Shambhu Sharma Son of Late Mahendra Prasad Singh Vs. the State of Bihar and the Executive Engineer, Building Construction Department, Patna City Building Division - Court Judgment

J.B. Koshy, C.J.

1. The petitioner approached this Court by filing an application to the Chief Justice for the appointment of an 'independent/impartial Arbitrator' for an amicable settlement of the dispute between both the parties under Section 11(6) of the Arbitration and Conciliation Act 1996 (the Act, for brevity). The names of two retired District Judges were also suggested for appointment as Arbitrator for settlement of the disputes between the parties. The petitioner entered into agreements with the second respondent - Executive Engineer, Building Construction Department, Government of Bihar - for the execution of three works. The agreements were executed in Form F2 as prescribed by the Public Works Department.

2. It is the case of the petitioner that Clause 23 of the agreement provides for arbitration, which reads as follows:

23. In case any dispute or difference shall arise between the parties or either of thereupon any question relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned or as to the quality of workmanship or materials used on the work, or as the construction of any of the conditions or any clause or thing therein contained, or as to any question, claim, rights or liabilities of the parties, or any clause or thing whatsoever, in any way arising out of, or relating to the contract, designs, drawings, specifications, estimates, instructions, orders, or these conditions, or otherwise concerning the work, or the execution, or failure to execute the same whether arising during the progress of the work, or alter the completion or abandonment thereof, or as to the breach of this contract, then either party shall forthwith give to the other notice of such dispute or difference and such dispute or difference shall be referred to the Superintending Engineer of the Circle and his decision thereon shall be final, conclusive and binding on all the parties.

On the other hand, according to the respondent, Clause 23 was already deleted and even if it is in force, it is not an arbitration agreement.

3. When the matter was listed before the designated Judge, having felt the need to refer the matter to a Division Bench, by order dated 28.8.2008, the matter was referred to the Division Bench with the following reasons:

4. The objection of the opposite party is that Clause 23 of the said agreement between the parties cannot be treated as an arbitration agreement as has been held by a Division Bench of this Court in the case of the State of Bihar and Ors. v. Shiv Shankar Construction Company (P) Ltd reported in 2008 (3) PLJR 453. In the said decision the Division Bench of this Court has relied upon the three decisions of the Hon'ble Apex Court, namely, in the case of Bharat Bhushan Bansal v. Uttar Pradesh Small Industries Corporation Ltd, Kanpur reported in : AIR 1999 SC 899 and in the case of the State of Uttar Pradesh v. Tipper Chand reported in : (1980) 2 SCC 341 as well as in the case of K.K. Modi v. K.N. Modi and Ors. reported in : (1998) 3 SCC 573.

5. On the other hand learned Counsel for the petitioner specifically submits that Clause 23 of the said agreements fully showed that the parties had desired and intended that a dispute must be referred to an arbitrator for decision and they would undertake to abide by that decision, and hence there cannot be any difficulty to hold that the intention of the parties was to have an arbitration agreement, as the arbitration agreement had immediately come into existence. In this connection he relied upon a decision of the Hon'ble Apex Court in the case of Punjab State and Ors. v. Dina Nath reported in : (2007) 5 SCC 28 in which the decisions of the Hon'ble Apex Court in case of the Sate of Uttar Pradesh (supra) as well as the case of K.K Modi (supra) have also been considered, explained and distinguished and the Hon'ble Apex Court followed other decisions of the Hon'ble Apex Court in the case of Rukmanibai Gupta v. Collector reported in : (1980) 4 SCC 556 and in case of Bihar State Mineral Development Corpn. v. Encon Builders (I) (P) Ltd. reported in : (2003) 7 SCC 418. In view of the aforesaid decisions of the Hon'ble Apex Court learned Counsel for the petitioner submits that the decision the Division Bench of this Court in the case of State of Bihar and Ors. (supra) is per incuriam.

When the matter was placed before the Division Bench, it was referred to the Full Bench.

