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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4424 OF 2014 (Arising out of S.L.P. (C) No. 20558 of 2013

Karnataka Power Transmission Corporation Limited and another ... Appellants

Versus

M/s. Deepak Cables (India) Ltd.        ...Respondent

With

CIVIL APPEAL NO. 4425 OF 2014 (Arising out of S.L.P. (C) No. 29008 of 2013)

With

CIVIL APPEAL NO. 4426 OF 2014 (Arising out of S.L.P. (C) No. 29009 of 2013)

With

CIVIL APPEAL NO. 4427 OF 2014 (Arising out of S.L.P. (C) No. 29010 of 2013)

With

CIVIL APPEAL NO. 4428 OF 2014 (Arising out of S.L.P. (C) No. 29011 of 2013)

With

CIVIL APPEAL NO. 4429 OF 2014 (Arising out of S.L.P. (C) No. 29012 of 2013)

With

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CIVIL APPEAL NO. 4430 OF 2014 (Arising out of S.L.P. (C) No. 29013 of 2013)

With

CIVIL APPEAL NO. 4431 OF 2014 (Arising out of S.L.P. (C) No. 29014 of 2013)

J U D G M E N T

Dipak Misra, J.

Leave granted in all the special leave petitions.

2. The controversy involved in these appeals, preferred  

by  special  leave,  being  similar,  they  were  heard  

together and are disposed of by a common judgment.  

For the sake of convenience, we shall state the facts  

from Civil Appeal arising out of Special Leave Petition  

29011 of 2013.

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.  

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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  

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the  High  Court  of  Karnataka  at  Bangalore  for  

appointment of an arbitrator.

4. 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  

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indicate  that  it  partakes  the  character  of  an  

arbitration clause and, accordingly, appointed a sole  

arbitrator to adjudicate the matters in dispute.

5. We have heard Mr. K.V. Vishvanathan, learned senior  

counsel  appearing  for  the  appellants,  and  Mr.  

Dushyant Dave and Mr. Shyam Divan, learned senior  

counsel appearing for the respondents.

6. Mr.  Vishvanathan,  learned senior  counsel  appearing  

for the appellants, assailing the impugned order, has  

submitted that clause 48 of the agreement cannot be  

remotely  construed  as  an  arbitration  clause  and  

hence, the designated Judge could not have invoked  

the power under Section 11(5) & (6)  of  the Act for  

appointment of an arbitrator.  It is urged by him that  

an  order  passed  in  a  writ  petition,  which  was  

instituted in a different context, could not have been  

placed reliance upon for construing the said clause as  

an arbitration clause.  It is submitted by him that in  

the absence of an express intention for referring the  

matter to an arbitrator, it cannot be so inferred from  

such a clause and, more so, when there is a specific  

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clause, i.e., clause 4 in the agreement which provides  

for settlement of disputes that stipulates that all the  

references and disputes arising out of the agreement  

or touching the subject-matter of the agreement shall  

be decided by a competent court at Bangalore.  To  

bolster his contentions, he has commended us to the  

decisions  rendered  in  M.K.  Shah  Engineers  &  

Contractors  v.  State  of  M.P.1,  Wellington  

Associates  Ltd.  v.  Kirit  Mehta2 and  Jagdish  

Chander v. Ramesh Chander and others3.

7. Mr.  Dushyant  Dave  and  Mr.  Shyam  Divan,  learned  

senior  counsel  appearing  for  the  respondents  in  all  

the  appeals,  in  oppugnation,  have  submitted  that  

when  clause  48  is  read  as  a  whole,  it  is  clear  as  

crystal that the intention of the parties is to get the  

matter referred to an arbitrator and clause 4.1 only  

determines the place of territorial jurisdiction and has  

nothing to do with any stipulation for arbitration.  It  

has been strenuously urged that clause 48 has to be  

interpreted  on  the  touchstone  of  the  language  1 (1999) 2 SCC 594 2 (2000) 4 SCC 272 3 (2007) 5 SCC 719

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employed  in  Section  7  of  the  Act  and  when  it  is  

scrutinized on that  anvil,  there remains no trace of  

doubt  that  clause  48  has  all  the  attributes  and  

characteristics of an arbitration agreement.  Learned  

senior  counsel  have  placed  reliance  on  Smt.  

