FOOD CORPORATION OF INDIAversusSREEKANTH TRANSPORT

                    FOOD CORPORATION OF INDIA                                     A
                                      v.
                       SREEKANTH TRANSPORT

                               MAY 14, 1999

            [V.N. KHARE AND UMESH C. BANERJEE, JJ.]                               B

      Arbitration Act 1940: Section 20-Excepted clause-Government
contract-Positive abandonment of the right of ddjudication of the excepted
matter through its officer by dominus litus-Reference of the subject matter
of excepted clause to arbitrator-Held : in normal circumsta.'1ces. Excepted       C
clause 'is not dealt with-But in view of express abandonment of right such
a course is correct.

       The respondent filed a suit under section 20 of the Arbitration Act.
The Trial Court referred the three principal claims of the suit for arbitration   D
but refused to refer the fourth claim, as the subject matter of the same was
covered under clause 12 (excepted matter) of the agreement During pendency
of the appeal in High Court against the trial court's order, the appellant
initiated civil proceeding by filing a suit in respect of the subject matter of
the fourth claim of the respondent's suit. The respondent objected to it on
the ground that since dominus litus has taken recourse to adjudicatory            E
process of civil court rather than getting the matter decided by its own
Senior Regional Manager, the issue covering the appellant's suit which has
direct nexus with the three issues of the respondent's suit, also be referred
to arbitrator. High Court referred all the issues in dispute in respondent's
suit, to the arbitrator holding that the suit of appellant had intrinsic
connection with the fourth claim of the respondent's suit. Hence this appeal.     F
      Dismissing the appeal, this Court

      HELD: 1.1. In normal circumstances the issue as regards the excepted
matters is not dealt with by this court. By reason of the factual situation in    G
the matter, the High Court was not left with any option but to direct such
a course of action more so by reason of an express abandonment of right.
In the normal course of events if the particular clause was not available in
the contract between the parties, the disputes in its entirety by reason of the
scope and purview of the Arbitrator clause, could have been referred to
arbitration. But if it is by reason of the factum of incorporation of clause      H
                                     699
    700                     SUPREME COURT REPORTS                    [1999] 3 S.C.R.

A   12 and the subsequent abandonment thereof by reason of a decision to have
    the claim covered under clause 12 to be adjudicated by a forum different from
    that of the Senior Regional Manager, this Court concurs with the High
    Court that the fourth dispute being the subject matter of a civil suit initiated
    by Food Corporation of India also be referred to arbitration. [706-F-H]

B         1.2. Also there appears to be a positive relinquishment or abandonment
    of a right so far as the adjudication of the excepted matters are concerned
    by the appellant Corporation since the Corporation itself wanted to have it
    adjudicated by a Civil Court. [704-H; 705-Al

C        CIVIL APPELLATE JURISDICTION: Civil Appeal No. (s) 1582-83
    of 1994.

          From the Judgment and Order dated 4.10.93 of the Madras High Court
    in O.S. Nos. 39-40of1990.

          Y. Prabhakar Rao for the Appellant.
D
         Shambhu Prasad Singh, M/s Arputham and Aruna & Co., for the
    Respondent.

          The Judgment of the Court was delivered by

E         BANERJEE, J. These appeals by the grant of Special Leave pertains to
    the effect of the usual 'excepted clause' vis-a-vis the arbitration clause in a
    Government contract. While it' is true and as has been contended, that the
    authorisation of the arbitrators to arbitrate, flows from the agreement but the
    High Court in the judgment impugned thought it fit to direct adjudication of
p   'excepted matters' in the agreement itself by the arbitrators and hence these
    appeals before this Court.

          At the outset, it is pertinent to note that in the usual Governmental
    contracts, the reference to which would be made immediately hereafter, there
    is exclusion of some matters from the purview of arbitration and a senior
G   officer of the Department usually is given the authority and power to adjudicate
    the same. The clause itself records that the decision of the senior officer,       ...
    being the adjudicator, shall be final and binding between the parties - this is
    what popularly known as 'excepted matters' in a Government or Governmental
    agencies' contract.

H         'Excepted matters' obviously, as the parties agreed, do not require any
           F.C.I. v. SREEKANTH TRANSPORT [BANERJEE, J.]                      701
further adjudication since the agreement itself provide~ a named adjudicator A
- concurrence to the same obviously is presumed by reason of the unequivocal
acceptance of the terms of the contract by the parties and this is where the
courts have found out Jacking in its jurisdiction to entertain an application
for reference to arbitration as regards the disputes arising therefrom and it has
been the consistent view that in the event the claims arising within the ambit B
of excepted matters, question of assumption of jurisdiction of any arbitrator
either with or without the intervention of the court would not arise; The
parties themselves have decided to have the same adjudicated by a particular
officer in regard to these matters: what are these exceptions however are .
questions of fact and usually mentioned in the contract documents and forms
part of the agreement as such there is no ambiguity in the matter ofadjudication C
of these specialised matters and termed in the agreement as the excepted
matters.

