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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1586 OF 2004

M/s. P. Dasaratharama Reddy Complex   … Appellant

versus

Government of Karnataka and another          … Respondents

WITH

CIVIL APPEAL NO. 1587 OF 2004

CIVIL APPEAL NO. 1588 OF 2004

CIVIL APPEAL NO. 4187 OF 2004

CIVIL APPEAL NO. 5496 OF 2004

CIVIL APPEAL NO. 6323 OF 2004

CIVIL APPEAL NO. 6327 OF 2004

CIVIL APPEAL NO. 6328 OF 2004

CIVIL APPEAL NOS. 558-560 OF 2006

CIVIL APPEAL NO. 1374 OF 2013

CIVIL APPEAL NO. 9459  OF 2013 (arising out of SLP(C) No. 16117 OF 2004)

CIVIL APPEAL NO.9460  OF 2013  (arising out of SLP(C) No. 17147 OF 2004)

CIVIL APPEAL NO. 9461  OF 2013 (arising out of SLP(C) No. 24655 of 2004)

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CIVIL APPEAL NO. 9462  OF 2013 (arising out of SLP(C) No. 26073 of 2004)

CIVIL APPEAL NO. 9463  OF 2013 (arising out of SLP(C) No. 5951 of 2006)

CIVIL APPEAL NO.9464  OF 2013 (arising out of SLP(C) No. 12552 of 2006)

 CIVIL APPEAL NO.9465  OF 2013 (arising out of SLP(C) No. 12553 of 2006)

CIVIL APPEAL NO.9466  OF 2013 (arising out of SLP(C) No. 8597 of 2009)

CIVIL APPEAL NOS.9467-68  OF 2013 (arising out of SLP(C) Nos. 28087-28088 of 2011)

CIVIL APPEAL NO. 9469  OF 2013 (arising out of SLP(C) No. 28089 of 2011)

 CIVIL APPEAL NOS.9470-73  OF 2013 (arising out of SLP(C) Nos. 29227-29230 of 2011)

CIVIL APPEAL NO. 9474  OF 2013 (arising out of SLP(C) No. 31975 of 2011)

AND

CIVIL APPEAL NO.9475  OF 2013 (arising out of SLP(C) No. 13528 of 2012)

J U D G M E N T

G. S. Singhvi, J.

1. Leave granted in SLP (C) Nos. 16117 of 2004, 17147 of 2004,  24655 of  

2004, 26073 of 2004, 5951 of 2006, 12552 of 2006,  12553 of 2006,  8597 of  

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2009, 28087-28088 of 2011, 28089 of 2011, 29227-29330 of 2011, 31975 of  

2011 and 13528 of 2012.

2. Of the above noted 23 appeals, 17 have been filed by those who had been  

awarded  contracts  by  the  Government  of  Karnataka  and/or  its  

agencies/instrumentalities for execution of the particular project/works.   They  

have challenged the orders passed by the Designated Judge/Division Benches of  

the Karnataka High Court rejecting their prayer for appointment of Arbitrator in  

terms of the clauses relating to settlement of disputes. One appeal has been filed  

by  the  contractor  who  was  awarded  construction  contract  by  Nagarika  

Yogbakashema  Mathu  Gruha  Nirmana  Sahakara  Sangha.  The  remaining  5  

appeals have been filed by Karnataka Neeravari  Nigam Limited and Kirshna  

Bhagya Jala Nigam Limited for setting aside the orders passed by the learned  

Designated Judge whereby he directed the concerned Chief Engineer to act as an  

Arbitrator.

3. For the sake of convenience, we shall notice the facts from the record of  

Civil Appeal No.1586 of  2004 - M/s. P. Dasaratharama Reddy Complex v. The  

Government of Karnataka and another because arguments were advanced with  

reference to that case.   

