Supreme Court of India
M/S. P. DASARATHARAMA REDDY COMPLEXversusGOVERNMENT OF KARNATAKA AND ANOTHER
- Citation
- 2013 INSC 721
- Decided
- 25 October 2013
- Disposal
- Disposed off
- Bench
- G S SINGHVI
Holding
Clause 29 and analogous clauses are not arbitration agreements but merely departmental dispute‑resolution provisions, and therefore cannot be invoked to appoint an arbitrator under the Arbitration and Conciliation Act, 1996.
Summary
The appellant, a contractor, was awarded a bridge construction contract by the Government of Karnataka. Disputes arose and the contract’s Clause 29 required any dispute to be first referred to the Chief Engineer or a Designated Officer, whose decision was subject to court remedy. The contractor applied under Sections 11(6) and 11(8) of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator, but the High Court held the clause was not an arbitration clause. The Supreme Court examined whether Clause 29 (and similar clauses in other contracts) could be construed as an arbitration agreement. It held that the clause merely created a departmental dispute‑resolution mechanism; the Chief Engineer was not an independent arbitrator and his decision was not final or binding in the arbitral sense. Consequently, the clause could not be treated as an arbitration clause, and parties retained the right to approach civil courts. The main appeal (Civil Appeal No. 1586 of 2004) was dismissed, while a few related appeals were allowed, setting aside the Designated Judge’s orders.
Issues considered
- The question whether Clause 29 of the contract (and similar clauses) constitutes an arbitration clause under the Arbitration and Conciliation Act, 1996.
- Whether the Chief Engineer/Designated Officer can be deemed an arbitrator for purposes of the Act.
- Whether the parties are barred from approaching civil courts if the clause is treated as an arbitration clause.
Legislation cited
- Arbitration Act, 1940s. 20, s. 8
- Arbitration and Conciliation Act, 1996s. 11(6), s. 11(8), s. 16, s. 20, s. 4
Subjects
arbitration clauseexpert determinationworks contractdispute resolutionArbitration and Conciliation Act 1996Chief Engineerdepartmental mechanismconstruction contractscourt remedy
Judgment
[2013] 14 S.C.R. 579
M/S. P. DASARATHARAMA REDDY COMPLEX A
v.
GOVERNMENT OF KARNATAKA AND ANOTHER
(Civil Appeal No. 1586 of 2004)
OCTOBER 25, 2013
B
[G.S. SINGHVI, V. GOPALA GOWDA AND
C. NAGAPPAN, JJ.)
Contract - Works contract - Disputes pertaining thereto
- Clause in the contract - Analysis of- If it could be construed C
as an arbitration clause - Distinction between expert
determination and arbitration - Held: On facts, in terms of the
relevant clauses in the agreements entered into between· the
parties, any dispute or difference between the parties was
required to be first referred to the Chief Engineer or the D
Designated Officer of the Department - The Chief Engineer
or the Designated Officer was not an independent authority
or person, but was in fact having over all supervision and
charge of the execution of the work - Decision of the Chief
Engineer was non-adjudicatory subject to the right of the E
aggrieved party to seek remedy - Thus, relevant clauses in
the agreements entered into between parties provided for
settlement of disputes through Court and could not be relied
upon for seeking reference to an arbitrator of any dispute
arising under the· contract - Arbitration and Conciliation Act, F
1996 - ss. 11 (6) and (8).
Contracts were awarded by the Government of ·
Karnataka and/or its agencies/instrumentalities for
execution of particular projecUworks. Disputes arose
between the parties out of the said contracts. G
In the instant appeals the issue for consideration
before this Court was whether the relevant clauses in the
contracts entered into between the parties (Clause 29 in
579 H
580 SUPREME COURT REPORTS (2013] 14 S.C.R.
A one of the contract and similar clauses in other contracts)
ought to be treated as an arbitration clause providing for
resolution of the disputes by arbitration or were in the
nature of departmental dispute resolution mechanism.
B Disposing the appeals, the Court
HELD: There is distinction between an expert
determination and arbitration. In terms of Clause 29 of the
Agreement entered into between the parties (the
appellant and the respondents in Civil Appeal No.1586/
C 2004) and similar other clauses, any dispute or difference
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
D 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
E 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
F 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
G the Designated Officer is treated as binding on the
contractor subject to his right to avail remedy before an
appropriate Court. The use of the expression 'in the first
place' unmistakably shows that non-adjudicatory
decision of the Chief Engineer is subject to the right of
H
P. DASARATHARAMA REDDY COMPLEX v. 581
GOVERNMENT OF KARNATAKA
the aggrieved party to seek remedy. Therefore, Clause A
29 which is subject matter of consideration in most of the
appeals and similar clauses cannot be treated as an
Arbitration Clause. Liberty is given to the aggrieved party
to avail appropriate legal remedy, if any. (Paras 15, 21 and
29) [595-E; 608-D-H; 609-A-B; 620-B] B
Mysore Construction Company v. Karnataka Power
Corporation Ltd. ILR 2000 KAR 4953 - affirmed.
Smt. Rukmanibai Gupta ~- Collector, Jabalpur and others
(1980) 4 SCC 556; Punjab State and others v. Dina Nath C
(2007) 5 SCC 28: 2007 (6) SCR 536; Mal/ikarjun v. Gulbarga
University case (2004) 1 SCC 372: 2003 (5) Suppl. SCR
272; Krishna Bhagya Jala Nigam Limited v. G.
Harishchandra Reddy and another (2007) 2 sec 720: 2007
(1) SCR 698 and Karnataka State Road Transport D
Corporation and another v. M. Keshava Raju 2004 (1) Arb.
LR 507; State of Orissa and others v. Bhagyadhar Dash
(2011) 7 SCC 406: 2011 (8) SCR 967; Bharat Bhushan
Bansal v. U. P. Small Industries Corporation Ltd., Kanpur
(1999) 2 sec 166: 1999 (1) SCR 181; K. K. Modi v. K. N. E
Modi and others (1998) 3 sec 573: 1998 (1) SCR 601;
Chief Conservator of Forests, Rewa v. Ratan Singh Hans AIR
1967 SC 166: 1966 SCR 58; State of Uttar Pradesh v. Tipper
Chand (1980) 2 SCC 341 and Vishnu (dead) by L.Rs. v.
State of Maharashtra and others [decided by Supreme F
Court on 4.10.2013); State of Orissa v. Damodar Oas (1996)
2 SCC 216: 1995 (6) Suppl. SCR 800; State of Maharashtra
v. Mis. Ranjeet Construction (Civil Appeal No.4700of1985)
Civil Appeal No.368012005; Bharat Bhushan Bansal v. Uttar
Pradesh Small Industries Corporation Limited, Kanpur (1999) G
2 sec 166: 1999 (1) SCR 181 - referred to.
