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Case Number

C.M.P No. 26/1997

Attorney(S)

Sri B.P Gandhi, Advocate for Applicant
Sri A.S Mahesh, HCGA for Respondents

Judges

V.K Singhal, J.

Acts

SECTION 11 ARBITRATION AND CONCILIATION ACT 1996
ARBITRATION AND CONCILIATION ACT
25.1.1996 Section 21

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Smart Summary

Summary of the Opinion — V.K. Singhal, J.

Factual and Procedural Background

The petitioner applied for appointment of an arbitrator alleging a dispute arising in the execution of a contract awarded by the respondent. The petitioner served a notice dated 22.1.1996 on the Chief Engineer, followed by a reminder on 2.2.1996, and filed the present petition on 3.9.1997. The agreement between the parties contains a Clause 29 whose character (whether it constitutes an arbitration agreement or merely confers supervisory powers) was disputed. A part of the claim had earlier been the subject-matter of a suit filed by the petitioner in a Civil Court in 1995; the present petition sought reference of the entire dispute to arbitration and appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

Legal Issues Presented

Whether Clause 29 of the parties' agreement constitutes, expressly or by implication, an agreement to refer disputes to arbitration (i.e., whether it is an arbitration clause rather than merely a supervisory/decisional clause).
Whether the notice dated 22.1.1996 falls under the Arbitration and Conciliation Act, 1996 (taking into account that the Act came into force on 25.1.1996 and Section 21 refers to commencement of arbitral proceedings as the date on which the request for referring the dispute to arbitration is received).
Whether the prior suit filed in 1995 by the petitioner in a Civil Court bars appointment of an arbitrator for the wider dispute now put forward in the notice and petition.

Arguments of the Parties

Respondent's Arguments

The agreement does not contain any clause for arbitration; Clause 29 cannot be construed as an arbitration clause and instead merely confers supervisory or decisional powers on an engineer or authority.
Reliance was placed on State of U.P v. Tipper Chand (1980 2 SCC 341) and other authorities which, the respondent submitted, hold that clauses conferring decision-making or supervisory powers on an engineer do not amount to arbitration agreements.
Other judgments were cited (for example, State of Karnataka v. K. Sundhakar Reddy) where clauses of similar language were interpreted as not spelling out arbitration agreements.

Petitioner's Arguments

The petitioner relied on authority (Rukmini Bai v. Collector, Jabalpur — 1980 4 SCC 600) where a provision stating that the lessor's decision "shall be final" was interpreted to spell out an arbitration agreement. By analogy, the petitioner argued Clause 29 operates to refer disputes to the Chief Engineer for determination and thereby constitutes an arbitration agreement.
The petitioner pointed to the notice served on 22.1.1996 and the lack of response from the respondent as ground for appointment of an arbitrator.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
State of U.P v. Tipper Chand, 1980 2 SCC 341	Clause empowering a Superintending Engineer with supervisory/decisional powers does not constitute an arbitration agreement by implication.	The Court recorded the respondent's reliance on this decision but distinguished it: the Clause in Tipper Chand conferred supervision and decision-making without referring disputes for reference; the present Clause 29 was found to mention disputes and reference to the Chief Engineer and therefore was not of the same character.
Governor General v. Simla Banking and Industrial Co. Ltd.	Was referred to in the body of authority discussed (as a precedent considered in earlier decisions).	The judgment was one of the authorities referred to in the earlier line of cases considered in Tipper Chand; the present Court noted it was referred but did not elaborate further beyond the context in which earlier judgments relied on it.
Dean Chand v. State of J. & K., AIR 1961 J & K 58	Interpreted contractual clauses providing for the decision of an authority in relation to disputes; used in earlier comparative analysis.	The Court observed this case was referred to in the line of authorities; it noted the language of the clause in the Jammu & Kashmir case was materially different from that in Tipperchand.
Ramlal v. State of Punjab, AIR 1966 Punj 436	A clause stating disputes "shall be referred to the superintending Engineer... whose order shall be final" — used to contrast language that may indicate reference to an authority.	The Court noted the wording of such clauses and treated them as material comparisons in deciding whether a clause amounts to reference to an arbitrator; it formed part of the survey of authorities distinguishing clauses that do and do not create arbitration agreements.
State of Karnataka v. K. Sundhakar Reddy (M.F.A. Nos. 1552, 1553 & 1973/1993 dated 13.12.1994)	A clause (Clause 30) with language similar to decisional clauses was interpreted as not spelling out an arbitration agreement.	The respondent relied on this decision; the present Court recorded it as authority where a broadly-worded decisional clause was held not to amount to arbitration, but the Court concluded that the present Clause 29 was distinguishable.
Rukmini Bai v. Collector, Jabalpur, 1980 4 SCC 600	A clause stating an authority's decision "shall be final" was interpreted to constitute an arbitration agreement.	The petitioner relied on this case. The Court acknowledged the case and considered it as supporting the proposition that where a clause refers to disputes and to a decision-making authority in language showing intention to refer disputes, it may amount to an arbitration agreement.
State of Orissa v. Damodar Das, 1996 2 SCC 216	Agreement to refer disputes to arbitration must be expressly or impliedly spelt out from the clause; a decisional clause that lacks reference to disputes or reference cannot be treated as arbitration agreement.	The Court relied on the proposition from this decision that arbitration agreement must be expressly or impliedly inferred from the clause. It applied this principle in assessing whether Clause 29 implied an arbitration agreement and concluded Clause 29 did so.
M. Keshava Raju v. K.S.R.T.C., CMP 4/1996 dated 13.2.1998	A clause that uses the words "dispute" and "reference" and expressly provides for reference to a named authority (e.g., Vice Chairman & Managing Director) indicates the parties intended arbitration under the Act.	The Court cited this case as an example where the presence of words like "dispute" and "reference" led to the clause being treated as an arbitration agreement; it used this reasoning analogously to support treating the present Clause 29 as a clause for reference to an arbitrator.