4. The  appellant  is  a  contractor  engaged  in  executing  work  contracts  

awarded by the Government of Karnataka and its instrumentalities. In 1996, the  

appellant was awarded contract for construction of bridge between Yethabadi-

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Buyyanadoddi  across  Shimsha  river  in  Malavalli.   The  appellant  did  not  

complete the work by alleging lack of cooperation on the part of Chief Engineer,  

Communication and Building (South),  Bangalore (respondent  No.2)  and then  

lodged claim for payment of the amount allegedly due to him.  After some time,  

the appellant filed an application under Section 11(6) and (8) of the Arbitration  

and Conciliation Act,  1996 (for short,  ‘the 1996 Act’) for appointment of an  

Arbitrator for adjudication of all the disputes pertaining to Contract No.5/96-97  

dated 8.5.1996.  The Chief Justice of the High Court assigned the application to  

the Designated Judge, who dismissed the same vide order dated 14.9.2001 by  

relying  upon  the  judgment  in  Mysore  Construction  Company  v.  Karnataka  

Power Corporation Ltd. ILR 2000 KAR 4953.  Paragraphs 5 and 6 of that order  

read as under:

“5. The  above  clause  requires  the  contractor  specifically  to approach the civil  court,  if  he is not  satisfied with the decision of  the Chief  Engineer. It  does not provide for reference to arbitration. But contrary to the  specific term of clause 29, the petitioner has sought appointment of Arbitrator  instead of approaching the Civil Court.

6. I  had  occasion  to  consider  the  question  whether  such  a  clause  is  an  arbitration agreement in Mysore Construction Company Vs. Karnataka Power  Corporation Ltd. [ILR 2000 KAR 4953] and held that the said clause is not an  arbitration agreement.  Following the said decision and for  the reasons stated  therein,  it  has  to  be  held  that  clause  29  relied  on  by  petitioner  is  not  an  arbitration agreement.”

5.     The writ petition filed by the appellant questioning the order of the  

Designated Judge was dismissed by the Division Bench of the High Court by  

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observing that Clause 29 of the Contract cannot be construed as an Arbitration  

Agreement or an Arbitration Clause for settlement of disputes.

6. In some of the other appeals,  the appellants have challenged the orders  

passed by the Designated Judge rejecting their applications for appointment of  

Arbitrator under the relevant clause of their respective agreements.   

7. In the 5 appeals, Karnataka Neeravari Nigam Limited and Krishna Bhagya  

Jala Nigam Limited have challenged the orders passed by the Designated Judge  

for  appointment  of  the  Chief  Engineer  as  an  Arbitrator  and directed  him to  

adjudicate the matter in dispute.

THE ARGUMENTS

8. Mrs. Kiran Suri, Senior Advocate and other learned counsel appearing for  

the contractors argued that the impugned orders are liable to be set aside because  

the  learned  Designated  Judge  and  the  Division  Bench  of  the  High  Court  

misconstrued the relevant clauses of the agreements.  She further argued that in  

view of the judgment of the Division Bench of the High Court in Karnataka  

State Road Transport Corporation and another v. M. Keshava Raju 2004 (1) Arb.  

LR 507 and of this Court in Smt. Rukmanibai Gupta v. Collector, Jabalpur and  

others  (1980)  4  SCC  556,  Krishna  Bhagya  Jala  Nigam  Limited  v.  G.  

Harishchandra Reddy and another (2007) 2 SCC 720, Punjab State and others v.  

Dina Nath  (2007) 5 SCC 28, State of Orissa and others v. Bhagyadhar Dash  

(2011)  7  SCC  406,   Bharat  Bhushan  Bansal  v.  U.  P.  Small  Industries  

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Corporation Ltd., Kanpur (1999) 2 SCC 166 and K. K. Modi v. K. N. Modi and  

others  (1998) 3CC 573,  the judgment in  Mysore Construction Company v.  

Karnataka Power Corporation Limited (supra) cannot be treated as laying down  

correct law. Mrs. Suri also relied upon Section 20 of the Arbitration Act, 1940  

(for short, ‘the 1940 Act’) and argued that Clause 29 of the agreement executed  

between appellant  P.  Dasaratharama Reddy Complex and the Government of  

Karnataka  and  similar  clauses  contained  in  other  agreements  provide  for  

resolution of disputes by arbitration and the High Court committed serious error  

by refusing to appoint an Arbitrator.

