Partly allowed

M/S Eminent Colonizers Private Limited v. Rajasthan Housing Board

Rajasthan HC20 Feb 2020CMA/2435/2019

Case brief

AI extract

What is this about?

The High Court of Rajasthan dismissed an appeal against an order setting aside an arbitration award. The Court held that Clause 23 of the agreement was not an arbitration clause as it did not create a binding private tribunal and Clause 51 reserved jurisdiction for civil courts. Consequently, the challenge under Section 34 was valid, but the limitation period was extended.

What did the court decide?

The appeal was dismissed, but the limitation period for filing a suit in civil court under Clause 51 was extended by six months.

M/S Eminent Colonizers Private Limited Vs Rajasthan Housing… — Arbitration | Rajasthan HC (2020)

¶1

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR

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D.B. Civil Miscellaneous Appeal No. 2435/2019

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M/s Eminent Colonizers Private Limited, R-1, Behind Motor Aid Petrol Pump, Near Peetal Factory, Jhotwara Road, Shastri Nagar Jaipur Through Director Mr. Pradeep Kumar Dusad.

¶4

----Appellant

¶5

Versus

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Rajasthan Housing Board, Through Its Chairman Jyoti Nagar, Jaipur.

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Deputy Housing Commissioner Circle First, Rajasthan Housing Board, Pratap Nagar Jaipur.

¶8

Chief Engineer, Rajasthan Housing Board, Jyoti Nagar Jaipur.

¶9

Resident Engineer, Pratap Apartment, Division, Division-5, Rajasthan Housing Board, Pratap Nagar Jaipur.

¶10

----Respondents

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For Appellant(s)	: Mr. Devi Dutt Sharma with
	Mr.S.C.Mittal & Mr.Sanjog Sharma
For Respondent(s)	: Mr.Daksh Pareek for Sameer Jain

¶12

HON'BLE MR. JUSTICE PRAKASH GUPTA HON'BLE MR. JUSTICE PANKAJ BHANDARI

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Judgment

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DATE OF JUDGMENT 20/02/2020

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BY THE COURT : (Per Hon’ble Pankaj Bhandari,J)

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Appellant has preferred this appeal aggrieved by order dated 14.3.2019 passed by Commercial Court No.3, Jaipur whereby objections filed by the Respondents under Section 34 of Arbitration and Conciliation Act, 1996 (hereinafter to be referred as the “Act of 1996”) were allowed and the arbitration award dated 15.09.2015 was set aside.

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(2 of 16)

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[CMA-2435/2019]

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2. Brief facts giving rise to the present appeal are that the appellant was granted contract for construction of structure of 40 houses of HIG-2 and 10 flats (Stilt + 10 story) in Sector 29 of Pratap Nagar, Jaipur by the Rajasthan Housing Board, Jaipur. In this connection, work order was issued on 29.6.2009 and an agreement no. 11/2009/2010 was executed between the parties on 8.7.2009.

¶20

An Arbitration application was filed and sole Arbitrator was appointed, who passed the award in favour of the claimant appellant on 15.9.2015. Being aggrieved with the award, the respondents filed objection under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act of 1996') on the ground that clause 23 of the Arbitration Agreement is not an arbitration clause. The claimant appellant contested the objection on the ground that order with regard to appointment of arbitrator was not challenged by the respondent before the Hon'ble Apex Court, as such it attained finality and with regard to the fact that the objection pertaining to validity of clause 23 of the signed Agreement as arbitration clause was earlier raised by the respondent before the learned Arbitrator, which was rejected by the learned Arbitrator in view of the judgment delivered by the Hon'ble Apex Court in 2005 SCC 618 SBP & Company Versus Patel Engineering Limited and others. Thus, the appellant prayed for rejection of the objections filed by the respondents. The learned Commercial Court after hearing the arguments of the parties concerned, vide its order dated 14.3.2019, allowed the objection and set-aside the arbitration award dated 15.9.2015. Hence the present Civil Misc. Appeal has been filed before this Court.

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(3 of 16)

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It is contended by counsel for the appellant/claimant that the arbitrator was appointed by the High Court which appointment order was not challenged before the Apex Court and as such the order of appointment of arbitrator attained finality. The Court below has allowed the objection and has set-aside the award given by the learned Arbitrator solely on the ground that clause 23 is not an arbitration clause.

