Dismissed

Parmanand v. State/Chief Engineer P M Gram Sadak Yojn

Rajasthan HC11 Sept 2015ARBAP/82/2013

Case brief

AI extract

What is this about?

Single judge bench held that Clauses 24 and 25 of the agreement provided for dispute redressal by a government committee and barred arbitration, lacking essential attributes of an arbitration agreement. Consequently, applications under Section 11 of the Arbitration and Conciliation Act, 1996 were dismissed as un...

What did the court decide?

all five S.B. Arbitration applications seeking appointment of an arbitrator under Section 11 of the Act have been dismissed.

Parmanand Vs State/Chief Engineer P M Gram Sadak Yojn — Arbitration | Rajasthan HC (2015)

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S.B. Arbitration Application No.76/2013 with 4 connected applications

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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR

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(1) S.B. Arbitration Application No.76/2013 Parmanand-Applicant Versus State of Rajasthan & Ors.-Respondents With (2) S.B. Arbitration Application No.77/2013 Parmanand-Applicant Versus State of Rajasthan & Ors.-Respondents With (3) S.B. Arbitration Application No.82/2013 Parmanand-Applicant Versus State of Rajasthan & Ors.-Respondents With (4) S.B. Arbitration Application No.83/2013 Parmanand-Applicant Versus State of Rajasthan & Ors.-Respondents With (5) S.B. Arbitration Application No.84/2013 Parmanand-Applicant Versus State of Rajasthan & Ors.-Respondents Date of Judgment-::-11.09.2015

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Hon'ble Ms. Justice Bela M. Trivedi

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Mr. Satish Chandra Mittal, for applicant. Dr. A.S. Khangarot, for respondent/s.

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REPORTABLE JUDGMENT

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By the Court:-

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1. All the Arbitration applications have been filed by the same applicant under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the said Act”) seeking appointment of an Arbitrator relying upon the same Clause 24 of the agreements executed between the parties, in respect of the various work orders and hence all are decided by this common order.

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S.B. Arbitration Application No.76/2013 with 4 connected applications

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2. At the outset, the learned counsel for the respondents Dr. A.S. Khangarot has raised the preliminary objection with regard to the maintainability of these applications by relying upon the decision of this Court in case of M/s. Mohammad Arif Contractor versus State of Rajasthan & Anr., decided on 08.04.2015 (S.B. Arbitration Application No.90/2012) by submitting that clause23 of the agreement in the said case, which is similar to clause24 of the agreement in the present cases, has been held to be not an arbitration clause. He further submitted that so far as the present cases are concerned, there is a specific bar against referring the disputes to the arbitration as contained in clause 25 of the agreement, and therefore also the applications are not maintainable. However, the learned counsel Mr. Satish Chandra Mittal for the applicant relying upon the decision of this Court in case of Surya Construction Company Versus The State of Rajasthan & Anr., 2013 (4) WLC (Raj.) 418 submitted that the Coordinate Bench of this Court relying upon the said clauses 24 and 25 of the agreement in question, has appointed the arbitrator and that if this Court does not agree with the decision of the Coordinate Bench, the matter be referred to the Division Bench in view of the decision of the Apex Court in case of Sundarjas Kanyalal Bhathija and others versus Prahlad Hiranand Advani and others, AIR 1995 SC 1893 .

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3. In order to appreciate, the submissions made by the learned counsels for the parties, it will be beneficial to reproduce the clauses 24 and 25 of the agreement in question, entered into between the parties, which read as under:-

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S.B. Arbitration Application No.76/2013 with 4 connected applications

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“24 Dispute Redressal System

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24.1 If any dispute or difference of any kind what-so-ever shall arises in connection with or arising out of this Contract or the execution of Works or maintenance of the Works there under, whether before its commencement or during the progress of Works or after the termination, abandonment or breach of the Contract, it shall, in the first instance, be referred for settlement to the competent authority, described along with their powers in the Contract Data, above the rank of the Engineer. The competent authority shall, within a period of forty-five days after being requested in writing by the Contractor to do so, convey his decision to the Contractor. Such decision in respect of every matter so referred shall, subject to review as hereinafter provided, be final and binding upon the Contractor. In case the Works is already in progress, the Contractor shall proceed with the execution of the Works, including maintenance thereof, pending receipt of the decision of the competent authority as aforesaid, will due diligence.