Russell on Arbitration 19th Edition, page 59 - referred
to.
H
582 SUPREME COURT REPORTS [2013] 14 S.C.R.
A Case Law Reference:
ILR 2000 KAR 4953 affirmed Para 4
2004 (1) Arb. LR 507 referred to Para 8
B (1980) 4 sec 556 referred to Para 8
2007 (1) SCR 698 referred to Para 8
2007 (6) SCR 536 referred to Para 8
2011 (8) SCR 967 referred to Para 8
c
1999 (1) SCR 181 referred to Para 8
1998 (1) SCR 601 referred to Para 8
1966 SCR 58 referred to Para 14
D (1980) 2 sec 341 referred to Para 14
1995 (6) Suppl. SCR 800 referred to Para 14
1999 (1) SCR 181 referred to Para 14
E 2003 (5) Suppl. SCR 272 referred to Para 24
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1586 of 2004.
From the Judgment & Order dated 10.10.2002 of the High
F Court of Karnataka at Bangalore in Writ Petition No. 42560 of
2001 (GM/RES)].
WITH
G C.A. Nos. 1587, 1588, 4187, 5496, 6323, 6327, 6328 of 2004,
558-560 of 2006, 1374 9459, 9460, 9461, 9462, 9463, 9464,
9465, 9466, 9467-68 9469, 9470-73. 9474 & 9475 of 2013.
Kiran Suri, P. Harischandra Reddy, S.J. Amith, Dr. Vipin
Gupta, Amit Sharma, Kunal Chema, Anupam Lal Das, Venkata
H
P. DASARATHARAMA REDDY COMPLEX v. 583
GOVERNMENT OF KARNATAKA
Krishna Kunduru, Ajit S. Bhasme, Naveen R. Nath, V.N. A
Raghupathy for the Appearing parties.
The Judgment of the Court was delivered by
G.S. SINGHVI, J.1. Leave granted in SLP (C) Nos. 16117
of 2004, 17147 of 2004, 24655 of 2004, 26073 of 2004, 5951 B
of 2006, 12552 of 2006, 12553 of 2006, 8597 of 2009, 28087-
28088 of 2011, 28089 of 2011, 29227-29330 of 2011, 31975
of 2011 and 13528 of 2012.
2. Of the above noted 23 appeals, 17 have been filed by c
those who had been awarded contracts by the Government of
Karnataka and/or its agencies/instrumentalities for execution of
the particular project/works. They have challenged the orders
passed by the Designated Judge/Division Benches of the
Karnataka High Court rejecting their prayer for appointment of D
Arbitrator in terms 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 E
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 F
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.
G
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
H
584 SUPREME COURT REPORTS (2013] 14 S.C.R.
A 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 allegedly due to him. After some time,
B the appellant filed an application under Section 11 (6) and (8)
of the Arbitration and Conciliation Act, 1996 ·(for short, 'the
1996 Act') for appointment of an Arbitrator for adjudication of
all the disputes pertaining to Contract No.5/96-97 dated
8.5.1996. The Chief Justice of the High Court assigned the
c application to the Designated Judge, who dismissed the same
vide order dated 14.9.2001 by relying upon the judgment in
Mysore Construction Company v. Karnataka Power
Corporation Ltd. ILR 2000 KAR 4953. Paragraphs 5 and 6 of
that order read as under:
D "5. The above clause requires the contractor specifically
to approach the civil court, if he is not satisfied with the
decision of the Chief Engineer. It does not provide for
reference to arbitration. But contrary to the specific term
of clause 29, the petitioner has sought appointment of
E Arbitrator instead of approaching the Civil Court.
6. I had occasion to consider the question whether such a
clause is an arbitration agreement in Mysore Construction
Company Vs. Karnataka Power Corporation Ltd. [ILR
F 2000 KAR 4953] and held that the said clause is not an
arbitration agreement. Following the said decision and for
the reasons stated therein, it has to be held that clause 29
relied on by petitioner is not an arbitration agreement."
5. The writ petition filed by the appellant questioning the
G order of the Designated Judge was dismissed by the Division
Bench of the High Court by observing that Clause 29 of the
Contract cannot be construed as an Arbitration Agreement or
an Arbitration Clause for settlement of disputes.
H
P. DASARATHARAMA REDDY COMPLEX v. 585
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
6. In some of the other appeals, the appellants have A
challenged the orders passed by the Designated Judge
rejecting their applications for appointment of Arbitrator under
the relevant clause of their respective agreements.
7. In the 5 appeals, Karnataka Neeravari Nigam Limited B
and Krishna Bhagya Jala Nigam Limited have challenged the
orders passed by the Designated Judge for appointment of the
Chief Engineer as an Arbitrator and directed him to adjudicate
the matter in dispute.
THE ARGUMENTS c
8. Mrs. Kiran Suri, Senior Advocate and other learned
counsel appearing for the contractors argued that the impugned
orders are liable to be set aside because the learned
Designated Judge and the Division Bench of the High Court D
misconstrued the relevant clauses 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. E
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 F
Bansal v. U. P. Small Industries Corporation Ltd., Kanpur
(1999) 2 sec 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 G
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
H
586 SUPREME COURT REPORTS [2013) 14 S.C.R.
A disputes by arbitration and the High Court committed serious
error by refusing to appoint an Arbitrator.
9. Shri Naveen R. Nath, learned counsel, who appeared
on behalf of Krishna Bhagya Jala Nigam Limited and
B Karnataka Neeravari Nigam Limited, who are the appellants
in the five appeals and respondents in some of the other cases
argued that Clause 29 of the agreement executed between the
appellant and the Government of Karnataka in Civil Appeal
No.1586 of 2004 and similar clauses in other agreements are
c in the nature of departmental dispute resolution mechanism and
the same cannot be treated as an arbitration clause. He pointed
out that Clause 29 and similar clauses contained in other
agreements neither postulate hearing of the parties by the Chief
Engineer nor he can adjudicate the dispute. Shri Nath pointed
out that the relevant clauses in the agreements entered into
0
between the parties provide for settlement of disputes through
Court and, therefore, the decision, if any, taken by the Chief
Engineer cannot be treated as an award of the Arbitrator.
10. We have considered the respective submissions.
E Clause 29 of the Agreement entered into between the parties
(the appellant and the respondents in Civil Appeal No.1586/
2004) and majority of other cases read as under:
"Clause-29: (a) If any dispute or difference of any kind
F whatsoever were to arise between the Executive Engineer/
Superintending Engineer and the Contractor regarding the
following matters namely,
(i) The meaning of the specifications designs, drawings
and instructions herein before mentioned;
G
(ii) The quality of workmanship or material used on the work
and
(iii) Any other questions, claim right, matter, thing,
whatsoever, in any way arising out of or relating to the
H
P. DASARATHARAMA REDDY COMPLEX v. 587
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
contract designs, drawings, specifications estimates, A
instructions, or orders, or those conditions or failure to
execute the same whether arising during the progress of
the work, or after the completion, termination or
abandonment thereof, the dispute shall, in the first place,
be referred to the Chief Engineer who has jurisdiction over B
the work specified in the contract. The Chief Engineer shall
within a period of ninety days from the date of being
requested by the Contractor to do so, given written notice
of his decision to the contractor.