¶24

It is contended that the Court below has exceeded its jurisdiction as the objection to the appointment of the arbitrator was not taken at the earliest stage as per Section 16 of the Act of 1996. It is also contended that the objection to the appointment of arbitrator cannot be raised under Section 34 of the Act of 1996, hence, the order passed by the Court below is bad in law.

¶25

Counsel for the appellant has placed reliance on M/s Suri Constructions Vs. State of Rajasthan & Ors. (2005 (4) WLC 563) wherein it was held that clause 23 of the signed agreement is an arbitration clause. Reliance is also placed on Chetan Construction Company Vs. State & Ors. (D.B. Civil Writ Petition No.4328/2004) wherein the arbitrator was appointed considering clause 23 of the agreement as an arbitration clause.

¶26

Counsel for the appellant has also relied on SBP & Co. Vs. Patel Engineering Ltd. (2005) 8 SCC 618 wherein it was held that the power exercised by the Chief Justice of the High Court under Section 11 (6) of the Arbitration and Conciliation Act, 1996 is not an administrative power, rather it is judicial power and an appeal would lie against that order under Article 136 of the Constitution of India before the Supreme Court.

¶27

(4 of 16)

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Learned counsel for the respondent has vehemently opposed the appeal. It is contended that Rajasthan High Court in M/s Mohammed Arif Contractor Vs. State of Rajasthan & Anr. (S.B. Arbitration No.90/2012) decided on 08.04.2015 has held that clause 23 of the signed agreement is not an arbitration clause and application filed for appointment of arbitrator was dismissed. It was also held that in order to construe a clause to be an arbitration clause, it should have the attributes of an arbitration agreement. Similar is the view taken by the Rajasthan High Court in M/s Marudhar Constructions Vs. Rajasthan Housing Board & Ors. (S.B. Arbitration Application No.132/2014) decided on 06.05.2016.

¶30

It is contended that Award passed by the Arbitral Tribunal can be challenged under Section 34 of the Act of 1996 which empowers the Court to decide on the competence of appointment of arbitrator.

¶31

It is also contended that clause 51 specifically gives jurisdiction to the competent Court with regard to any dispute arising between the parties. Thus, it is amply clear that clause 23 of the agreement is not an arbitration clause.

¶32

We have considered the contentions.

¶33

For deciding the controversy in question we deem it proper to refer to the relevant clauses of the GCC which are reproduced herein-under:

¶34

“Clause 23: Standing Committee for Settlement of disputes :- If any question, difference of objection, whatsoever shall arise in any way, in connection with of arising out of this instrument of the meaning of operation of any part thereof, of the right duties or liabilities of either part then, save in so far, as the decision of any such matter, as herein before provided has been otherwise provided for and whether it has been finally decided

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(5 of 16)

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accordingly, or whether the contract should be terminated, or has been rightly terminated and as regards the rights or obligations of the parties as the result of such termination, shall be referred for decision to the empowered Standing Committee, which would consist of the followings :-

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(i) Administrative Secretary concerned.

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(ii) Finance Secretary or his nominee, not below the rank of Deputy Secretary and/or Chief Accounts officer. (iii) Law Secretary or his nominee, not below the rank of Joint Legal Remembrancer.

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(iv) Chief Engineer-cum-Addl.Secretary of the concerned department. (v) Chief Engineer concerned (Member-Secretary). The Engineer-in-charge on receipt of application along with non refundable prescribed fee, (the fee would be two percent of the amount in dispute, not exceeding Rs. One lac) from the contractor shall refer the disputes to the committee within a period of one month from date of receipt of application.”

¶41

Clause-51 of the agreement reads as under:

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“Clause 51: Jurisdiction of Court : In the event of any dispute arising between the parties hereto, in respect or any of the matters comprised in this agreement, the same shall be settled by a competent court having jurisdiction over the place, where agreement is executed and by no other court after completion of proceedings under Clause 23 of this contract.”

