Full Judgment Text
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CASE NO.:
Appeal (civil) 2133 of 2007
PETITIONER:
MAHARSHI DAYANAND UNIVERSITY & ANR
RESPONDENT:
ANAND COOP. L/C SOCIETY LTD. & ANR
DATE OF JUDGMENT: 25/04/2007
BENCH:
TARUN CHATTERJEE & P.K. BALASUBRAMANYAN
JUDGMENT:
J U D G M E N T
(Arising out of SLP(C) No. 20764 of 2005)
P.K. BALASUBRAMANYAN, J.
1. Leave granted.
2. In spite of service of notice and in spite of repeated
conveying of information about the posting of the petition for
special leave to appeal for final disposal, the respondent has
not chosen to appear. We think we have waited enough for
the appearance of the respondent and no further indulgence is
warranted. Heard counsel for the appellant.
3. The appellant invited tenders for construction of
sheds near its Swimming Pool at an estimated cost of Rs.10.70
lakhs. Respondent No. 1 submitted its tender. The tender
form submitted by the respondent contained the following
clause:
"Clause 25A. (1) If any dispute or
difference of any kind whatsoever shall arise
between the vice-Chancellor M.D.U. Rohtak,
and the contractor in connection with or
arising out of the contract, or the execution of
the work that is (i) whether before its
commencement or during the progress of the
work or after its completion, (ii) and whether
before or after the termination, abandonment
or breach of the contract it shall in the first
instance be referred to for being settled by the
Executive Engineer in charge of the work at
the time and he shall within a period of sixty
days after being requested in writing by the
contractor to do so, convey his decision to the
contractor, and subject to arbitration as herein
after provided, such decision in respect of
every matter so referred, shall be final and
binding upon the contractor. In case the work
is already in progress, the contractor will
proceed with the execution of the work on the
receipt of the decision of the Execution
Engineer-in-charge as aforesaid, with all due
diligence whether he or Vice-Chancellor,
M.D.U., Rohtak requires arbitration as
hereinafter provided or not. If the Executive
Engineer, in-charge of the work has conveyed
his decision to the contractor and no claim to
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arbitration has been filed with him by the
contractor within a period of sixty days from
the receipt of letter communicating the
decision, the said decision shall be final and
binding upon the contractor and will not be
subject matter of arbitration at all. If the
Executive Engineer in-charge of the work fails
to convey his decision within a period of sixty
days, after being requested, as aforesaid, the
contractor may, within further sixty days of
the expiry of first sixty days from the date on
which request has been made to the Executive
Engineer in-charge request the Vice-
Chancellor, that the matter in dispute be
referred to arbitration, as hereinafter provided.
(2) All disputes or differences in respect of
which the decision not final and conclusive
shall at the request in writing of either party,
made in communication sent through
registered A.D. Post, be referred to the sole
arbitration to Vice-Chancellor, M.D.U., Rohtak
at the relevant time. It will be no objection to
any such appointment that the arbitrator so
appointed is a Government servant or that he
had to deal with the matters to which the
contract relates and that in the course of his
duties as a Government servant, he had
expressed his views on all or any of the
matters in dispute. The arbitrator to whom
the matter is originally referred being
transferred or vacating his office, his
successor-in-office, as such shall be entitled to
proceed with the reference from the stage at
which it was left by his procedure.
In case the arbitration nominated by the Vice-
Chancellor, M.D.U., Rohtak is unable to act as
such for any reason, whatsoever the Vice-
Chancellor,M.D.U., Rohtak shall be competent
to appoint and nominate and other
Superintending Engineer or Chief Engineer, as
the case may be as arbitrator in his place and
the Arbitrator so appointed shall be entitled to
proceed with the reference.
(3) It is also a term of this arbitration
agreement that no person appointed by the
Vice-Chancellor,M.D.U., Rohtak shall act as
arbitrator and if for any reason that is not
possible the matter shall not be referred to
arbitration at all.
In all cases where the aggregate amount
awarded exceeds Rs.25,000/- the arbitrator
must invariably give reason for his award in
respect of each claim and counter claim
separately.