Chief Engineer's decision final
c
(b) Subject to other form of settlement hereafter provided,
the Chief Engineer'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 D
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
E
(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 F
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 G
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.
H
588 SUPREME COURT REPORTS [2013] 14 S.C.R.
A 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 qf the
Contractors request in writing for settlement of any dispute
B
or difference as aforesaid, the contractor may within ninety
days after the expiry of the first named period of ninety
days approach the Law Courts at giving due notice to the
Chief Engineer.
c Contractor to execute and complete work pending
settlement of disputes;
(f) Whether the claim is referred to the Chief Engineer or
to the Law Courts, as the case may be, the contractor shall
0 proceed to execute and complete the works with all due
diligence pending settlement of the said dispute or
differences.
Obligations of the Executive Engineer and Contractor shall
remain unsettled during consideration of dispute.
E
(g) The reference of any dispute or difference to the Chief
Engineer or the Law Court may proceed notwithstanding
that the works shall then be or be alleged to be complete,
provided always that the obligations of the Executive
F Engineer and the Contractor shall not be altered by reason
of the said dispute or difference being referred to the Chief
Engineer or the Law Court during the Progress of the
works."
(emphasis supplied)
G
11. Clause 7 of the Agreement, which was subject matter
of consideration in Civil Appeal No.4187/2004 - C.C.
Kondaiah v. the Secretary, Nagarika Yogbakashema Mathu
Gruha Nirmana Sahakara Sangha, reads thus:
H
P. DASARATHARAMA REDDY COMPLEX v. 589
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
"7. In all matters of dispute arising out of this contract A
agreement regarding the quality of materials, work, etc.,
the decision of the Board of Directors of the Sangha, shall
be final and binding o.n the part of the Contractor."
12. Clause 66 of the contract, which is subject matter of
8
consideration in the appeals arising out of SLP(C)Nos. 31975/
2011 and 13528/2012, reads thus:
"Clause 66 : SETTLMENT OF DISPUTES:
66. If any disputes or difference of any kind whatsoever and c
contractor in connection with, or raising out of the contract
or the execution of works, whether during the progress of
the work;? or after their completion and whether before or
after the termination abandonment or breach of the
contract, it shall, in the first place, be referred to and settled D
by the Engineer who shall, within a period of forty five days
from the date of being requested by the contractor to do
so, give written notice of his decision to the contractor.
Subject to other form of settlement hereafter provided,
such decision in respect of every dispute or difference so E
referred shall be 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 F
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 G
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 H
590 SUPREME COURT REPORTS [2013] 14 S.C.R.
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.
B Whether the claim is referred to t. ' Engineer or the law
courts, as the case may be, the co •.. actor 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
c 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.
D
Neither party is entitled to bring a claim to resolution of
disputes if the dispute or differences are not notified in
writing within thirty (30) days after expiration of the
maintenance period."
E
(emphasis supplied)
13. Clause 67 of the contract, which is subject matter of
consideration in the appeal arising out of SLP(C) No.12553/
2006, reads thus:
F
"SETTLEMENT OF DISPUTES
67) If any dispute or difference of any kind whatsoever shall
arise between the Engineer and the Contractor in
G connection with, or arising out of the Contract, or the
execution of works, whether during the progress of the
works or after their completion and whether before or after
the termination, abandonment or breach of the Contract,
it shall, in the first place, be referred to and settled by the
Engineer who shall, within a period 9f ninety days from the
H
P. DASARATHARAMA REDDY COMPLEX v. 591
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
date of being requested by the Contractor to do so, give A
written notice of his decision of the Contractor.
Subject to other form of settlement hereafter provided,
such decision in respect of every dispute or difference so
referred shall be final and binding upon the Contractor. The
B
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 at Bangalore for settlement of dispute after
giving due written notice in this regard to the Engineer C
within a period of ninety days from 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 D
period of ninety 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 ninety days from the receipt of the Contractor's
request in writing for settlement of any dispute of difference E
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 F
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 G
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) H
592 SUPREME COURT REPORTS [2013] 14 S.C.R.
A 14. In Mysore Construction Company v. Karnataka Power
Corporation Limited and others (supra), the learned
Designated Judge referred to the passage from Russell on
Arbitration (19th Edition, page 59), the judgments of this Court
in K. K. Modi v. K. N. Modi and others (supra), Chief
B Conservator of Forests, Rewa v. Ratan Singh Hans Al R 1967
SC 166; Smt. Rukmanibai Gupta v. the Collector, Jabalpur
(supra); State of Uttar Pradesh v. Tipper Chand (1980) 2 SCC
341; State of Orissa v. Damodar Das (1996) 2 SCC 216;
Bharat Bhushan Bansal v. Uttar Pradesh Small Industries
C Corporation Limited, Kanpur (1999) 2 SCC 166 a'nd observed:
"The above decisions make it clear that an agreement or
a clause in an agreement can be construed as an
arbitration agreement, only if,
D (i) it provides for or contemplates reference of disputes or
difference by either party to a private forum (other than a
Court or Tribunal) or decision;
(ii) it provides either expressly or impliedly, for an enquiry
by the private forum giving due opportunity to both parties
E
to put forth their cases; and
(iii) it provides that the decision of the forum is final and
binding upon the parties, without recourse to any other
remedy and both would abide by such decision.
F
Where there is no provision either for reference of disputes
to a private forum, or for a fair and judicious enquiry, or for
a decision which is final and binding on parties to the
dispute, there is no arbitration agreement."
G The learned Designated Judge then analysed Clause 29
(old Clause 67) and recorded his observations in the
following words:
"(a) The heading of the clause is 'settlement of disputes'.
H There is no reference to either 'arbitration' or 'Arbitrator'.
P. DASARATHARAMA REDDY COMPLEX v. 593
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
(b) Clause (a) provides that if any dispute or difference of A
any kind whatsoever to arise between the Executive
Engineer/Superintending Engineer and the Contractor,
regarding the matters mentioned therein, the dispute shall
in the first place be referred to Chief Engineer, who has
jurisdiction over the work specified in the contract. Thus B
the reference to the Chief Engineer is only the first phase
of the process of settlement of disputes and not the final
phase of the settlement of disputes. This is evident from
the provision that when a dispute arises, it should in the
first place, be referred to the Chief Engineer for decision. C
(c) The reference is to a person, who has jurisdiction over
the contract work and not to an independent Authority nor
to an officer of the Corporation, who has no connection or
control over the work. In other words, the decision of Chief
Engineer is a decision by a person who has overall D
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 E
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 F
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 G
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
H
594 SUPREME COURT REPORTS (2013] 14 S.C.R.
A decision. The very principle of adjudication of a dispute
is that it is binding on both the parties.
