REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.11249/2018 [Arising out of SLP (CIVIL) No. 23139 of 2016]

South Delhi Municipal Corporation                      ...Appellant  

Versus

SMS AAMW Tollways Private Ltd.                              …Respondent

J U D G M E N T  

S.A. BOBDE, J.

Leave granted.

2. The  Appellant-South Delhi Municipal Corporation (hereinafter

referred to as ‘SDMC’) has challenged the impugned order dated

17.06.2016 passed by the learned Single Judge of the Hon’ble High

Court of Delhi, New Delhi in Arbitration Petition No. 475/2015.  By

that order, the learned Single Judge allowed the Petition filed by the

Respondent-SMS AAMW Tollway Private Ltd. (hereinafter referred to

as  ‘SMS  AAMW’)  under  Section  11(6)  of  the  Arbitration  and

Conciliation Act, 1996 (hereinafter referred to as ‘the Act’).

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Brief Facts

3. The National Highways Authority of India (hereinafter referred

to as ‘NHAI’) entered into a State Support Agreement (hereinafter

referred  to  as  ‘the  SSA’)  dated  27.5.2004/22.2.2005  with  M/s

Jaypee-DSC  Ventures  Limited  (hereinafter  referred  to  as

‘Concessionaire’)  for  the  design,  engineering,  financing,

procurement,  construction,  completion,  operation,  maintenance

and the toll collection of certain sections of the NH-8 highway.  

4. The arrangement under the SSA was that the Concessionaire

of  the  NHAI  shall  not  only  collect  the toll  under  the  concession

agreement executed between NHAI and its Concessionaire, but also

the entry toll (toll tax) levied by the Appellant-SDMC on entry of

specified commercial vehicles into the territory of NCT of Delhi. The

Appellant-SDMC is a ‘designated agency’ of the Government of NCT

of Delhi under the SSA.

5. The Appellant-SDMC, for the purpose of collection of toll tax

from all  border entry points within the NCT of Delhi,  decided to

engage a contractor and accordingly floated a tender, inviting bids

from  interested  parties.  The  Respondent-SMS  AAMW  being  the

successful bidder was awarded the work for collection of toll tax for

a period of 3 years and a Bilateral Agreement dated 14.05.2011

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(hereinafter  referred  to  as  ‘the  Agreement’)  was  entered  into

between the Appellant-SDMC and the Respondent-SMS AAMW.  

6. As  per  the  Agreement,  the  Respondent-SMS  AAMW  was

obliged  to  pay  an  amount  of  Rs.26  crores  every  month  to  the

Appellant-SDMC in lieu of the tax collected from all  entry points

within  the  NCT of  Delhi.   However,  the  said  toll  tax  for  Rajokri

integrated toll plaza was said to be collected vide the mechanism

set  out  under  the  SSA  i.e.  it  will  be  collected  by  the  NHAI’s

Concessionaire and passed on to the Respondent-SMS AAMW.

7. Thereafter, on 19th February 2014, the Rajokri integrated toll

plaza was dismantled, apparently, as a result of an understanding

between the parties to the SSA. It is the case of Respondent-SMS

AAMW that due to this situation, it was forced to incur the expenses

to arrange for the collection of the Appellant-SDMC’s toll tax from

the Rajokri Integrated toll plaza.  As a result, the Respondent-SMS

AAMW  suffered  a  huge  loss  amounting  to  approximately  Rs.80

crore.

8. Thereafter, a notice of Arbitration dated 09.03.2015 was sent

by the Respondent-SMS AAMW to the Appellant-SDMC, and to the

other parties under the SSA, detailing the issues and disputes that

had arisen under Clause 9 of the SSA.  The Appellant-SDMC vide

letter dated 7.5.2015 raised a demand of Rs.97,08,76,449/- against

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the  Respondent-SMS  AAMW.  To  this  Respondent-SMS  AAMW

responded vide letter dated 11.05.2015, clarifying the mistakes in

computation, by the Appellant-SDMC. Thereafter,  Appellant-SDMC

reconciled  the  accounts  and  reduced  the  demand  to

Rs.80,46,31,504/- vide letter dated 13.05.2015.  

