State Of M.P. v. M/S K.T.Construction Limited, 31/6

Scheme along with toll plaza and toll barrier and to collect toll tax from vehicles passing through the utility at the rate specified for the agreed period. The bid of the respondent No.1 was accepted and an agreement dated 19.5.1999 was executed between the parties. Under the agreement, the respondent No.1 was supposed to carry out the work as per drawings and specifications which was to be provided by the appellants herein. Admittedly under the contract, the respondent No.1 had to construct the road utilising his own capital and resources and in lieu thereof the respondent No.1 was authorised to collect the toll tax at the specified rate and conditions from the date thirty days after completion of the whole work or from such date as may be notified for the purpose. Clause 17 of the agreement deals with settlement of the dispute and provides that the provisions of the Act shall apply.

3. The respondent No.1 was allowed to collect the toll tax w.e.f. 3.2.2000 as per the authority given by the appellants. The respondent No.1 had raised certain claims vide letter dated 15.6.2001, which were rejected by the Executive Engineer vide letter dated 22.1.2004 except one claim for 43 days as bonus days. The respondent No.1 did not raise any claim before the Chief Engineer but approached him for appointment of an arbitrator. However, the aforesaid request was turned down by the Chief Engineer vide communication dated 9.2.2004. The respondent No.1 filed an application under Section 11(6) of the Act before the District Judge, Shivpuri, which was rejected by order dated 15.3.2004. The respondent No.1 thereupon approached this Court by filing an application under Section 11(6) of the Act, which was registered as Misc.Civil Case No. 57/2004 and learned Single Judge by order dated 29.11.2004 appointed Mr. Justice R.B.Dixit, a

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retired Judge of this Court as an arbitrator. The parties filed their statement of claims before the arbitrator. In the statement of claim filed on behalf of the appellants herein, a specific objection was raised that since the contract in question is a "works contract", therefore, the arbitrator has no jurisdiction to deal with the dispute referred to him as the same has to be tried by a Tribunal constituted under the provisions of Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (hereinafter referred to as the "1983 Act").

4. The arbitrator passed an award on 5.11.2005 and held that the contract in question is not a "works contract" as the same is not of ascertained money value and, therefore, falls outside the purview of the 'dispute' as contemplated under section 2(d) of the 1983 Act. The arbitrator partly decreed the claim of the respondent No.1 and held that the respondent No.1 is entitled to benefit of 208 days remaining period of toll tax collection or in lieu thereof a sum of Rs.79,18,560/-. Being aggrieved, the appellants filed an objection under Section 34 of the Act, in which again an objection was raised that the award passed by the arbitrator is per se without jurisdiction as the contract in question is a works contract. The trial court vide order dated 15.9.2008 rejected the aforesaid objection inter alia on the ground that the parties had agreed that the provisions of the Act would apply to the dispute in question and the dispute does not fall within the purview of section 2(d) of the 1983 Act. In the aforesaid factual backdrop, the appellants have approached this Court.

5. Learned Additional Advocate General for the appellants submitted that the arbitrator as well as the trial court grossly erred in holding that the contract in

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question is not "works contract" and, therefore, the provisions of 1983 Act would not apply. It was further submitted that in view of clause 17.2 of the contract, the respondent No.1 could not have been granted any monetary benefit by the arbitrator. It is further submitted that since the contract in question is a contract for construction of the road, therefore, the same falls within the purview of section 2(i) of the 1983 Act. It was also urged that since all the taxes are payable by the tenderer and the respondent No.1 had to carry out the work as per the specifications and drawings provided by the appellants herein and in the absence of any State support agreement and EPC contract, the contract in question cannot be termed as concession agreement. Lastly, it is urged that under clause 17.1 of the agreement, the contractor was required to raise all disputes within 30 days before the Chief Engineer, which he has not raised and the dispute pertains to an amount of Rs.10 lacs and, therefore, the dispute is in respect of a certain amount of money. Learned Additional Advocate General further submits that the decision rendered by a Bench of this Court in the case of Jabalpur Corridor (India) Pvt. Ltd. vs. Madhya Pradesh Road Development Corporation Ltd. (2014 (2) MPLJ 276) is distinguishable in the facts of the case at hand and does not apply to the fact situation of the case.