9. Shri Naveen R. Nath, learned counsel, who appeared on behalf of Krishna  

Bhagya Jala Nigam Limited and Karnataka Neeravari Nigam Limited, who are  

the appellants in the five appeals and respondents in some of the other cases  

argued that Clause 29 of the agreement executed between the appellant and the  

Government of Karnataka in Civil Appeal No.1586 of 2004 and similar clauses  

in  other  agreements  are  in  the  nature  of  departmental  dispute  resolution  

mechanism and the same cannot be treated as an arbitration clause. He pointed  

out  that  Clause 29 and similar  clauses contained in other  agreements neither  

postulate hearing of the parties by the Chief Engineer nor he can adjudicate the  

dispute.   Shri  Nath  pointed  out  that  the  relevant  clauses  in  the  agreements  

entered into between the parties provide for settlement of disputes through Court  

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and, therefore, the decision, if any, taken by the Chief Engineer cannot be treated  

as an award of the Arbitrator.

10. We  have  considered  the  respective  submissions.  Clause  29  of  the  

Agreement entered into between the parties (the appellant and the respondents in  

Civil Appeal No.1586/2004) and majority of other cases read as under:

“Clause-29: (a) If any dispute or difference of any kind whatsoever were to arise  between  the  Executive  Engineer/Superintending  Engineer  and  the  Contractor  regarding the following matters namely,

(i) The  meaning  of  the  specifications  designs,  drawings  and  instructions  herein before mentioned;

(ii) The quality of workmanship or material used on the work and

(iii) Any other questions, claim right, matter, thing, whatsoever, in any way  arising  out  of  or  relating  to  the   contract  designs,  drawings,  specifications  estimates, instructions, or orders, or those conditions or failure to execute the  same whether arising during the progress of' the work, or after the completion,  termination  or  abandonment  thereof,  the  dispute  shall,  in  the  first  place,  be  referred to the Chief Engineer who has jurisdiction over the work specified in  the contract. The Chief Engineer shall within a period of ninety days from the  date of being requested by the Contractor to do so, given written notice of his  decision to the contractor.

Chief Engineer's decision final (b) Subject  to  other  form  of  settlement  hereafter  provided,  the  Chief  Engineer's decision in respect of every dispute or difference so referred shall be  final and binding upon the Contractor. The said decision shall forthwith be given  effect to and contractor shall proceed with the execution of the work with all due  diligence.

Remedy when Chief Engineer's decision is not acceptable to Contract

(c) In  case  the  decision  of  the  Chief  Engineer  is  not  acceptable  to  the  contractor, he may approach the Law Courts at for settlement of dispute after  giving due written notice in this regard to the Chief Engineer within a period of  

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ninety days from the date of receipt of the written notice of the decision of the  Chief Engineer.

Time limit for notice to approach law Court by Contractor

(d) If  the  Chief  Engineer  has  given  written  notice  of  his  decision  to  the  Contractor  and  no  written  notice  to  approach  the  law  court  has  been  communicated to him by the Contractor within a period of ninety days from  receipt  of  such notice,  the said  decision shall  be final  and binding upon the  Contractor.

Time limit for notice to approach law court by contractor when decision is not  given by CE as at (b)

(e) If the Chief Engineer fails to give notice of his decision within a period of  ninety days from the receipt of the Contractors request in writing for settlement  of any dispute or difference as aforesaid, the contractor may within ninety days  after the expiry of the first named period of ninety days approach the Law Courts  at giving due notice to the Chief Engineer.

Contractor to execute and complete work pending settlement of disputes;

(f) Whether the claim is referred to the Chief Engineer or to the Law Courts,  as the case may be, the contractor shall  proceed to execute and complete the  works  with  all  due  diligence  pending  settlement  of  the  said  dispute  or  differences.

Obligations  of  the Executive  Engineer  and Contractor  shall  remain  unsettled  during consideration of dispute.

(g) The reference of any dispute or difference to the Chief Engineer or the  Law Court  may  proceed notwithstanding  that  the  works  shall  then be  or  be  alleged to be complete, provided always that the obligations of the Executive  Engineer and the Contractor shall not be altered by reason of the said dispute or  difference being referred to the Chief  Engineer or  the Law Court  during the  Progress of the works.”

(emphasis supplied)       

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11. Clause  7  of  the  Agreement,  which  was  subject  matter  of  

consideration in Civil Appeal No.4187/2004 – C.C. Kondaiah v. the Secretary,  

Nagarika Yogbakashema Mathu Gruha Nirmana Sahakara Sangha, reads thus:

“7. In all matters of dispute arising out of this contract agreement regarding the  quality of materials,  work, etc., the decision of the Board of Directors of the  Sangha, shall be final and binding on the part of the Contractor.”