9. The  Respondent-SMS  AAMW  being  dissatisfied  with  the

decision  contained  in  the  letter  dated  13.05.2015,  preferred  an

appeal  under  Clause  16.3  of  the  Agreement  vide  letter  dated

26.05.2015.  Subsequently,  the  Appellant-SDMC vide  letter  dated

17.06.2015,  intimated  to  the  Respondent-SMS  AAMW that  since

there is no arbitration clause in existence between the parties, the

arbitration is not acceptable.

10. However,  the  Respondent-SMS  AAMW  filed  the  Arbitration

Petition No.475/2015 under Section 11(6) of the Act before the High

Court of Delhi for appointment of an Arbitrator relying on Clause 9

of  the  SSA and  Clause  16  of  the  Agreement  dated 14.05.2011.

The learned Single Judge of Delhi High Court allowed the petition

filed by the present Respondent-SMS AAMW under Section 11(6) of

the Act, and appointed Justice Deepak Verma, Former Judge of this

Court as the sole Arbitrator.

11. The decision of this case turns on the answer to the question

whether Clause 16.3 of the Agreement dated 14.05.2011 between

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the  Appellant-SDMC  on  the  one  hand  and  the  Respondent-SMS

AAMW on the other hand contains an agreement for arbitration.  

12. The  Agreement  dated  14.05.2011  provides  for  the  various

mutual rights, liabilities and obligations of the two parties for the

collection  of  toll  tax  from  specified  commercial  vehicles  at  all

border entry points within the NCT of Delhi.

Clause 16 of the Agreement in its entirety reads as follows: -

“16. DISPUTE RESOLUTION 16.1 Except  where  otherwise  provided in  the  Agreement,  all  questions  and disputes  in  any  way  arising  out  of  or relating  to  the  Agreement  shall  be  dealt with as mentioned below. 16.2 In  the  event  the  Contractor considers any work demanded of it as being outside the requirements of the Agreement, or disputes any record or decision given in writing  by  the  Competent  Officer  in  any matter in connection with or arising out of the Agreement, to be unacceptable, it shall promptly  within  [15]  days  request  the Competent  Officer  in  writing  to  give  his instructions  or  decision  in  respect  of  the same.   Thereupon,  the  Competent  Officer shall  give  his  written  instructions  or decision within a period of [30] days from the receipt of the Contractor’s letter. 16.3 If  the  Competent  Officer  fails  to give his  instructions or  decision in writing within  the  aforesaid  period  or  if  the Contractor  is  dissatisfied  with  the instructions  or  decision  of  the  Competent Officer,  the  Contractor  may,  within  [15] days of receipt of the Competent Officer’s instructions  or  decision,  appeal  to  the

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Commissioner  who  shall  afford  an opportunity to the Contractor to be heard, if the latter so desires, and to offer evidence in support of its appeal.  The Commissioner shall give his decision in writing within [30] days of receipt of Contractor’s appeal which shall be acceptable to the Contractor.”

13. Furthermore,  Clause  20  which  makes  reference  to  disputes

arising out of the agreement reads as follows:  

“20. MISCELLANEOUS PROVISIONS 20.1 Governing Laws and Jurisdiction (a)…… (b)  All  disputes  arising  out  of  this Agreement  shall  be  subject  to  sole  and exclusive jurisdiction of the courts of Delhi only.”

14. Thus, from a plain reading of Clause 16 one can see that it

provides for the resolution of disputes at two stages. First, by the

Competent Officer of the SDMC vide Clause 16.2 followed by the

Commissioner of the Municipal Corporation vide Clause 16.3.