4. Before we consider Clause 23 of the agreement and the arguments based on the same, first we shall consider the objection of the State that Clause 23 was deleted and in the absence of such a clause, the question referred need not be answered and the arbitration request itself is not maintainable.

5. Learned Additional Advocate General contended that the notification dated 18.11.1992 amending Form F2 and deleting Clause 23 was published in the official gazette dated 23.11.1992. The original of the gazette was produced before us for perusal. Learned Additional Advocate General further contended that in view of the amendment, we need not go into the contention whether Clause 23 is an arbitration clause or not, since the said clause stands deleted. While the agreement produced along with the request petition does not show the deletion of Clause 23 the supplementary affidavit shows that Clause 23 had already been deleted and signed by the Executive Engineer in two agreements.

The original of the agreements was called for. It shows that out of the three agreements between the petitioner and the Government, in two agreements Clause 23 was seen scored off and signed by the Executive Engineer. Some other clauses were also seen deleted. It is contended on behalf of the State that in view of the notification published in the gazette, even if in one of the agreements Clause 23 is not deleted, effect is the same. In the other two agreements, the clause stands deleted. The parties have to sign the contract in Form 2. Form 2 was amended and Clause 23 was deleted by notification published in November 1992.

6. Counsel for the petitioner, relying on the decision of a single Bench of this Court in Request Case No. 19 of 2006, contended that the deletion of the clause is not binding on the parties. In the said case, the learned single Judge held as follows:

6. Learned Counsel for the petitioner submitted that even the resolution dated 18.11.1992 as published in the Gazette dated 23.11.1992, Annexures A and B to the counter affidavit cannot be relied upon in these proceedings as neither the original resolution nor the printed gazette was ever produced before this Court and for failure to produce original resolution and printed Gazette the photo copy of the two documents should not be relied as it is well known that photo copy is no substitute for the original/printed copy of the two documents. He further submitted that the resolution/Gazette were never put to circulation/sale for distribution and information amongst the members of general public and mere publication in Gazette for information to the departmental authorities without any circulation/sale to the members of the public has no meaning at all as according to him publication in Gazette is meaningful only when publication is generally accessible or available to public. In this connection, he referred to a judgment of the Hon'ble Supreme Court in the case of Collector of Central Excise v. New Tobacco Co. and Ors. reported in (1998) 8 Supreme Court Cases 250 in which Hon'ble Supreme Court having considered the meaning of the word 'publish', as given in legal glossary published by the Legislative Department, Ministry of Law, Justice and Company Affairs, Government of India in 1992 observed that publication is meaningful only when the publication is accessible or available to the public at large by sale or distribution. In this connection, he also referred to a Division Bench Judgment of this Court in the case of Mc Dowell & Company Ltd, Hathidah v. The State of Bihar and Ors. reported in 2000 (3) PLJR 475 whereunder this Court held that mere printing in the Gazette is not a publication of the notification unless the same is circulated amongst the members of the public.

7. I see substance in the argument of the learned Counsel for the petitioner, and accordingly, hold that the resolution dated 18.11.1992, as published in Gazette dated 23.11.1992 original/printed copy whereof was never produced in this Court which was also not circulated amongst the members of the public, could not have been relied by the Executive Engineer while unilaterally deleting Clause 23 of the agreements. I further hold that the deletion of Clause 23 of the agreements without counter signature of the parties has no meaning at all.

