1999 Supreme(SC) 66

1999(1) Supreme 166
Supreme Court of India
(From Allahabad High Court)
Mrs. Sujata V. Manohar & R.C. Lahoti, JJ.
Bharat Bhushan Bansal -Appellant
versus
U.P. Small Industries Corporation Ltd. Kanpur -Respondent
Civil Appeal No. 1940 of 1984
Decided on 21.01.1999
Counsel for the Parties :
For the Appellant : K.K. Mohan, Advocate.

Headnote:Arbitration Act, 1940-Sections 2(a) and 8-Arbitration agreement -Arbitration clause-Ingredients of -Agreement must contem­plate determination of substantive rights of parties by agreed Tribu­nal-Agree­ment of parties to refer disputes to decision of Tribunal must be intended to be enforceable in law-Difference between expert and arbitrator-Clause in contract provided in respect of certain claims decision of executive Engineer and in respect of remaining matter Managing Director of respondent will be final, conclusive and binding on both parties-No duty casts on Managing Director to record evidence or hear parties-Clause does not contemplate full fledged arbitration covered by Arbitration Act-Managing Director is more in category of an expert-Intention of parties to leave any dispute to arbitration cannot be spell out from clause in question - Application under Section 8 misconceived.

       Held : Two important ingredients of an arbitration clause 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. (Para 4)

       In the instant case the relevant clauses are Clauses 23 and 24. Under Clause 23, the decision of the Executive Engineer is final, conclusive and bind­ing on both the parties to the contract on all questions relating to the meaning, specifications, designs etc. and as to the quality of workmanship or material used or relating to any other question what­soever in any way arising out of or relating to the designs, drawings, specifications etc. or otherwise concerning the execution or failure to execute the same. Under Clause 24, except as provided in Clause 23, the decision of the Managing Director of the respondent shall be final, conclusive and binding on both the parties to the contract upon all questions relating to any claim, right, matter or thing in any way arising out of or relating to the contract and in respect of all other matters arising out of the contract and not specifically mentioned in the said clause. Therefore, in respect of certain claims the decision of the Executive Engineer is final and binding on both the parties to the contract. While in respect of the remaining matters, the decision of the Managing Director of the respondent is final, conclusive and binding on both the parties to the contract. Clause 24 does not men­tion that any dispute can be referred to the arbitration of the Manag­ing Director. Clause 24 also does not spell out any duty on the part of the Managing Director to record evidence or to hear both parties before deciding the questions before him. From the wording of Clause 24 it is difficult to spell out any intention of the parties to leave any disputes to the adjudication of the Managing Director of the re­spondent as an arbitrator. (Para 3)

       Reading Clauses 23 and 24 together, it is quite clear that in respect of questions arising from or relating to any claim or right, matter or thing in any way connected with the contract, while the decision of the Executive Engineer is made final and binding in respect of certain types of claims or questions, the decision of the Managing Director is made final and binding in respect of the remaining claims. Both the Executive Engineer as well as the Managing Director are expected to determine the question or claim on the basis of their own investigations and material. Neither of the clauses contemplates a full-fledged arbitration covered by the Arbi­tration Act. In the present case the Managing Director is more in the category of an expert who will decide claims, rights, or matters in any way pertaining to the contract. The intention appears to be more to avoid disputes than to decide formulated disputes in a quasi-judicial man­ner. (Paras 5 & 9)

       Since Clause 24 does not contemplate any arbitration, the applica­tion of the appellant under Section 8 of the Arbitration Act, 1940 was misconceived. (Para 10)