¶43

The question as to whether clause 23 of the agreement is an arbitration clause came up before the Rajasthan High Court in M/s

¶44

Mohammed Arif Contractor Vs. State of Rajasthan & Anr.

¶45

(supra) wherein various judgments on the issue were referred to and the learned Single Judge observed as under:

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"12. At the outset, it is required to be mentioned that there are two divergent views of two different Division Benches of this High Court on the interpretation of Clause 23 of the Contract in question. In case of M/s.Suri Constructions vs. State of Rajasthan & Ors . (supra), the Division Bench of this Court has held that the said Clause 23 is an arbitration clause, whereas in case of State of Rajasthan & Ors. vs. SPML Infra Ltd & Anr (supra) the other Division Bench recently held that the said Clause could not be treated as an arbitration clause. In Suri Constructions vs. State of Rajasthan (supra), the Division Bench while distinguishing the Clause 23 in question from the relevant clause 23 of the agreement

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(6 of 16)

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[CMA-2435/2019]

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referred in case of State of Rajasthan & Ors. vs. M/s. Nav Bharat Construction Co. (2005) 1 WLC (SC) Civil 586 held in para No.12, as under :-

¶50

A bare perusal of the aforesaid Clause 23 in the present case as well as in the case before Hon'ble Supreme Court in State of Rajasthan & Others. vs. Nav Bharat Construction Co. (Supra) clearly reveal that in the present case Arbitration Clause 23 deals with any question, difference or objection, in any way in connection with or arising out of this instrument, or the meaning of operation of any part thereof with the further reference for decision and pre-requisite condition for reference i.e. Notice and the requisite fee as well as the reference to the Committee within a period of one month from the date of receipt of the application whereas in case of Hon'ble Supreme Court in State of Rajasthan & Others vs. Nav Bharat Construction (Co.) (supra) the opening words are "except where otherwise specified in the contract" clearly reveal that the same is a residuary clause for filling the gap with regard to specifications, decisions, drawings and instructions and further there is no reference of any dispute arising between the parties in connection with or arising out of the instrument. Apart from the above, the case before Hon'ble Supreme Court was under the Act of 1940 which clearly reveal that the Clause 23 which was in existence was prior to 1996, 23 of agreement of 2002 which came into force after Act of 1996. We are of the view that the Clause 23 before the Hon'ble Supreme Court was not of arbitration whereas Clause 23 of the present case is of arbitration.

¶51

In case of State of Rajasthan & Ors. vs. SPML Infra Ltd. (supra), the other Division Bench, following the decision of Apex Court in case of State of Orissa & Ors. vs. Bhagyadhar Dash [(2011) 7 SCC 406) held that the said clause 23 could not be considered

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(7 of 16)

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[CMA-2435/2019]

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as the arbitration clause. It has been held in para 18 therein as under :-

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“18. In the present case, the language of Clause 23 of the agreement/contract is almost the same as it was in Clause 10 of the conditions of agreement/contract referred to in State of Orissa and others vs. Bhagyadhar Dash(supra), in which it was found by the Hon'ble Supreme Court that the clause does not refer to arbitration as a mode of settlement of assessment. In the present case also, Clause 23 does not provide for reference, to settle the dispute between the parties, as an arbitration. The decision of the Administrative Committee is not a mode, binding under the Clause on either of the parties. It does not provides for such procedure, which may show that the Superintend Engineer is to act judicially, which is attribute of the arbitration, after considering the submissions of the parties. The clause does not disclose any intention to make Standing Committee as an arbitrator in respect of dispute, which may arise. The decision of the Standing Committee is not a judicial determination, but a decision of one party. It is open to challenge by either party in the court of law under Clause 51 of the agreement/contract. Clause 23 of the agreement/contract, therefore, cannot be considered as an arbitration clause under the agreement....”