12. Clause  66  of  the  contract,  which  is  subject  matter  of  

consideration  in  the  appeals  arising  out  of  SLP(C)Nos.  31975/2011  and  

13528/2012, reads thus:

“Clause 66 : SETTLMENT OF DISPUTES:

66.  If  any  disputes  or  difference  of  any  kind  whatsoever  and  contractor  in  connection with, or raising out of the contract or the execution of works, whether  during the progress of the works or after their completion and 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 shall, within a period of  forty five days from the date of being requested by the contractor to do so, give  written notice of his decision to the contractor.

Subject to other form of settlement hereafter provided, such decision in respect  of every dispute or difference so referred shall be final and binding upon the  contractor.  The  said  decision  shall  forthwith  be  given  effect  to,  and  the  contractor shall proceed with the execution of the works with all due diligence.  In case the decision of the Engineer is not acceptable to the contractor, he may  approach the law courts for settlement of dispute after giving due written notice  in this regard to the Engineer within a period of forty five days form the date of   receipt of the written notice of the decision of the Engineer. If the Engineer has  given written notice of his decision to the contractor and no written notice to  approach the law courts has been communicated to him by the contractor within  a period of forty five days from receipt of such notice, the said decision shall be  final and binding upon the contractor. If the Engineer shall fail to give notice of  his decision within a period of forty five days form the receipt of the contractor's  request in writing for settlement of any dispute or difference as aforesaid, the  contractor  may within forty five days  after  the expiration of  the first  named  

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period  of  forty  five  days  approach  the  law courts,  giving  due  notice  to  the  Engineer. Whether the claim is referred to the Engineer or the law courts, as the  case may be, the contractor shall  proceed to execute and complete the works  with all due diligence pending settlement of the said dispute or differences. The  reference of any dispute or difference to the engineer or law courts may proceed  not  withstanding that  the works  shall  then be  or  be  alleged to  be  complete,  provided always that the obligations of the Engineer and the contractor shall not  be  altered  by  reason  of  the  said  dispute  or  difference  being  referred  to  the  engineer or law courts during the progress of the works.

Neither party is entitled to bring a claim to resolution of disputes if the dispute or  differences are not notified in writing within thirty (30) days after expiration of  the maintenance period.”

(emphasis supplied)

13. Clause  67  of  the  contract,  which  is  subject  matter  of  

consideration in the appeal arising out of SLP(C) No.12553/2006, reads thus:

“SETTLEMENT OF DISPUTES

67) If any dispute or difference of any kind whatsoever shall arise between the  Engineer and the Contractor in connection with, or arising out of the Contract, or  the execution of works, whether during the progress of the works or after their  completion and 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  shall,  within  a  period  of  ninety  days  from the  date  of  being  requested by the Contractor to do so, give written notice of his decision of the  Contractor.

Subject to other form of settlement hereafter provided, such decision in respect  of every dispute or difference so referred shall be final and binding upon the  Contractor.  The  said  decision  shall  forthwith  be  given  effect  to,  and  the  Contractor shall proceed with the execution of the works with all due diligence.  In case the decision of the Engineer is not acceptable to the Contractor, he may  approach the law Courts at Bangalore for settlement of dispute after giving due  written notice in this regard to the Engineer within a period of ninety days from  the date of receipt of the written notice of the decision of the Engineer. If the  Engineer  has  given  written  notice  of  his  decision  to  the  Contractor  and  no  written notice to approach the law courts has been communicated to him by the  Contractor within a period of ninety days from receipt of such notice, the said  

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decision shall be final and binding upon the contractor. If the Engineer shall fail  to give notice of his decision within a period of ninety days from the receipt of  the Contractor's request in writing for settlement of any dispute of difference as  aforesaid, the Contractor may within ninety days after the expiration of the first  named period of ninety days approach the law Courts at Bangalore, giving due  notice to the Engineer. However the claim is referred to the Engineer or to the  law Courts,  as  the case may be,  the Contractor  shall  proceed to execute and  complete the works with all due diligence pending settlement of the said dispute  or differences. The reference of any dispute or difference to the Engineer or law  Courts may proceed not withstanding that the works shall then be or be alleged  to be complete, provided always that the obligations of the Engineer and the  Contractor shall not be altered by reason of the said dispute or difference being  referred to the Engineer or law Courts during the progress of the works.”