We are unable to accept the above position. Considering the provisions of the General Clauses Act, by publication in the gazette, there is public notice. In fact, as per the general circular bindings of Bihar Public Works Department on its registered contractors, contract should be executed in Form 2 under Schedule XLV. When the above form was required modification, a gazette notification was published by changing the same. The learned single Judge, in the order referred to above, held that neither the original resolution nor the printed gazette was ever produced and only the photo copies were produced. But before us, the original of the gazette was produced. We have verified it. The petitioner is not an illiterate person. He is a registered Contractor under the Government. On the other hand, the Executive Engineer is also bound by the Government directions. So the Executive Engineers and other departmental heads were informed and it cannot be stated that at the time of signing the contract, the Contractor was not aware of the change in the form. In the supplementary affidavit produced by the petitioner, a photo copy of the agreement was produced, wherein it could be seen that Clause 23 was deleted and counter-signed by the Executive Engineer. Therefore, it cannot be stated that the respondent was not aware of the deletion of Clause 23 of the agreement. The original agreement form was published in the gazette, which is binding on the officers of the Government as well as the registered Contractors. That form was amended by publication in the official gazette. In this connection, we refer to Section 23(5) of the General Clauses Act. The presumption of publication in the official gazette is that it is done in regular course and Section 81 of the Indian Evidence Act, 1972 is also relevant. In the above circumstances, we are of the view that Clause 23 was not in existence during the relevant time, at least with regard to two agreements, wherein the said clause is deleted and counter-signed by the Executive Engineer. In view of the notification published in the official gazette, we are of the view that it is binding on the parties, especially in commercial transaction with the Government and Clause 23 was deleted in 1992. Therefore, on the basis of deleted Clause 23, the petitioner cannot make an arbitration request.

6. The next contention is that even if Clause 23 is an arbitration request/clause, whether the dispute can be referred to an independent impartial arbitrator other than the Superintending Engineer, as mentioned in Clause 23. Both the parties agreed that the Superintending Engineer alone will decide the issue. Thereafter, in our opinion, the petitioner cannot approach this Court for an arbitration reference. If Clause 23 is an arbitration clause, the dispute can be decided only by the Superintending Engineer and the petitioner cannot request for appointment of an impartial person as an arbitrator. Sub-sections (2), (5) and (6) of Section 11 of the Act read thus:

11. Appointment of arbitrators

(1) xx xx xx xx xx xx

(2) Subject to Sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

(3) xx xx xx xx xx xx

(4) xx xx xx xx xx xx

(5) Failing any agreement referred to in Sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

(6) Where, under an appointment procedure agreed upon by the parties,--

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

xx xx xx xx xx xx

xx xx xx xx xx xx

Without making a request to the Superintending Engineer to arbitrate on the matter, the petitioner cannot make an arbitration request under Section 11(6) of the Act. On that basis also, the arbitration request is not maintainable.

7. Now the main question to be considered is whether Clause 23 is an arbitration clause. Since we have held that Clause 23 was already deleted and not in existence, the question is only academic. But, since the question is referred to the Full Bench, we are considering that question also. It is contended that in view of the terms of Section 7 of the Act, which is very wide, Clause 23 is an arbitration agreement and, therefore, the matter can be referred to the arbitrator. Section 7 of the Act reads as follows:

7. Arbitration agreement--

(1) In this Part, 'arbitration agreement' means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a define legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in-

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

A close reading of Clause 23 would show that the parties can approach the Superintending Engineer on any dispute regarding technical matters and breach of agreement arising out of those technical maters and not anything else.

8. Now we will consider the decisions cited in this regard. A Division Bench of this Court in Shiv Shankar Construction Company (P) Ltd's case (supra) had considered the above question and held that if Clause 23 is not an arbitration agreement, the parties cannot rely upon the decision in K.K. Modi's case (supra) as well as the decisions in Shiv Shankar Construction Company (P) Ltd's case (supra) and Bharath Bhushan Bansal's case (supra). Clause 23 is more or less similar to the clause in those cases. The Supreme Court held that the words 'all disputes should be referred to the Superintending Engineer and his decision thereon would be final and binding on the parties' is not an arbitration clause. The same view is applicable in this case also. In Bharath Bhushan Bansal's case (supra), relying on the decision in State of U.P v. Tipper Chand : (1980) 2 SCC 341, the Supreme Court held as follows:

7. The wording of the clause in the present case is very similar to the wording which was interpreted as not an arbitration clause in the above case. Both the above judgments of this Court have relied upon an earlier decision of this Court in the case of State of U.P v. Tipper Chand. The clause which was interpreted in the above case was also materially similar to the clause before us. Clause 22 of the contract in that case provided (SCC p. 34, para 2):

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 specifications, designs, drawings and instructions 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 contracts, designs, drawings, specifications,...or otherwise concerning the works, or the execution or failure to execute the same,...shall also be final, conclusive and binding on the contractor. This Court held that the clause did not contain any arbitration agreement either expressly or by implication. The intention was to vest the Superintending Engineer with supervision and administrative control over the work.