(4) The arbitrator shall award against each
claim and dispute raised by either party
including any counter claim individually and
that any lump-sum award shall not be legally
enforceable.
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(5) The following matters shall not lie within
the purview of arbitration:-
(a) Any dispute relating to the levy of
compensation as liquidated damages which
has already been referred to the
Superintending Engineer and is being heard
or/and has been finally decided by the
Superintending Engineer in-charge of the
work.
(b) Any dispute in respect of substituted,
altered, additional work/committed
work/defective work referred by contractor for
the decision of the Superintending Engineer,
in-charge of the work if it is being heard or has
already been decided by the said
Superintending Engineer.
(c) Any dispute regarding the scope of the
work or its execution or suspension or
abandonment has been referred by the
contractor for the decision of the Vice-
Chancellor,M.D.U., Rohtak and has been so
decided finally by the Vice-Chancellor,M.D.U.,
Rohtak .
(6) The independent claim of the party other
than the one getting the arbitrator appointed,
as also counter-claims of any party will be
entertained by the arbitrator notwithstanding
that the arbitrator had been appointed at the
instance of the other party.
(7) It is also a term of this arbitration
agreement that where the party invoking
arbitration is the contractor, no reference for
arbitration shall be maintainable unless the
contractor furnishes to the satisfaction of the
Executive Engineer in-charge of the work, a
security deposit of a sum determined
according to details given below and the sum
so deposited shall, on the termination of the
arbitration proceedings, be adjusted against
the cost, if any, awarded by the arbitration
against the claimant party and the balance
after such adjustment in the absence of any
such cost being awarded, the whole of the sum
will be refunded to him within one month from
the date of the awards:
Amount of claims Rate of security deposit
i) For claim below
Rs.10,000/- 2% of amount claimed
ii) For claim of
Rs.10,000/-and
above and 5% of amount claimed
Below Rs.1,00,000/-
and above 7= % of amount claimed
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The stamp fee due on the award shall be
payable by the party as desired by the
arbitrator and in the event of such party’s
default the stamp fee shall be recoverable from
any other sum due to such party under this or
any other contract.
(8) The venue of the arbitrator shall be such
place or places as may be fixed by the
arbitrator in his sole discretion. The work
under the contract shall continue during the
arbitration proceeding.
(9) Neither party shall be entitled to bring a
claim for arbitration if appointed for such
arbitrator has not been applied within six
months.
(a) of the date of completing of the work as
certified by the Executive Engineer in-charge,
or
(b) of the date of abandonment of the work,
or
(c) of its non-commencement within 6
months from the date of abandonment or
written orders to commence the work as
applicable, or
(e) of the completion of the work through
any alternative agency or means after
withdrawal of the work from the contractor in
whole or in part and/or its recession, or
(f) of receiving an intimation from the
Executive Engineer in-charge of the work that
final payment due to or recovery from the
contractor had been determined which he may
acknowledge and/or receive. Whichever of (a)
to (e) is the latest.
If the matter is not referred to arbitration
within the period prescribed above, all the
rights and claim of any party under the
contractor shall be deemed to have been
forfeited and absolutely barred by time even for
civil litigation now with standing.
(10) It is also a term of this arbitration
agreement that no question relating to this
contract shall be brought before any civil court
without first involving and completing the
arbitration proceedings as above, if the scope
of the arbitration specified herein covers issues
that can be brought before the arbitrator i.e.
any matter that can be referred to arbitration
shall not be brought before a civil court. The
pendency of arbitration proceedings shall not
disentitle the Vice-Chancellor,M.D.U., Rohtak
to terminate the contract and make alternative
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arrangements for the completion of the work.
(11) The arbitrator shall be deemed to
have entered on the reference on the day he
issues notices to the parties fixing the first
date of hearing. The arbitrator may, from
time to time, with the consent of the parties
enlarge the initial time for making and
publishing the award.