Rukmanibai  Gupta  v.  Collector,  Jabalpur  and  

others4 and  Punjab  State  and  others  v.  Dina  

Nath5.   

8. Before we advert to the rival submissions advanced at  

the Bar, we think it appropriate to refer to Section 7 of  

the Act and what it conveys and, thereafter, refer to  

few  authorities  to  understand  what  constitutes  an  

arbitration  clause  in  an  agreement  entered  into  

between two parties.  Section 7 of the Act reads as  

follows:  

“7. Arbitration agreement. – (1) In this Part,  “arbitration agreement” means an agreement by  the parties to submit to arbitration all or certain  disputes which have arisen or which may arise  between  them  in  respect  of  a  defined  legal  relationship, whether contractual or not.

(2) An  arbitration  agreement  may  be  in  the  form of an arbitration clause in a contract  or in the form of a separate agreement.

4 (1980) 4 SCC 556 5 (2007) 5 SCC 28

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(3) An  arbitration  agreement  shall  be  in  writing.

(4) An arbitration agreement is in writing if it is  contained in –

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or  other  means  of  telecommunication  which  provide a record of the agreement; or

(c) an  exchange  of  statement  of  claim  and  defence  in  which  the  existence  of  the  agreement is alleged by one party and not  denied by the other.

(5) The reference in a contract to a document  containing  an  arbitration  clause  constitutes  an  arbitration agreement if the contract is in writing  and  the  reference  is  such  as  to  make  that  arbitration clause part of the contract.”

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  

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between the parties cannot be referred to the arbitral  

tribunal for adjudication of the dispute.  

10. In  Smt.  Rukmanibai  Gupta (supra),  while  

considering  Clause  15  of  the  agreement  therein,  a  

two-Judge Bench opined that the clause spelt out an  

arbitration agreement between the parties.  The said  

clause was as follows:-  

“Whenever  any  doubt,  difference  or  dispute  shall  hereafter arise touching the construction  of these presents or anything herein contained  or any matter or things connected with the said  lands or the working or non-working thereof or  the amount or payment of any rent or royalty  reserved  or  made  payable  hereunder  in  the  matter  in  difference  shall  be  decided  by  the  lessor whose decision shall be final.”

The  learned  Judges,  to  appreciate  the  tenor  and  

purport of the said clause, referred to Section 2(a) of the  

1940  Act  and  reproduced  a  passage  from  Russell  on  

Arbitration, 19th Edn., P. 59 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 inquiry in the nature of a  judicial inquiry and hear the respective cases of  the  parties  and  decide  upon  evidence  laid  before  him,  then  the  case  is  one  of  an  arbitration”

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11. The  Court  also  referred  to  Chief  Conservator  of  

Forest v. Rattan Singh6 and ruled that:

“In  the  clause  under  discussion  there  is  a  provision for referring the disputes to the lessor  and the decision of the lessor is made final.  On  its true construction it spells out an arbitration  agreement.”  

12. At this juncture, it is apposite to refer to a three-Judge  

Bench decision in  State of U.P. v. Tipper Chand7  

where  the  Court  was  interpreting  Clause  22  in  the  

agreement  which was under  consideration so  as  to  

find out whether the stipulations therein spelt out an  

arbitration  clause.   The clause involved in  the  said  

case read as follows:-  

“Except  where  otherwise  specified  in  the  contract  the  decision  of  the  Superintending  Engineer  for  the  time  being  shall  be  final,  conclusive  and  binding  on  all  parties  to  the  contract  upon  all  questions  relating  to  the  meaning of the specifications, design, drawing  and  instructions  hereinbefore  mentioned.  The  decision of such Engineer as to the quality of  workmanship, or materials used on the work, or  as to any other question, claim, right, matter or  things whatsoever, in any way arising out of or  relating  to  the  contract,  designs,  drawing  specifications, estimates, instructions, orders, or  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  

6 AIR 1967 SC 166 : 1966 Supp SCR 158 7  (1980) 2 SCC 341

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abandonment of the contract by the contractor,  shall also be final, conclusive and binding on the  contractor.”

Interpreting the said clause, the Court opined thus:-  

“Admittedly  the  clause  does  not  contain  any  express arbitration agreement.  Nor can such an  agreement  be  spelled  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 if from  time to time.”  

13. In that context, the three-Judge Bench approved the  

decisions of the High Courts in Governor-General v.  

