Sukumaran, J.
1. The appeals arise in an arbitration matter.
2. The heart of the matter is about the existence of an arbitration arrangement between the State and the contractors. Essentially, the answer depends upon the construction of the contract in the light of the legal principles.
3. This Court has rendered reported decisions, two on similar but slightly different factual situations, and one, on absolutely similar facts. A Division Bench to which one of us (Justice Fathima Beevi) was a party, noticed an irreconcilable difference in the views expressed in State of Kerala v. Joseph, 1983 Ker LT 583 and in M.F.A. No. 158 of 1984. The decision in Siby Varghese' case, (1987) 1 Ker LT 860, was rightly found distinguishable on its facts, both from 1983 Ker LT 583 and M.F.A. No. 158 of 1984.
4. It is desirable that the brief and relevant facts are indicated before we go into the legal questions.
5. In both the cases, Ext.B1 is the agreement. It contains very many parts. Some of them are more prominent and therefore require special reference. One such is the articles of agreement, which contains 28 clauses. There is a significant clause, Clause 3 reading as follows :
'The arbitrator for fulfilling the duties set forth in the arbitration clause of the Standard Preliminary Specification shall be Superintending Engineer of..... Circles.'
Equally significant is the deliberate and prominent scoring off in ink of the entire clause, the cancellation having an accompanying attestation by the parties to the contract.
6. The notice inviting tenders, also forms part of the contract, by force of the contractual provisions themselves (Vide Clause 44 of Form No. 83). Clause 24 therein is also of great significance. It reads ;
'In case of any dispute or differencebetween (sic) parties to the contract either during the progress or after the completion of the works or after the determination, abandonment, or breach of the contract as to the interpretation of the contract or as to any matter or thing arising thereunder except as to the matters left to the sole discretion of the Executive Engineer under Clauses 20, 27, (c) 29, 36, 37, and 40 of the preliminary specification, or as to the holding by the Executive Engineer of payment of any bill to which the contractor may claim to be entitled, then either party shall forthwith give to the other notice of such dispute or difference such dispute or difference shall be and is hereby referred to the arbitration of the Government Arbitrator appointed in G.O.MS.78/PW dated 12th May 1970 mentioned in the 'Articles of Agreement' (hereinafter called the 'arbitrator') and the award of such arbitrator shall be final and binding on the parties. Provided however that in cases whether the Executive Engineer has entered into the contract on behalf of the Governor, the dispute or difference shall, in the first instance, be referred by or through the Executive Engineer to the Superintending Engineer of the Circle in which the work lies and his decision thereon obtained before referring such dispute or difference to arbitration under this clause. Progress of the work shall not be suspended or delayed on account of the reference of any dispute or difference to the Superintending Engineer of the Circle in which the work lies or to arbitration under this clause. The decision of the Executive Engineer or the Superintending Engineer of the Circle in which the work lies, as the case may be, on such dispute or difference shall be conclusive until reversed by the Superintending Engineer or the Arbitrator. Either party may within a period, which shall be fixed by the Arbitrator, file before the arbitrator a statement of the case and also all the documents relating to or having a bearing in the case. The Arbitrator shall see that the award is passed if reasonably possible, within a period of four months from the date of his entering upon the reference, but if any, extension of that period is considered by him to be necessary, either suo motu or on the application of either party to the reference the parties hereby agree and consent to such extension as the arbitrator may from time to time consider reasonably necessary, and any such extension shall forthwith be communicated by him in writing to each of the parties hereto. The arbitrator shall not be bound to observe, the ordinary rules of procedure applicable to trials before judicial tribunals nor to hear or receive formal evidence but may pass an award on the documents or statement of the case filed by both the parties and/or on personal inspection. The Arbitrator shall have power to view the subject matter of the dispute with or without the parties or their agents. The arbitrator shall also have power to open up, review and revise any certificate, opinion, decision, requisition or notice, save in regard to the matters expressly excepted and determine all matters in dispute which shall be submitted to him and of which notice shall have been given as aforesaid, in the same manner as if no such certificate, opinion, decision, requisition or notice had been given. Upon every and any such reference the costs of and incidental to the reference and award respectively shall be in the discretion of the arbitrator, subject to the condition that the amount of such costs to be awarded either party shallnot in respect of a monetary claim exceed, the percentage set out below of any such award irrespective of the actual fees, costs, and expense incurred by either party, provided that where a monetary claim is disallowed in full, the said percentage shall be calculated on the amount of the claim, The arbitrator may determine the amount of the cost to be awarded or direct the same to be taxed as between solicitor and client or as party and party shall direct by whom and to whom and in what manner the same shall be borne and paid.
