Judgment:
G.B. Patnaik, J.
1. In this batch of writ applications, the validity of Section 41A of the Arbitration Act which was brought on to the statute book by the Arbitration (Orissa Amendment) Act, 1982 (Orissa Act 3 of 1983) has been challenged. By the said amendment, in all cases where State Government, a local or other authority controlled by the State Government or a statutory corporation or a Government company is a party to the dispute, then such dispute would be referred to the arbitration of a tribunal to be constituted by the State Government consisting of 3 members, one from the Orissa Superior Judicial Service (Senior Branch) who would be the Chairman, another from amongst the officers of the Public Works Department not below the rank of a Superintending Engineer and the third from amongst the officers belonging to the Orissa Finance Service not below the rank of a Superior Administrative Cadre in Class I. By virtue of the said amendment, all pending proceedings in respect of such disputes also stood transferred to the said arbitration tribunal. The petitioners, therefore, have approached this Court assailing the validity of the said provision, inter alia, on the ground that the State Legislature has no legislative competence for the legislation in question and also on the ground that the said provision is grossly discriminatory and practically makes the arbitration law nugatory.
2. Before noticing the several grounds of attack to the impugned legislation, it would be necessary to bear in mind the objects and reasons for such amendment and the impelling necessity for bringing out the amendment in question. The law of arbitration was prevalent in India even before the advent of the British rule under the nomenclature 'Panchayat'. The authority of those pan-chayats had no limitation and even they could exercise their authority in respect of matters not referrd to them with consent of parties. The main reason for disputes being resolved by panches was that the people had lot offaith in the body about their impartiality and the decision making was quicker. After the British administration for the first time the Bengal Regulations of 1772 and 1780 provided that in cases of disputed accounts, parties should submit the decision of their case to arbitration and the decision of the arbitrators was to become a decree of the Court. Gradually provisions were made by which even suits with respect to rights in land could be disposed of by arbitration. The Bengal Regulation VII of 1882 conferred powers on the Revenue Officer to refer rent disputes and revenue disputes to arbitrators. When Civil Procedure Code was enacted to regulate the procedures of Civil Courts in 1859 certain sections were included which authorised the Courts to make references to arbitration in pending suits. Of course, the provisions contained in the Civil Procedure Code authorising reference to arbitration were meant for disputes after they had arisen. There had been no provision enabling the parties to commercial transactions to provide for reference to arbitration in respect of their future disputes. Though in England the English Arbitration Act of 1889 wa,s operative in the field, in India, Act IX of 1899 was first enacted which made provision for reference of disputes to arbitration without the intervention of Court both in respect of present as well as future disputes. It recognised arbitration agreements whether or not an arbitrator was named in it. It was applicable initially only to the presidency towns, but later on was made applicable to places of commercial towns. When Civil Procedure Code, 1908 was enacted, certain changes were proposed to be made in respect of arbitration and certain observations were made which ultimately made it possible to enact and enforce the Arbitration Act.