The First Stage: -

If  a case arises wherein a Contractor  finds that if  the work

demanded is outside the scope of the agreement or feels the need

to dispute any decision of the Competent Officer or if any record

created by him is unacceptable,  he may request the Competent

Officer  to  decide  its  representation  or  give  instructions.  The

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Competent  Officer  is  obliged to  decide  within  30 days from the

receipt of such a letter from the Contractor.

The Second Stage: -

If the Competent Officer fails to decide within 30 days or if the

Contractor  is  dissatisfied  with  his  decision,  the  Contractor  may,

within  15  days  from  receipt  of  the  decision  by  the  Competent

Officer,  file  an  appeal  to  the  Commissioner,  SDMC.  The

Commissioner is obliged to afford an opportunity to the Contractor

to be heard and the Contractor is entitled to produce evidence in

support of this case. At this stage, the Commissioner may give his

decision in writing within 30 days. The clause makes the decision

compulsorily  ‘acceptable’  to the Contractor  presumably  meaning

that it shall be binding on him.

15. In the present case as stated earlier, the notice of arbitration

was sent by the Contractor on 09.03.2015 under the SSA. By letter

dated 26.05.2015, the Contractor i.e. SMS AAMW filed an appeal

under Clause 16.3  of  the Agreement.  This  appeal  was preferred

against  the  decision  contained  in  the  letter  of  the  Competent

Officer,  SDMC dated  13.05.2015.  The  Appellant-SDMC sought  to

produce additional evidence and further sought that the decision

should be taken under Clause 16.3.  There is no doubt that the

Respondent-SMS AAMW resorted to the provision of appeal against

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the decision of the Appellant-SDMC in its letter dated 13.05.2015.

In that letter, they did not seek the appointment of an arbitrator

but merely sought decision by an officer higher in rank than the

members of  high level  committee,  akin to invoking an appellate

provision.

16. The question before us is whether Clause 16.3 which provides

for  an  appeal  really  provides  for  an  arbitration  and  therefore

whether the High Court was entitled to appoint an Arbitrator under

Section 11(6) of the Act.

17. It is necessary to advert to certain features of Clause 16 to

determine  whether  the  clause  provides  for  arbitration  or  a

departmental  appeal.  Firstly,  Clause  16.3  under  which  an

application to appoint an Arbitrator under Section 11(6) of the Act

was made is described as an appeal in the said Clause.  It  is  a

settled principle of  interpretation that unless the word raises an

ambiguity it is not necessary to consider another meaning1.  

Indeed, it is an appeal since the Contractor is entitled to take

recourse  to  appeal,  if  the  Contractor  is  dissatisfied  with  the

decision of  the Competent  Officer including a possible failure to

decide  within  the  prescribed  period  i.e.  within  30  days.   It  is

significant, that the appellate provision can be invoked only by the

1 (Ref. Corporation of the City of Nagpur v. Employees AIR 1960 SC 675, Nelson Motis v. Union of India (1992) 4 SCC 711, Nathi Devi v. Radha Devi Gupta (2005) 2 SCC 271).

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Contractor  dissatisfied by the decision of  the Competent  Officer.

The other side, i.e. a Competent Officer who has raised a demand

which the Contractor  has  not  complied with cannot  file  such an

appeal. The right of appeal is restricted to a dissatisfied Contractor

only. And that too upon a failure to obtain redressal under Clause

16.2.

18. This  mechanism  is  clearly  an  appeal  in  the  nature  of  a

departmental  appeal  commonly  provided  in  several  department

rules  including  service  rules.  Such  departmental  appeals  are

invariably decided by a designated officer and can only be invoked

by a dissatisfied party such as a contractor or an employee. Such

appellate powers obviously cannot be invoked by parties unless the

language  of  the  provision  setting  up  the  appeal  provides  for  it

expressly or by necessary implication.  It is settled law that a right

of appeal is a creature of statute and can only be exercised in the

manner provided by the statute2.