The percentage above referred to in this claims are 5 per cent on any such monetary award, which does not exceed Rs. 10,000,3 per cent on the next Rs. 40,000, or any part thereof, 2 per cent on the next, Rs. 50,000 or any part thereof and 1 per cent on any excess over Rs. 1,00,000 :
Provided that Government shall not be liable to any claim in respect of any such dispute or difference until the liability and the amount thereof shall have been referred to and decided by the arbitrator.
'Could if the contractor do/does not make any demand for arbitration in respect of any claim(s) in writing within 90 days of receiving the intimation from the department that bill is ready for payment, the claim of the contractor will be deemed to have been waived and absolutely barred and the department shall be discharged and released of all liabilities under the contract in respect of those claims.'
The name of the arbitration may be read as : Chief Engineer (Arbitration)'
7. As is obvious, the clause is an exhaustive enumeration of all the requirements of an effective arbitration clause. The clause is an all pervasive, enumeration of the time (during the progress or after the completion of the works....) and type (the interpretation of, or claim arising from the contract as sketched therein) of the dispute. The person to whom the dispute is referred is described with specific reference to the Government Order (G.O.MS.75/PW dated 12-5-1970 under which he is appointed, Necessarily, therefore, many of the details of that office and the pattern of its functioning are clearly delineated. Detailed procedure as to the manner in which pleadings are to be filed, documents produced, and the procedure to be followed are all specifically enumerated Detailed provisions also exist as to the time within which the award has to be passed in the normal course, the manner in which extension of the period has to be availed of, the powers and privileges and the limitations on discretion in areas like costs and other incidental and ancillary aspects. Suffice it to say that the clause is a self contained, detailed, and almost exhaustive one which would effectively cover the entire ambit of arbitral action. The clause being a special and specific one, would doubtless supersede and efface, the general and conditional provision in the M.D.S.S. Here too, a significant fact, one to which a conscious application of mind and a deliberate decision could be rightly attributed, is to be noted The entire clause has been scored off, with clearly indicated attestation of such cancellation by the parties to the document.
8. Even after the attempted annihilation of the arbitration clause, could something spring up in the form of an arbitration provision for the only reason that the Arbitration Act by its Section 20 enables appointment of an arbitrator in specified contingencies? -- is the question that needs to be tackled now. One fact to be immediately and seriously noted is that Section 20 can be of avail only if there is the fundamental situation of an alive arbitration arrangement.
9. In the earliest of the decisions 1983 Ker LT 585 (supra,) this Court found Clause 73 of the Madras Detailed Standard Specifications (for short M.D.S.S.) sufficient to supply a submerged forum loan afbitral adjudication, the submersion resulting from the scoring off of CL 3 of the Articles of agreement referred to earlier. The Court did not consider in that case the effect and impact of a conscious cancellation of CL 24 contained in a document which, just like the main agreement itself, is an integral part of the contract. The ratio of the 1983 Ker LT 583 (supra) was simple enough : there could be an arbitral arrangement based on CL 73 of the M.D.S.S., the gaps arid deficiencies as regards the arbitrator being filled up by resort to Section 20 of the Arbitration Act Cancellation of CL 3 of the main agreement, only dislodges the arbitrator but does not destroy the arbitration provision and procedure. Obviously, the situation is different from a case where CL 3 aforesaid (which dispenses with the arbitrator) and CL 24 of the tender notification (which among others, altogether takes away the arbitral mechinery provided by the Government) are cumulatively non-operative and unavailable.
10. (1987) 1 Ker LT 860 (Siby Varghese's case decided by Kochu Thommen and Balakrishnan, JJ.) did not have to deal with any difficult situation. There was a clear manifestationof an intention of the parties to do away with arbitration, when by clearly expressed words, it was proclaimed in unambiguous language and strong enough tone, that arbitration is unavailable. This does not, however, mean that the Division Bench did not express itself on aspects which are relevant to the issue on hand. The observations were to the effect that the provisions of M.D.S.S., served in an entirely different area, and would not supply or supplement the provisions dealing with arbitration machinery. Those provisions do their duty, in a specified and smaller area of details : such as the size of the sand, content of the cement, mixing of the concrete, and details of specifications and very many matters of details of working.
11. This view was soon thereafter reiterated by the same Bench in M.F.A. 158 of 1984. In that case, the question arose pointedly, and a decision was given emphatically; to the effect that when Clauses 3 and 24 as noted above had been scored off, the provisions of the M.D.S.S. could not be got at, to make up an arbitration provision and forum. Materials in M.D.S.S., including CL 73 thereof, would be unavailable for putting up a foundation or a higher edifice for arbitrational adjudication.
