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High Court Of Delhi
SUSHILA SETH - Appellant
Versus
STATE OF MADHYA PRADESH - Respondent
First Appeal (OS) 14 of 1972
Decided On : 02/27/1980
ARBITRATION - APPOINTMENT OF ARBITRATOR - CLAUSE 25 OF THE CONTRACT - INTERPRETATION - WHETHER VAGUE - WHETHER REFERENCE TO ARBITRATION COULD BE MADE - SECTION 8 (1) (B) OF THE ARBITRATION ACT - WHETHER VACANCY OF ARBITRATOR INTENDED TO BE SUPPLIED - WHETHER ARBITRATOR APPOINTED UNDER CLAUSE 25 WAS SUCH THAT VACANCY CREATED BY HIS INABILITY OR UNWILLINGNESS TO FUNCTION AS SUCH WAS INTENDED TO BE SUPPLIED BY THE COURT.
Fact of the Case:
The appellant, a contractor, entered into a contract with the respondent, Government of Madhya Pradesh, for the construction of cross drainage and cross-communication works on the right main canal groups I and II in the Chambal Project. Clause 25 of the contract provided that the decision of the Chief Engineer of the circle for the time being shall be final, conclusive, and binding on all parties to the contract upon all questions relating to the meaning of the specifications, designs, drawings, and instructions, as well as any other question, claim, right, matter, or thing whatsoever arising out of or relating to the contract. Disputes arose between the parties, and the appellant made an application under Section 20 of the Arbitration Act to the High Court for reference of the dispute to arbitration. The application was dismissed by a single Judge on the ground that Clause 25 was vague and it could not be ascertained from it as to which particular Chief Engineer was to be the arbitrator to decide the dispute between the parties.
Finding of the Court:
The High Court held that Clause 25 of the contract amounted to an arbitration agreement and that the words "Chief Engineer of the circle for the time being" meant the Chief Engineer who held the office at the time the disputes arose. The Court further held that the abolition of the office of the Deputy Chief Engineer on 6.9.1968 during the pendency of the petition did not mean that any reference to arbitration by the Court thereafter would be to supply a vacancy within the meaning of Section 8 (1) (b) of the Arbitration Act. The Court found that the particular arbitrator appointed under Clause 25 was such that the vacancy created by his inability or unwillingness to function as such was not intended to be supplied by the Court within the meaning of Section 8 (1) (b) of the Arbitration Act.
Issues: 1. Whether Clause 25 of the contract amounted to an arbitration agreement? 2. Whether the words "Chief Engineer of the circle for the time being" were vague and uncertain? 3. Whether the abolition of the office of the Deputy Chief Engineer on 6.9.1968 during the pendency of the petition meant that any reference to arbitration by the Court thereafter would be to supply a vacancy within the meaning of Section 8 (1) (b) of the Arbitration Act? 4. Whether the particular arbitrator appointed under Clause 25 was such that the vacancy created by his inability or unwillingness to function as such was intended to be supplied by the Court within the meaning of Section 8 (1) (b) of the Arbitration Act?
Ratio Decidendi: 1. Clause 25 of the contract was an arbitration agreement because it provided for the decision of disputes between the parties by the designated authority, and the words "dispute" and "decision" implied a quasi-judicial procedure to be followed by the Chief Engineer. 2. The words "Chief Engineer of the circle for the time being" meant the Chief Engineer who held the office at the time the disputes arose, and the abolition of the office of the Deputy Chief Engineer on 6.9.1968 during the pendency of the petition did not mean that any reference to arbitration by the Court thereafter would be to supply a vacancy within the meaning of Section 8 (1) (b) of the Arbitration Act. 3. The particular arbitrator appointed under Clause 25 was such that the vacancy created by his inability or unwillingness to function as such was not intended to be supplied by the Court within the meaning of Section 8 (1) (b) of the Arbitration Act because the nature of the disputes, the reason why a particular officer or authority was designated to be the arbitrator, and the necessity of the continuation of the office held by the designated person all indicated that the vacancy was not intended to be supplied.
Final Decision: The High Court allowed the appeal and directed that the dispute between the parties be referred to Mr. S. P. Caprihan, the retired Deputy Chief Engineer, Chambal Project, for arbitration. The Court also fixed the remuneration payable to Mr. Caprihan at Rs. 3000.00, subject to the parties being later heard by the Court in making the final assessment.
( 1 ) THIS is an appeal by the contractor who by an application under Section 20 of the Arbitration Act had claimed that the dispute between the contractor and the respondent. Government of Madhya Pradesh, be REFERRED TO arbitration. The application was dismissed by a learned single Judge of this Court on the ground that Clause 25 of the contract designating the arbitrator was vague and it could not be ascertained from it as to which particular Chief Engineer was to be the arbitrator to decide the dispute between the parties. The Government had contended that Clause 25 of the contract did not amount to arbitration agreement at all. But that contention was negatived by the learned single Judge.
( 2 ) THE undisputed facts out of which these questions for decision arose are briefly as below: The contract was entered into between the parties on 16. 4. 1957 by which the appellant was to do construction of cross drainage and cross-communication works or the right main canal groups I and II in the Chambal Project in Madhya Pradesh. Clause 25 of the contract was as below:
"except where otherwise specified in the contract the decision of the C. E. of the circle for the time being shall be final conclusive and binding on all parties to the contract upon all questions relating to the meaning of the specifications, designs, drawings, and instructions hereinbefore mentioned and as to the quality of workmanship, or materials used on the work, or as to any other question, claim, right, matter or thing whatsoever in any way arising out of, or relating to the contract, designs, drawings, specifications, estimates, instructions, order or their conditions or otherwise concerning the works, or the execution work or failure to execute the same, whether arising during the progress of the work, or after the completion or abandonment thereof. "
( 3 ) DISPUTES arose between the parties and the appellants made an application on 25. 5. 1968 under Section 20 of the Arbitration Act to this Court for reference of the dispute to the arbitration of the designated arbitrator. The application was resisted by the Government on the ground that Clause 25 was not an arbitration clause at all, but it simply authorised the concerned Chief Engineer to decide the dispute between the parties and that such decision had already been taken and, therefore, there was nothing which could be REFERRED TO arbitration. It was also stated for the Government that the post of the "chief Engineer of the Circle" was abolished on 17. 7. 1961 and thereafter the duties of that post were performed by the Deputy Chief Engineer, Chambal Project which post itself was in existence only till 6. 9. 1968. From 7. 9. 1968 the latter post was also abolished and instead a circle was formed headed by a Superintendent Engineer. It was stated for the Government that the last incumbent holding the post of Deputy Chief Engineer of the Chambal Project was Mr. S. P. Caprihan, who has retired from service from July, 1979 and his present address is G-227, Defence Colony, New Delhi.
( 4 ) THE first question which arises for decision is whether Clause 25 of the contract amounts to an arbitration agreement. As pointed out by us in our order of 16. 1. 1980 this clause 25 ought to be reasonably construed as amounting to an arbitration clause because a decision of a dispute necessarily involves the hearing of the parties and this is the essence of arbitration. It cannot be that the dispute is decided by the Chief Engineer of the circle behind the back of the contractor or without hearing him and without any quasi-judicial procedure being followed. The principles relating to natural justice have advanced too far for such an argument being accepted by a Court of law which is also a Court of justice. We have, therefore, no difficulty in agreeeing with the learned single Judge that a more persual of Clause 25 of the contract is sufficient to show that the disputes under the contract had to be de
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