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2023 Supreme(SC) 1055
SUPREME COURT OF INDIA
Dhananjaya Y Chandrachud, CJI., J B Pardiwala, Manoj Misra, JJ.
Solaris Chem Tech Industries Ltd. - Appellant
Versus
Assistant Executive Engineer Karnataka Urban Water Supply and Drainage Board & Anr - Respondents
Civil Appeal No 6609 of 2023 (Arising out of SLP (C) No 21920 of 2018)
Decided On : 10-10-2023
For the Petitioner(s): Mr. Dalip Kumar Malhotra, AOR
For the Respondent(s): Mr. Darpan Km, Adv. Ms. Amrita Sharma, Adv. Ms. Rashi Bansal, AOR Mr. Mr. Rajat Jonathan Shaw, Adv.
The main legal point established in the judgment is that the settlement of disputes clause in an agreement must satisfy the requirements of an arbitration agreement as defined by the Arbitration and Conciliation Act 1996. The court clarified that the Chief Engineer, as designated in the agreement, did not meet the criteria of an impartial arbitral tribunal, leading to the conclusion that the High Court erred in relegating the parties to the Chief Engineer under the agreement.
Headnote:
Water Tariff Dispute - Karnataka Urban Water Supply and Drainage Board - Karnataka Urban Water Supply and Drainage Board Act, 1973, Arbitration and Conciliation Act 1996 - The court examined the validity of the water tariff dispute between the appellant and the Karnataka Urban Water Supply and Drainage Board. It concluded that the settlement of disputes clause in the agreement did not constitute an arbitration agreement, and therefore, the High Court erred in relegating the parties to the Chief Engineer under the agreement. The court allowed the appeal and set aside the judgments of the Single Judge and the Division Bench, restoring the writ petition to the High Court for a fresh decision.
Fact of the Case:
The appellant set up a factory for the manufacture of Caustic Soda and entered into agreements with the Karnataka Urban Water Supply and Drainage Board for the supply of water at concessional rates. Disputes arose when the Board sought to implement new water rates, leading to the appellant filing a Writ Petition challenging the notices issued by the Board.
Finding of the Court:
The court found that the settlement of disputes clause in the agreement did not constitute an arbitration agreement, and the High Court erred in relegating the parties to the Chief Engineer under the agreement. The court allowed the appeal, set aside the judgments of the Single Judge and the Division Bench, and restored the writ petition to the High Court for a fresh decision.
Issues: The main issue was whether the High Court was justified in dismissing the Writ Petition and the Writ Appeal on the strength of the settlement of disputes clause in the agreements between the parties.
Ratio Decidendi: The court held that the settlement of disputes clause in the agreement did not constitute an arbitration agreement as defined by the Arbitration and Conciliation Act 1996. It emphasized that the Chief Engineer did not have the trappings of an arbitral tribunal and was an employee of the Board, thus lacking impartiality. Therefore, the High Court erred in relegating the parties to the Chief Engineer under the agreement.
Final Decision: The court allowed the appeal, set aside the judgments of the Single Judge and the Division Bench, and restored the writ petition to the High Court for a fresh decision.
ORDER :
1. Leave granted.
2. This appeal arises from a judgment dated 18 June 2018 of a Division Bench of the High Court of Karnataka at the Dharwad Bench. The Division Bench has dismissed a Writ Appeal and thereby affirmed the correctness of an order dated 27 February 2018 of a Single Judge dismissing the writ petition filed by the appellant.
3. The appellant set up a factory in 1975 for the manufacture of Caustic Soda at Village Binaga in North Kanara District, Mysore. On 5 July 1971, an agreement was entered into between the Government of Mysore and the appellant for the continuous supply of water at concessional rates for the operation of the factory. The agreement was valid for a period of 20 years from the commencement of production. On 3 April 1987, the State Government constituted the Karnataka Urban Water Supply and Drainage Board1[“The Board”] in accordance with the Karnataka Urban Water Supply and Drainage Board Act, 1973. The Board was supplying water to the appellant for industrial use as well as for non-domestic use.
4. It appears that the original agreements were replaced by subsequent agreements dealing with the supply of water for industrial and non-domestic use. The last of the agreements, relevant to the present dispute, was entered into on 11 November 2011 for the supply of water to be charged for non-domestic use and industrial use respectively. These agreements were effective from 27 October 2011 until 26 October 2014. In terms of the agreements, the tariff for the supply of water for industrial use was fixed at Rs 18.40 per kL and Rs 9.20 per kL for non-domestic use. Between 6 June 2014 and 16 September 2014, water bills were raised on the appellant based on the tariff fixed in the agreements dated 11 November 2011.
5. On 18 July 2014, a demand notice was received by the appellant from the Assistant Executive Engineer by which new water rates were sought to be implemented and the appellant was called upon to pay the differential amount with effect from 20 July 2011 till 30 June 2014. The relevant part of the communication is extracted below:
“…the Board is supplying bulk water to your Industry & Quarters at Binaga, Karwar @ Rs.18.40/KL & Rs.9.20/KL respectively vide rate approved under ref (1). In the Government order under ref (2) the water rates are revised as under :
| Slabs | Industrial Rates | Non-domestic Rates |
| 0-8 KL | @ Rs.28.00/- KL | @ Rs.14.00/KL |
| 8-15 KL | @ Rs.36.00/ KL | @ Rs. 18.00/KL |
| 15 - 25 KL | @ Rs.44.00/ KL | @ Rs.22.00/ KL |
| Above 25 KL | @ Rs.52.00/KL | @ Rs.26.00/KL |
During the audit of this Sub-Division, the Board's Resident Audit Officer have raised an audit para for non-revision of water rate & instructed to implement the new water rates & collect the difference amount from all the consumers from the date of G.O. Accordingly the 2Nos. difference bills for the period from 20-07-2011 to 30-06-2014 including arrears for your industrial & Non-domestic supply total amounting to Rs.8,22,62,337.00 are submitted for making payment.”
6. The appellant responded to the demand on 5 August 2014 and expressed readiness to enter into negotiations with the Karnataka Urban Water Supply and Drainage Board. On 22 September 2014, another notice was issued stating that the Board operates on a no-profit-no-loss basis, and is liable to pay dues to HESCOM2[Hubli Electricity Supply Company Limited]. The notice stated that the Board’s failure to pay HESCOM its dues would impact upon electricity and water supply. Citing losses caused to the Board, and the audit officers’ objections against the non-revision of water bills under government orders, the notice requested payment of arrears, in accordance with the revised rates.
7. On 15 October 2014, the appellant requested the respondent to withdraw the notice demanding arrears. In a Writ Petition under Article 226 of the Constitution