12. When one of the cases now before us came before the Bench consisting of K. S. Paripoornan and M. Fathima Beevi, JJ., that court took note of all these decisions, and has referred the question for more detailed consideration by a larger Bench.
13. A reference to the genesis and working of M.D.S.S. may not be out of place in this context.
14. The very name Madras Detailed Standard Specifications signifies its connection with the former Madras State. Much thought had been bestowed on very many matters of details connected with construction works. Alien patterns (such as are discernible on a comparative study of cognate provisions in standard texts on Building Contracts) and indigenous experience have usefully contributed to the formulations of those provisions. This was adopted by the State of Kerala, on the formation of the new State.
15. A construction contract involves numerous details, technical, financial administrative and otherwise. There were, understandably, very many formalities to be carried out. Some contracts may be small; some simple, Some, involve large chunks of money. Some others have an unduly concentrated share of technical complexities. To many such contracts, the M.D.S. S. gave a good guiding light and reference book. In relation to numerous designs and specifications, it furnishes a fairly exhaustive guide. A reasonable arbitration provision (Cl. 73 M.D.S.S.) too had been indicated. If, M.D.S.S. is incorporated by a reference, it might, without any other intervening factor, mean that an arbitral arrangement is also set up. May be, some systenance is to be drawn independently from a provision in the agreement which specifies the circle of which the Sup. Engineer would be the arbitrator.
16. The decision in 1983 Ker LT 583 (supra) refers to the principle of an arbitral clause being invoked by reference. The passage from Russel on Arbitration, the well known passage occurring at page 50 of the 19th Edition, was rightly referred to in support of that proposition.
17. The area is now covered by authoritative decisions covering various facets of arbitration. Arbitration clause is not just another clause in a contract. It has some added significance, having regard to its nature. That has been pointed out in early times by the House of Lords. The Supreme Court of India emphasised that aspect in two of its decisions in Union of India v. Kishorilal, AIR 1959 SC 1362 and Damodar Valley v. K. K. Kar, AIR 1974 SC 158.
18. This aspect has greater significance in understanding the idea underlying the invocation of an arbitration clause by reference.
19. There have been large number of cases arising in the building contracts, where arbitration had been found to be advantageous due to very many reasons. One such important matter is the competence of the Engineers/Arbitrators to invoke their personal knowledge while dealing with the dispute before them. It saves considerable time and money for the parties which would otherwise be necessary to adduce evidence regarding the nature of work or the various steps in the construction procedure. This aspect has been dealt with by Hudson's Building Contract, 10th Edition. Chapter 5, page 241.
20. These principles have also to be borne in mind before deciding upon the intention of the parties in relation to the given set of facts in the present case.
21. The decision in (1987) 1 Ker LT 860 supra will have now to be read and understood, in the light of the dictum in the decision of the Supreme Court of India, (vide Alimenta S.A. v. N.A. Co-op. Marketing Federation of India Ltd., AIR 1987 SC 643). That case dealt with the incorporation by reference of an arbitration clause of an earlier contract, subject to the condition that it is not repugnant or inconsistent with the terms of the contract in which it is incorporated.
22. Two sets of contracts happened to be examined by the Supreme Court in that case. In the first set, (the clause in a contract for supply of groundnut kernels Jaras), there was Clause 11 reading :
'.....other terms and conditions as per FOSFA-20 contract terms.'
FOSFA is the abbreviated form of Federation of Oils, Seeds and Fats Association Ltd., FOSFA 20 contained an arbitration clause. It was contended that Clause 11 of the latter agreement, attracted the arbitration clause. That contention was accepted by the High Court. Distinguishing the decision in Hamilton & Co. v. Mackie & Sons, (1889) 4 TLR 677 of the Court of Appeal, and after commenting upon the decision of the Calcutta High Court in Dwarkadas & Co. v. Daluram Goganmull, AIR 1951 Cal 10 (FB) as a very reasonable and sensible view, the Supreme Court held that there was no irreconcilable conflict between Clause 11 and the conditions of FOSFA 20.
23. In the second contract, (for the supply of certain goods), the relevant clause, Clause 9, was as follows : --
'all other terms and conditions for supply not specifically shown and covered hereinabove shall be as per previous contract signed between us for earlier supplies....'
This clause was construed as not taking in the arbitration clause of the previous agreement. The Supreme Court observed :
'When the incorporation clause refers to certain particular terms and conditions, only those terms and conditions are incorporated and not the arbitration clause. In the present case, Clause 9 specifically refers to the terms and conditions of supply of the first contract and accordingly those terms and conditions are incorporated into the second contract andnot the arbitration clause.'
