1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY NAGPUR BENCH, NAGPUR. MISC. CIVIL APPLICATION Nos. 1480 & 1481 OF 2008, M/s. B. Narayan & Associates, Thane by its Partner Shri Narayan Hemdas Bhatia. ....APPLICANT. VERSUS The City of Nagpur Corporation, Nagpur through its Municipal Commissioner and another. ....NON-APPLICANTS. ----------------------------------- Shri K.H. Deshpande, Senior Advocate with Shri M.P. Lala, Advocate for Applicant. Shri C.S. Kaptan, Advocate for the Non-applicants. ------------------------------------ CORAM : B.P. DHARMADHIKARI, J. Date of reserving the Order - 25.06.2010. Date of Pronouncement. - 02.07.2010. 2 O R D E R. 1. Applicants seek appointment of an Arbitrator under Section 11(5) of the Arbitration and Conciliation Act,1996, referred to as Arbitration Act hereafter. The dispute in present matter is only about the availability of the provision for such arbitration in agreement between the parties. According to Applicants clause 29 is that provision while as per the Respondents, said clause can not be construed as one making provision for arbitration. Except this there is no dispute about the existence of an arbitrable dispute or service of statutory notice for invoking arbitration. 2. Before proceeding further, it will be appropriate to reproduce that clause contained in agreement of construction of cement concrete road from “Gangabai Ghat bridge to Umrer road Tiranga square”. Applicants' offer dated 18/12/1996 was accepted by the standing committee of Respondents on 26/5/1997 and its City Engineer issued work order no. 12/CE/Rd. On 12/6/1997. There is no dispute between parties about the conditions of contract. Clause 29 is contained is one of the conditions of contract. Both 3 parties have relied on clause 29 only and even while addressing this Court, attention has not been invited to any other conditions as relevant for the purpose. Said clause is as under :- Clause 29(1)-----“Except where otherwise specified in the contract and subject to the powers delegated to him by NMC under the Code rules then in force, the decision of the Superintending Engineer of the NMC 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 herein before mentioned and as to the quality of workmanship or material 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, orders of these conditions, or otherwise concerning the works or the execution, or failure to execute the same, whether arising during the progress of the work, or after the completion or abandonment thereof. 2. The Contractor may within 30 days of the receipt of the order passed by the Superintending Engineer NMC appeal against Municipal Commissioner it to the provided that-- (a) The accepted value of the contract exceeds Rs.10 Lakhs (Rupees Ten Lakhs (b) Amount of claim is not less than Rs. 1.00 Lakh ( Rupees One 4 Lakh)” (Underlined words should read “ orders or these conditions ”? & against it to the Municipal Commissioner ) 3. Shri Deshpande, learned Senior Counsel after reading out the above clause (1) contends that the words therein are very wide and cast obligation upon the Superintending Engineer to adjudicate as his decision is final and binding on parties. He supervises the contract and ensures that its working is as per agreement, adjudicates the disputes and his decision is accepted to be final and binding. The provisions of Section 7 of Arbitration Act are therefore satisfied. The absence of words like reference, indicating opportunity of hearing, arbitration or arbitrator is not material and intention of parties apparent therefrom only needs to be honoured. Support is being taken from (2003) 7 SCC 418-AIR 2003 S. C. 3688 (Bihar State Mineral Dev. Corpn. v. Encon Builders (I) Pvt. Ltd.). In order to demonstrate how the language of similar provision is construed by Hon'ble Apex Court, he relies on judgment of Hon'ble 3 Judges of that Court reported at (2004) 1 SCC 372-- AIR 2004 S.C. 5 716-- (Mallikarjun v. Gulbarga University), with further reference to its earlier judgment of Hon'ble 2 Judges reported at (1999) 2 SCC 166--AIR 1999 S.C. 899-- (Bharat Bhushan Bansal v. U.P. Small Industries Corporation Ltd.). He has attempted to press the distinctive features noted by later larger bench to urge that Hon'ble Apex Court in earlier judgment had construed similar clause differently because of facts and circumstances before it. According to him the law on the point stands declared in paragraph 16 of the larger bench judgment. The remedy of Appeal prescribed by clause 29(2) here is an additional indication that the Superintending Engineer has to arbitrate in disputes between parties. Such an appeal is in the nature of second submission to arbitration and multi-tier arbitration is not inconsistent with Arbitration Act. He sites the Division Bench judgment of this Court reported at 2007 (9) LJSOFT 45=2008(1) B0M.C.R. 767-- (Dowell Leasing and Finance Ltd. Vs. Radheshyam B. Khandelwal and ors), to buttress this stand. Lastly interpretation of same clause by this Court in earlier Section 11 Arbitration Act proceedings on 23/3/2006 in MCA 739/2005 in favour of Applicant and rejecting the contentions of Respondents is pointed out to state that it clinches the present issue also. 6 4. Shri C.S. Kaptan, learned Counsel for Respondents has urged that clause 29 is in two parts and clause (2) thereof permits an Appeal only to contractor that too in limited contingencies ie. when accepted value of contract is more than Rs. Ten Lakhs and also amount claimed (in dispute) is Rs. One Lakh or more. This limited provision therefore can not be utilized to hold that the preceding clause contemplates a reference to the arbitrator. He therefore takes the Court through Mallikarjun v. Gulbarga University (supra) and endevours to explain how appreciation therein is in furtherance of law as laid in Bharat Bhushan Bansal v. U.P. Small Industries Corporation Ltd.