The main legal point established in the judgment is that the Government Orders did not provide for arbitration in claims exceeding Rs. 50,000, and the State's participation in the arbitration proceedings without protest constituted a waiver of its right to challenge the appointment of the arbitrator.

R.V. Raveendran J. - The first respondent (State of A.P.) entered into an agreement dated 22.6.1987 in regard to execution of the work "Ongole Water Supply Improvement Scheme with NS canals as a source" in pursuance of acceptance of appellants tender on 31.3.1987.

2. By GOM No. 430 dated 24.10.1983, the first respondent issued the following revised procedure in regard to arbitration introduced by GOM dated 31.7.1975. The relevant portions of the revised procedure (paras 2, 3 & 4) are extracted below :

GOM No. 430 [Irrigation (IRA V) Dept, dated 24.10.1983

"x x x x x

2. The question of revising the above procedure has been receiving the attention of government for some time past. The government, after careful consideration of various aspects to issues involved direct the procedure be revised as follows :

Value of Amount Panel of Arbitrators

1. Claims upto Rs. 10,000/- Superintending Engineer of another Circle

2. Claims above Rs. 10,000/- upto Rs. 50,000/- (a) Another Chief Engineer of the same Department.

(b) Where there is only one Chief Engineer

3. Claims above Rs. 50,000/- Court of competent jurisdiction.

3. Claims means all claims in the contract.

4. The orders referred to in paras 2 and 3 above shall be applicable to all the agreements entered into by Govt. from the date of issue of this order and will be applicable to all the Engineering Departments, in the State Govt. referred to para (6) ."

x x x x x x x x x x x

The above GOM dated 24.10.1983 was revised by GOM No. 160 dated 1.6.1987 as follows :

"ORDER

Govt., after careful consideration of various aspects, issued orders in para (2) of the G.O. read above prescribing the revised procedure for arbitration.

2. It has come to the notice of the Govt., that some of the contractors are approaching Courts to decide the claims above Rs. 50,000/- under the provisions of the Arbitration Act taking advantage of para 2(3) of the G.O. read above. The intention of the Govt. incorporating the above provision is to dispense with the Arbitration proceedings in respect of claims above Rs. 50,000/- and leave the parties to have their remedy in Civil Court. As some of the contractors have misconstrued that the claims above Rs. 50,000/- have to be decided under the Arbitration Act and not under ordinary Law in a regular civil Court, the Govt., direct that the following amendments to G.O. MS. No. 430, I(Irr.V) Deptt., dated 24-10-1983 be issued by way of clarification :-

(i) Item (3) of para (2) may be deleted.

(ii) Substitute para (3) by the following.

"All claims above Rs. 50,000/- shall be decided by the Civil Court of competent jurisdiction by way of a regular suit."

(iii) Para 3 to 7 are renumbered as para 4 to 8."

3. By letter dated 15.2.1990 the appellant lodged fourteen claims (of which claims 12, 13 and 14 related to pre-reference, pendente lite and future interest respectively) in regard to the said work, with the first respondent and demanded payment. As the first respondent did not settle the claims, the appellant filed a petition before the Sub-ordinate Judge, Nellore, under Clause 73 of the A.P. Standard Specifications, requesting the said court to act as the arbitrator and settle the claims, in terms of the provision for arbitration, contained in the contract dated 22.6.1987. This was on the assumption that Item (3) of para 2 of GOM dated 24.10.1983 required all claims above Rs. 50,000/- to be decided by arbitration, the named Arbitrator being the court of competent jurisdiction. The Sub-ordinate Judge, by order dated 17.4.1990, held that he could not act as an arbitrator. Thereafter, the appellant issued a notice dated 6.6.1990, under section 8 of the Arbitration Act, 1940 (Act for short) seeking reference of the disputes to arbitration and furnished a panel of three names with a request to the State Government to concur in the appointment of any one from that Panel as sole arbitrator for adjudicating the disputes raised in his claim letter dated 15.2.1990. As there was no response