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24.2 Either party will have the right of appeal, against the decision of the competent authority to the Standing Empowered Committee if the amount appealed against exceeds rupees one lakh.

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24.3 The composition of the Empowered Standing Committee will be:

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I. One official member, Chairman of the Standing Empowered Committee, not below the rank of Additional Secretary to the State Government.

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II. One official member not below the rank of chief engineer, and

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III. One non-official member who will be technical expert of Chief Engineer's level selected by the Contractor from a panel of three persons given to him by the Employer.

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24.4 The Contractor and the Employer will be entitled to present their case in writing duly supported by documents. If so requested, the Standing Empowered Committee may

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S.B. Arbitration Application No.76/2013 with 4 connected applications

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allow one opportunity to the Contractor and the Employer for oral arguments for a specified period. The Empowered Committee shall give its decision within a period of ninety days from the date of appeal, failing which the contractor can approach the appropriate court for the resolution of the dispute.

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24.5 The decision of the Standing Empowered Committee will be binding on the employer for payment of claims up to five percent of the Initial Contract Price. The Contractor can accept and receive, payment after signing as “in full and final settlement of all claims”. If he does not accept the decision he is not barred from approaching the courts. Similarly, if the Employer does not accept the decision of the Standing Empowered Committee above the limit of five percent of the initial Contract Price, he will be free to approach the courts applicable under the law.

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Arbitration

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25.1 In view of the provision of the clause 24 on Dispute Redressal System, it is the condition of the Contract that there will be no arbitration for the settlement of any dispute between the parties.”

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4. From the bare reading of the said clauses, it clearly appears that Clause 24 provides for the dispute redressal system, whereby the dispute first has to be referred to the competent authority and then to the Empowered Standing Committee. It further provides that the decision of said committee would be binding on the employer, however if the contractor does not accept such decision of the said committee, he would be free to approach the courts applicable under the law. It is further to be noted that the clause-25 clearly states that there will be no arbitration for the settlement of any dispute between the parties. Thus, such clauses could not, by any stretch of imagination be

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S.B. Arbitration Application No.76/2013 with 4 connected applications

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treated as the arbitration agreement within the meaning of Section 7 of the said Act. At this juncture, it is pertinent to note that this Court in case of M/s Mohammed Arif (supra) while interpreting similar clause as clause 24 has held that such clause could not be treated as the arbitration agreement under Section

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7 of the said Act. The relevant observations of the said decision are reproduced as under:-

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“16. It is also pertinent to note that the Apex Court in case of Jagdish Chander vs. Ramesh Chander and Ors, (2007) 5 SCC 719 also after considering various other decisions in case of K.K. Modi vs. K.N> Modi 1998 (3) SCC 573, in case of Bharat Bhushan Bansal v. Small Industries Corporation Ltd. 1999 2 SCC 166, State of Orissa vs. Damodar Das, 1996(2) SCC 216, had craved out the principles with regard to the attributes of an arbitration agreement. The Apex Court in the said case observed as under in para No.8:“8.......We may at this juncture set out the well settled principles in regard to what constitutes an arbitration agreement :

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(i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and an willingness to be bound by the decision of such tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation

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S.B. Arbitration Application No.76/2013 with 4 connected applications

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to refer disputes to arbitration, there is no valid and binding arbitration agreement.

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(ii) Even if the words 'arbitration' and 'arbitral tribunal (or arbitrator)' are not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are : (a) The agreement should be in writing. (b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. (d) The parties should have agreed that the decision of the Private Tribunal in respect of the disputes will be binding on them.

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(iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to Arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically excludes any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the Authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the

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S.B. Arbitration Application No.76/2013 with 4 connected applications

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Authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement”.