(supra). He urges that in Mallikarjun v. Gulbarga University (supra) the Superintending Engineer nominated as an arbitrator was totally a 3rd party. Shri Lala, learned counsel has urged in reply that engineer actually supervising the work was not superintending engineer at all. 5. Consideration of a provision for appellate forum in agreement in Dowell Leasing & Finance Ltd. Vs. Radheshyam B. 7 Khandelwal & ors. (supra) clearly shows that there the controversy was not about existence or otherwise of the arbitration clause. The validity of provision for appeal against award made in bye-law 274-A was the issue. Said clause permits appeal against an award by the arbitrators to the appeal bench comprising of 5 arbitrators. It also stipulates how the appeal bench is to be constituted and compliance with condition precedent of deposit of amount as per impugned award. The bye-law 260 and bye-law 274-A are harmoniously construed and this award in appeal is found open to challenge as per Section 34 of the Arbitration Act as per bye-law 260. These bye- laws are stated in para 3 of its judgment by the Division Bench. This Court found language of bye-law 274A not mandatory but directory leaving it open to any of the parties aggrieved by the Award of the Tribunal, to prefer an appeal in terms of the bye-laws which forms a part of their contractual terms, in stead of challenging the Award under section 34. Therefore, bye Law 274-A is held to be not ultra vires the provisions of the Arbitration Act. It is clear that there is no such challenge before me and hence further reference to this precedent is uncalled for. It is to be noted that clause 29(2) before me expressly permits the contractor only to approach municipal 8 commissioner in appeal and it is again a provision which uses the word “may” and therefore not mandatory one. As an appeal against the decision of the Superintending Engineer is contemplated, it is clear that the Superintending Engineer has to assign reasons to place on record his line of reasoning and appreciation of rival stance in the light of material on record. Clause (1) makes the decision of S.E. Binding on NMC i.e. Respondents and clause (2) denies them a right of appeal. Appeal by the contractor is also to the principal or chief executive officer of NMC. Both clauses need to be viewed & construed harmoniously thereby implying that finality given to decision of S.E. qua NMC also attaches itself to decision in appeal by the municipal commissioner. Dowell Leasing & Finance Ltd. Vs. Radheshyam B. Khandelwal & ors. (supra) was not required to consider such finality and arrangement. 6. In Bihar State Mineral Dev. Corpn. v. Encon Builders (I) Pvt. Ltd.(supra) the question before Hon'ble Apex Court was whether order refusing to make reference was proper or not. The Hon'ble Bench holds the essential elements of an arbitration agreement as : (1) There must be a present or a future difference in connection with 9 some contemplated affair. (2) There must be the intention of the parties to settle such difference by a private Tribunal. (3) The parties must agree in writing to be bound by the decision of such Tribunal. (4) The parties must be ad idem. Said judgment in later paras noticed that in K. K. Modi's case (AIR 1998 SC 1297), Cl. 9 of a memorandum of agreement came up for consideration, which was in these terms : "Implementation will be done in consultation with the financial institutions. For all disputes, clarifications etc. in respect of implementation of this agreement, the same shall be referred to the Chairman, IFCI or his nominees whose decisions will be final and binding on both the groups." and it was held that the same did not constitute an arbitration clause. In Tipper Chand's case (AIR 1980 SC 1522) , the following clause was not held to be an arbitration clause : "For any dispute between the contractor and the Department the decision of the Chief Engineer, PWD, Jammu and Kashmir, will be final and binding upon the contract." But ultimately the decision in the matter has been due to bias of the managing director. This decision is followed in AIR 2007 S.C . 2157 "Punjab State v. Dina Nath" by the Hon'ble Apex Court wherein it is held that the arbitration agreement has to be in writing but need not be in any particular 10 form. If intention of parties to refer dispute to arbitration and to abide by that decision is clear the arbitration agreement comes into existence. Use of words 'arbitration' and 'arbitrator' in clause is held not necessary for that clause to be treated as arbitration agreement. Perusal of this judgment further reveals that keeping the ingredients as indicated by it in the case of K. K. Modi (supra) for holding a particular agreement as an arbitration agreement, case before it was examined by the Hon'ble Apex Court and it noted that -- [a] Clause 4 of the Work Order categorically stated that the decision of the Superintending Engineer shall be binding on the parties. [b] The jurisdiction of the Superintending Engineer to decide the rights of the parties was also derived from the consent of the parties to the Work Order. [c] The agreement contemplated that the Superintending Engineer shall determine substantive rights of parties as the clause encompasses variety of disputes that may arise between the parties and did not restrict the jurisdiction of the Superintending Engineer to specific issues only. [d] That the agreement to refer their disputes to the decision 11 of the Superintending Engineer was intended to be enforceable in law as it was binding in