       As noticed above, the High Court, however, has in fact, referred matters
which are in terms of the agreement within the excepted matters to the
arbitrator along with the other arbitrable disputes. It would be convenient to       D
rlote the Arbitration clause at this juncture.

       "All disputes and differences arising out of in any way touching or
       concerning this agreement whatsoever (except as to any matter the
       decision of which is expressly provided for in the contract) shall be         E
       referred to the sole arbitration of a person appointed by the Managing
       Director of the FCI. It will be no objection to any such appointment
       that the person appointed is or was an employee of the Corporation
       that he had to deal with the matters to which the contract relates and
       that in the course of his duties as such employee of the corporation
       he had expressed views on all or any of the matters in dispute of             F
       difference. The Board of such Arbitration shall be final and binding
       on the parties of this contract. It is a term of this contract that in the
       event of such arbitration to whom the matter is originally referred
       being transferred or vacating his office or being unable to act for
       reasons the Manager/Managing Director of the FCI at the time of               G
       such transfer, vacation of office or inability to act shall appoint another
       person as arbitrator. Such persons shall be entitled to proceed with
       reference from the stage at which it was left by his predecessor. It is
       also a term of this contract that no person other than a person
       appointed by the Managing Director as aforesaid shall act as Arbitrator
       and if for any reasons that it is not possible the matter is not be           H
    702                       SUPREME COURT REPORTS                     [1999] 3 S.C.R.

A          referred to Arbitration at all.

           It is term of a contract that the party invoking arbitration under this
           clause shall specify the disputes and/or difference to be referred to
           arbitration together with the amount claimed in respect of each such
           dispute/difference, at the time of making a request to the Managing
B          Director for appointment of an arbitrator.

           Provided further that any demand for arbitration in respect of any
           claims of the contractors under the contract shall be in writing and are
           made within one year of the date of termination of completion (or
           expiry of the period) of the contractor from the date of termination of
c          the contract, if iris terminated earlier and where such demand is not
           made within that period, the claims, of the contractors shall be
           discharged and released of all liabilities unqer the contract in respect
           of these claims. It is further provided that the Arbitrator may, from
~          time to time, with the consent of the parties enlarge the time for
           making and publishing the award.
D
           In all cases where the claim in dispute is Rs, 25,000 and above the
           arbitrator shall record the reasons for his award.

           Subject as aforesaid the Arbitration Act, 1940 shall apply to the
           Arbitration proceedings under this clause. The costs of and in
E          connection with Arbitration shall be in the discretion of the arbitrator
           who may make a suitable provision for the same in his a~ard".

          Turning now on to the co:itextual facts, it appears that by reason of
    certain disputes between the parties the Respondent herein instituted a suit
    under Section 20 of the Arbitration Act for the purposes of fi~ing the
F   Arbitration Agreement in Court being CSNo. 304 of 1982. Incidentally, be it
    noted that in the plaint filed in the suit the Respondent herein has _included
    four several claims of which the fourth claim pertains to the excepted matters
    in terms of clause XII of the agreement. The claims as lodged in the plaint
    are as below:
G           (!!)   "Whether the Plaintiffs are liable to pay demurrage or whether
                                                                                          ...
                   the defendants are liable to pay the demurrage accrued due to
                   the omissions and commissions of the officials of the defendants
                   and to the abnormal conditions prevailing at the Railway goods
                   sheds?

H           (b)    Whether the plaintiffs are liable to pay costs of the water obtained
               F.C.I. v. SREEKANTH TRANSPORT [BANERJEE, J.]                   703

                from outside by the defend~nts?                                      A
        (c)     Whether the defendants are entitled to recover amounts allegedly
                due in respect of the contract with Express Clearing Agency or
                any other contract from the plaintiff from out of the amounts due
                in this present contract?
                                                                                     B
         (d)    Whether the defendants are not liable to pay to the plaintiffs a
                sum ofRs.70,000 in respect of the transport of Rice from Madras
                to Ronigunta from June to August 1979?"