19. We see no reason,  why this  Court  should  adopt  a  different

approach while  construing a clause in  a contract  executed by a

statutory body and providing for an appeal. The language of Clause

16.3 does not lend itself to any other construction other than that it

2 (Ref. Ganga Bai v. Vijay Kumar (1974) 2 SCC 393, State of Haryana v. Maruti Udyog Ltd. (2000) 7 SCC 348, Raj Kumar Shivhare v. Directorate of Enforcement (2010) 4 SCC 772)

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provides for an appeal against the decision of a Competent Officer

rendered under Clause 16.2.  

20.  The Respondent-SMS AAMW placed reliance on the following

passage from Russell on Arbitration, which reads as follows: -

“If  it  appears  from  the  terms  of  the agreement by which a matter is submitted to a person’s decision, that the intention of the  parties  was  that  he  should  hold  an enquiry in the nature of a judicial enquiry and hear the respective cases of the parties and decide upon evidence laid before him, then the case is one of an arbitration. The intention in such case is that there shall be a  judicial  inquiry  worked  out  in  a  judicial manner.   On  the  other  hand,  there  are cases  in  which  a  person  is  appointed  to ascertain some matter  for  the purpose of preventing differences from arising, not of setting them when they have arisen.”  

21. This was relied on by the Respondent-SMS AAMW to support

the submission that Clause 16.3 does not provide for an appeal to

the Commissioner but provides for arbitration by the Commissioner.

The passage above clearly contemplates that an arbitration should

be an enquiry in the nature of  a judicial  enquiry i.e.  an enquiry

which involves hearing both the parties. The appeal involved in the

present case clearly does not involve hearing both the parties. On

the contrary, the authority which decides the appeal is in a sense

the other  party.   The Commissioner  is  a  higher  officer  than the

Competent Officer in the same organization. It is, therefore, clear

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that the appeal to the Commissioner is not intended to provide a

forum  for  a  decision  by  an  impartial  adjudicator  but  is  only

intended to ascertain some matter for the purpose of preventing

differences from arising and not for settling them after they have

arisen.  It is thus clear that the Commissioner is not intended to be

an arbitrator, as his jurisdiction cannot be invoked by both parties.   

22. Arbitration has always been understood to mean the process

by  which  a  dispute  is  resolved  by  an  arbitrator  chosen  or

acceptable to both sides under an arbitration agreement between

the  two  parties.   In  the  present  case,  under  Clause  16  of  the

Agreement  only  the  party  dissatisfied  by  the  order  of  the

Competent Officer can approach the Commissioner. It is, therefore,

not possible to hold that the proceedings before the Commissioner

constitutes as an arbitration.  In K.K. Modi v. K.N. Modi3, this Court

observed as follows: -

“17. Among the attributes which must be present for an agreement to be considered as an arbitration agreement are: (1)  The  arbitration  agreement  must contemplate  that  the  decision  of  the tribunal will be binding on the parties to the agreement, (2)  that  the  jurisdiction  of  the  tribunal  to decide  the  rights  of  parties  must  derive either  from the  consent  of  the  parties  or from an order of the court or from a statute,

3 1998 (3) SCC 573

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the terms of which make it  clear that the process is to be an arbitration,

(3)  the agreement must  contemplate that substantive  rights  of  parties  will  be determined by the agreed tribunal,

(4)  that  the  tribunal  will  determine  the rights  of  the  parties  in  an  impartial  and judicial manner with the tribunal owing an equal  obligation  of  fairness  towards  both sides,

(5)  that  the  agreement  of  the  parties  to refer  their  disputes to the decision of  the tribunal must be intended to be enforceable in law and lastly,

(6)  the agreement must  contemplate that the  tribunal  will  make  a  decision  upon  a dispute which is already formulated at the time  when  a  reference  is  made  to  the tribunal.

18. The  other  factors  which  are  relevant include,  whether  the  agreement contemplates that the tribunal will  receive evidence  from  both  sides  and  hear  their contentions or at least give the parties an opportunity  to put  them forward;  whether the wording of the agreement is consistent or  inconsistent  with  the  view  that  the process was intended to be an arbitration, and  whether  the  agreement  requires  the tribunal to decide the dispute according to law.”