In Tipper Chand's case (supra), Clause 22 of the agreement was considered. Clause 22 is extracted below:

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 specifications, design, drawing and instructions 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, 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, shall also be final, conclusive and binding on the contractor.

The Supreme Court further held that the above clause does not contain any express arbitration agreement. The purpose of the clause clearly appears to be to vest the Superintending Engineer with supervision of the execution of the work and administrative control over it from time to time and to take decision. In K.K. Modi's case (supra), it was held that the disputes, clarifications, etc. in respect of the implementation of the agreement shall be referred to the Chairman, Industrial Finance Corporation of India (IFCI) and whose decision shall be final, does not constitute an arbitration agreement, but amounts to reference of issues to an expert for decision. The Supreme Court considered the above case also in Bharath Bhushan Bansal's case (supra) and held thus:

In the case of K.K. Modi v. K.N. Modi a Bench of this Court (of which one of us was a Member) had the occasion to consider the essential ingredients of an arbitration clause. Among the ingredients which are described in the said judgment, two important ingredients are that the agreement between the parties must contemplate that substantive rights of parties will be determined by the agreed tribunal and 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 and also that the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law. There is a difference between an expert determination and arbitration. S.K. Chawla in Law of Arbitration and Conciliation at p. 164 states as follows:

4. Arbitration agreement to be distinguished from agreement for decision by an Engineer or Expert - Contracts may contain a clause that on certain questions the decision of an Engineer, Architect or another expert shall be final. The decision given in such cases by the Engineer etc. is not an award. As pointed out by Bernstein, such a person is under no obligation, unless the contract otherwise provides, to receive evidence or submissions and is entitled to arrive at his decision solely upon the results of his own expertise and investigations. The procedure involved is not arbitration, and the Arbitration Act does not apply to it. The primary material on which such person acts in his own knowledge and experience, supplemented if he thinks fit by (i) his own investigations; and/or (ii) material (which need not conform to rules of 'evidence') put up before him by either party. An Arbitrator on the other hand, acts primarily on material put before him by the parties. The determination by an Engineer or an expert would involve a less thorough investigation. Only one mind will be brought to bear on the problem. There will be no discovery of documents, there will not normally be any oral 'evidence' or oral submissions. This Court in Shiv Shankar Construction Company (P) Ltd's case (supra) followed the above Supreme Court decision and held that Clause 23 is not an arbitration agreement.