      It is this inclusion of Claim ( d) which stands objected by the Appellant
herein and the learned Trial Judge by reason of the same being covered under         C
clause 12 of the agreement declined to include the same. Since the issue
pertains to such an exclusion it is convenient also to note Clause 12 of the
agreement, Clause 12 reads as below:

        "The decisions of the Senior Regional Manager regarding such failure
        of the contractors and their liability for the losses etc. suffered by the   D
        Corporation shall be final and binding on the contractors."

       The Factual backdrop further depict that after the order of the Learned
Trial Judge the matters were taken up to the appellate court wherein on an
application for stay the respondent herein has obtained an order of stay.
Incidentally, during the pendency of Section 20 matter, there was also an            E
application under Section 34 for stay of the suit - the application under
Section 34 however was dismissed though the suit under Section 20 was not
ordered iii its entirety as has been pleaded and prayed before the Court. Be
that as it may when the matter came up before the appellate court, the
appellate court passed an interlocutory order of injunction directing stay of        F
the operation of the order. It is only thereafter however, as the factual backdrop
argued before this Court that the Food Corporation of India thought it fit to
institute a suit for recovery of loss damage and expenses suffered and incurred
by the Appellant herein in paying the demurrage, wharfage and expenses for
forfeiture of wagon on account of the negligence, lapse and unworkmanlike
performance of the Respondent herein in performing their duties and                  G
obligations under the contract. In paragraph 11 of the plaint, the Plaintiff
prayed before the Court the following:

        "(a) directing the defendants jointly and severally to pay the plaintiff
             the sum of Rs.1,89,775.00 (Rupees One lakh eighty nine thousand
             seven hundred and seventy five only) together with interest at          H
    704                     SUPREME COURT REPORTS                    [1999] 3 S.C.R.

A                 18 per cent per annum on the said sum from the date of plaint
                  till date of realisation;
            (b)   directing the defendants to pay the costs of the suit; and
            (c)   pass such further or other relief as this Hon'ble Court may deem
                  fit and proper and render justice.
B
         Significantly enough in paragraph 8 of the Plaint, the appellant Food
    Corporation of India being the Plaintiff therein stated as below:

                "8. The Senior Regional Manager, Food Corporation of India,
            Tamil Nadu Region, as the Head of the Offices of the Corporation in
c           the State of Tamil Nadu and as party to the tender contract is entitled
            to and competent to file the suit for the recovery of the sum due to
            the Corporation, as set out in this Plaint. The District Manager, Madras
            District of the Food Corporation oflndia is also a Principal Officer of
            the Corporation and has been not only closely associated with the
            contract and the work covered thereon but also is the authority who
D           has been effecting payments, supervising and controlling the actual
            execution of the work by the defendant contractor. The District
            Manager and his men have been duly authorised for the said purpose
            and has been authorised to institute the proceedings and sign. and
            execute the pleadings and the Vakalath for and on behalf of the Senior
            Regional Manager, Food Corporation of India. This is the position
                                                                                        ..
                                                                                         ;
E
            under the provisions of Clause III of the Contract also.

           But what about the rights preserved under clause 12, we searched in
    vain, in that regard: The plaint is delightfully silent on that score excepting
    the averment as contained in paragraph 8 as noticed above. The Food
F   Corporation therefore, as a matter of fact desired an adjudication of their claim
    to the extent of Rs.1,89,775 together with interest at the rate of 18 per cent
    per annum from the Civil Court rather than relying on to the adjudicatory
    process available in the contract itself through their own Senior R7gional
    Manager. The agreement as noticed above expressly provide that the
G   adjudication shall be effected by the Senior Regional Manager and by no
    other authority and the decision, it has been recorded in the agreement, of
    the Senior Regional Manager, would be final and binding on the parties. There
    is therefore, a positive act on the part of the Food Corporation of India not       -·
    to put any reliance on to that particular clause of the agreement. There is, as
    a matter of fact, thus on the state of facts, as above, appears to be a positive
H   relinquishment or abandonment of a right so far as the adjudication of the
            F.C.I. v. SREEKANTH TRANSPORT [BANERJEE, J.]                     705
excepted matters are concerned by the Appellant Corporation since the                A
Corporation itself wanted to have it adjudicated by a Civil Court.