(emphasis supplied)

14. In  Mysore  Construction  Company  v.  Karnataka  Power  

Corporation Limited and others (supra), the learned Designated Judge referred to  

the passage from Russell on Arbitration (19th Edition, page 59), the judgments of  

this Court in K. K. Modi v. K. N. Modi and others (supra), Chief Conservator of  

Forests, Rewa v. Ratan Singh Hans AIR 1967 SC 166; Smt. Rukmanibai Gupta  

v. the Collector, Jabalpur (supra); State of Uttar Pradesh v. Tipper Chand (1980)  

2 SCC 341; State of Orissa v. Damodar Das (1996) 2 SCC 216; Bharat Bhushan  

Bansal v. Uttar Pradesh Small Industries Corporation Limited, Kanpur (1999) 2  

SCC 166 and observed:

“The  above  decisions  make  it  clear  that  an  agreement  or  a  clause  in  an  agreement can be construed as an arbitration agreement, only if,

(i) it  provides  for  or  contemplates  reference  of  disputes  or  difference  by  either party to a private forum (other than a Court or Tribunal) or decision;

(ii) it  provides either  expressly or  impliedly,  for  an enquiry by the private  forum giving due opportunity to both parties to put forth their cases; and

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(iii) it provides that the decision of the forum is final and binding upon the  parties,  without recourse to any other remedy and both would abide by such  decision.

Where there is no provision either for reference of disputes to a private forum, or  for a fair and judicious enquiry, or for a decision which is final and binding on  parties to the dispute, there is no arbitration agreement.”

The learned Designated  Judge  then analysed  Clause  29 (old  Clause  67)  and  

recorded his observations in the following words:

“(a) The heading of the clause is 'settlement of disputes'. There is no reference  to either 'arbitration' or 'Arbitrator'.

(b) Clause  (a)  provides  that  if  any  dispute  or  difference  of  any  kind  whatsoever  to  arise  between the Executive Engineer/Superintending Engineer  and the Contractor, regarding the matters mentioned therein, the dispute shall in  the first place be referred to Chief Engineer, who has jurisdiction over the work  specified in the contract. Thus the reference to the Chief Engineer is only the  first phase of the process of settlement of disputes and not the final phase of the  settlement of disputes. This is evident from the provision that when a dispute  arises, it should in the first place, be referred to the Chief Engineer for decision.

(c) The reference is to a person, who has jurisdiction over the contract work  and not to an independent Authority nor to an officer of the Corporation, who  has no connection or control over the work. In other words, the decision of Chief  Engineer is a decision by a person who has overall supervision and charge of the  execution of the work. This gives an indication that the decision of the Chief  Engineer is not intended to be an adjudication of the rights of the parties to the  dispute, but intended to be a decision of one party in regard to the claim of the  other party, to enable the other party to seek relief in a Court of law, if he is not  satisfied with the decision.

(d) Sub-clause (b) provides that subject to other form of settlement provided  in  the  ensuing  sub-clause,  the  Chief  Engineer's  decision  in  respect  of  every  dispute or difference so referred, shall be final and binding upon the Contractor.  This clause makes it clear that the final remedy of the Contractor is to approach  the law Court for decision on the dispute. It is also significant that the decision  given by the Chief  Engineer  is  made final  and binding upon the  Contractor  (subject to other remedies specified) and not KPC. Any decision, which is made  binding only on one party and not on both the parties, cannot be an adjudicatory  

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decision. The very principle of adjudication of a dispute is that it is binding on  both the parties.

(e) Clause (c) provides that if the Contractor is not satisfied with the decision  of the Chief Engineer, he can approach the law Court at Karwar for settlement of  the dispute The clause requires the Contractor to approach the law Court for  settlement of disputes. If as contended by the petitioner, the disputes are to be  settled by way of arbitration by the Chief Engineer, acting as Arbitrator, then the  question of one of the parties being permitted to approach the law Courts for  settlement of the disputes does not arise. If the Chief Engineer is the Arbitrator  and his decision is an award, then a party can approach the Civil Court only for  setting aside the award and not for settlement of the disputes.  This provision  makes it clear that the decision of the Chief Engineer is not intended to be a  decision by way of adjudication of the disputes/differences between the parties  by  way  of  arbitration  but  is  intended  to  be  merely  a  decision  of  the  party  (employer)  which,  when intimated to the other  side,  gives rise  to a cause of  action  to  the  other  party  (Contractor)  to  approach  the  Civil  Court  for  adjudication of its dispute/claim.