Simla  Banking  and  Industrial  Company  Ltd.8,  

Dewan Chand v. State of Jammu and Kashmir9  

and Ram Lal v. Punjab State10 wherein the clauses  

were different.  In that context, it was opined that the  

High  Courts  had  rightly  interpreted  the  clause  

providing for arbitration.  We think it apt to reproduce  

the delineation by the learned Judges:-   

“In the Jammu and Kashmir case the relevant  clause was couched in these terms:

“For  any  dispute  between  the  contractor  and  the  Department  the  decision  of  the  Chief Engineer PWD Jammu and Kashmir,  

8 AIR 1947 Lah 215 : 226 IC 444 9 AIR 1961 J & K 58  10 AIR 1966 Punj 436 : 68 Punj LR 522  : ILR (1966) 2 Punj 428

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will  be  final  and  binding  upon  the  contractor.”

The  language  of  this  clause  is  materially  different  from the  clause  in  the  present  case  and in our opinion was correctly interpreted as  amounting to an arbitration agreement. In this  connection the use of the words “any dispute  between  the  contractor  and  the  Department”  are significant. The same is true of the clause in  Ram Lal case which ran thus:

“In  matter  of  dispute  the  case  shall  be  referred to the Superintending Engineer of  the Circle, whose order shall be final.”

We need hardly say that this clause refers not  only  to  a  dispute  between  the  parties  to  the  contract  but  also  specifically  mentions  a  reference to  the  Superintending  Engineer  and  must  therefore  be  held  to  have  been  rightly  interpreted as an arbitration agreement.”

14. At  this  stage,  it  is  useful  to  refer  to  a  three-Judge  

Bench decision in State of Orissa and another etc.   

v. Sri Damodar Das11 wherein the Court posed the  

question  whether  there  was  an  agreement  for  the  

resolution of disputes as enshrined under Clause 25 of  

the agreement.  The said clause read as follows:-  

“25.  Decision of  Public  Health  Engineer  to  be  final. — Except where otherwise specified in this  contract,  the  decision  of  the  Public  Health  Engineer  for  the  time  being  shall  be  final,  conclusive  and  binding  on  all  parties  to  the  contract  upon  all  questions  relating  to  the  meaning  of  the  specifications;  drawings  and  

11 AIR 1996 SC 942

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instructions hereinbefore mentioned and as to  the quality of workmanship or materials 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,  drawings, specifications, estimates, instructions,  orders  or  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  the  sooner  determination  thereof  of  the  contract.”

The  three-Judge  Bench  referred  to  the  principles  

stated in Tipper Chand (supra) and observed as follows:-  

“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.   The ratio  in  Smt.  Rukmanibai  Gupta  v.  Collector does  not assist the respondent.”

15. In K.K. Modi v. K.N. Modi and others12, a two-

Judge  Bench  was  interpreting  Clause  9  of  the  

agreement which read as follows:-  

“Implementation  will  be  done  in  consultation  with the financial institutions.  For all disputes,  clarification etc. in respect of implementation of  this agreement,  the same shall  be referred to  the  Chairman,  IFCI  or  his  nominees  whose  

12 (1998) 3 SCC 573

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decisions will be final and binding on both the  groups.”

The  court  referred  to  a  passage  from Russell  on  

Arbitration,  21st Edn.,  at  p.  37,  para  2-014  and  the  

decisions  in  Rukmanibai  Gupta  (supra)  and  M.  

Dayanand  Reddy  v.  A.P.  Industrial  Infrastructure  

Corporation  Limited  And Others13 and  came  to  hold  

that  the  said  clause  was  not  an  arbitration  clause  and  

hence, the proceedings before the Chairman, IFCI could not  

have been treated as arbitration proceedings.  It  was so  

held on the following ground:-  

“Undoubtedly, in the course of correspondence  exchanged  by  various  members  of  Groups  A  and  B  with  the  Chairman,  IFCI,  some  of  the  members have used the words “arbitration” in  connection  with  clause  9.  That  by  itself,  however, is not conclusive. The intention of the  parties  was  not  to  have  any  judicial  determination  on  the  basis  of  evidence  led  before  the  Chairman,  IFCI.  Nor  was  the  Chairman,  IFCI  required  to  base  his  decision  only on the material placed before him by the  parties  and their  submissions.  He was free to  make his own inquiries. He had to apply his own  mind and use his own expertise for the purpose.  He was free to take the help of other experts.  He  was  required  to  decide  the  question  of  valuation and the division of assets as an expert  and  not  as  an  arbitrator.  He  has  been  authorised to nominate another in his place. But  the contract indicates that he has to nominate  

13 (1993) 3 SCCC 137

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an expert. The fact that submissions were made  before the Chairman, IFCI,  would not turn the  decision-making process into an arbitration.”