6. On the other hand, learned senior counsel for the respondent No.1 while inviting the attention of this Court to clause 17.1 of the agreement has argued that the parties had agreed that the provisions of the Act would apply to the dispute in question. It is further argued that from perusal of clause 17.2 of the agreement,

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it is evident that the agreement does not envisage any dispute with regard to the quantum of any amount and the contract was awarded to the respondent No.1 on Build-operate and Transfer basis and there has been no monetary transaction between the parties. It is submitted that in view of the fact that the respondent No.1 had constructed the road from its own funds, in lieu thereof it has been granted the right to collect the toll tax for the period specified therein at the rates which have been specified by the appellants. It is further submitted that the decision in the case of Jabalpur Corridor (supra) applies to the fact situation of the case which has also been affirmed by order dated 12.10.2015 by Supreme Court in Special Leave to Appeal (Civil) No. 3811/2014. It is further submitted that the arbitrator has held that the petitioner is entitled to 208 additional days to collect the toll tax and no monetary benefits in the award has been granted. It was also urged that the award does not suffer from any infirmity.

7. We have considered the rival submissions made at the bar. Before proceeding further, it is apposite to notice relevant extract of Section 34 of the Act, which reads as under:-

"Section 34- Application for setting aside arbitral award.-(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub/section (2) and sub- section(3).

(2) An arbitral award may be set aside by the Court only if-

(a) the party making the application furnishes proof that-

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

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(iii)the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may beset aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that-

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being if force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation- Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81."

8. The scope of Section 34 of the Act is delineated by catena of decisions of the Supreme Court. The Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd, (2006) 11 SCC 181 while taking note of the decision rendered by it in Renusagar Power Co. Ltd. v. General Electric Co. , 1994 Supp

(1) SCC 644 wherein it was held that an arbitral award can be set aside if it is contrary to

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fundamental policy of Indian law; the interests of India; or justice or morality, held that public policy is a matter dependent upon the nature of transaction and the nature of statute. However, subsequently, in the case of ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705, the Supreme Court added another ground for exercise of courts' jurisdiction for setting aside the award i.e. if it is patently arbitrary. In Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. . ., (2006) 11 SCC 245 it was held by the Supreme Court that if an award suffers from patent illegality, which goes to the root of the matter, the court can interfere with the award passed by the arbitrator. In a recent decision, in the case of Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, the Supreme Court after taking note of various previous judgments rendered by it with regard to scope of interference with the arbitral award held that none of the grounds contained in Section 34 (2) (a) of the Act deals with the merits of the decision rendered by an arbitrator. It is only when the award is in conflict with the public policy of India as prescribed in Section 34 (2) (b)

(ii) of the Act that the merits of an arbitral award are to be looked into under certain specified circumstances. It was further held that the Court would interfere with an award passed by an arbitrator if it is in violation of statute, interest of India, justice or morality, patent illegality, contravention of the Act or terms of the contract. It was also held that the court hearing an appeal

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does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus, an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score.

9. In the backdrop of aforesaid well settled legal position with regard to scope of Section 34 of the Act, now we may advert to the provisions of the 1983 Act, which is an Act to provide for establishment of a tribunal to arbitrate in disputes to which the State Government or a Public Undertaking wholly or substantially owned or controlled by the State Government, is a party, and for matters incidental thereto or connected therewith. Section 2(d) and Section 2(i) as well as Section 7(1) of the 1983 Act, which are relevant for the purpose of controversy involved in this appeal are reproduced below:-

"2 (d)- "dispute" means claim of ascertained money valued at Rupees 50,000 or more relating to any difference arising out of the execution or non-execution of a works contract or part thereof;

2(i)- "works-contract" means an agreement in writing for the execution of any work relating to construction, repair or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, work-shop, powerhouse, transformers or such other works of the State Government or Public Undertaking as the State Government may by notification, specify in this behalf at any of its stages, entered into by the State Government or by an official of the State Government or Public Undertaking or its official for and on behalf of such Public

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Undertaking and includes an agreement for the supply of goods or material and all other matters relating to the execution of any of the said works.

7(1)--Reference to Tribunal- Either party to a works contract shall irrespective of the fact whether the agreement contains an arbitration clause or not, refer in writing the dispute to the Tribunal."

From conjoint reading of the provisions of Sections 2(d), 2(i) as well as Section 7(1), it is evident that if a person is a party to works contract, he has to refer the dispute to the Tribunal. The expression "dispute" has been defined as claim of ascertained money valued at Rupees 50,000 or more relating to any difference arising out of the execution or non-execution of a works contract or part thereof.

10. After having noticed the relevant statutory provisions, the contract in question may be looked into. Under the contract, the respondent No.1 has to utilise his capital and resources to complete the construction of the road and on completion of the construction, the respondent No.1 is entitled to recovery of the amount spent by him by recovery of toll tax. Clause 17.1 and 17.2 of the agreement are reproduced below for the facility of reference :-

17.1 All disputes arising out of this agreement shall be referred to Chief Engineer within 30 days. The Chief Engineer shall give his decision within 60 days. The decision of the Chief Engineer shall be final, conclusive and binding on the parties. The provisions of the Arbitration and conciliation second ordinance 1996 shall apply.

