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State Of A.P And Another v. Obulu Reddy
Factual and Procedural Background
The State of Andhra Pradesh awarded a construction contract on 14-3-1984 to the respondent for works on a canal across the Sarada River valued at over Rs 83 lakhs. The contract incorporated G.O.Ms. No. 430 dated 24-10-1983, which contains an arbitration clause allocating disputes as follows: (i) claims up to Rs 10,000 to a Superintending Engineer, (ii) claims between Rs 10,000 and Rs 50,000 to a Chief Engineer, and (iii) “claims above Rs 50,000” to the “court of competent jurisdiction.”
Disputes exceeding Rs 50,000 arose. The contractor asked the Principal Subordinate Judge, Visakhapatnam, to act as arbitrator; the Judge declined. The contractor then invoked Section 8 of the Arbitration Act, 1940. On 13-4-1992 the Subordinate Judge referred the disputes to a sole arbitrator. The State filed a civil revision before the Andhra Pradesh High Court contending that claims over Rs 50,000 were non-arbitrable under G.O.Ms. No. 430. The High Court dismissed the revision on 23-11-1992. The State obtained leave and appealed to the Supreme Court.
Meanwhile the Government issued G.O.Ms. No. 160 dated 1-6-1987 deleting the earlier paragraph and expressly directing that “all claims above Rs 50,000 shall be decided by the civil court of competent jurisdiction by way of a regular suit.”
In two earlier Supreme Court decisions—State of A.P. v. I. Devender Reddy and Visakhapatnam Urban Development Authority v. V. Narayana Raju—the Court had interpreted these Government Orders differently, creating an apparent conflict that the present bench was called upon to resolve.
Legal Issues Presented
- Whether the arbitration clause in G.O.Ms. No. 430 permits arbitration of claims exceeding Rs 50,000.
- Whether G.O.Ms. No. 160 of 1-6-1987 is merely clarificatory of G.O.Ms. No. 430 or operates only prospectively.
- How to reconcile the conflicting Supreme Court rulings in I. Devender Reddy and V. Narayana Raju.
Arguments of the Parties
State of Andhra Pradesh
- Relied on G.O.Ms. No. 430 and the subsequent G.O.Ms. No. 160 to assert that claims above Rs 50,000 are to be determined exclusively by a civil court and not by arbitration.
- Contended that Section 8 of the Arbitration Act, 1940 was inapplicable where the contract itself excluded arbitration for high-value claims.
Respondent Contractor
- Invoked the arbitration clause of G.O.Ms. No. 430 to state that a “court of competent jurisdiction” could act as an arbitrator even for claims above Rs 50,000.
- Maintained that the 1987 G.O.Ms. No. 160 could not retrospectively alter contractual rights arising from the 1984 agreement.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of A.P. v. I. Devender Reddy | Held that G.O.Ms. No. 160 is prospective; claims arising under earlier contracts could still go to arbitration. | Cited to demonstrate one line of authority treating the 1987 notification as non-retroactive. |
| Visakhapatnam Urban Development Authority v. V. Narayana Raju | Held that G.O.Ms. No. 160 is only a clarification; even prior contracts disallow arbitration for claims above Rs 50,000. | Cited to illustrate the conflicting interpretation that G.O.Ms. No. 160 merely clarified existing non-arbitrability. |
Court's Reasoning and Analysis
The Court observed that all four appeals pivot on interpreting G.O.Ms. No. 430 and the subsequent G.O.Ms. No. 160, specifically whether the latter merely clarifies the former or changes it prospectively. The bench meticulously compared the reasoning in the two earlier Supreme Court judgments:
- I. Devender Reddy treated the 1987 order as prospective and upheld arbitration.
- V. Narayana Raju treated the 1987 order as a clarification, thereby excluding arbitration even for contracts predating 1987.