(e) Clause (c) provides that if the Contractor is not satisfied
with the decision of the Chief Engineer, he can approach
the law Court at Karwar for settlement of the dispute The
B
clause requires the Contractor to approach the law Court
for settlement of disputes. If as contended by the petitioner,
the disputes are to be settled by way of arbitration by the
Chief Engineer, acting as Arbitrator, then the question of
one of the parties being permitted to approach the law
c Courts for settlement of the disputes does not arise. If tlie
Chief Engineer is the Arbitrator and his decision is an
award, then a party can approach the Civil Court only for
setting aside the award and not for settlement of the
disputes. This provision makes it clear that the decision
D of the Chief Engineer is not intended to be a decision by
way of adjudication of the disputes/differences between
the parties by way of arbitration but is intended to be
merely a decision of the party (employer) which, when
intimated to the other side, gives rise to a cause of action
E to the other party (Contractor) to approach the Civil Court
for adjudication of its dispute/claim.
(f) Similarly, sub-clause (d) which provides that if the Chief
Engineer does not give his decision within a particular
period, the Contractor can approach the Civil Court for
F
settlement of the dispute, again demonstrates that no
finality is intended to be attached to the decision of the
Chief Engineer and the final adjudication should be by the
Civil Court and not by the Chief Engineer.
G The scheme of Clause 29 (or old Clause 67) therefore is,
whenever the Contractor has a claim which is not settled
by the Executive Engineer or Superintending Engineer, he
has to make the claim before the Chief Engineer. If the
Chief Engineer examines the matter and gives his decision
H
P. DASARATHARAMA REDDY COMPLEX v. 595
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
which is not acceptable to the Contractor, or if the Chief A
Engineer does not give his decision within the time
specified, the Contractor has to approach the Civil Court,
by filing a civil suit and get his disputes/claims
· adjudicated, on merits. Use of words 'to approach the Civil
Court for settlement of disputes' makes it clear that final B
adjudicating authority in the case of a dispute is the Civil
Court and not the Chief Engineer. Thus, the Intention of the
parties is not to refer any dispute for adjudication by way
of arbitration but to get adjudicated the dispute only
through the normal procedure of approaching law Courts. c
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 D
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."
E
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 F
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', G
'arbitral tribunal', 'arbitration' or the formula 'as an expert
and not as an arbitrator' are used to describe the manner
in which the dispute resolver is to act, they are likely to be
persuasive although not always conclusive .... Where there
is no express wording, the court will refer to certain
H
596 SUPREME COURT REPORTS [2013] 14 S.C.R.
A guidelines. Of these, the most important used to be,
whether there was an 'issue' between the parties such as
the value of an asset on which they had not taken defined
positions, in which case the procedure was held to be
expert determination; or a 'formulated dispute' between the
B parties where defined positions had been taken, in which
case the procedure was held to be an arbitration. This
imprecise concept is still being relied on. It is unsatisfactory
because some parties to contract deliberately choose
expert determination for dispute resolution. The next
c guideline is the judicial function of an arbitral tribunal as
opposed to the expertise of the expert; .... An arbitral
tribunal arrives at its decision on the evidence and
submissions of the parties and must apply the law or if the
parties agree, on other consideration; an expert, unless it
is agreed otherwise, makes his own enquiries, applies his
D
own expertise and decides on his own expert opinion ... ."
A clause substantially similar to the clauses referred to
hereinatrove was interpreted by a three Judge Bench in
State of U.P v. Tipper Chand {supra) and it was held that
E the same cannot be construed as an arbitration clause.
Paragraphs 2 and 3 of the judgment which contain the
reasons for the aforesaid conclusion are reproduced
below:
F "2. The suit out of which this appeal has arisen was filed
by the respondent before us for recovery of Rs. 2000 on
account of dues recoverable from the Irrigation
Department of the petitioner State for work done by the
plaintiff in pursuance of an agreement, clause 22 of which
runs thus:
G
"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
H
P. DASARATHARAMA .REDDY COMPLEX v. 597
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
specifications, design, drawing and instructions A
hereinbefore 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, B
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, shnll also be final, conclusive and binding
on the contractor."
c
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 D
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 E
with supervision o( the execution of the work and
administrative control over it from time to time."
16. In State of Maharashtra v. Mis. Ranjeet Construction
(Civil Appeal No.4700 of 1985), a two Judge Bench of this
F
Court interpreted Clause 30 of the agreement entered into
between the parties, which is almost identical to the clauses
under consideration, relied upon the judgment in State of U.P.
v. Tipper Chand (supra) and held that Clause 30 cannot be
relied upon for seeking a reference to an Arbitrator of any G
dispute arising under the contract.
17. In State of Orissa v. Damodar Das (supra), a three
Judge Bench interpreted Clause 21 of the contract entered into
between the appellant and the respondent for construction of
sump and pump chamber etc. for pipes WIS to Village Kentile. H
598 SUPREME COURT REPORTS [2013] 14 S.C.R.
A The respondent abandoned the work before completion of the
project and accepted payment of the fourth running bill.
Subsequently, he raised dispute and sent communication to the
Chief Engineer, Public Health, Orissa for making a reference
to an Arbitrator. The Subordinate Judge, Bhubaneswar allowed
B the application filed by the respondent under Section 8 of the
1940 Act and the order passed by him was upheld by the High
Court. This Court referred to Clause 25 of the agreement, relied
upon the judgment in State of UP. v. Tipper Chand (supra) and
held that the said clause cannot be interpreted as providing
C resolution of dispute by an Arbitrator. Paragraphs 9 and 10 of
the judgment, which contain discussion on the subject, are
extracted below:
"9. The question, therefore, is whether there is any
arbitration agreement for the resolution of the disputes.
D The agreement reads thus:
"25. Decision of Public Health Engineer to be
final.- Except where otherwise specified in this
contract, the decision of the Public Health Engineer
E 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; drawings and instructions
hereinbefore mentioned and as to the quality of
workmanship or materials used on the work, or as
F
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
G · execute the same, whether arising during the
progress of the work or after the completion or the
sooner determination thereof of the contract."
10. Section 2(a) of the Act defines "arbitration agreement"
H to mean "a written agreement to submit present or future
P. DASARATHARAMA REDDY COMPLEX v. 599
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
differences to arbitration, whether an arbitrator is named A
therein 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 B
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 C
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 D
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 respondent. E
In support thereof he relied on Ram Lal Jagan Nath v.
