Judgment :-

R.V. Raveendran, J.

Leave granted. Heard both parties.

2. The Vamanapuram Block Panchayat, first respondent herein, entered into a "contract agreement" dated 15.3.1999 with the appellant under which the work of "RIDF-III, Pangode Sivakshetram - Thannichal Road improvements" was entrusted to her as per the articles of agreement, plans, specifications and conditions of contract approved by the Superintending Engineer, Commissionerate of Rural Development, State of Kerala. The Articles of agreement confirmed that the contractor had also signed the copy of the Madras Detailed Standard Specifications (for short `MDSS) and addenda volume thereto in acknowledgement of being bound by all the conditions of the clauses. The MDSS which thus became a part of the contract between the parties, provided for settlement of disputes by arbitration vide clause 73 which is extracted below :

"73. Arbitration.--In case of any dispute or difference between the parties to the contract either during the progress or after the completion of the works or after the determination, abandonment, or breach of the contract as to the interpretation of the contract, or as to any matter or thing arising thereunder except as to the matters left to the sole discretion of the Executive Engineer under clauses 20, 22, 27(c), 29, 36, 37 and 40 of the Preliminary Specification, or as to the withholding by the Executive Engineer of payment of any bill to which the contractor may claim to be entitled, then either party shall forthwith give to the other notice of such dispute or difference, and such dispute or difference shall be and is hereby referred to the arbitration of the Superintending Engineer of the nominated circle mentioned in the `Articles of Agreement" (hereinafter called the "arbitrator") and the award of such arbitrator shall be final and binding on the parties."

1.3. Certain disputes having arisen in respect of the said contract, the appellant, by letter dated 28.12.2000, sought reference to arbitration of its claims aggregating to Rs.13,06,936/- in terms of the aforesaid arbitration clause contained in the MDSS forming part of the agreement. The Block Development Officer, Vamanapuram Panchayat, sent a reply dated 4.1.2001 denying the claims and informing the contractor that if she did not resume the work, the contract would be terminated at her risk and cost. The respondents, however, did not deny the existence of the arbitration agreement in the said reply.

2.4. Thereafter, the appellant filed an application under section 11 of the Arbitration & Conciliation Act, 1996 (`Act for short) seeking appointment of an Arbitrator. The first respondent filed a counter denying the claims and also contending that there was no arbitration agreement. The said application was dismissed by the designate of the Chief Justice of the High Court by order dated 13.1.2003. He considered the contention of the appellant that there was an arbitration agreement in terms of clause 73 of MDSS for resolving the disputes. He also referred to the contention of the respondents that the government had decided to scrap arbitration by Government Order dated 19.11.1988, relevant portions of which read as under :

"On a detailed examination of the matter, Government finds that the system of arbitration has generally gone against the interests of the government and therefore, government has decided to stop altogether the system of referring the disputes for arbitration under any circumstances.

Accordingly, Government orders the following :

.(1) xxxxxxxx

.(2) Disputes and differences arising between the department and the contractors in the PWD contracts shall not be referred to arbitration hereafter and all provisions relating to arbitration in the tender documents shall be deleted or scored off under the signature of the executing parties. However, if any work is financed by an agency and that agency insists to have provision for arbitration, provision for arbitration may be provid