Indian Institute of Science Vs. Gemini Construction Company - Court Judgment

Anand Byrareddy, J.

1. This appeal arises out of a judgment rendered in a suit under Section 20 of the Arbitration Act, 1940 (hereinafter referred to as 'the Act' for brevity). The appeal is by the defendant in the suit.

2. For the sake of convenience, the parties would be referred to by their rank in the suit.

3. The facts of the case are as follows.-

The defendant had invited tenders in respect of certain civil construction works. The plaintiff was the successful tenderer and was awarded the contract in terms of an agreement dated 17-11-1986. The works were duly completed in May 1988. A final bill was prepared and furnished to the respondent on 2-3-1989. The plaintiff found major discrepancies in the bill and in this regard wrote to the defendant by letters, dated 1-5-1989 and 18-5-1989 calling upon it to re-examine the same and make payment. There was no response and it is in this circumstance, legal notice was issued and was followed up with a suit on the ground that the agreement between the parties provided for arbitration and since the defendant was reluctant for reference to arbitration, appropriate directions be issued under Section 20 of the Act. The defendant contested the suit and disputed the claim of the plaintiff primarily contending that there was no arbitration clause in the agreement, which would warrant reference to the arbitration. The Trial Court, on a consideration of the pleadings and the documents placed on record, decreed the suit and directed the defendant to file the original agreement in order to enable it to refer the disputes to the named entity for resolution of disputes. It is this which is challenged in this appeal.

4. Shri P.R. Mohan Rao for Shri Padubidri Raghavendra Rao, appearing for the appellant, would submit that the application under Section 20 of the Act was barred by limitation and even if the question of limitation could be held in favour of the plaintiff, the so-called arbitration clause, which was sought to be invoked, was not an arbitration clause at all and he relied upon several judgments which are referred to hereunder in support of the contention that the very tenor of the clause would straightaway demonstrate that it was not an arbitration clause and that the Trial Court was in error in construing the same as an arbitration clause.

He cited the following authorities in support:

(1) Bharat Bhushan Bansal v. Uttar Pradesh Small Industries Corporation Limited, Kanpur : [1999]1SCR181 ;

(2) Karnataka State Construction Corporation Limited v. S.V. Engineering Constructions, Nellore, Andhra Pradesh 2000(8) KAR. L.J. 255(DB): 2000 AIR Kant. HCR 332;

(3) Union of India v. Momin Construction Co. : AIR1995SC1927 ;

(4) State of Orissa and Anr. v. Damodar Das : AIR1996SC942 ;

(5) Pandit Munshi Ram and Associates (Private) Limited v. Delhi Development Authority and Anr. AIR 2001 Del. 82.

5. Per contra, Ms. Birdy Aiyappa for Sreevatsa Associates, appearing for the respondent, would seek to support the order of the Court below and would rely on the following judgments.-

(1) Dewan Chand v. State of Jammu and Kashmir AIR 1961 J and K 58;

(2) Mis. Ram Lal Jagan Nath v. Punjab State through Collector, Hissar and Anr. ;

(3) State of Uttar Pradesh v. Tipper Chand : AIR1980SC1522 ;

(4) Smt. Rukmanibai Gupta v. The Collector, Jabalpur and Ors. : AIR1981SC479 ;

(5) Lachmanna B. Horamani v. State of Karnataka and Ors. : AIR1998Kant405 ;

(6) S. Rajan v. State of Kerala and Anr. : [1992]3SCR649 ;

(7) Union of India and Anr. v. Mis. L.K. Ahuja and Co. : [1988]3SCR402 ;

(8) Damodar Valley Corporation v. K.K. Kar : [1974]2SCR240 .

6. In the light of these contentions, the appeal is considered on its merits. The relevant clauses in the agreement, for purpose of consideration of the appeal is extracted below and reads as follows.-

5. The Schedules above mentioned including the General Rules and Directions to Contractors shall form an integral part of the agreement and the decision of the Project Engineer-cum-Estate Officer in reference to all matters of dispute as to material and workmanship shall be final and binding on both the parties.

And, then again.-

9. In case of dispute other than as at Clause 5 above, the decision of the Director, Indian Institute of Science, is final and binding.

From a reading of the above clauses, it can straightaway be said that the dispute is not one that has arisen under Clause 5 and if at all, it could be brought under Clause 9 of the agreement. The question is, whether Clause 9 could be construed as one providing for arbitration under the Act?

7. In a judgment of this Court in the case of Mysore Construction Co. v. Karnataka Power Corporation Limited and Ors. : ILR2000KAR4953 , after reviewing the case-law on the point, as laid down by the Supreme Court and this Court in the following cases, namely.-

(1) K.K. Modi v. K.N. Modi : [1998]1SCR601 ;

(2) Chief Conservator of Forests, Rewa and Ors. v. Ratan Singh Hans : AIR1967SC166 ;

(3) Smt. Rukmanibai Gupta's case;

(4) M. Keshava Raju v. Karnataka State Road Transport Corporation C.M.P. No. 4 of 1996, DD: 13-2-1998;

(5) Lachmanna B. Horamani's case;

(6) Tipper Chand's case;

(7) Damodar Das case;

(8) Bharat Bhushan Bansal's case,

has held, that a clause in an agreement can be construed as an arbitration agreement only.-

(a) if it provides for reference of disputes of either party to a private forum (other than a Court or Tribunal) for decision;

(b) if it provides expressly or impliedly for an enquiry by the said private forum, giving due opportunity to both parties to put forth their case;

(c) and that it provides that the decision of the forum is final and binding on the parties.

If these conditions are not forthcoming, then the clause cannot be said to be an arbitration agreement.

8. In the case of Bharat Bhushan Bansal, which has been referred to in the case of Mysore Construction Company, the clauses that came up for consideration in construing whether the agreement provided for arbitration or not, read as follows.-

Clause 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 to the quality of workmanship or materials used on the work or as to any other question whatsoever in any way 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 contract by the contractor shall be final and conclusive and binding on the contractor.

Clause 24: Except as provided in Clause 23 hereof the decision of the Managing Director of the U.P.S.I.C. shall be final, conclusive and binding on both the parties to the contract upon all questions relating to any claim, right, matter of thing in any way arising out of or relating to the contract or these conditions or concerning abandonment of the contract by the contractor and in respect of all other matter arising out of this contract and not specifically mentioned herein.

and the Court held thus.-

In the present case, reading Clauses 23 and 24 together, it is quite clear that in respect of questions arising from or relating to any claim or right, matter or thing in any way connected with the contract, while the decision of the Executive Engineer is made final and binding in respect of certain types of claims or questions, the decision of the Managing Director is made final and binding in respect of the remaining claims. Both the Executive Engineer as well as the Managing Director are expected to determine the question or claim on the basis of their own investigations and material. Neither of the clauses contemplates a full-fledged arbitration covered by the Arbitration Act.

9. The judgments cited by the respondents are not applicable to the case on hand, as they are rendered in different contexts and different circumstances. It is not worthwhile to reproduce and discuss the same as to how the same would not aid the respondent.

10. In the case on hand, the clauses under the agreement being worded as they are, since they do not contemplate a full-fledged arbitration covered under the Arbitration Act, it cannot be said that Clause 9 of the agreement contemplates any arbitration. The application of the respondent under Section 20 of the Arbitration Act, 1940 was misconceived.

11. Hence, the appeal is allowed. The impugned judgment of the Trial Court is set aside. There is no order as to costs.