Court's Reasoning and Analysis

The Court proceeded by identifying and applying controlling principles from the line of authorities addressing the distinction between clauses that merely confer decisional/supervisory powers on an authority and clauses that constitute agreements to refer disputes to arbitration.

Key steps in the Court's analysis, as reflected in the opinion:

The Court noted the Arbitration and Conciliation Act, 1996 came into force on 25.1.1996 and observed Section 21 treats commencement of arbitral proceedings as the date on which a request for referring the dispute to arbitration is received. The petitioner had sent the notice on 22.1.1996; in the absence of contrary averment the Court considered it must have been received by the respondent after 25.1.1996, thereby engaging the Act.
The Court examined the competing authorities relied upon by the parties. It accepted the settled rule that where a clause provides for reference of disputes to some authority it may be considered a clause for arbitration by implication, but where a clause only confers supervision or decisional power without any reference to disputes or reference mechanism, it will not constitute an arbitration agreement (as in Tipper Chand and similar cases).
The Court closely read Clause 29 of the present agreement and found that, unlike the decisional/supervisory clauses in some precedents, Clause 29 expressly mentions disputes and makes a reference to the Chief Engineer. The Court therefore characterized Clause 29 as a clause for making reference to the Chief Engineer in case of dispute rather than merely conferring supervisory powers.
On that basis the Court distinguished the decisions relied upon by the respondent (where the clauses were construed as non-arbitral) and aligned more with authorities where the language showed an intention to refer disputes for decision (for example, Rukmini Bai and M. Keshava Raju where presence of words such as "dispute" and "reference" supported an arbitration implication).
The Court also noted procedural facts: the petitioner had served notice and received no response; there was a prior suit in 1995 concerning part of the claim, but since the present notice covers the entire dispute this did not preclude appointment of an arbitrator for the wider dispute.
Applying Section 11 of the Arbitration and Conciliation Act, 1996 (power to appoint arbitrator), the Court concluded that, in view of respondent's failure to respond to the request for arbitration and the character of Clause 29, appointment of an arbitrator was appropriate.

Holding and Implications

Holding: The petition is allowed and the present Chief Engineer is appointed as the sole arbitrator in exercise of the power conferred under Section 11 of the Arbitration and Conciliation Act, 1996. Both parties are free to submit their claims and counterclaims.