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If the aforestated principles/guidelines are applied to the facts of the present case, it appears that the Standing Committee for settlement of disputes as mentioned in the said clause 23 consist of the members, who are the concerned Secretaries and the Engineers of the concerned department of the government, and therefore such committee could not be termed to be a private tribunal by any stretch of imagination. There is nothing in the said clause 23 to suggest that both the parties to the contract had any intention to be bound by the decision of the said Committee. On the contrary, Clause 51 of the said agreement states that in the event of any differences arising between the parties in respect of any matters comprised in the agreement, the same shall be settled by the competent Court having jurisdiction over the place, where the agreement is executed and by no other Court, after completion of proceedings under Clause 23 of the contract. From the bare perusal of the said clause 51, it clearly transpires that it was kept open for both the parties to approach the competent court having jurisdiction for settling the disputes, after the completion of proceedings under Clause 23 of the agreement in question. The non adjudicatory decision of the empowered committee under Clause 23, was made subject to the right of the parties to seek remedy as per Clause 51. Therefore such Clause 23 could not be termed as the arbitration Clause, as held by the Apex Court in case of P. Dasaratharama Reddy Complex (supra).

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..........

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In order to construe a clause to be an arbitration clause, it should have the attributes of an arbitration agreement, i.e. the parties should agree to refer the disputes, present or future, to the private tribunal; the private tribunal should be able to

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S.B. Arbitration Application No.76/2013 with 4 connected applications

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adjudicate upon the disputes in an impartial manner giving due and equal opportunity to the parties to put forth their case before it, and the parties should have agreed that the decision of the private tribunal in respect of the disputes will be binding on them. Thus, the very trappings or essentials of the arbitration agreement being missing in the Clause 23 in question, the same cannot be treated as the arbitration clause.”

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5. So far as clause-24 of the agreement in question is concerned, there are no attributes of arbitration agreement contained therein. It only provides for the dispute redressal system, without any intention to refer the dispute to the private arbitral tribunal. As stated hereinabove, clause-25 of the said agreement clearly barred settlement of disputes through arbitration. The Court therefore is of the opinion that the Clause 24 sans the trappings or essentials of the arbitration agreement, cannot be construed as the arbitration clause within the meaning of Section 7 of the said Act, and more particularly in view of Clause 25 of the said agreement.

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6. Though, it is true that in the decision of Coordinate Bench, in case of Surya Construction (supra), relied upon by the learned counsel for the applicant, the Arbitrator has been appointed relying upon the said clauses 24 and 25 of the agreement in question, however in the said case there was no issue raised as to whether such clause should be treated as the arbitration clause or not. In the said case, the Court had appointed the arbitrator by holding that the party cannot be permitted to take

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S.B. Arbitration Application No.76/2013 with 4 connected applications

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the advantage of its own wrong and under the circumstances the bar contained in clause 25 was held to be not applicable. Since this court in the earlier decision has relied upon the various decisions of Supreme Court, for holding that such clause does not have the attributes or elements of the arbitration agreement, and therefore the same could not be treated as an arbitration clause within the meaning of Section 7 of the said Act, the submission of Mr. Mittal for referring the case to the Division Bench can not be accepted.

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7. In that view of the matter, it is held that the Clause 24 read with Clause 25 of the agreement in question being not an arbitration clause or an arbitration agreement as contemplated under Section 7 of the said Act, the provisions of the said Act could not be made applicable to the present cases, and hence the present applications filed under Section 11 of the said Act seeking appointment of arbitrator could not be said to be maintainable. The applications, therefore, deserve to be dismissed, and are accordingly dismissed. Copy of the judgment be placed in each applications.

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(Bela M. Trivedi) J.

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R.Vaishnav 149-153.

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"All corrections made in the judgment/order have been incorporated in the judgment/order being emailed." Ramesh Vaishnav Personal Assistant

Parmanand v. State/Chief Engineer P M Gram Sadak Yojn

Case brief

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Parmanand v. State/Chief Engineer P M Gram Sadak Yojn

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