Punjab State through Collector AIR 1966 Punj 436. It is
further contended that for the decision of the Public Health
Engineer to be final, the contractor must be given an
opportunity to submit his case to be heard either in person F
or through counsel and a decision thereon should be given.
It envisages by implication existence of a dispute between
the contractor and the Department. In other words, the
parties construed that the Public Health Engineer should
be the sole arbitrator. When the claim was made in G
referring the dispute to him, it was not referred to the court.
The respondent is entitled to avail of the remedy under
Sections 8 and 20 of the Act. We find it difficult to give
acceptance to the contention. A. reading of the above
clause in the contract as a conjoint whole. would give us H
600 SUPREME COURT REPORTS [2013} 14 S.C.R.
A an indication that during the progress of the work or after
the completion or the sooner determination thereof of the
contract. the Public Health Engineer has been empowered
to decide all questions relating to the meaning of the
specifications. drawings. instructions hereinbefore
B mentioned and as to the quality of workmanship or material
used on the work or as to any other question. clai1111. right.
matter or thing whatsoever in any way arising out of. or
relating to, the contract drawings. specifications. estimates.
instructions. orders or those conditions or otherwise
concerning the works or the execution or failure to execute
c the same has been entrusted to the Public Health Engineer
and his decision shall be final. In other words. he is
nominated only to decide the questions arising in the quality
of the work or any other matters enumerated hereinbefore
and his decision shall be final and bind the contractor. A
D
clause in the contract cannot be split into two parts so as
to consider one part to give rise to difference or dispute
and another part relating to execution of work. its
workmanship etc. It is settled now that a clause in the
contract must be read as a whole. If the construction
E suggested by the respondent is given effect then the
decision of the Public Health Engineer would become final
and it is not even necessary to have it made rule of the court
under the Arbitration Act. It would be hazardous to the claim
of a contractor to give such instruction and give power to
F the Public Health Engineer to make 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
G that have arisen between the contractor and the
Government. But for cla·use 25. there is no other eontract
to refer any dispute or difference to an arbitrator named
or otherwise."
(emphasis supplied)
H
P: DASARATHARAMA REDDY COMPLEX v. 601
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
18. In K.K. Modi v. K.N. Modi (supra), this Court A
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 B
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
c
financial institutions. For all disputes, clarifications etc. in
respect of implementation of this agreement, the same
shall be referred to the Chairman, IFCI or his nominees
whose decisions will be final and binding on both the D
groups."
The Chairman, Industrial Finance Corporation of India
(IFCI) formed a committee of experts to assist him in deciding
various questions. The committee of experts and the Chairman
held discussion with both the groups. On 8.12.1995, the E
Chairman, IFCI gave his detailed report I decision. In his
covering letter, the Chairman indicated that the Memorandum
of Understanding had been substantially implemented during
1989 to 1995 and with his decisions on the disputes I
clarifications given by him, it will be possible to implement the F
remaining part. The report of the Chairman was neither filed in
the competent Court as an award nor any application was
submitted for making the report a rule or decree of the Court.
However, the Chairman issued series of directions for
implementing the report. On 18.5.1996, the appellants filed a G
petition under Section 33 of the 1940 Act in the Delhi High
Court challenging report dated 8.12.1995 by asserting that it
was an award in arbitration proceedings. The opposite parties
filed civil suit in the High Court to challenge the report of the
Chairman.
H
602 SUPREME COURT REPORTS (2013) 14 S.C.R.
A One of the questions formulated by this Court was whether
Clause 9 of the Memorandum of Understanding constituted an
Arbitration Agreement and whether the decision of the
Chairman, IFCI constituted an award. The two Judge Bench first
culled out the following attributes of an Arbitration Agreement:
B
"(1) The arbitration agreement must contemplate that the
decision of the tribunal will be binding on the parties to the
agreement,
(2) that the jurisdiction of the tribunal to decide the rights
c of parties must derive either from the consent of the parties
or from an order of the court or from a statute, the terms
of which make it clear that the process is to be an
arbitration,
D (3) the agreement must contemplate that substantive rights
of parties will be determined by the agreed tribunal,
(4) that the tribunal will determine the rights of the parties
in an impartial and judicial manner with the tribunal owing
an equal obligation of fairness towards both sides,
E
(5) that the agreement of the parties to refer their disputes
to the decision of the tribunal must be intended to be
enforceable in law and lastly,
F (6) the agreement must contemplate that the tribunal will
make a decision 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
G 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
H
P. DASARATHARAMA REDDY COMPLEX v. 603
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
to be an arbitration, and whether the agreement requires A
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 B
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 C
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 the two groups are to be divided in D
accordance with a scheme to be prepared by Bansi S.
Mehta & Co. In the implementation of the Memorandum
of Understanding which is to be done in consultation with
the financial institutions, any disputes or clarifications
relating to implementation are to be referred to the E
Chairman, IFCI or his nominees whose decision will be
final and binding. The purport of clause 9 is to prevent any
further disputes between Groups A and 8. Because the
agreement requires division of assets in agreed
proportions after their valuation by a named body and under F
a scheme of division by another named body. Clause 9 is
intended to clear any other difficulties which may arise in
the implementation of the agreement by leaving it to the
decision of the Chairman, IFCI. This clause does not
contemplate any judicial determination by the Chairman of G
the IFCI. He is entitled to nominate another person for
deciding any question. His decision has been made final
and binding. Thus. clause 9 is not intended to be for any
different decision than what is already agreed upon
between the parties to the dispute. It is meant for a proper
H
604 SUPREME COURT REPORTS (2013] 14 S.C.R.
A implementation of the settlement already arrived at. A
judicial determination. recording of evidence etc. are not
contemplated. The decision of the Chairman. IFCI is to be
binding on the parties. Moreover. difficulties and disputes
in implementation may not be between the parties to the
B Memorandum of Understanding. It is possible that the
valuers nominated in the Memorandum of Understanding
or the firm entrusted with the responsibility of splitting some
of the companies may require some clarifications or may
find difficulties in doing the work. They can also resort to
c clause 9. Looking to the scheme of the Memorandum of
Understanding and the purpose behind clause 9. the
learned Single Judge. in our view. has rightly come to the
conclusion that this was not an agreement to refer disputes
to arbitration. It was meant to be an expert's decision. The
Chairman, IFCI has designated his decision as a decision.
D
He has consulted experts in connection with the valuation
and division of assets. He did not file his decision in court
nor did any of the parties request him to do so."