Implications:

The immediate, direct effect is the appointment of the Chief Engineer as sole arbitrator to determine the disputes covered by Clause 29; the parties may proceed to present claims and counterclaims before that arbitrator.
The Court expressly found Clause 29 to be a clause for reference to an arbitrator (Chief Engineer) and thus capable of operation under the Arbitration and Conciliation Act, 1996.
The existence of a previously filed Civil Court suit in 1995 in respect of part of the claim did not prevent the Court from appointing an arbitrator for the entire dispute now put forward by the petitioner.
The opinion does not expressly state it is laying down a new precedent beyond applying and distinguishing existing authorities; no broader, novel legal principle was proclaimed in the text beyond the application of established precedent and the statutory scheme to the clause and facts before the Court.

This summary has been prepared strictly from the content of the provided opinion and does not add or infer facts beyond those disclosed in the text.

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Lachmanna B. Horamani v. The State Of Karnataka & Ors.

V.K Singhal, J.:—

The petitioner has prayed for appointment of an Arbitrator on the basis of the dispute having arisen in the execution of contract taken by him from the respondent. Notice dated 22.1.1996 was served by the petitioner on the Chief Engineer. Reminder was sent on 2.2.1996 and ultimately this petition was filed on 3.9.1997

2. Learned Counsel for the respondent has pointed out that the agreement does not contain any clause for arbitration. Clause 29 could not be construed as a clause for arbitration. Reliance is placed on the decision given in the case of State of U.P v. Tipper Chand . 1980 2 SCC 341. where there was clause empowering Superintending Engineer with power of supervision. The said Clause 22 was as under:

“Except where otherwise specified in the contract the decision of the superintending Engineer for the time being shall be final, conclusive and binding on all parties to the contract upon all questions relating to the meaning of the specifications, design, drawing and instructions herein mentioned. The decision of such Engineer as to the quality of workmanship, or materials used on the work, or as to any other question, claim, right, matter or things whatsoever in any way arising out of or relating 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.”

The Apex Court came to the conclusion that the clause does not contain any express arbitration agreement nor such an agreement can be spelt out from its terms by implication, there being no mention in it of any dispute, much less of a reference thereof.

In this very judgment decision in the case of Governor General v. Simla Banking and Industrial Co. Ltd.,2 and Dean Chand v. State of J. & K. . AIR 1961 J & K 58. and Ramlal v. State of Punjab . AIR 1966 Punj 436. were referred. In the case of Jammu and Kashmir, the relevant clause was:—

“For any dispute between the contractor and the Department the decision of the Chief Engineer PWD Jammu and Kahsmir, will be final and binding upon the contractor.”

The language of this clause was considered materially different from the clause in the case of Tipperchand.

In the case of Ramlal, the clause was as under:—

“In matter of dispute, the case shall be referred to the superintending Engineer of the Circle, whose order shall be final.”

3. Learned Counsel for the respondent have also relied on the decision given in the case of State of Karnataka v. K. Sundhakar Reddy . M.F.A No. 1552, 1553 & 1973/1993 DD. 13.12.1994. Clause 30 of the agreement in this case was as under:—

“Except where otherwise specified in the contract and subject to powers delegated to him by Agricultural Produce Market Committee, under the Code rules, then in force the decision of the Chairman for the time being shall be final conclusive, and binding on all parties to the contract upon all questions relating to the meaning of the specifications, designs, and instructions herein before mentioned and as to the quality of workmanship; or materials used on the work or as to any other question, claim, right, matter thing whatsoever if any way arising out of or relating to the contract, designs drawings, specifications estimates, instructions orders or those conditions, failure to execute the same whether arising during the progress of work, or after the completion or abondonment thereof.”

It was interpreted that the clause does not spell out an arbitration agreement.

4. ON the other hand, the Learned Counsel for the petitioner has referred to the case of Rukmini Bai v. Collector, Jabalpur . 1980 4 SCC 600. Clause 15 of the agreement was as under:—

“15. Whenever any doubt, difference or dispute shall hereafter arise touching the construction of these presents or anything herein contained or any matter or things connected with the said lands or the working or non-working thereof or the amount or payment of any rent or royalty reserved or made payable hereunder the matter in difference shall be decided by the lessor whose decision shall be final.”