¶56

As such, when there are two decisions of the Division Benches expressing conflicting views, the Single Bench ought to place the papers before the Hon'ble Chief Justice for referring the issue to the Special Bench or Larger Bench, as held by the Apex Court in case of Tribhovandas Purshottamdas Thakkar vs. Ratilal Motilal Patel & Ors, AIR 1968 SC 372 . However in the humble opinion of this Court, apart from the fact that in the later decision in case of State of Rajasthan vs. SPML Infra Ltd., the Division Bench has followed the decision of the Supreme Court, it has also

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(8 of 16)

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considered the Clause 51 of the agreement, which the earlier Division Bench had failed to consider. That part, the later decision of the Division Bench is also in conformity with the latest decision of the Apex Court in case of P. Dasaratharama Reddy Complex vs. Government of Karnataka & Anr., (2014) 2 Supreme Court Cases 201 , in which the Apex Court while interpretating clause 29 of the agreement referred in the said case which was similar to the clause 23 of the present case has held that such clauses cannot be treated as arbitration clause. Relevant part of Clause 29 of the agreement in the said case, reads as under :-

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“29: (a) Settlement of dispute timelimit for decision.--If any dispute or difference of any kind whatsoever were to arise between the Executive Engineer/Superintending Engineer and the Contractor regarding the following matters, namely-

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(i) The meaning of the specifications designs, drawings and instructions herein before mentioned; (ii) The quality of workmanship or material used on the work; and

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(iii) Any other questions, claim right, matter, thing, whatsoever, in any way arising out of or relating to the contract designs, drawings, specifications estimates, instructions, or orders, or those conditions or failure to execute the same whether arising during the progress of' the work, or after the completion, termination or abandonment thereof, the dispute shall, in the first place, be referred to the Chief Engineer who has jurisdiction over the work specified in the contract. The Chief Engineer shall within a period of ninety days from the date of being requested by the Contractor to do so, given written notice of his decision to the contractor.

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(9 of 16)

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(b) Chief Engineer's decision final.-Subject to other form of settlement hereafter provided, the Chief Engineer's decision in respect of every dispute or difference so referred shall be final and binding upon the Contractor. The said decision shall forthwith be given effect to and contractor shall proceed with the execution of the work with all due diligence.

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(c) Remedy when Chief Engineer's decision is not acceptable to Contract.-- In case the decision of the Chief Engineer is not acceptable to the contractor, he may approach the Law Courts at Karwar for settlement of dispute after giving due written notice in this regard to the Chief Engineer within a period of ninety days from the date of receipt of the written notice of the decision of the Chief Engineer.”

¶67

The Apex Court, after considering the various similar clauses contained in various government contracts and after considering various decisions of the Apex Court held in para 27 as under :-

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To the aforesaid proposition, we may add that in terms of Clause 29(a) and similar other clauses, any dispute or difference irrespective of its nomenclature in matters relating to specifications, designs, drawings, quality of workmanship or material used or any question relating to claim, right in any way arising out of or relating to the contract designs, drawings etc. or failure on the contractor’s part to execute the work, whether arising during the progress of the work or after its completion, termination or abandonment has to be first referred to the Chief Engineer or the Designated Officer of the Department. The Chief Engineer or the Designated Officer is not an independent authority or person, who has no connection or control over the work. As a matter of fact, he is having over all supervision and charge of the execution of the work.

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(10 of 16)

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He is not required to hear the parties or to take evidence, oral or documentary. He is not invested with the power to adjudicate upon the rights of the parties to the dispute or difference and his decision is subject to the right of the aggrieved party to seek relief in a Court of Law. The decision of the Chief Engineer or the Designated Officer is treated as binding on the contractor subject to his right to avail remedy before an appropriate Court. The use of the expression ‘in the first place’ unmistakably shows that nonadjudicatory decision of the Chief Engineer is subject to the right of the aggrieved party to seek remedy. Therefore, Clause 29 which is subject-matter of consideration in most of the appeals and similar clauses cannot be treated as an Arbitration Clause.

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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:-

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“8.......We may at this juncture set out the well settled principles in regard to what constitutes an arbitration agreement : (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

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(11 of 16)

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

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(12 of 16)

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

¶80

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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(13 of 16)

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[CMA-2435/2019]

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Under clause 23 of agreement, the Engineer-in-charge on receipt of application along with non-refundable prescribed fee, (the fee would be two percent of the amount in dispute, not exceeding Rs. One lac) from the contractor shall refer the disputes to the committee within a period of one month from date of receipt of application. Clause 23 of the agreement empowers only one of the party to approach the committee constituted under Clause 23 of the agreement. Clause 23 is therefore not in the nature of an arbitration clause.