9. In State of Orissa v. Damodar Das : AIR 1996 SC 942 a three member Bench of the Supreme Court held that a clause in a contract providing that the decision of the Engineer would be final cannot be construed to be an arbitration clause. The Bombay High Court, in Ved Prakash Gupta v. Municipal Corporation of Greater Bombay : 1999 (1) Bom CR 112, held that the clause empowering the higher officer to examine contentions raised by the contractor and to give his decision does not amount to arbitration agreement. Here, in this case, the reference to the Superintending Engineer, who was vested with the powers of supervision and administrative control over the work, is only a technical expert and no where it is stated that it is arbitration and there is no indication that the procedure set out in the Arbitration Act should be followed. A contract may provide that disputes arising under it are to be resolved by some third person acting not as arbitrator, but as an expert. The decision given in such cases by the expert is not an award. Such a person is under no obligation, unless the contract otherwise provides, to receive evidence or submissions and is entitled to arrive at his decision solely upon the result of his own expertise and investigations. The procedure involved is not arbitration and the Act does not apply (see Ronald Bernstein, Hand Book of Arbitration Practice 1988 Edition). The primary material, on which such expert acts, is his own knowledge and experience supplemented if so desired by him, by his own investigations and/or by material put before him by either party, which need not conform to rules of evidence. It is true that the expert can be made as an arbitrator if the agreement between the parties is to refer disputes for arbitration to the Superintending Engineer and the resultant decision would be an arbitral award irrespective of the fact whether the words 'reference', 'arbitration' or 'arbitrator' are used therein or not. The Superintending Engineer is an expert Engineer employed by one of the parties to the agreement. Under his supervision the work is being carried out. Even though the clause is having wide terms, what is mentioned is that the dispute regarding technical issues, which require an expert opinion, can be referred to the Superintending Engineer and Clause 23 cannot be termed an arbitration agreement. It is not stated that the Superintending Engineer can call for the records, examine witnesses, etc to decide the matter. Further, the Superintending Engineer is an officer of the Government/Department who is in charge of the work and he cannot act as an impartial arbitrator. But, as an expert, he can give opinion on technical matters. If dispute arises, of course, the contractor will be free to make such request to the Superintending Engineer. Further, in the absence of an arbitration agreement, the parties will be free to file a civil suit if the decision is not acceptable. In this case, in case of any dispute involved in the matter, the same can be referred to the Superintending Engineer and his decision will be binding on the parties. If the decision of the Superintending Engineer is not acceptable, it is open to the contractors to file a civil suit notwithstanding the clause that the decision of the Superintending Engineer is final and binding. In the absence of an arbitration agreement, the contractor cannot compel the matter to be referred for arbitration.

10. The learned Counsel for the petitioner cited the decision of the Supreme Court in Punjab State and Ors. v. Dina Nath : (2007) 5 SCC 28. In that case, there was a clause that any dispute arising between the parties can be referred to the Superintending Engineer and his decision would be final and binding on the parties. Even though a request was made to the Superintending Engineer, no decision was taken. Thereupon, the petitioner - contractor filed an application under Section 20 of the Act in time and a final notice was issued compelling the principal to refer the dispute for arbitration. Since application was not filed within the limitation period, it was dismissed. The main contention before the Supreme Court was whether the application was barred by limitation. The Supreme Court held that the application was not barred by limitation and considered the words in the clause and the attendant circumstances that there is an arbitration agreement. A close reading of Clause 23 in this case and the attendant circumstances would show that the parties intended only for reference by the Engineer in charge of the work to the Superintending Engineer to decide the question as an expert. In any view of the matter, even if it is an arbitration agreement and Clause 23 was in existence, the petitioner cannot apply under Section 11(6) because arbitrator is already named in the clause and the arbitration can be made only by the agreed arbitrator. In the absence of an agreement or if the party fails to perform his part, he can make a request to the Chief Justice or the designated Judge for appointment of an arbitrator. Here no such request was made to the Superintending Engineer to arbitrate any dispute and, therefore, there arises no need to make a request for the appointment of an independent/impartial arbitrator. On that ground also, the present application is not maintainable.

11. In the above circumstances, we are of the view that (1) Clause 23 already stands deleted by publication of the notification in official gazette; (2) Clause 23 is not an arbitration agreement; and (3) even if it is an arbitration agreement, the Superintending Engineer is named as the sole arbitrator. The petitioner will be justified in seeking appointment under Section 11(6) of an independent arbitrator only in the absence of an agreement regarding sole arbitrator or arbitrators or if the named arbitrator fails to perform the functions entrusted to him. In this case, the petitioner failed to apply to the Superintending Engineer for arbitration and, therefore, even if the contentions of the petitioner are correct, the question of filing an application for the appointment of an 'independent arbitrator' does not arise.

12. We make it clear that the petitioner will be free to file a civil suit and the time during the pendency of the writ petition will be excluded while computing the period of limitation. With the above observations, the request for arbitration is rejected.

Kishore K. Mandal, J.

13. I agree.

Ravi Ranjan, J.

14. I agree.