16. In Bharat  Bhushan  Bansal  v.  U.P.  Small   

Industries Corporation Ltd., Kanpur14, clauses 23  

and 24 of the agreement were projected to make the  

foundation  of  an  arbitration  clause.   That  read  as  

follows:-  

“Decision  of  the  Executive  Engineer  of  the  UPSIC to be final on certain matters.

23.  Except  where  otherwise  specified  in  the  contract, the decision of the Executive Engineer  shall  be final,  conclusive and binding on both  the  parties  to  the  contract  on  all  questions  relating  to  the  meaning,  the  specification,  design, drawings and instructions hereinbefore  mentioned,  and  as  to  the  quality  of  workmanship or materials used on the work or  as to any other question whatsoever in any way  arising  out  of  or  relating  to  the  designs,  drawings, specifications, estimates, instructions,  orders 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 thereof or abandonment  of the contract by the contractor shall be final  and conclusive and binding on the contractor.

Decision  of  the  MD of  the  UPSIC  on all  other  matters shall be final

24. Except as provided in clause 23 hereof, the  decision of the Managing Director of the UPSIC  shall  be final,  conclusive and binding on both  the parties to  the contract  upon all  questions  

14 AIR 1999 SC 899

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relating to any claim, right, matter or thing in  any way arising out of or relating to the contract  or these conditions or concerning abandonment  of the contract by the contractor and in respect  of all other matters arising out of this contract  and not specifically mentioned herein.”

Interpreting the said clauses, the Court opined thus:-  

“In the present case, reading clauses 23 and 24  together,  it  is  quite  clear  that  in  respect  of  questions arising from or relating to any claim  or right, matter or thing in any way connected  with  the  contract,  while  the  decision  of  the  Executive Engineer is made final and binding in  respect of certain types of claims or questions,  the decision of the Managing Director is made  final  and  binding  in  respect  of  the  remaining  claims. Both the Executive Engineer as well as  the  Managing  Director  are  expected  to  determine the question or claim on the basis of  their own investigations and material. Neither of  the  clauses  contemplates  a  full-fledged  arbitration covered by the Arbitration Act.”

17. In Bihar State Mineral Development Corporation  

and another v. Encon Builders (I) (P) Ltd.15,while  

dealing with the arbitration clause of  an arbitration  

agreement under the Act the Court stated thus:  

“(1)  There  must  be  a  present  or  a  future  difference  in  connection  with  some  contemplated affair.

(2) There must be the intention of the parties to  settle such difference by a private tribunal.

15 (2003) 7 SCC 418

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(3)  The  parties  must  agree  in  writing  to  be  bound by the decision of such tribunal.

(4) The parties must be ad idem”.

In the said case, it has also been opined that the Act  

does not prescribe any form of an arbitration agreement.  

The  term  ‘arbitration’  is  not  required  to  be  specifically  

mentioned  in  the  agreement  but  what  is  required  is  to  

gather the intention of the parties as to whether they have  

agreed for resolution of the disputes through arbitration.  

18. In  Dina Nath (supra),  the clause in the agreement  

read as follows: -

“4.  Any dispute arising between the department  and the contractor/society shall be referred to the  Superintending  Engineer,  Anandpur  Sahib,  Hydel  (Construction) Circle No. 1, Chandigarh for orders  and  his  decision  will  be  final  and  acceptable/binding on both parties.”

The  two-Judge  Bench,  basically  relying  on  Tipper  

Chand (supra) which has approved the view of Jammu and  

Kashmir High Court in Dewan Chand (supra), treated the  

aforesaid  clause  as  providing  for  arbitration  because  it  

categorically mentioned the word “dispute” which would  

be  referred  to  the  Superintending  Engineer  and  further  

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that his decision would be final and acceptable to/binding  

on both the parties.   