The concept of arbitration is that the parties to a dispute get it settled through the intervention of a third person without having recourse to a Court of law. An arbitrator, therefore, is a person to whose attention the matters in dispute are submitted by the parties, or a Judge of the parties' own choosing whose functions are judicial and whose duties are not those of a mere partisan agentbut of an impartial Judge to dispense equal justice to all parties and to decide law and facts involved in the matters submitted with a view to determine and finally end the controversy. After the Independence of the country when the State undertook several developmental activities like construction of roads and bridges, construction of buildings for locating different offices, construction of erection works and such other projects involving expenses to the tune of thousand and thousand crores of rupees, those works were naturally required to be done by engaging contractors. Almost all those contracts contained an arbitration clause in the agreement for resolving the disputes between the parties in relation to execution of the contract in question by referring the disputes to an arbitrator. The usual phrase in almost all the contracts was that the arbitrator should be an officer of the rank of a Superintending Engineer unconnected with the work. Such an arbitration clause had been engrafted in the contract with the obvious object that in case of any dispute, the grievances could be quickly settled up by the process of arbitration so that the developmental work in respect of which contracts had been entered into would not be halted in any manner and the State's developmental activities would continue. Taking advantage of the fact that the arbitrators are not required to give any reasons for their award, the unscrupulous contractors could very easily capture those arbitrators by paying handsome amounts and the arbitrators usually became a prey of the game. It almost became a racket, so much so that the State could not make provision in its budget for any developmental project and the resources of the State were utilised for satisfaction of the awards passed by the arbitrators in favour of the contractors. Even the own employees of the State Government those of whom were appointed as arbitrators started passing awards to such an exorbitant extent and yet in view of the law relating to arbitration the State could do nothing about the matter excepting entering into litigations by challenging those awards and ultimately being unsuccessful in paying huge sums towards principal as well as interest. In viewof the strict provisions of law relating to arbitration, even the Courts were helpless and had no other option than to confirm the awards. Gradually it became such oppressive and the leakage from the State's revenue was to such an extent that the Courts had to interfere in some cases where there were no materials before the arbitrator in support of the award, or where inadvertently the arbitrators committed such mistakes in the proceedings which amounted to misconduct. Experiment was made by changing the personnel of the arbitrator, but it did not give any tangible result and the racket continued whether the arbitrator happened to be a serving engineer of the Government or a serving or retired judicial officer of the State or even a practising advocate of a Court. While this was the position, the State of Orissa brought out the amendment in question which is being assailed in these writ applications.
There is no manner of doubt that after enforcement of the Amending Act and reference of all pending matters as well as the new disputes to the tribunal being made, the so-called racket has been almost abandoned and the individual contractors have lost interest in arbitration proceedings. It is commonly known that during last two decades several contractors in different fields of work have become persons of substantial wealth, not by virtue of their hard labour and deriving income from their hard labour, but by taking recourse to arbitration.
The objects and reasons of the Orissa amendment as contained in the Arbitration (Orissa Amendment) Bill of 1982 were that the arbitrators .were being appointed from various walks of life without having any specific qualification for that and claims involving substantial amounts were being referred to those persons, who on account of lack of qualification and experience were not suitable for proper disposal of the reference and proper adjudication of the disputes. It was, therefore, thought that a tribunal be constituted which would have 3 members, one Judicial Member, one Accounts Member and One Engineering Member, with the JudicialMember as the Chairman, so that a uniform body would be able to tackle all the problems and disputes by applying a uniform procedure and the said body would consist of people having expertise which is necessary for adjudication of the disputes in question and it was with that object that the Arbitration Act was amended providing for constitution of a tribunal and reference to the said tribunal of all pending disputes before an arbitrator where the State is a party to the dispute, as well as in respect of all future disputes. Such an object is undoubtedly a salutary one and subserves the interest of all parties concerned. With these words noticing how the amendment that is being assailed has been brought out by the statute, we shall examine the several contentions raised by the learned counsel for the petitioners in assailing the validity of the Act.
3. The first and foremost contention raised by Mr. Jena, the learned counsel for the petitioners, is that the Orissa Legislature has no legislative competence to make the impugned legislation and, therefore, the provision is ultra vires the Constitution. According to Mr. Jena, the legislation in question does not come within the concept of 'arbitration' under Entry 13 of List III of Schedule VII of the Constitution and there is no other entry either in the State's List or in the Concurrent List which authorises the State Legislature to make the law in question. Consequently, there is total lack of legislative competence with the State Legislature to enact the impugned provision.
According to the learned Advocate-General for the State, Entry 13 of List III of Seventh Schedule clearly provides that 'Civil Procedure' 'Limitation' and 'Arbitration' are within the Concurrent List and, therefore, the State Legislature has the full legislative competence to make any legislation on 'arbitration' subject to compliance of Article 254(2) of the Constitution. According to the learned Advocate-General, in the present case, the said provision contained in Article 254(2) having been complied with, the law made by the Orissa Legislature in relation to the Arbitration Act shall apply so far as the State of Orissa is concerned.