23. The scope of Clause 16 is limited.  Clause 16.1 provides that

all the questions and disputes arising out of the Agreement shall be

dealt  with as follows i.e.  as provided in  Clause 16.2 and Clause

16.3.  Clause 16.2 enables a Contractor to request the Competent

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Officer to give his instructions or decisions in writing, in case of

either when (a) the Contractor considers any work demanded of

him as being outside the requirements of  the Agreement,  or (b)

disputes any record or decision given in writing by the Competent

Officer  in  connection  to  the  Agreement  as  unacceptable.   The

Competent  Officer is  enjoined to  give  his  written  instructions  or

decisions within a period of 30 days.  He enjoys complete discretion

in deciding the dispute.  Clause 16.3 provides that in case of  an

instance  whereby  the  Competent  Officer  does  not  come  to  a

decision, the Contractor may appeal to the Commissioner who shall

afford  an  opportunity  to  the  Contractor  to  be  heard  and  offer

evidence.  Neither the Competent Officer nor the Commissioner is

enjoined to act judicially i.e. the decision on the basis of evidence

adduced by  both  the  parties.   In  fact,  both  the  authorities,  the

Competent Officer and the Commissioner are required to deal with

only one party i.e. the Contractor.  This cannot be characterized as

an  enquiry  of  a  judicial  nature  which  necessarily  involves  a

consideration  of  the  case  of  both  sides  by  an  independent

Arbitrator.  Additionally, there is no provision in Clause 16.3 of the

Agreement to refer any dispute or reference to arbitration.  In State

of  Orissa  v.  Damodar  Das4,  this  Court  approved  the  following

observations in State of U.P. v. Tipper Chand: -

4 1996 (2) SCC 216

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“11. This Court was called upon to consider a similar  clause  in State  of  U.P. v. Tipper Chand [(1980)  2  SCC  341].  The  clause  was extracted  therein.  After  consideration  thereof, this Court held that after perusing the contents of the said clause and hearing learned counsel for the parties

“we find ourselves in complete agreement with  the  view  taken  by  the  High  Court. Admittedly, the clause does not contain any express  arbitration  agreement.  Nor  can such  an  agreement  be  spelt  out  from its terms  by  implication,  there  being  no mention in it of any dispute, much less of a reference thereof.  On the other  hand,  the purpose of the clause clearly appears to be to  vest  the  Superintending  Engineer  with supervision  of  the  execution  of  the  work and administrative control over it from time to time.”

It  would, thereby, be clear that this Court laid  down  as  a  rule  that  the  arbitration agreement must expressly or by implication be spelt out that there is an agreement to refer  any  dispute  or  difference  for  an arbitration  and the  clause in  the  contract must contain such an agreement. We are in respectful agreement with the above ratio. It  is  obvious  that  for  resolution  of  any dispute  or  difference arising  between two parties to a contract, the agreement must provide  expressly  or  by  necessary implication,  a  reference  to  an  arbitrator named therein or otherwise of any dispute or difference and in its absence it is difficult to spell out existence of such an agreement for reference to an arbitration to resolve the dispute  or  difference  contracted  between the parties……”

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24. We find that the present Clause 16 and in particular Clause

16.3 does not provide for the reference of any dispute that may

arise between the parties  to an Arbitrator.   The purpose of  this

Clause is to vest the Competent Officer and the Commissioner with

supervisory control over the execution of work and administrative

control over it from time to time and thus to prevent disputes.  The

intention is not to provide for a forum for resolving disputes.  Thus,

in  the  present  circumstances  no  Arbitrator  could  have  been

appointed by the High Court under Section 11(6) of the Arbitration

and Conciliation Act,  1996,  therefore,  the impugned order dated

17.06.2016 is set aside.

25. The appeal is accordingly allowed.

….………………………………..J.                   [S.A. BOBDE]

….………………………………..J.        [L. NAGESWARA RAO]

NEW DELHI  NOVEMBER 22, 2018

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