It was interpreted that this clause spells out an arbitration.

5. This judgment was again considered by the apex Court in the case of State of Orissa v. Damodar Das . 1996 2 SCC 216. and it was observed that agreement to refer disputes or differences to arbitration must be expressly or impliedly spelt from the clause. The relevant Clause 25 of the agreement was as under:—

“25. Decision of Public Health Engineer to be final-Except where otherwise specified in this contract, the decision of the Public Health Engineer for the time being shall be final, conclusive and binding on all parties to the contract upon all questions relating to the meaning of the specifications; drawing and instructions herein before mentioned and as to the quality of workmanship or materials 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, 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.”

It was also held that Clause 25 of the agreement does not contain an arbitration agreement nor it envisages any difference or dispute that may arise or had arisen between the parties in execution of the works for reference to an arbitrator.

6. Reliance is also placed on the decision in the case of M. Keshava Raju v. K.S.R.T.C . CMP 4/1996 dd 13.2.1998. Clause 29 of the arbitration agreement in the said case was interpreted as under:

“Clause 29(a) if any dispute or difference of any kind whatso ever were to arise between the Executive engineer/Engineer-in-chief and the contractor regarding the following herein before mentioned;

i) The meaning of the specifications designs, drawings and instructions hereinbefore mentioned;

ii) The quality of workmanship or materials used on the work and

iii) Any other question, claim, right, matter, thing whatsoever, in any way arising out of or relating to the contractor, designs, drawings specifications, estimates, instructions or orders or those conditions or failure to execute the same whether arising during the progress of the work or after completion, termination or abandonment thereof, the dispute ‘shall, in the first place, be referred to the VS & MD who has jurisdiction over the work specified in the contract. The VC & MD shall, within a period of 90 days from the date of being requested by the contractor to do so, give written notice of his decision to the contractor.

Managing Directors Decision Final: (b) Subject to other form of settlement hereafter provided, the VS and MD's decision in respect of every dispute or difference so referred shall 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.”

It was held that a perusal of the clause shows that the parties had agreed to refer their disputes to the Vice Chairman and Managing Director having jurisdiction over the work specified in the contract. The reference to the words ‘dispute’ and ‘reference’ clearly indicate the intention of the parties of getting their disputes settled through an arbitrator under the Act.

7. I have considered over the matter. The Arbitration and Conciliation Act, came into force on 25.1.1996 Section 21 refers to commencement of arbitral proceedings as the date on which the request for referring the dispute to arbitration is received by the respondent. The petitioner sent the notice on 22.1.1996 In the absence of any averment to the contrary, it is considered that it must have been received by the respondent after 25.1.1996

8. Now coming to the point as to whether Clause 29 of the agreement in the present case could be impliedly considered as a clause for referring the matter to arbitration in a dispute. The judgment which have been relied on by both sides are very clear. If there is a clause for reference in case of dispute to any authority then it has to be considered as a clause for arbitration by implication. Clause 29 in the case of the petitioner is construed as a clause for making the arbitration to the Chief Engineer in case of dispute. It is not simply a case of conferring the power of supervision as was in the case of Tiperchand. The present clause clearly mentions all the dispute and reference to the Chief Engineer. Therefore the judgment relied by the Learned Counsel for respondent are not applicable. It is considered that there is a clause for making the reference to an arbitrator in case of dispute. The petitioner has already served the notice and there was no response. I therefore consider that the arbitrator has to be appointed on account of failure of the respondent in responding to the request of the petitioner. It may also be observed that a suit has been filed by the petitioner in respect of part of the claim in a Civil Court in 1995. Since the matter now sought to be covered under notice is for the entire dispute, the filing of the suit will not come in the way of the petitioner.

I accordingly appoint the present Chief Engineer as the sole arbitrator in exercise of the power conferred under Section 11 of the Arbitration and Conciliation Act, 1996. Both the parties would be free to submit their claims and counter claims.

Petition is accordingly, allowed.

Lachmanna B. Horamani v. The State Of Karnataka & Ors.

Summary of the Opinion — V.K. Singhal, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Respondent's Arguments

Petitioner's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Lachmanna B. Horamani v. The State Of Karnataka & Ors.

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