Entry 13 of List III of the Seventh Schedule is clear and unambiguous and law relating to arbitration is squarely covered by that Entry. That Entry deals with 'Civil Procedure', 'limitation' and 'arbitration'. There is no substance in Mr. Jena's contention that the expression 'arbitration' in entry 13 means arbitration contemplated under the Civil Procedure Code. In our considered opinion; the aforesaid entry 13 fully authorises the State Legislature to enact laws relating to arbitration subject to Article 254(2) of the Constitution. There is no dispute that Article 254(2) has been complied with in the present case and the Presidential assent to the amended provision has been obtained. In this view of the matter, it is difficult for us to sustain the contention of Mr. Jena that the State Legislature has no legislative competence to enact the law in question. The first submission of Mr. Jena, the learned counsel for the petitioners, is accordingly rejected being devoid of any force.
4. The next ground of attack raised by Mr. Jena for the petitioners is that the concept of arbitration being settlement of disputes between the parties by mediation through an agreed man, the said concept is totally lost by referring the dispute to a tribunal constituted under a statute and, therefore, such Constitution of tribunal is abhorrent to the concept of arbitration and is accordingly liable to be struck down. We do not find any force in the aforesaid contention. When parties agree to resolve their disputes by not going to a Court of law but by referring the same for arbitration, what is intended is that the said disputes should be resolved not through a lengthy procedure in a Court of law, but by some sort of intervention of a third person, Who would be the person to whom the disputes will be referred sometimes is contained in the agreement itself. But when parties do not agree or in several other contingencies, the Court appoints an arbitrator invoking its power under the Arbitration Act, the appointed man does not come into the picture by virtue of agreement between the parties; but all the same, he adjudicates upon and answers the disputes not through a lengthy procedure of a Court of law, but through a special proceduremeant for arbitration. In such a case, the concept of arbitration is not abrogated. It is only a change of a personnel who would have the power to arbitrate upon that is decided by a Court. Similarly, by the amended provision, only the body has been constituted who would work as arbitrator. We fail to understand how such formation of a body can be said to be against the notion of arbitration. On the other hand, instead of the disputes being answered by one man, the same would be answered by a broad-based body consisting of 3 persons. The substantive right of disputes being resolved through arbitration has not been changed in any manner by the impugned provision. By change of a forum and providing statutorily a forum to whom the disputes between the parties would be referred for arbitration doss not in any manner affect the essential right of the contracting parties to determine the disputes between them by arbitration. In this view of the matter, we are not in a position to appreciate the contention of Mr. Jena for the petitioners and we cannot hold the amended provision to be repugnant to the concept of arbitration. The second submission of Mr. Jena is, therefore, without any substance and the same is accordingly rejected.
5. Mr. Jena, the learned counsel, then contends that Section 41-A of the Arbitration Act, as amended by Orissa Amendment, contravenes Article 14 of the Constitution, inasmuch as there is no intelligible differentia between a contract where the Government or Government company or corporation is a party and a contract where such Government or Government company or corporation is not a party. The aforesaid contention is based upon a thorough misconception about the provision contained in Article 14 of the Constitution. In the case of Ram Krishna Dalmia v. Justice S.R. Tendolkar, AIR 1958 SC 538, where a provision of the Commissions of Inquiry Act, 1952 had been assailed as it was intended for inquiring into the conducts of one man, their Lordships of the Supreme Court have observed that Article 14 does not forbid reasonable classification for the purposes of legislation. But two conditions must be fulfilled, namely that the classificationmust be founded on an intelligible differentia with distinguishes persons or things that are grouped together from others left out of the group and that the said differentia must have a rational relation to the object sought to be achieved by the statute in question. If these tests are applied to the present piece of legislation under attack, there cannot be any other conclusion than that the contracts referred to in Sub-section (1) of Section 41-A form a class by themselves and the impugned legislation for that group of persons has been enacted with the object already discussed. Such a legislation cannot be held to be violative of Article 14 of the Constitution.