The Court acknowledged that the earlier case (I. Devender Reddy) was apparently not cited in V. Narayana Raju, leading to inconsistent outcomes. Recognising that the conflict concerns an important question of arbitration law and statutory interpretation, the present bench considered it inappropriate to choose between the two views.
Instead, invoking the principle of judicial discipline and the need for authoritative clarity, the Court decided that a larger bench should resolve whether G.O.Ms. No. 160 is merely clarificatory or prospective.
Holding and Implications
ORDER: The appeals are directed to be placed before the Hon’ble Chief Justice for constitution of a larger Bench to resolve the conflict regarding the nature and effect of G.O.Ms. No. 160 dated 1-6-1987.
Implications: The substantive questions remain undecided. Until the larger Bench delivers its judgment, uncertainty persists over the arbitrability of high-value claims under Andhra Pradesh government construction contracts. No new precedent is set; the decision ensures that a conclusive and authoritative interpretation will be provided in due course.
1. These four appeals raise a common question on the interpretation of a certain GOMs issued by the State of Andhra Pradesh the terms of which supposedly constitute an arbitration agreement. There is, however, apparent conflict between two decisions of this Court on the interpretation of the said GOMs.
2. We take the facts in Civil Appeal No. 7246 of 1993 to understand the issue involved in these appeals.
3. The appellant, the State of Andhra Pradesh, awarded a contract on 14-3-1984 to the respondent for execution of certain work of construction on a canal across Sarada River. The value of the contract was over Rs 83 lakhs. GOMs No. 430 dated 4-10-1983 which contained arbitration clause was part of the contract document. This GOMs No. 430, in relevant part, is as under:
“Value of amount Panel of arbitration 1. Claims up to Rs 10,000 and above 1. Superintending Engineer of another circle in the same department. 2. Claims above Rs 10,000 up to Rs 50,000 1. Another CE of the same department. 2. Where there is only one CE in the department, CE will submit proposals to Government in the Administrative Department for nomination of another CE as arbitrator by Government. 3. Claims above Rs 50,000 Court of competent jurisdiction.”
4. Disputes and differences having arisen of the value above Rs 50,000, the respondent sent a letter to the Principal Subordinate Judge, Visakhapatnam to enter into the reference as arbitrator. The Principal Subordinate Judge, however, declined to enter into any reference. The respondent then filed a petition under Section 8 of the Arbitration Act, 1940 which was allowed by the Subordinate Judge on 13-4-1992 and the disputes were referred to a sole arbitrator. The State of Andhra Pradesh felt aggrieved and challenged the appointment of the arbitrator by filing a civil revision in the Andhra Pradesh High Court. It was the contention of the State Government that under GOMs No. 430 claims above Rs 50,000 could only be decided in a regular suit and it could not be the subject-matter of arbitration and that Section 8 of the Arbitration Act was inapplicable. The High Court, however, dismissed the revision filed by the State Government by its judgment and order dated 23-11-1992. The State Government had then taken the matter to this Court in appeal after obtaining leave. In the meanwhile, it appears, another GOMs No. 160 dated 1-6-1987 was issued by the State Government clarifying if claim over Rs 50,000 is to be decided by the arbitrator or by a civil court. This GOMs we set down as under:
“Order
Government, after careful consideration of various aspects, issued orders in para 2 of the GOMs read above prescribing the revised procedure for arbitration.
2. It has come to the notice of the Government, that some of the contractors are approaching courts to decide the claims above Rs 50,000 under the provisions of the Arbitration Act taking advantage of para 2(3) of the GOMs read above. The intention of the Government incorporating the above provision is to dispense with the arbitration proceedings in respect of claims above Rs 50,000 and leave the parties to have their remedy in civil court. As some of the contractors have misconstrued that the claims above Rs 50,000 have to be decided under the Arbitration Act and not under ordinary law in a regular civil court, the Government direct that the following amendments to GOMs No. 430, I (Irr. V) Deptt., dated 24-10-1983 be issued by way of clarification.