(12) It is also a term of this arbitration
agreement that subject to the stipulation
herein mentioned, the arbitration proceedings
shall be concluded in poor ordinance with the
provisions of the Arbitration Act, 1940 or any
other law in force for the time being."
Obviously, this tender form was signed on behalf of
respondent No. 1 when it was submitted to the appellant. It
was dated 12.09.2003.
4. The tender so submitted by the respondent was
accepted by the appellant. It was stated in the letter of
acceptance, dated 22.11.2003, singed on behalf of the
appellant:
"As approved by the tender committee in its
meeting held on 12.10.2003 and further
approved by the competent authorities, the
acceptance of your tender for the work cited as
subject, is further conveyed to you on behalf of
the Registrar, M.D.U., Rohtak at the rates
contained in your tender dated 12.9.2003.
This is subject to the terms and conditions of
the approved Detailed notice inviting tender
(INIT) of the above works."
(emphasis supplied)
The date of start of the work was indicated to be "from the
date of issue of this letter." The time limit was fixed as four
months. It contained a further stipulation:
"You are requested to contact the SDE (C-1)
M.D.U. Rohtak for taking the work in hand.
The document containing the detailed terms
and conditions of the contract are ready and
you are requested to attend this office on any
working day for signing the same. No
payment will be made to you unless you sign
the contract agreement. The contract stands
concluded with the issue of this
communication."
(emphasis supplied)
The respondent, admittedly deposited an earnest
money of Rs. 10,700/-.
5. It is the case of the appellant that the site was not
demarcated. It is common case that a document containing
detailed terms and conditions of the contract as envisaged by
the acceptance letter was not signed by the parties. In the
letter dated 8.3.2004 the appellant informed the respondent
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that it had decided not to get the work executed. The letter
also called upon the respondent to get the earnest money of
Rs.10,700/- refunded.
6. The respondent issued a notice to the appellant
invoking clause 25A of the tender conditions quoted above,
calling upon the appellant to appoint an arbitrator in terms of
that clause on a claim that on acceptance of his tender, the
respondent had made arrangements for commencing the work,
had put up sheds, had engaged labourers and had procured
materials and on cancellation, losses have been incurred and
the respondent was entitled to recover the same from the
appellant. The appellant took the stand that under clause 13
of the tender conditions, the appellant was entitled to decide
not to proceed with the work and no claim, as made on the
side of the respondent, was maintainable. Clause 25A had no
application. The claims were also factually disputed.
7. In that context, respondent No. 1 invoked the
jurisdiction of the District Court under Section 11 of the
Arbitration and Reconciliation Act, 1996 (for short ’the Act’)
seeking the appointment of an arbitrator. After referring to
the invitation for tenders, its submission of tender, and of its
acceptance, the respondent also disclosed that no agreement
was signed between the parties but asserted that the
conditions mentioned in the tender form were made
applicable. The respondent requested to the court to call upon
the appellant to produce the original tender form submitted by
the respondent. The appellant accepted the fact that the
tender of the respondent had been accepted. But the
appellant was not liable to pay any damages in view of clause
13 of the tender conditions. No payment was to be made
unless the contract agreement was signed. It also contended
that the dispute that was sought to be raised by the
respondent was outside clause 25A of the tender conditions
relied on by the respondent.
8. The District Judge, controlled as he then was, by
the decision in Konkan Railway Corporation Ltd. & Anr. vs.
Rani Construction Pvt. Ltd. (2002 (2) SCC 388), appointed
the Superintending Engineer as arbitrator by relying on clause
25A of the tender conditions, leaving it to the parties to raise
all objections, including the objection to his jurisdiction,
before the arbitrator in terms of Section 16 of the Act. Feeling
dissatisfied, the appellant filed a writ petition before the High
Court relying on the decision of this Court that since the order
based on the application under Section 11 was an
administrative order, a writ petition was maintainable, by
referring to State of Orissa and others vs. Gokulananda
Jena (2003 (6) SCC 465 = AIR 2003 SC 4207). The High
Court held that the objections sought to be raised could be
raised by the appellant before the arbitrator and there was no
reason for the High Court to interfere with the order
appointing an arbitrator in the circumstances of the case. It is
feeling aggrieved thereby that the appellant has come up with
this appeal by special leave.
