Case: Karnataka Power Trans. Cor. Ltd  Vs. M/S Deepak Cables (India) Ltd

3. The appellant No. 1 is a company wholly owned by the Government of Karnataka and, being a State transmission utility, is a deemed licencee in the State. It invited tenders for establishing 2x8 MVA, 66/11 Sub-stations at Tavarekere in Channagiri Taluk, Davanagere District, which included the supply materials, erection and civil works on partial turnkey basis. The respondent-company participated in the bid and it was successful in the tender and, accordingly, a letter of intent was sent to it. After taking recourse to certain procedural aspects, a contract was entered into between the appellant-company and the respondent. During the performance of the contract, the respondent raised a claim before the engineer as per clause 48 of the general conditions of the contract and called upon the engineer to settle certain disputes arising in connection with the contract. As the concerned engineer did not do anything within the prescribed period of thirty days as provided under clause 48.2, the respondent filed CMP No. 62 of 2011 under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996 (for brevity the Act) before the High Court of Karnataka at Bangalore for appointment of an arbitrator4. The said application was resisted by the present appellants on the singular ground that clause 48 does not provide for arbitration and the same, under no circumstances, could be construed as an arbitration clause. To substantiate the said submission, reliance was placed on clause 4.1 of the agreement. It was put forth that as there is no arbitration clause, no arbitrator could be appointed. The designated Judge of the Chief Justice placed reliance on the proceedings in W.P. No. 28710/09 (M/s. Subhash Projects & Marketing Limited v. Karnataka Power Transmission Corporation Limited) disposed of on 10.6.2010 wherein the appellant-company, being a State owned Corporation, had not disputed clause 48.2 as an arbitration clause and, on that foundation, opined that it was precluded from denying the same in the case under consideration. The learned designated Judge interpreted clauses 48 and 4.1 of the agreement and came to hold that a plain reading of clause 48 would indicate that it partakes the character of an arbitration clause and, accordingly, appointed a sole arbitrator to adjudicate the matters in dispute.

Court's reasoning:
9. From the aforesaid provision, it is graphically clear that unless an arbitration agreement stipulates that the parties agree to submit all or certain disputes which have arisen or which may arise in respect of defined legal relationship, whether contractual or not, there cannot be a reference to an arbitrator. To elaborate, it conveys that there has to be intention, expressing the consensual acceptance to refer the disputes to an arbitrator. In the absence of an arbitration clause in an agreement, as defined in sub-section (4) of Section 7, the dispute/disputes arising between the parties cannot be referred to the arbitral tribunal for adjudication of the dispute22. On a careful reading of the said clause, it is demonstrable that it provides for the parties to amicably settle any disputes or differences arising in connection with the contract. This is the first part. The second part, as is perceptible, is that when disputes or differences of any kind arise between the parties to the contract relating to the performance of the works during progress of the works or after its completion or before or after the termination, abandonment or breach of the contract, it is to be referred to and settled by the engineer, who, on being requested by either party, shall give notice of his decision within thirty days to the owner and the contractor. There is also a stipulation that his decision in respect of every matter so referred to shall be final and binding upon the parties until the completion of works and is required to be given effect to by the contractor who shall proceed with the works with due diligence. To understand the intention of the parties, this part of the clause is important. On a studied scrutiny of this postulate, it is graphically clear that it does not provide any procedure which would remotely indicate that the concerned engineer is required to act judicially as an adjudicator by following the principles of natural justice or to consider the submissions of both the parties. That apart, the decision of the engineer is only binding until the completion of the works. It only casts a burden on the contractor who is required to proceed with the works with due diligence. Besides the aforesaid, during the settlement of disputes and the court proceedings, both the parties are obliged to carry out the necessary obligation under the contract. The said clause, as we understand, has been engrafted to avoid delay and stoppage of work and for the purpose of smooth carrying on of the works. It is interesting to note that the burden is on the contractor to carry out the works with due diligence after getting the decision from the engineer until the completion of the works. Thus, the emphasis is on the performance of the contract. The language employed in the clause does not spell out the intention of the parties to get the disputes adjudicated through arbitration. It does not really provide for resolution of disputes24. Mr. Vishwanathan, learned senior counsel for the appellants, laying immense emphasis on the same, has submitted that the said clause not only provides the territorial jurisdiction by stating a competent court at Bangalore but, in essence and in effect, it stipulates that all the differences or disputes arising out of the agreement touching the subject-matter of the agreement shall be decided by a competent court at Bangalore. Mr. Dave, learned senior counsel for the respondents, would submit that it only clothes the competent court at Bangalore the territorial jurisdiction and cannot be interpreted beyond the same. The submission of Mr. Dave, if properly appreciated, would convey that in case an award is passed by the arbitrator, all other proceedings under any of the provisions of the Act has to be instituted at the competent court at Bangalore. This construction, in our opinion, cannot be placed on the said clause. It really means that the disputes and differences are left to be adjudicated by the competent civil court. Thus, clause 48, as we have analysed, read in conjunction with clause 4.1, clearly establishes that there is no arbitration clause in the agreement. The clauses which were interpreted to be arbitration clauses, as has been held in Ram Lal (supra) and Dewan Chand (supra) which have been approved in Tipper Chand (supra), are differently couched. As far as Rukmanibai Gupta (supra) is concerned, as has been opined in Damodar Das (supra) and also in Bhagyadhar Dash (supra), it has to rest on its own facts. Clause in Dina Nath (supra) is differently couched, and clause 48, which we are dealing with, has no similarity with it. In fact, clause 48, even if it is stretched, cannot be regarded as an arbitration clause. The elements and attributes to constitute an arbitration clause, as has been stated in Jagdish Chander (supra), are absent. Therefore, the irresistible conclusion is that the High Court has fallen into grave error by considering the said clause as providing for arbitration.