It would be interesting to notice a few other cases, where the Supreme Court has considered the applicability of Article 14 of the Constitution to different legislations, one such case being State of Uttar Pradesh v. Kaushailiya, AIR 1964 SC 416, where the provisions of the Suppression of Immoral Traffic in Women and Girls Act, 1956, were under challenge. In analysing the provisions, their Lordships observed :--
'Article 14 does not prohibit reasonable classification for the purpose of legislation and a law would not be held to infringe Article 14 if the classification is founded on an intelligible differentia and the said differentia has a rational relation to the object sought to be achieved by the said law. The differences between a woman who is a prostitute and one who is not certainly justify their being placed in different classes. So too, there are obvious differences between a prostitute who is a public nuisance and one who is not, (emphasis given). A prostitute who carries on her trade on the sly or in the unfrequented part of the town or in a town with a sparse population may not be so dangerous to public health or morals as a prostitute who lives in a busy locality or in an over-crowded town or in a place within the easy reach of public institutions like religious and educational institutions. Though both sell their bodies, the latter is far more dangerous to the public, particularly to the younger genertion during the emotional stage of their life. Their freedom of uncontrolled movement in a crowded localityor in the vicinity of public institutions not only helps to demoralise the public morals, but what is worse, to spread diseases not only affecting the present generation, but also the future ones. Such trade in public may also lead to scandals and unseemly broils. There are, therefore, pronounced and real differences between a woman who is a prostitute and one who is not, and between a prostitute, who does not demand in public interests any restrictions on her movements and a prostitute, whose actions in public places call for the imposition of restrictions on her movements and even deportation........'
(quoted from the head note)
In the case of Lachhman Dass v. State of Punjab, AIR 1963 SC 222, their Lordships of the Supreme Court were examining the question whether the Patiala Recovery of State Dues Act and the Rules framed thereunder which were meant for the Patiala State Bank and were not meant for other Banks could be held to be discriminatory and in that connection it was observed :--
'.....Thus a Bank established by a State has got distinctive features which differentiate it from the other Banks and for purpose of Article 14 it forms a category by itself. The law is now well settled that while Article 14 prohibits discriminatory legislation directed against one individual or class of individuals, it does not forbid reasonable classification, and that for this purpose even one person or group of persons can be a class. (Underlining is ours) Professor Willis says in his Constitutional Law p. 580 'a law applying to one person or one class of persons is constitutional if there is sufficient basis or reason for it'......'
This being the position of law and we do not think it necessary to multiply authorities on the point, in our considered opinion, the persons grouped together who come within the ambit of Section 41-A of the Arbitration Act form a class and such a classification is permissible and cannot be held to be violative of Article 14 of the Constitution. We would, therefore, unhesitatingly reject the submission of Mr. Jena on this score.
6. Mr. Jena, the learned counsel for the petitioners, then urges that in view of Section 41-A, the provisions of the Arbitration Act will have no application to the awards of the tribunal and the parties have no remedy once the matter goes before the tribunal constituted in accordance with Section 41-A of the Act. The learned Advocate-General very fairly concedes that the entire provisions of the Arbitration Act remain applicable and what is changed by the impugned provision in Section 41-A is that instead of disputes being resolved by one man, the same would now be resolved by a body of 3 persons and none of the rights of the contracting party under the Arbitration Act has been infringed in any manner. In view of this submission of the learned Advocate-General, with which we agree, Mr. Jena does not pursue any further with his submission on that score.
7. Mr. Jena, the learned counsel for the petitioners, then urges that the impugned provision causes great hardship to the litigant public, inasmuch as even the disputes which were in the final stage of passing of an award stood transferred to the tribunal and such a provision should not be sustained. If the legislative competence is conceded and if the impugned Act does not suffer from the vice or discrimination, then it is difficult for a Court to strike down an Act on the ground of hardship it causes in a particular situation or to a particular setting. In view of our conclusion on the question of legislative competence as well as on the question of Article 14 vis-a-vis the amended provision of the Arbitration Act, it is difficult for us to strike down the said provision even if it might have caused certain hardships in certain contingencies. We would accordingly reject the said submission of Mr. Jena, the learned counsel for the petitioners.
8. All the contentions raised by Mr. Jena having failed, these writ applications fail and are hereby dismissed, but in the circumstances, without any order as to costs.
J.M. Mahapatra, J.
9. I agree.