9. Learned counsel for the appellant submitted that no
contract as contemplated by the parties containing the
detailed terms and conditions was signed by the parties and in
the circumstances there was no arbitration agreement as
understood in the Act justifying the appointment of an
arbitrator. Counsel brought to our notice Section 7 of the Act.
Counsel also referred to the fact that in the subsequent
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decision in S.B.P. & Company vs. Patel Engineering Ltd. &
Anr. (2005 (8) SCC 618) this Court has overruled the decision
in Konkan Railway Corporation Ltd. & anr. (supra) and the
ratio thereof is no more available to the respondent. Counsel
also referred to the decision in Willington Associates Ltd. vs.
Kirit Meta (2000(4) SCC 272) to submit that a question
whether there was an arbitration clause or not, had to be
decided by the court even under the dispensation recognized
by the earlier decision in Konkan Railway Corporation Ltd.
& anr. (supra). Counsel submitted that in view of the fact that
a contract in writing had not come into existence by both the
parties by affixing their signatures as contemplated by them,
there was no concluded contract in the case on hand and it
was just and necessary to interfere with the order appointing
the arbitrator. As we have indicated earlier, the respondent
has not chosen to appear before us to answer these
contentions.
10. The present case is governed by the procedure that
was available when Konkan Railway Corporation Ltd. & anr.
(supra) held the field. That orders already made were not to be
affected by the ratio of the decision in S.B.P. & Company
(supra) is clear from paragraph 46 of that decision wherein
prior orders and proceedings have been saved. Therefore, the
only question for decision is whether the fact that the parties
have not signed the contract containing the detailed
specifications as contemplated by the letter of acceptance
would preclude the respondent from seeking an arbitration by
falling back on clause 25A of the tender conditions quoted
above. It is true that when parties during negotiations
contemplate the execution of a formal agreement incorporating
the terms of the bargain, so long as a formal agreement has
not been entered into, it may be open to contend that there
was no concluded contract between the parties. As against
this, what is the position in a case where the tender submitted
is accepted, its acceptance conveyed and the time for
completing the work is stipulated to start from such
acceptance, and the work was to commence on the basis of
that acceptance but no payment was to be made until a formal
contract was signed, is the first question that arises in this
case. We think that in the circumstances, this is a question
that must be left to be decided by the arbitrator, since in
terms of Section 16 of the Act the question can be raised
before the arbitrator. Considering that we are dealing with
the pre S.B.P. & Company (supra) dispensation, we do not
think that it is necessary or proper for us to go into that
question and decide the same in these proceedings. Same is
the position regarding the scope of clause 13 of the tender and
the clauses relied on by counsel for the appellant in his
attempt to take the present claim out of clause 25A of the
tender conditions. We are, therefore, satisfied that it would be
appropriate to leave this question, as also the other questions
to be decided by the arbitrator rather than our trying to
answer them at this stage in view of the fact that this case is
not governed by the principles recognized by S.B.P. &
Company (supra).
11. But we make it clear that the arbitrator, in the first
instance, has to decide whether the existence of an arbitration
agreement in terms of Section 7 of the Act is established and
also to decide whether the claim now made is a claim that
comes within the purview of clause 25A of the tender
conditions in case it is found to be an agreement within the
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meaning of Section 7 of the Act. Only on deciding these two
aspects can the arbitrator go into the merits of the claim made
by the respondent. But we clarify that it does not mean, that
he should treat these two aspects as preliminary issues and
decide them first; but only that he must decide them without
fail while proceeding to finally pronounce his award.
12. In this view of the matter, we see no reason to
interfere with the appointment of an arbitrator. We dismiss
this appeal giving liberty to the parties to raise all their
contentions based on lack of jurisdiction of the arbitral
tribunal before the arbitrator. The arbitrator will permit the
appellant to amend or supplement the objections already filed
by it if it is felt necessary by the appellant. We make no order
as to costs.