17.2 Since there is no money transaction between the parties and the money has only notional value for the purpose of this agreement the effect of the arbitration award shall be translated into either extension of the agreement period or its reduction as the case may be.

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From perusal of clauses 17.1, it is evident that the authorities have agreed that the dispute between them shall be resolved in accordance with the provisions of Arbitration and Conciliation Second Ordinance 1996. From perusal of clause 17.2, it is evident that same states in express terms that no money transaction between the parties is involved and the money has only notional value for the purpose of this agreement.

11. Even though the contract in question may fall within the definition of "works contract", as the same pertains to construction of road, yet the claim of respondent No.1 is not a dispute as defined under Section 2(d) of the 1983 Act, as it is not a claim of ascertained money valued at Rs.50,000/- or more and, therefore, the provisions of Section 7 of the 1983 Act would not be applicable to the fact situation of the case. For yet another reason we are not inclined to interfere with the impugned order as a Bench of this Court in the case of Jabalpur Corridor (supra) in paragraphs 17 and 18 has held as under:-

"17. Again a two-Judge Bench of Supreme Court by judgment dated 17.2.2011 in A.P.S. Kushwaha (SSI Unit) vs. Municipal Corporation, Gwalior and other [Civil Appeal No. 1888-889 of 2011] while dealing with a dispute arising out of an agreement with regard to maintenance of water supply and electric works in different parts of Gwalior Municipal Corporation area which is also a works contract, while taking note of the judgment of Supreme Court in V.A. Tech Escher Wyass Flovel Ltd. (supra) held that if the contract between the parties contains an arbitration clause, the provisions of 1996 Act would apply. However, it is pertinent to mention here that another two-Judge Bench of the Supreme Court in case of L.G. Choudhary (supra), inter alia, held that all disputes pertaining to works contract have to be statutorily referred to the Tribunal set up under the 1983 Act.

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However, there was divergence of opinion with regard to issue whether the dispute regarding cancellation/ determination of such works contract can be referred to arbitration under the 1983 Act. In view of the aforesaid divergence of opinion, the matter has been referred for consideration by a Larger Bench and the view taken by V.A. Tech Escher Wyass Flovel Ltd. (supra) has been held to be per incuriam.

18. It is pertinent to mention here that in the case of L.G. Choudhary (supra) the Supreme Court has not taken note of earlier decision rendered by a two-Judge Bench in the case of A.P.S. Kushwaha (SSI Unit) (supra). A Special Bench of this Court in the case of Jabalpur Bus Operators Association vs. State of M.P. and others, 2003(1) MPLJ 513 has held that in case of a conflict between decisions of Supreme Court comprising equal number of judges, decision of earlier Bench is binding. Therefore, the ratio laid down by a two-Judge Bench of Supreme Court in A.P.S. Kushwaha (SSI Unit) (supra), which is prior in point of time, is binding on this Court. For this reason also the dispute between the parties has to be referred to the arbitral tribunal under the 1996 Act.

12. At the cost of repetition, we may state that the aforesaid decision has attained finality as the same has been upheld by the Supreme Court.

13. In view of preceding analysis, in our considered opinion, the award passed by the arbitrator is not contrary to either fundamental policy of Indian Law Justice or morality or is in violation of any statutory provision or suffers from any patent illegality. This Court cannot sit as a Court of Appeal over the decision taken by the arbitrator. Therefore, the trial Court has rightly rejected the objection preferred by the appellants under Section 34 of the Act. The arbitrator and the trial Court have rightly held that dispute is not a "works contract". The objection raised by the appellants that the arbitrator had no authority

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to adjudicate the dispute is therefore repelled.

14. However, we find force in the submission made by learned Additional Advocate General that under clause 17.2 of the agreement, no monetary benefit could have been awarded to the contractor. The aforesaid aspect of the matter has not been appreciated by the trial court while rejecting the objection preferred by the appellants. Therefore, the impugned award dated 5.11.2005, in so far as it directs that in lieu of 208 days remaining period of toll tax, the respondent No.1 would be entitled to a sum of Rs.79,18,560/- is set aside. To the aforesaid extent the award passed by the arbitrator is modified.

15. In the result, the appeal is disposed of. The parties shall bear their costs.

(Alok Aradhe) (Vivek Agarwal)

Judge. Judge.

(yogesh)

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