       Learned Advocate appearing in support of these appeals very strongly
contended that as a matter of fact, the Corporation has had no other alternative
but to initiate a civil suit by reason of the order of injunction and in any event
it has been contended that initiation of a civil suit in the Civil Court does not    B
and cannot be identified to be acceptance of the Arbitration Agreement in the
matter - whether it does or it does not amount to acceptation of Arbitration
or not, we are not expressing any opinion in that regard but the fact rem~ins
that in fact, there was an abandonment of a right of adjudication by one of
the Corporation's officer so far as the wharfage claim is concerned and it is        C
on this perspective that the Appellate Bench of the High Court was pleased
to direct that all the issues in dispute in suit No.C.S. 304 of 198~ shall be
referred to L.R. Kohli, Arbitrator. The High Court as a matter of fact came to
a conclusicm that the dispute in Civil Suit No.368 of 1986 has intrinsic
connection with the fourth claim of the Respondent herein in Suit No.304 of
1982. The Appellate Bench observed:                                                  D

        "Since three of the four times of the disputes between the parties in
        C.S.No.304 of 1982 have been referred to ar.bitration, it is indeed
        improper to exclude one item in respect of damage connected with the
        other matter which is before the Arbitrator for Court's adjudication.        E
        There can be in a situation like this conflict in the pronouncements
        all connected facts and the Arbitrator may take one view and the court
        another depending upon evidence brought before the court and the
        Arbitrator respectively by the parties. There can be no finality to the
        adjudication in this behalf until all proceedings in the Court
        independent of the proceedings under the Arbitration act are                 F
        concluded. In such a situation just and proper order, in our opinion,
        is that the dispute in C.S.No.368 of 1986 which is nothing but a
        subject connected with CS No.304 of 1986 shall be included in the
        reference to the Arbitrator and is accordingly referred to the same
        Arbitrator before whom the reference is pending adjudication."               G

       The facts of the matter in issue is thus singularly singular since the
Corporation being a party dominant feels it expedient to institute a civil suit
without taking recourse to the provisions of the agreement for adjudication
of its claims. The other party namely the contrac~or has already filed a suit
in tenns of Section 20 and the suit has been disposed of by an order of              H
    706                     SUPREME COURT REPORTS                   (1999] 3 S.C.R.

A reference by the Court in terms of provisions of Section 20 in so far as three
  ·principal disputes are concerned. The other claim concerning wharfage stands
   negated by the learned Trial Judge and in our view very rightly by reason
   of clause 12 of the agreement - here comes thereafter a situation which is
   rather significant and as ncted above singularly singular: the Food Corporation
B itself gives a go by to its right of adjudication through the Senior Regional
   Manager as regards the wharfage claim and initiates proceeding in the Civil
   Court. It is this initiation which has been objected to by the contractor on
   the plea that since the civil courts' adjudicatory process has been taken
   recourse to by the dominant litus, the court ought to direct to sub-serve the
   ends of justice in a manner so that the issue covering the Corporation's suit
C be also referred to arbitration since that has direct nexus with the other three
   issues as already been directed to be referred to arbitration. The learned
   advocate for the contractor strongly contended that in the event the same is
   not ordered, as has been directed by the High Court then and in that event
   two sets of evidence would be required covering the identical field and as
   such the Appellate Bench thought it fit to refer the disputes in Corporation's
D suit as well to arbitration so to minimise expenses and to observe and follow
   the requirement of justice in the matter of expeditious disposal of the entire
   matter in dispute between the parties

           In the normal circumstances, course of events as they are, this court      'L
E   would not have dealt with the matters as is being presently dealt with but as
    has been pointed out by the High Court itself that the matters have been dealt
    with upon consideration of the cause of justice and to sub-serve the need
    of justice, we also do deem it fit and proper that by reason of the factual
    situation in the matter, the High Court was not left with any option but to
    direct such a course of action more so by reason of an express 'abandonment
F   of right' as noticed above. In the normal course of events if this particular
    clause 12 was not available in the contract between the parties the disputes
    in its entirety by reason of the scope and purview of the Arbitration Clause,
    could have been referred to arbitration and there would not have been any
    necessity for delving into a matter in the manner as we have, herein before,
G   but it is by reason of the factum of incorporation of clause 12 and the
    subsequent abandonment thereof by reason of a decision to have the claim
    covered under clause 12 to be adjudicated by a forum different from that of
    the Senior Regional Manager, we also have no option left but to record our
    concurrence with the finding of the High Court that the fourth dispute being
    the subject matter of a civil suit initiated by the Food Corporation of India
H   be also referred to arbitration. Be it noted that this order is passed in the
                  F.C.I. v. SREEKANTH TRANSPORT [BANERJEE, J.]                    707
       peculiar facts and circumstances of the facts in issue and the issue as regards   A
       the excepted matters have not been delved into in detail excepting however
       as above.

             In that view of the matter, we do deem it fit to record our concurrence
       with the findings of the High Court more so in the peculiar facts and
       circumstances centering round these Appeals. The appeals therefore, fail and      B
       are dismissed. No order as to cost.

       K.K.T.                                                    Appeals dismissed .




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