19. In Jagdish Chander (supra), the Court, after referring  

to the earlier decisions, culled out certain principles  

with regard to the term “arbitration agreement”.  The  

said  principles  basically  emphasize  on  certain  core  

aspects, namely, (i) that though there is no specific  

form of an arbitration agreement, yet the intention of  

the parties which can be gathered from the terms of  

the agreement should disclose a determination and  

obligation  to  go  to  arbitration;  (ii)  non-use  of  the  

words  “arbitration”  and  “arbitral  tribunal”  or  

“arbitrator”  would  not  detract  from a  clause  being  

interpreted  as  an  arbitration  agreement  if  the  

attributes  or  elements  of  arbitration agreement  are  

established,  i.e.,  (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  

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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; and (iii) where there is specific exclusion of any  

of  the  attributes  of  an  arbitration  agreement  or  

contains  anything  that  detracts  from an  arbitration  

agreement, it would not be an arbitration agreement.  

In this context, the two-Judge Bench has given some  

examples and we think it apt to reproduce the same: -

“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.”

20. In  State  of  Orissa  and  others  v.  Bhagyadhar  

Dash16,  the  Court,  while  discussing  about  the  non-

requirement of a particular form for constituting an  

arbitration  agreement  and  ascertainment  of  the  

intention  for  reference  to  arbitration,  as  has  been  

16 (2011) 7 SCC 406

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stated in Rukmanibai Gupta (supra), observed thus:  

-

“16. While  we  respectfully  agree  with  the  principle stated above, we have our doubts as  to whether the clause considered in Rukmanibai  Gupta case would be an arbitration agreement  if the principles mentioned in the said decision  and  the  tests  mentioned  in  the  subsequent  decision of a larger Bench in  Damodar Das are  applied.  Be that as it  may.  In fact,  the larger  Bench  in  Damodar  Das clearly  held  that  the  decision in  Rukmanibai Gupta was decided on  the  special  wording  of  the  clause  considered  therein: (Damodar Das case, SCC p. 224, para  11)

“11.  … The ratio in  Rukmanibai Gupta v.  Collector does not  assist  the respondent.  From  the  language  therein  this  Court  inferred,  by  implication,  existence  of  a  dispute or difference for arbitration.”

21. Keeping in mind the principles laid down by this Court  

in  the  aforesaid  authorities  relating  to  under  what  

circumstances  a  clause  in  an  agreement  can  be  

construed as an arbitration agreement, it is presently  

apposite to refer to clause 48 of the agreement.  The  

said clause reads as follows: -

“48.0 Settlement of disputes:

48.1 Any dispute(s) or difference(s) arising out of  or in connection with the Contract shall, to  the  extent  possible,  be  settled  amicable  between the parties.

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48.2 If  any  dispute  or  difference  of  any  kind  whatsoever  shall  arise  between the  owner  and  the  Contractor,  arising  out  of  the  Contract for the Performance of the Works  whether during the progress of the Works or  after  its  completion  or  whether  before  or  after  the  termination,  abandonment  or  breach of the contract,  it  shall,  in the first  place,  be  referred  to  and  settled  by  the  Engineer, who, within a period of thirty (30)  days after being requested by either party  to  do  so,  shall  give  written  notice  of  his  decision to the owner and the contractor.

48.3 Save as hereinafter provided, such decision  in respect of every matter so referred shall  be final and binding upon the parties until  the  completion  of  the  works  and  shall  forthwith  be  given  effect  to  by  the  contractor who shall proceed with the works  with all the due diligence.

48.4 During  settlement  of  disputes  and  Court  proceedings, both parties shall be obliged to  carry out their respective obligations under  the contract.”

22. 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  

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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  

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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 disputes.

23. Quite  apart  from  the  above,  clause  4.1  of  the  

agreement is worthy to be noted.  It is as follows: -

“4.1 It  is  specifically  agreed  by  and  between  the parties that all  the differences or disputes  arising  out  of  the  Agreement  or  touching  the  subject  matter  of  the  Agreement,  shall  be  decided by a competent Court at Bangalore.”

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24. 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  

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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.

25. Consequently,  the  appeals  are  allowed  and  the  

judgments and orders passed by the High Court are  

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set  aside.   However,  regard being had to the facts  

and  circumstances  of  the  case,  there  shall  be  no  

order as to costs.

…..…………………………….J.                                                             [Anil R. Dave]

……………..………………….J. [Dipak Misra]

New Delhi; April 07, 2014.

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