(emphasis supplied)
E
19. In Bharat Bhushan Bansal v. UP. Small Industries
Corporation Limited, Kanpur (supra), a two Judge Bench
interpreted Clauses 23 and 24 of the agreement entered into
between the parties for execution of work of construction of a
F 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
G 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
H to the quality of workmanship or materials used on the
P. DASARATHARAMA REDDY COMPLEX v. 605
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
work or as to any other question whatsoever in any way A
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 B
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
c
24. Except as provided in clause 23 hereof, the decision
of the Managing Director of the UPSIC shall be final,
conclusive and binding on both the parties to the contract
upon all questions relating to any claim, right, matter or thing
in any way arising out of or relating to the contract or these D
conditions or concerning abandonment of the contract by
the contractor and in respect of all other matters arising
out of this contract and not specifically mentioned herein."
It was argued on behalf of the appellant that Clause 24
E
should be construed as an arbitration clause because the
decision of the Managing Director was binding on both the
parties. The two Judge Bench analysed Clauses 23 and 24 of
the agreement, referred to the judgment in K.K. Modi v. K.N.
Modi (supra), State of UP. v. Tipper Chand (supra), State of
Orissa v. Damodar Das (supra) and observed: F
"In the present case, the Managing Director is more in the
category of an expert who will decide claims, rights, or
matters in any way pertaining to the contract. The intention
appears to be more to avoid disputes than to decide G
formulated disputes in a quasi-judicial manner. In para
18.067 of Vol. 2 of Hudson on Building and Engineering
Contracts. Illustration (8) deals with the case where, by the
terms of a contract, it was provided that the engineer
H
606 SUPREME COURT REPORTS [2013) 14 S.C.R.
A "shall be the exclusive judge upon all matters relating to
the construction, incidents, and the consequences of these
presents, and of the tender, specifications, schedule and
drawings of the contract, and in regard to the execution of
the works or otherwise arising out of or in connection with
8 the contract, and also as regards all matters of account,
including the final balance payable to the contractor, and
the certificate of the engineer for the time being, given
under his hand, shall be binding and conclusive on both
parties."
c It was held that this clause was not an arbitration clause
and that the duties of the Engineer were administrative and
not judicial.
Since clause 24 does not contemplate any arbitration, the
D application of the appellant under Section 8 of the
Arbitration Act, 1940 was misconceived. The appeal is,
therefore, dismissed though for reasons somewhat
different from the reasons given by the High Court. there
will, however, be no order as to costs."
E
20. In Civil Appeal No.3680/2005 - Vishnu (dead} by L.Rs.
v. State of Maharashtra and others decided on 4.10.2013, this
Court considered the question whether Clause 30 of 8-1
Agreements entered into between the Government of
Maharashtra and the appellant is in the nature of an arbitration
F 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 8-1 Agreement, the
G 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 conf~rred
upon him to take decision on the matters enumerated in
H Clause 30 did not involve adjudication of any dispute or
P. DASARATHARAMA REDDY COMPLEX v. 607
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
lis between the State Government and the contractor. It A
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 µpproval to the designs, B
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 could not have
been assigned to the Superintending Engineer. He could
not be expected to make adjudication with an un-biased c
mind. Even if he may not be actually biased, the contractor
will always have a lurking apprehension that his decision
will not be free from bias. Therefore, there is an inherent
danger in treating the Superintending Engineer as an
Arbitrator. This facet of the problem was highlighted in the D
judgment of the two Judge Bench in Bihar State Mineral
Development Corporation and another v. Encon Builders
(l)(P) Limited (2003) 7 SCC 418. In that case, the
agreement entered into between the parties contained a
clause that any dispute arising out of the agreement shall
be referred to the Managing Director of the Corporation E
and his decision shall be final and binding on both the
parties. After noticing several precedents, the two Judge
Bench observed:
"There cannot be any doubt whatsoever that an arbitration F
agreement must contain the broad consensus between the
parties that the disputes and differences should be
referred to a domestic tribunal. The said domestic tribunal
must be an impartial one. It is a well-settled principle of
law that a person cannot be a judge of his own cause. It is G
further well settled that justice should not only be done but
manifestly seen to be dorie.
Actual bias would lead to an automatic disqualification
where the decision-maker is shown to have an interest in
H
608 SUPREME COURT REPORTS [2013) 14 S.C.R.
A the outcome of the case. Actual bias denotes an arbitrator
who allows a decision to be influenced by partiality or
prejudice and thereby deprives the litigant of the
fundamental right to a fair trial by an impartial tribunal.
B As the acts of bias on the part of the second appellant
arose during execution of the agreement, the question as
to whether the respondent herein entered into the
agreement with his eyes wide open or not takes a back
seat. An order which lacks inherent jurisdiction would be
a nullity and, thus, the procedural law of waiver or estoppal
c would have no application in such a situation.
It will bear repetition to state that the action of the second
appellant itself was in question and, thus, indisputably, he
could not have adjudicated thereupon in terms of the
D principle that nobody can be a judge of his own cause." "
21. To the aforesaid proposition, we may add that in terms
of Clause 29(a) and similar other clauses, any dispute or
difference irrespective of its nomenclature in matters relating
E 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,
F 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
G 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 Desig~ated
H
P. DASARATHARAMA REDDY COMPLEX v. 609
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
Officer is treated as binding on the contractor subject to his right A
to avail remedy before an appropriate Court. The use of the
expression 'in the first place' unmistakably shows that non-
adjudicatory decision of the Chief Engineer is subject to the
right of the aggrieved p<;irty to seek remedy. Therefore, Clause
29 which is subject matter of consideration in most of the B
appeals and similar clauses cannot be treated as an Arbitration
Clause.
22. As a corollary to the above, we hold that the judgment
of the Designated Judge in Mysore Construction Company C
v. Karnataka Power Corporation Ltd. (supra) lays down the
correct law.
23. Before parting with the case, we may notice the
judgments relied upon by the learned counsel for the contractors
and find out whether the proposition laid down therein supports D
their argument that Clause 29 and other similar clauses in the
agreements entered into between the parties should be treated
as arbitration clause.
24. The facts of Mallikarjun v. Gulbarga University case E
(2004) 1 sec 372 were that the respondent-University had
accepted the tender submitted by the appellant for construction
of an indoor stadium. In pursuance of the work order issued by
the competent authority, the appellant completed the
construction. Thereafter, he invoked the arbitration clause for F
resolution of the disputes which arose from the execution of the
project. Superintending Engineer, PWD, Gulbarga Circle was
entrusted with the task of deciding the disputes. The parties filed
their respective claims before the Superintending Engineer. He
considered the same and passed an award. The appellant filed
execution petition in the Court of Principal Civil Judge (Senior G
Division), Gulbarga. The respondent filed an objection petition
under Section 47 of the CPC. The Executing Court rejected the
objection. The University challenged the decision of the
Executing Court and pleaded that the agreement on the basis
of which the dispute was referred to the Superintending H
610 SUPREME COURT REPORTS [2013] 14 S.C.R.
A Engineer was not an arbitration agreement and, as such, award
made by him cannot be treated as one made under the 1940
Act. The High Court accepted the plea of the University and set
aside the order of the trial Court. Clause 30 of the agreement
which came up for interpretation by this Court was as under:
B
"The decision of the Superintending Engineer of Gulbarga
Circle for the time being shall be final, conclusive and .
binding on all parties to the contract upon all questions
relating to the meaning of th~ specifications, designs,
drawings and instructions hereinbefore mentioned and as
c 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
D 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."