24. The view of the High Court was affirmed. In the former, it was held that the parties intended to incorporate the arbitration clause and were aware of the existence of the arbitration clause of the earlier contract. The conclusion of the Supreme Court was couched as follows :
'In the instant case the arbitration clause in FOSFA-20 contract will fit in the first contract. In other words, it will not be either insensible or unintelligible. In our opinion, therefore, the High Court was right in holding that the arbitration clause in FOSFA 20 contract was incorporated into the first contract.'
In the second case, (the appeal filed by Alimenta), the Supreme Court upheld the view of the High Court that notwithstanding Clause 9 arbitration clause was not available.
25. The ratio of the decision is that the incorporation of an arbitration clause into a later contract will be dependent upon the intention of the parties and the attendant circumstances.
26. We shall examine the cases before us bearing in mind the ratio of the decision of the Supreme Court referred to above.
27. In the case of a simple contract, where the provisions of MDSS are bodily incorporated by reference, an arbitration arrangement may be inferred, if there is no other provision militating against it. If there is a special and specific provision for arbitration in the- main agreement, that clause has necessarily to prevail as regards arbitration, notwithstanding Clause 73 of M.D.S.S. In such a case, M.D.S.S. can have a relevance and a role only as regards unenumerated specifications and conditions. If the Government has evolved a new form of agreement, self contained and special as regards arbitration arrangements, it is a clear indication of an intention of superseding the general provision in the M.D.S.S, as regards arbitration.
28. If by a conscious action, that enumerated provision dealing with arbitration in the main agreement is itself cancelled. the provisions of Clause 73 of the M.D.S.S., would fail to be effective or operative. It has power but no fire. It will not then be a case of simpl.e situation where arbitration arrangement is provided for but without the details thereof. A vacuum could be filled up by recourse to Section 20 of the Act and the like. That is a permissible legal exercise, However, what has been consciously killed and buried deep could not be dug up and made to move. The cut that was made on Clause 3 of the agreement, was so fatal, that it even pierced the heart of Clause 73. In other words, the situation is not one where there was only a question of supplying some little additives so as to spur into action, a basically well equipped and well working mechanism. When the effect of the cancellation of Clause 3 is brought to bear upon Clause 73 of the M.D.S.S. the entire mechanism collapses. Mark the words relating to the arbitration which read :
'In case of any dispute or difference between the parties to the contract either during the progress or after the completion of the works or after the determination, abandonment, or breach of the contract, as to the interpretation of the contract, or as to any matter or thing arising thereunder except as to the matters left to the sole discretion of the Exe. Engineer under Clauses 20.2, 27(c), 29, 36, 37 and 40 of the Preliminary Specification, or as to the withholding by the Exe. Engineer of payment of any bill to which the contractor may claim to be entitled, then either party shall forthwith give to the other notice of such disputes or difference, and such dispute or difference shall be and is hereby referred to the arbitration of the Sup. Engineer of the nominated circle mentioned in the 'Articles of Agreement' (hereinafter called the 'arbitrator') and the award of such arbitrator shall be final and binding on the parlies.'
This nomination procedure and the very agreement in relation to such nomination have been consciously wiped out of existence by the parties to the agreement. If that be the situation, salvation is beyond expectation. We would therefore bold that situation is one where not only the arbitrator is missing but the entire arbitration agreement itself is nonexistent. No one could expect a leaf or the blossom when the rhizome is itself destroyed.
29. In the present case, there is clear evidence about the dissatisfaction generated by the non-speaking awards in arbitrations relating to public works. This court speaking through Viswanatha Iyer, J. made a carping criticism about such a procedure and desirability of having reasoned awards to fit in with modern notions of fair play and justice. The Government also would appear to have been alerted by the trends and tendencies in relation to the functioning of the arbitral bodies. Initially, the Government passed an order, G.O.MS. No. 53/78/PW & E dt. 8-5-1978 by which arbitration provision was abolished with reference to contracts having financial involvement of Rs. 2 lakhs and below. Things would not appear to have improved much, even thereafter. The decision to abolish arbitration procedure altogether in relation to Governmental works was thereafter taken and declared under G.O.MS. 45/85/PW dt. 16-5-1985. No doubt, the 1985 Order is not strictly relevant to the contract in question. It, however, throws much light on the intention of the Government and the implementation of the same (by the abolition of the arbitration provision) in stages. The, deletion or cancellation of Clauses 3 and 24 will have to be viewed in that background. As noted earlier, the intention was not only to have the clause relating to arbitrator hibernated but also to have the entire arbitral mechanism totally dismantled and buried deep.