¶84

Clause 51 of the agreement deals with jurisdiction of the Court where it is clarified that if a dispute arises between the parties in respect of any of the matter comprised in the agreement, the same shall be settled by a competent Court having jurisdiction over the place, where agreement is executed and by no other Court after completion of proceedings under Clause 23 of this contract. Thus, it is amply clear that after approaching the Standing Committee constituted under clause 23 of the agreement, the dispute, if any, is to be decided only by a competent Court having jurisdiction over the place where the agreement is executed. There is nothing in the agreement to construe clause 23 as an arbitration clause because had it been an arbitration clause, there was no reason for incorporating clause 51 which comes into operation after completion of proceedings under clause 23 of the contract. The intention of the parties while entering into the agreement is very clear. It is also apparent that the decision of the standing committee constituted under clause 23 of the agreement is not final and binding, the same has to be settled by the competent Court as per clause 51.

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(14 of 16)

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[CMA-2435/2019]

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There were two divergent views of two different Division Benches of this High Court on the interpretation of Clause 23 of the Agreement in question. In M/s.Suri Constructions vs. State of Rajasthan & Ors.(supra) , the Division Bench of this Court has held that the said Clause 23 is an arbitration clause, whereas in case of State of Rajasthan & Ors. vs. SPML Infra Ltd & Anr. (2015 (4) WLC (Raj.) 375) the Division Bench referring to the judgment of State of Orissa & Ors. vs. Bhagyadhar Dash [(2011) 7 SCC 406) held that clause 23 is not an arbitration clause . The Apex Court in P. Dasaratharama Reddy Complex vs. Government of Karnataka & Anr., (2014) 2 Supreme Court Cases 201 interpreted clause 29 of the agreement which is similar to clause 23 of the agreement in question. The Apex Court held that such clause cannot be treated as an arbitration clause. 17. The standing committee for settlement of dispute mentioned in clause 23 of the agreement consists of the members, who are the concerned Secretaries and the Engineers of the concerned department of the government. 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. It clearly transpires that both the parties can approach the competent Court having jurisdiction

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(15 of 16)

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under Clause 23 of the agreement. Therefore, clause 23 cannot be termed to be an arbitration clause.

¶91

Clause 23 can be invoked by the contractor alone, after making payment of the non-refundable prescribed fee, and that the same cannot be invoked by the concerned department of the Government. Such an in-house mechanism created by one of the parties can neither be termed as private Tribunal, nor its decision can be said to be binding on both the parties. Further, there is also no provision empowering the said committee to record the evidence, let apart making its decision final and binding. 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 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 of the agreement, cannot be treated as an arbitration clause.

¶92

We accordingly hold that clause 23 of the agreement is not an arbitration clause. Learned Court below has rightly allowed the objections and had not committed any error in holding that clause 23 of the agreement is not an arbitration clause. The Court below has also not committed any error in setting-aside the award. No ground is made out in this Miscellaneous Appeal.

¶93

Consequently, the present Civil Misc.Appeal is dismissed.

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(16 of 16)

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[CMA-2435/2019]

¶96

However, the present appellant has approached the Arbitral Tribunal after having obtained orders from the High Court. Hence, we deem it proper to protect his legal rights with regard to his claim, since clause 51 of the agreement gives jurisdiction to the competent Court and the present dispute was raised way back on 25.09.2014 and the period of limitation has expired due to actus curiae neninem gravabit (An act of the Court should prejudice no one). The dispute having been referred by the High Court and appellant having perused the same under belief that the Tribunal has jurisdiction cannot be deprived of his legal rights. We, therefore, deem it proper to extend the period of limitation. The appellant would be free to approach the concerned Court within a period of six months from the date of receipt of this order.

¶97

(PANKAJ BHANDARI),J

¶98

(PRAKASH GUPTA),J

¶99

Reserved Judgement/teekam

M/S Eminent Colonizers Private Limited v. Rajasthan Housing Board

Case brief

What is this about?

What did the court decide?

M/S Eminent Colonizers Private Limited v. Rajasthan Housing Board

Case brief

What is this about?

What did the court decide?

What the court decided

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