the jurisdiction of the Arbitral Tribunal. It also filed written arguments. It did not challenge the order of the High Court dated 10-9-1999 p....
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.... a dispute resolution mechanism and the procedure envisaged for that are intended to reach the finality to resolve the dispute between the parties as quickly as possible. Therefore, it is imperative that the party raising jurisdiction point, should raise such plea at the earliest, that is to say, at the threshold of the proceeding. If that is not insisted, it is trite, the very object in enacting the Act, on the basis of the 'UNCITRAL Modern Law', would be defeated. The jurisdiction plea now raised for the first time in the Memorandum of Appeal was not raised either directly or by necessary implication before this Court in C.M.P. No. 4/1996 or before the Arbitrator or before the Court below. The appellant having acquiesced in the jurisdiction of the Arbitral Tribunal without any demur and protest, having participated in the proceedings and having suffered an award cannot now turn round and raise the plea that the orders of this Court in C.M.P. No. 4 of 1996, the award of the Arbitrator and the judgment of the Civil Court dated 20-6-2000 in Arbitration Suit No. 6 of 1998 are nullity. Thirdly, the appellant should be deemed to have waived his right to object to the jurisdiction of....