nature. The contention that the ingredients laid down in the case of K. K. Modi were not satisfied in the case before it and therefore following the principles laid down in that case, Hon'ble Apex Court must hold that Clause 4 of the Work Order is not an arbitration agreement was rejected by it for two reasons. First, its finding already reached earlier that all the ingredients to hold a particular agreement as an arbitration agreement were satisfied and secondly, the difference in factual situations in the case of K. K. Modi (supra) and in the case before it. Hon'ble Apex Court noted K.K. Modi's case dealt with the evaluation and distribution of assets, which required expert decision rather than arbitration and relevant clause in the K. K Modi case (supra) had a very restricted operation as it dealt with only disputes regarding implementation of contract whereas, in the case before it, Clause 4 was much wider in its ambit as it dealt with all disputes between the contractor and the department. 7. Bharat Bhushan Bansal v. U.P. Small Industries Corporation Ltd. (supra) is a judgment delivered by Hon'ble 2 12 Judges of the Apex Court and it finds consideration in Mallikarjun v. Gulbarga University(supra) by Hon'ble 3 Judges. Language of clauses looked into there by the Hon'ble Apex Court is more or less similar with clause 29(1) here before me. Larger Bench of Hon. Court has in para 12 reproduced clause 23 and 24 of agreement considered earlier by Hon'ble 2 Judges. Consideration in paras 13/14 by Hon'ble Larger Bench shows that absence of express obligation upon managing director to hear both parties or to record their evidence led Hon'ble Two Judges Bench to record finding of absence of intention in parties to constitute him the arbitrator. Larger Bench also found that matters not necessarily arising under contract also stood covered under clauses 23 and 24 which were being construed by the Hon. Two Judges. It also found that clause 30 being scrutinized by it (Larger Bench) was more specific in this respect. Larger Bench in para 16 also states that opportunity of hearing or leading evidence are implicit in decision making process and need not be expressly stipulated. Shri Kaptan, learned counsel has invited attention to para 17 of the Larger Bench judgment. The said observations are because of existence of clauses 31, 32 aimed at preventing the disputes and simultaneous availability of clause 30. 13 Later observations show that Hon'ble Apex Court found such arrangement deliberate and a pointer to indicate that parties were ad idem. Arbitrator named there i.e., Superintending Engineer, Gulbarga Circle, Gulbarga being an un-connected officer is an additional factor weighing with Hon. Larger Bench and attempt of Shri Kaptan, learned counsel to harp on this finding in para 20 of the judgment to distinguish it can not succeed. The law as laid down by the Larger Bench in Mallikarjun v. Gulbarga University (supra) does not permit reference in more details to Bharat Bhushan Bansal v. U.P. Small Industries Corporation Ltd. (supra). 8. The consideration above clearly shows that in clause 29 before this Court, an appeal (though limited) is contemplated and hence, the S.E. while deciding under clause 29(1) has to “decide” as explained in para 16 of Mallikarjun v. Gulbarga University(supra). The decision of the Superintending Engineer of the NMC envisaged in clause 29(1) above comprehends adjudication of the dispute. Remedy of appeal in sub-clause (2) itself signifies availability of forum under sub-clause (1) of Clause 29 and hence, leave to approach it. Decision in sub-clause (1) is thus by its superior officer 14 having technical knowledge as also experience and appeal is only by the contractor, that too to its principal executive—an I.A.S. Officer. Arrangement is thus with some purpose in as much as NMC has not reserved for itself any remedy of “second submission” or appeal to its chief executive officer under the contract. There is no challenge to this scheme and certainly Respondents can not assail it. Clause 29(1) employs words giving it widest possible field to operate and thus encompasses practically all dispute between parties to the contract at all possible stages. Clause 29(1) can not be given any restrictive interpretation as it operates even after work is over or abandoned or contract is over. Parties have conferred power on Superintending Engineer to decide even after work is discontinued and not only when it is being executed. Parties have thus evolved a special scheme for themselves to regulate dispute resolution. In these facts it is clear that use of words like arbitrate or arbitration or arbitrator or reference or indicating opportunity either of hearing or leading evidence is not essential & decisive of nature of clause 29(1). In any case, its non-use do not in any way militate with or dilute its spirit. In absence of any other challenge or contention, this Court has to see that said scheme functions. Hence, independent of 15 earlier decision dated 23/3/2006 of this Court between present parties and on same clause in Misc. Civ. Appl. 739/2005, I find that objections raised by Respondents in the matter are misconceived and unsustainable. Consideration afresh was necessitated as then this Court did not have advantage of hearing the various issues/facets now urged and had no occasion to appreciate the precedents. 9. Accordingly present applications are allowed and Superintending Engineer, N.M.C., is appointed as Arbitrator in both matters as per Clause 29(1) of the conditions of contracts between parties. Costs of Rs. 3000/- each payable to Applicants shall be added to the bill of costs in arbitration proceedings. Orders accordingly. JUDGE dragon. 16