E
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 (l)(P) Limited (supra), a three Judge Bench
F 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
G agreement postulates present or future differences in
connection with some contemplated affairs inasmuch as
there also was an agreement between the parties to settle
such difference by a private tribunal, namely, the
Superintending Engineer, Gulbarga Circle, Gulbarga. It
H was also agreed between the parties that they would be
P. DASARATHARAMA REDDY COMPLEX v. 611
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
bound by the decision of the Tribunal. The parties were A
also ad idem.
In the aforesaid view of the matter, it must be held that the
agreement did contain an arbitration clause."
The Bench distinguished the judgment in Bharat Bhushan B
Bansal's case by making the following observations:
"A bare comparison of clause 30 of the contract agreement
involved in the present matter and clauses 23 and 24
involved in Bharat Bhushan Bansal case would show that c
they are not identical. Whereas clause 30 of the agreement
in question provides for resolution of the dispute arising
out of the contract by persons named therein; in terms of
clause 24, there was no question of decision by a named
person in the dispute raised by the parties to the D
agreement. The matters which are specified under clauses
23 and 24 in Bharat Bhushan Bansal case were
necessarily not required to ari~e out of the contract, but
merely claims arising during performance of the contract.
Clause 30 of the agreement in the present case did E
provide for resolution of the dispute arising out of the
contract by the Superintending Engineer, Gulbarga Circle,
Gulbarga, For that reason, the case relied upon by the
learned counsel for the respondent is distinguishable.
Once clause 30 is constituted to be a valid arbitration F
agreement, it would necessarily follow that the de.cision of
the arbitrator named therein would be rendered only upon
allowing the parties to adduce evidence in support of their
respective claims and counter-claims as also upon hearing
the parties to the dispute. For the purpose of constituting G
the valid arbitration agreement, it is not necessary that the
conditions as regards adduction of evidence by the parties
or giving an opportunity of hearing to them must specifically
be mentioned therein. Such conditions, it is trite, are
implicit in the decision-making process in the arbitration H
612 SUPREME COURT REPORTS [2013] 14 S.C.R.
A proceedings. Compliance with the principles of natural
justice inheres in an arbitration process. They, irrespective
of the fact as to whether recorded specifically in the
arbitration agreement or not are required to be followed.
Once the principles of natural justice are not complied with,
B the award made by 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"
c 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
D
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
E 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
F provide for a decision of the Engineer-in-Charge in relation
to the matters specified therein. The jurisdiction of the
Engineer-in-Charge in relation to such matters are limited
and they cannot be equated with an arbitration agreement.
Despite such clauses meant for prevention of dispute
G arising out of a contract. significantly. clause 30 has been
inserted in the contract agreement by the parties.
The Superintending Engineer, Gulbarga Circle, Gulbarga,
is an officer of the Public Works Department in the
Government of Karnataka. He is not an officer of the
H University. He did not have any authority or jurisrlil"tinn
P. DASARATHARAMA REDDY COMPLEX v. 613
GOVERNMENT OF KARNATAKA (G.S. SINGHVI, J.]
under the agreement or otherwise either to supervise the A
construction works or issue any direction(s) upon the
contractor in relation to the contract job. He might be an
ex officio member of the Building Committee, but thereby
or by reason thereof, he could not have been given nor in
fact had been given an authority to supervise the contract B
job or for that matter issue any direction upon the
contractor as regards performance of the contract."
(emphasis supplied)
25. In Punjab State v. Dina Nath (supra), a two Judge C
Bench was called upon to consider whether clause 4 of work
order No.114 dated 16.5.1985 constituted an arbitration
agreement. The clause in question was as under:
"Any dispute arising between the department and the D
contractor/society shall be referred to the Superintending
Engineer, Anandpur Sahib, Hydel Circle No.1, Chandigarh
for orders and his decision will be final and acceptable/
binding on both the parties."
After noticing the judgment in K.K. Modi v. K.N. Modi, the E
Court observed:
"Keeping the ingredients as indicated by this Court in
K.K.Modi in mind for holding a particular agreement as an
arbitration agreement, we now proceed to examine the F
aforesaid ingredients in the context of the present case:
(a) Clause 4 of the Work Order categorically states that
the decision of the Superintending engineer shall be
binding on the parties.
G
(b) The jurisdiction of the Superintending Engineer to
decide the rights of the parties has also been
derived from the consent of the parties to the Work
Order.
H
614 SUPREME COURT REPORTS [2013] 14 S.C.R.
A (c) The agreement contemplates that the
Superintending Engineer shall determine
substantive rights of parties as the clause
encompasses all varieties of disputes that may
arise between the parties and does not restrict the
B jurisdiction of the Superintending Engineer to
specific issues only.
(d) That the agreement of the parties to refer their
disputes to the decision of the Superintending
Engineer is intended to be enforceable in law as it
c 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
D 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
E 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
F 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, Hyde! Circle No.1, Chandigarh).
Then again the conclusion and decision of the
G
Superintending Engineer will be final and binding on both
the parties. This being the position in the present case and
in view of the fact that clause 4 of the Work Order is not
under challenge before us, the decision that would be
arrived at by Superintending Engineer, Hydel Circle No.1,
H
P. DASARATHARAMA REDDY COMPLEX v. 615
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
Chandigarh must also be binding on the parties as a result A
whereof clause 4 must be held to be a binding arbitration
agreement."
The Bench distinguished the judgment in State of Orissa
v. Damodar Oas. (supra) by making the following observations: B
"From a plain reading of this clause in Damodar Das it is
evident that the powers of the Public Health Engineer were
essentially to supervise and inspect. His powers were
limited to the questions relating to the meaning of the
specifications, drawings and instructions, quality of C
workmanship or materials used on the work or as to any
other question, claim, right, matter, drawings,
specifications, estimates, instructions, orders or these
conditions or otherwise concerning the works or the
execution or failure to execute the same. However, in the D
case before us, the Superintending Engineer was given
full power to resolve any dispute arising between the
parties which power in our view is wide enough to cover
any nature of dispute raised by the parties. The clause in
the instant case categorically mentions the word "dispute" E
which would be referred to him and states "his decision
would be final and acceptable/binding on both the parties."
26. Krishna Bhagya Jala Nigam Ltd. v. G.Harishchandra
Reddy (supra) was decided on the peculiar facts of that case.
