Case: Mahanadi Coalfields Ltd &amp; Anr Vs. M/s IVRCL AMR JOINT VENTURE

(P) Ltd. v. Mahanadi Coalfields Ltd consisting of J Chelameswar and A. K. Sikri, JJ. (2014) 10 SCC 630 In the said case, the clause was interpreted as an alternative remedy at the company level to be exhausted before taking recourse to other suitable legal remedies. It was observed: 10. From the aforesaid narration of facts, it becomes clear that Clause 12 of the general terms and conditions provides for a mechanism of dispute resolution before resorting to the legal remedies. This clause specifically states that it is incumbent upon the contractor to avoid litigation and disputes during the course of execution. If any dispute takes place between the contractor and the department, effort shall be made first to settle the disputes at the company level. Further, this clause states that the contractors should make request in writing to the Engineer Incharge for settlement of such dispute/claim within 30 days of arising of cause of dispute/claim. (emphasis supplied) 13. The above extract makes it abundantly clear that clause 15 of the Contract Agreement is a dispute resolution mechanism at the company level, rather than an arbitration agreement. Consequently, in case of a dispute, the respondent was supposed to write to the Engineer-in-charge for resolving the dispute. Clause 15 does not comport with the essential attributes of an arbitration agreement in terms of section 7 of the 1996 Act as well as the principles laid down under Jagdish Chander (supra). A plain reading of the above clause leaves no manner of doubt about its import. There is no written agreement to refer either present or future disputes to arbitration. Neither does the substantive part of the clause refer to arbitration as the mode of settlement, nor does it provide for a reference of disputes between the parties to arbitration. It does not disclose any intention of either party to make the Engineer-in-Charge, or any other person for that matter, an arbitrator in respect of disputes that may arise between the parties. Further, the said clause does not make the decision of the Engineer-in-Charge, or any other arbitrator, final or binding on the parties. Therefore, it was wrong on the part of the High Court to construe clause 15 of the Contract Agreement as an arbitration agreement. 14. However, it has been urged on behalf of the respondent by Mr S Niranjan Reddy that the first appellant is a subsidiary of CIL. It has been submitted that on 7 April 2017, CIL issued a policy document to its General Managers for the settlement of disputes or differences arising out of works and services contracts through arbitration. Clause 5 of the above communication provides as follows: Past/existing work order/contract: 5. With regards to dispute/differences cropping up in existing work order/contract, employer (department) shall adopt procedure for settlement of the same, through arbitration process. As you are aware that neither the CIL Manuals nor contract document at present contains any clause regarding arbitration, therefore, dispute/differences cannot be referred to arbitration straight away. Hence, before referring the matter to arbitration, consent of the other party (contractor) is necessary for redressal of dispute/differences through arbitration. Once, the contractor agrees for settlement of dispute/differences arising out of contracts through arbitration, an agreement may be signed between employer and contractor for referring the dispute/differences to Sole Arbitration by a person appointed by Competent Authority of CIL/CMD of Subsidiaries (as the case may be). The rest of the procedure shall be as per the Arbitration and Conciliation Act, 1996 as amended by Amendment Act of 2015 and also as per instruction incorporated in clause Settlement of Disputes through Arbitration. 15. Hence, it is urged that the first appellant being a subsidiary of CIL and being a public sector undertaking may well consider as to whether the disputes which have arisen between the appellants and the respondent should be referred to arbitration. In this context, the appellants and the respondent placed reliance on an order dated 20 July 2018 of the Chief Justice of the High Court of Orissa in Arbitration Petition No 59 of 2016. 16. We are unable to subscribe to the submission which has been urged on behalf of the respondent based on the policy letter dated 7 April 2017. The communication which has been issued by CIL refers to the possibility of a consensual resolution of disputes or differences through arbitration as neither the CIL manuals nor the contract document, at the time, contained a clause regarding arbitration. However, it has been submitted that once the contractor has agreed to settle a dispute through arbitration, the agreement may be signed between the employer and the contractor for reference to arbitration, by a person to be appointed by the competent authority of CIL or, as the case may be, the Chairman and Managing Director of the subsidiaries. 17. The communication dated 7 April 2017 merely indicates a desire on behalf of CIL to have disputes related to work contracts settled by arbitration. It requires both the parties to arrive at a further agreement to proceed to arbitration when the dispute arises. Therefore, in view of the principles laid down in Jagdish Chander (supra), following a line of precedent, clause 5 in the aforesaid communication cannot be construed as an arbitration agreement between the appellants and the respondent in terms of section 7 of the 1996 Act so as to compel the appellants to appoint an arbitrator. 18. The order of the Chief Justice of the High Court of Orissa dated 20 July 2018 proceeds on an understanding that the learned counsel for both the sides did not dispute the fact that clause 15 of the Contract Agreement and clause 5 of the policy decision 7 April 2017 taken by CIL provide for appointment of an arbitrator in case there is any dispute or difference between the parties. The order has, therefore, proceeded on an understanding of counsel, which in any event cannot be regarded as a binding statement of law on the existence of an arbitration agreement.