30. The case in 1983 Ker LT 583 supra was one where only the clause containing the name of the arbitrator happened to be deleted. It did not concern itself with a situation where the very arbitration clause was consciously and deliberately cancelled. This is somewhat evident from the reference to the facts in paragaph 4 of the judgment of the decision in 1983 Ker LT 583.
31. We have had occasion to check up all the original records in the decision rendered in 1983 Ker LT 583. Any lingering doubt about the applicability or otherwise of Clause 24 would be removed by the facts stated in the order of the Subordinate Court and the pleadings, in that case.
32. The general observations in the Division Bench judgment may have only an attenuated application, in the light of the Supreme Court decision. Similarly, the larger observations contained in M.F.A. 114 of 1984 also would be qualified if not modified by the decision of the Supreme Court. The conclusions in the two cases decided by the Division Bench, with respect, appears, to be correct. The correctness of the conclusion in Siby Varghese's case, (1987) 1 Ker LT 860 was approvingly referred to by the Division Bench which made the reference to the Full Bench.
33. In a situation in which Clauses 2 and 24 have been deliberately and consciously struck off, the clearest intention is a deletion of the arbitration provision altogether is our conclusion. Looked that way, the ultimate decision in M.F.A. 114 of 1984 is also correct. As noted earlier, the further discussions and observations have necessarily to be read and understood subject to the ratio and the decision in AIR 1987 SC 643 supra.
34. A total extinguishment and even wiping off of all traces of arbitration arrangement, is thus clearly visible in the present case. The case is quite unlike in 1983 Ker 583 inasmuch as the latter did not have situation where the arbitration clause specifically incorporated in the notice in the contract had got chopped off. It is different from (1987) 1 Ker LT 860 which does not have a provision as express and explicit in the contract, which states that the arbitration procedure is not contemplated at all in relation to the work in question. It is, however, identical with the facts in M.F.A. 114 of 1984. On an examination of the clauses in the contract and the legal principles governing the same, we are of the view that arbitration provision in the M.D.S.S. does not any longer have application when the parties had by a conscious act, done away with the arbitration machinery. In that view of the matter, we hold, overruling the subordinate court, that the agreement does not visualise any arbitration arrangement between the parties and consequently the court has no jurisdiction to make any subsidiary exercise visualised in a situation when in fact an arbitration arrangement exists but with some gaps or deficiencies in the working arrangement.
35. The engineering profession enjoyed a unique reputation by the acceptance of their status as decision-makers, even while in the employment of the one party or the other. An objectivity and impartiality could rightly be attributed to them. Things have now changed much, regrettably indeed. The pattern of function of some of the arbitrators (who could pass non-speaking awards) tended to forfeit the credibility of the very system itself.
36. Time was when arbitration received much acclaim. There has been, in later times, disillusionment and disappointment. Edmund Davies J. referred to it in Price v. Milner, (1966) 1 WLR 1235. The following extract from the judgment demonstrates the changes in the feelings : .
'Many years ago, a top-hatted old gentleman used to parade outside these Law Courts carrying a placard which bore the stirring injunction 'Arbitrate -- don't litigate!' I wonder whether the ardour of that old gentleman would not have been dampened somewhat had he survived long enough to learn something about the present case.'
An impression about the arbitrary manner in which the arbitrators function, apparently had its reflection when this court made a suggestion for making appropriate changes in the arbitration proceedings, ensuring that the arbitrator assigns reasons in support of his award. (Courts have felt themselves to be free to express their views on needed law reforms, when live cases had focussed the point, in a floodlight as it were. Even in relation to arbitaration such a suggestion for law reform was made by the House of Lords in Food Corporation of India v. Antclizo Shipping Corporation (1988) 2 All ER 513). If the Government felt, to their sour experience, that there had been total aberrations in the conduct of the arbitration and consequently, took a decision for the abolition, initially partially, and latterly absolutely, of the arbitration provision, that action of the Government cannot be condemned at all. Perhaps the sad spectacle is a reflection of the deterioration in values in other segments of social life. The Government is the best Judge in the matter as to what should be done in such a situation.
37. The actions of the Government over the last two decades would leave no room for doubt, that it clearly and explicitly wanted to be rid off the arbitration clauses. Cancellation of Clauses 3 and 24 make out a prominent proclamation of that intention. In that background, Court cannot but give effect to the clearly spelt intention as existing between the parties.
38. In that view of the matter, we allow the appeals and set aside the judgments of the courts below. We hold that the arbitration machinery is totally unavailable to the contractors in these two cases. The appeals are allowed accordingly. The Government will have its costs in both the appeals.