The contract which was subject matter of interpretation in that F
case contained Clause 29. When the respondent raised
disputes and called upon the Chief Engineer to act as an
Arbitrator, the latter refused to do so. The Designated Judge
allowed CMP No.26/1999 filed under Section 11 of the 1996
Act and directed the Chief Engineer to act as an Arbitrator. G
Thereafter, both the parties filed their respective statements
before the Arbitrator and produced evidence. The Arbitrator
passed award dated 25.6.2000. The appellant - Krishna
Bhagya Jala Nigam Ltd. filed a petition under Section 34(2)(v)
of the 1996 Act. The Civil Court confirmed the award of the H
616 SUPREME COURT REPORTS [2013) 14 S.C.R.
A Arbitrator. Appeal filed against the judgment of the Civil Court
was dismissed by the High Court. Before this Court, an
argument was raised that Clause 29 of the contract was not
an arbitration clause. While rejecting the argument, the two
Judge Bench observed:
B
"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
c 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
D 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
E 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
passed in CMP No. 26 of 1999. Suffice it to say that both
F the parties accepted that there was an arbitration
agreement, they proceeded on that basis and, therefore,
Jala Nigam cannot be now be allowed to contend that
clause 29 of the contract did not constitute an arbitration
agreement."
G
27. One of the questions which arose for consideration in
Karnataka State Road Transport Corporation and another v. M.
Keshava Raju (supra) was whether the appointment of
Arbitrator under Section 11 of the 1996 Act was proper. The
H facts of that case show that on an application filed by the
respondent under Section 11 of the 1996 Act, the Designated
P. DASARATHARAMA REDDY COMPLEX y. 617
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
Judge appointed an Arbitrator. After hearing the parties, the A
Arbitrator passed award dated 15.10.1998 whereby he allowed
some claims of the respondent. The objections filed by the
appellant under Section 34 of the 1996 Act were rejected by
VI Additional City Civil Judge, Bangalore. In the appeal filed
against the judgment of the trial Court, the High Court B
formulated the following points:
"(1) Whether the appellant can be permitted to raise the.
ground regarding the alleged want of jurisdiction in this
Court to refer the dispute between the parties to an
Arbitrator under Section 11 of the Act, for the first time, in C
this appeal.
(2) Whether the ground regarding the legality and
justification on the part of the Arbitrator to Award a sum of
Rs. 2,85,000 towards reimbursement of overhead charges D
and another sum of Rs. 2,85,000 towards compensating
the loss of profits was raised before the Court below, and
if it was not raised, whether such plea can be allowed to
be raised in this appeal for the first time and if the above
plea was in fact raised before the Court below, whether E
the Arbitrator is justified in awarding a sum of Rs. 2,85,000
towards reimbursement of overhead charges and another
sum of Rs. 2,85,000 towards compensating loss of profits
having regard to Clause 15(a) of the agreement."
F
The Division Bench referred to Section 16 and held:
"In our considered opinion, the above plea cannot be
entertained for more than one reason. Firstly, one of the
objects in enacting the Act is to have early completion of
arbitration proceedings minimising the supervisory role of G
Courts in arbitral process. Sections 4, 5 and 16 of the Act
have been enacted to give effect to that object. Secondly,
even the method of arbitration as a dispute resolution
mechanism and the procedure envisaged for that are
intended to reach the finality to resolve the dispute between H
618 SUPREME COURT REPORTS [2013] 14 S.C.R.
A 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
B '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.
c 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-
D
. 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 the Arbitrator to pass
the impugned award in terms of the provisions of Section
E 4 of the Act. Section 4 reads as follows :-
"(4) Waiver of right to object
A party who knows that -
F (a) any provision of this Part from which the parties
· may de(ogate, or
(b) any requirement under the arbitration
agreement,
G
has not been complied with and yet proceeds with
the arbitration without stating his objection to such .
non-compliance without undue delay or, if a time
limit is provided for stating that objection, without
that period of time, shall be deemed to have waived
H his right to so obiect."
P. DASARATHARAMA REDDY COMPLEX v. 619
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
17. Section 4 narrates the circumstances in which the party, A
who knowingly fails to object the non-compliance of any
non-mandatory provisions of Part-I or any requirement
under the arbitration agreement by the other party, is
deemed to have waived his right to object. This section is
based on general principles such as "estoppal" or "venire 8
contra factum proprium". It is intended to help the arbitral
process function efficiently and in good faith. If there is non-
compliance of any non-mandatory provision of Part I or of
any requirement of the arbitration agreement by a party to
an arbitration agreement of which the other party to the C
agreement though has the knowledge of such non-
compliance but does not object without undue delay, or if
a time limit is provided for stating that objection and no
objection is taken within that period of time, such a party
later on can neither raise objection about that non-
compliance of any provision of Part I nor any requirement D
of the arbitration agreement since such party shall be
deemed to have waived its objection. Though, in order to
apply the doctrine of waiver by invoking Section 4, the first
condition is that the non-compliance must be of non-
mandatory provision of Part I or of any requirement under E
the arbitration agreement, certain mandatory provisions of
the Act also provide for a grant of waiver in the event of
failure to object. For example, sub-sections (2) and (3) of
Section 16 are one of such mandatory provisions. Section
16 (2) of the Act provides that a plea that the Arbitral F
Tribunal does not have jurisdiction shall be raised not later
than
I
the submission of the statement of defence. Section
16 (3) of the Act provides that a plea that the Arbitral
Tribunal is exceeding the scope of its authority shall be
raised as soon as the matter alleged to be beyond the G
scope of its authority is raised during the arbitral
proceedings."
28. Thus, none of the judgments relied upon by learned
colinsel for the contractors is of any help to their cause.
H
620 SUPREME COURT REPORTS [2013] 14 S.C.R.
A 29. In the result, Civil Appeal Nos. 1586, 1587, 1588,
4187, 5496, 6323, 6327 and 6328 of 2004; Civil Appeal Nos.
558-560 of 2006; Civil Appeals arising out of SLP(C) Nos.
16117, 17147, 24655 and 26073 of 2004; Civil Appeals arising
out of SLP(C) Nos. 5951, 12552 and 12553 of 2006, Civil
8 Appeal arising out of SLP(C) No. 8597 of 2009 and Civil
Appeal arising out of SLP(C) No. 13528 of 2012 are
dismissed. However, liberty is given to the appellants to avail
appropriate legal remedy for recovery of the amount, if any, due
from the respondents.
C 30. Civil Appeals arising out of SLP(C) Nos. 28087-
28088, 28089, 29227-29230 and 31975 of 2011 and Civil
Appeal No.1374 of 2013 are allowed. The orders passed by
the Designated Judge, which are subject matter of challenge
in the five appeals are set aside. It is, however, made clear that
D the respondents shall be free to avail appropriate legal
remedies for recovery of the amount, if any, payable to them
in terms of their respective agreements.
Bibhut Bhushan Bose Appeals disposed of.
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