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]9. In Jagdish Chander v. Ramesh Chander (2007) 5 SCC 719,  a two-judge bench of this Court, while relying upon the earlier decisions in K. K. Modi v. K. N. Modi (1998) 3 SCC 573,  Bharat Bhushan Bansal v. U.P. Small Industries Corpn. Ltd (1999) 2 SCC 166,  Bihar State Mineral Development Corpn v. Encon Builders (I) (P) Ltd. (2003) 7 SCC 418,  and State of Orissa v. Damodar Das (1996) 2 SCC 216,  enumerated the principles governing what constitutes an arbitration agreement. Justice R V Raveendran, speaking on behalf of the bench, held that the words used in an arbitration agreement should disclose a determination and obligation on behalf of parties to refer disputes to arbitration. This court held:8 (i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and a willingness to be bound by the decision of such tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement.(ii) Even if the words arbitration and Arbitral Tribunal (or arbitrator) are not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are: (a) The agreement should be in writing. (b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. (d) The parties should have agreed that the decision of the private tribunal in respect of the disputes will be binding on them.(iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically exclude any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement.(iv) But mere use of the word arbitration or arbitrator in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as parties can, if they so desire, refer their disputes to arbitration or in the event of any dispute, the parties may also agree to refer the same to arbitration or if any disputes arise between the parties, they should consider settlement by arbitration in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that if the parties so decide, the disputes shall be referred to arbitration or any disputes between parties, if they so agree, shall be referred to arbitration is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future.10. In the present case, clause 15 of the Contract Agreement is titled Settlement of Disputes/Arbitration. However, the substantive part of the provision makes it abundantly clear that there is no arbitration agreement between the parties agreeing to refer either present or future disputes to arbitration.11. Clause 15.1 contains a reference to the steps to be taken for settlement of disputes between the parties. Clause 15.2 stipulates that if differences still persist, the settlement of the disputes with government agencies shall be dealt with in accordance with the guidelines of the Ministry of Finance. In the case of parties other than government agencies, the redressal of disputes has to be sought in a court of law.12. A clause similar to clause 15 of the Contract Agreement in the present case was considered by a bench of this Court in IB Valley Transport, Vijay Laxmi (P) Ltd. v. Mahanadi Coalfields Ltd consisting of J Chelameswar and A. K. Sikri, JJ. (2014) 10 SCC 630  In the said case, the clause was interpreted as an alternative remedy at the company level to be exhausted before taking recourse to other suitable legal remedies. It was observed:10. From the aforesaid narration of facts, it becomes clear that Clause 12 of the general terms and conditions provides for a mechanism of dispute resolution before resorting to the legal remedies. This clause specifically states that it is incumbent upon the contractor to avoid litigation and disputes during the course of execution. If any dispute takes place between the contractor and the department, effort shall be made first to settle the disputes at the company level. Further, this clause states that the contractors should make request in writing to the Engineer Incharge for settlement of such dispute/claim within 30 days of arising of cause of dispute/claim.13. The above extract makes it abundantly clear that clause 15 of the Contract Agreement is a dispute resolution mechanism at the company level, rather than an arbitration agreement. Consequently, in case of a dispute, the respondent was supposed to write to the Engineer-in-charge for resolving the dispute. Clause 15 does not comport with the essential attributes of an arbitration agreement in terms of section 7 of the 1996 Act as well as the principles laid down under Jagdish Chander (supra). A plain reading of the above clause leaves no manner of doubt about its import. There is no written agreement to refer either present or future disputes to arbitration. Neither does the substantive part of the clause refer to arbitration as the mode of settlement, nor does it provide for a reference of disputes between the parties to arbitration. It does not disclose any intention of either party to make the Engineer-in-Charge, or any other person for that matter, an arbitrator in respect of disputes that may arise between the parties. Further, the said clause does not make the decision of the Engineer-in-Charge, or any other arbitrator, final or binding on the parties. Therefore, it was wrong on the part of the High Court to construe clause 15 of the Contract Agreement as an arbitration agreement.16. We are unable to subscribe to the submission which has been urged on behalf of the respondent based on the policy letter dated 7 April 2017. The communication which has been issued by CIL refers to the possibility of a consensual resolution of disputes or differences through arbitration as neither the CIL manuals nor the contract document, at the time, contained a clause regarding arbitration. However, it has been submitted that once the contractor has agreed to settle a dispute through arbitration, the agreement may be signed between the employer and the contractor for reference to arbitration, by a person to be appointed by the competent authority of CIL or, as the case may be, the Chairman and Managing Director of the subsidiaries.17. The communication dated 7 April 2017 merely indicates a desire on behalf of CIL to have disputes related to work contracts settled by arbitration. It requires both the parties to arrive at a further agreement to proceed to arbitration when the dispute arises. Therefore, in view of the principles laid down in Jagdish Chander (supra), following a line of precedent, clause 5 in the aforesaid communication cannot be construed as an arbitration agreement between the appellants and the respondent in terms of section 7 of the 1996 Act so as to compel the appellants to appoint an arbitrator.18. The order of the Chief Justice of the High Court of Orissa dated 20 July 2018 proceeds on an understanding that the learned counsel for both the sides did not dispute the fact that clause 15 of the Contract Agreement and clause 5 of the policy decision 7 April 2017 taken by CIL provide for appointment of an arbitrator in case there is any dispute or difference between the parties. The order has, therefore, proceeded on an understanding of counsel, which in any event cannot be regarded as a binding statement of law on the existence of an arbitration agreement.