(i) Item (3) of para 2 may be deleted.
(ii) Substitute para 3 by the following:
‘All claims above Rs 50,000 shall be decided by the civil court of competent jurisdiction by way of a regular suit.’
(iii) Paras 3 to 7 are renumbered as paras 4 to 8.”
5. As to how the conflict has arisen, we refer to the two decisions of this Court in State of A.P v. I. Devender Reddy and in Vishakhapatnam Urban Development Authority v. V. Narayana Raju. In both the decisions reference was made to GOMs No. 430 and GOMs No. 160 and this is how the Court understood these two GOMs:
(1) State of A.P v. I. Devender Reddy
“Under Section 8(2) of the Arbitration Act, Subordinate Judge, Peddapalli at the instance of the respondent appointed an arbitrator to give an award in respect of the dispute relating to the execution of a work contract. The appeal against the said order has been dismissed by the High Court in limine. The State has now appealed to this Court challenging the order appointing the arbitrator.
Mr Nambiar, learned counsel for the State has relied upon two government notifications dated 24-10-1983 and 1-6-1987 in support of his contention that the dispute cannot be decided by the arbitrator but must be determined by a civil court in a properly constituted suit. We have perused the terms of the notifications. The first notification dated 24-10-1983 is not precise in terms as to the forum of adjudication of claims above Rs 50,000 but the second notification dated 1-6-1987 expressly provides that all claims above Rs 50,000 shall be decided by the civil court of competent jurisdiction by way of a regular suit. If first notification was clear enough as to the jurisdiction of the civil court to decide all claims above Rs 50,000 it was unnecessary to issue the second notification substituting the uncertainty in para 3 of the first notification. It is not in dispute that the second notification is only prospective and apparently not applicable to the case on hand since the claim in question arises out of the contract dated 4-3-1986.”
(2) Vishakhapatnam Urban Development Authority v. V. Narayana Raju
Having perused GOMs No. 430 dated 24-10-1983 we have no doubt that it clearly provides for arbitration in respect of claims only up to Rs 50,000 and not above that amount, making it clear in para 2 that the claims above Rs 50,000 are to be adjudicated by the court of competent jurisdiction. No doubt the expression ‘court of competent jurisdiction’ is mentioned under the head ‘panel of arbitrators’ since the same para deals with ‘claims up to Rs 10,000 and up to Rs 50,000’. That is, however, an inartistic drafting of the GOMs but it cannot be construed to mean that claims above Rs 50,000 are to be adjudicated by arbitration in which the Judge presiding over the court of competent jurisdiction is to act as the arbitrator. It would be absurd to make such a construction of that part of the GOMs which would oblige the Judge to act as the arbitrator. The subsequent GOMs No. 160 dated 1-6-1987 merely clarifies this fact on account of an attempt by some contractors to misconstrue the earlier GOMs as clearly stated in the subsequent GOMs. The contention of the respondent is wholly untenable.
Consequently, the appeals are allowed. The impugned orders made by the High Court and the trial court are set aside resulting in rejection of the respondent's applications made under Section 8 of the Arbitration Act.”
6. It will, thus, be seen that in I. Devender Reddy case GOMs No. 160 has been held to be prospective in operation and the appeal of the State Government seeking removal of arbitrator appointed under Section 8(2) of the Arbitration Act was dismissed. In the case of V. Narayana Raju this Court said that GOMs No. 160 was only clarificatory in nature and it allowed the appeal of Vishakhapatnam Urban Development Authority. It would appear that the decisions I. Devender Reddy case was not cited before the Court in the case of V. Narayana Raju. In any case, there is apparent conflict in these two decisions which has to be resolved by a larger Bench. We, therefore, direct that these appeals be laid before Hon'ble the Chief Justice for him to constitute a larger Bench in order to decide if GOMs No. 160 dated 1-6-1987 is merely of clarificatory nature or of prospective operation.
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