(f) Similarly, sub-clause (d) which provides that if the Chief Engineer does  not give his decision within a particular period, the Contractor can approach the  Civil Court for settlement of the dispute, again demonstrates that no finality is  intended  to  be  attached  to  the  decision  of  the  Chief  Engineer  and  the  final  adjudication should be by the Civil Court and not by the Chief Engineer.

The  scheme  of  Clause  29  (or  old  Clause  67)  therefore  is,  whenever  the  Contractor  has  a  claim  which  is  not  settled  by  the  Executive  Engineer  or  Superintending Engineer, he has to make the claim before the Chief Engineer. If  the Chief  Engineer  examines  the matter  and gives  his  decision which is  not  acceptable to the Contractor, or if the Chief Engineer does not give his decision  within the time specified, the Contractor has to approach the Civil  Court,  by  filing  a  civil  suit  and get  his  disputes/claims  adjudicated,  on  merits.  Use  of  words 'to approach the Civil Court for settlement of disputes' makes it clear that  final adjudicating authority in the case of a dispute is the Civil Court and not the  Chief Engineer. Thus, the Intention of the parties is not to refer any dispute for  adjudication by way of arbitration but to get adjudicated the dispute only through  the normal procedure of approaching law Courts. The said clause does not also  contemplate or require the Chief Engineer to hold any enquiry or hear the parties  before deciding the matter. On the other hand, the clause merely requires the  Chief Engineer to consider the claim of the Contractor and give his decision  thereon. Such decision being on behalf of KPC, the Contractor can either accept  it or approach the Civil Court for adjudication. Thus the petitioner has failed to  make out two of the three ingredients -- requirement of enquiry by the named  Authority and requirement of finality by a binding decision.”

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15. The  distinction  between  an  expert  determination  and  

arbitration  has  been  spelt  out  in Russell  on Arbitration,  21st Edn.,  in  the  

following words:

“Many cases have been fought over whether a contract’s chosen form of dispute  resolution is expert determination or arbitration. This is a matter of construction  of the contract, which involves an objective enquiry into the intentions of the  parties. First, there are the express words of the disputes clause. If specific words  such as ‘arbitrator’, ‘arbitral tribunal’, ‘arbitration’ or the formula ‘as an expert  and not as an arbitrator’ are used to describe the manner in which the dispute  resolver  is  to  act,  they  are  likely  to  be  persuasive  although  not  always  conclusive…. Where there is no express wording, the court will refer to certain  guidelines. Of these, the most important used to be, whether there was an ‘issue’  between the parties such as the value of an asset on which they had not taken  defined  positions,  in  which  case  the  procedure  was  held  to  be  expert  determination;  or  a  ‘formulated  dispute’  between  the  parties  where  defined  positions  had  been  taken,  in  which  case  the  procedure  was  held  to  be  an  arbitration. This imprecise concept is still being relied on. It is unsatisfactory  because some parties to contract  deliberately choose expert determination for  dispute  resolution.  The  next  guideline  is  the  judicial  function  of  an  arbitral  tribunal as opposed to the expertise of the expert; …. An arbitral tribunal arrives  at its decision on the evidence and submissions of the parties and must apply the  law or if the parties agree, on other consideration; an expert, unless it is agreed  otherwise, makes his own enquiries, applies his own expertise and decides on his  own expert opinion....”

A  clause  substantially  similar  to  the  clauses  referred  to  

hereinabove was interpreted by a three Judge Bench in State of U.P v. Tipper  

Chand (supra) and it was held that the same cannot be construed as an arbitration  

clause.  Paragraphs 2 and 3 of the judgment which contain the reasons for the  

aforesaid conclusion are reproduced below:

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“2.  The suit  out of which this appeal  has arisen was filed by the respondent  before us for recovery of  Rs.  2000 on account of dues recoverable from the  Irrigation Department of the petitioner State for work done by the plaintiff in  pursuance of an agreement, clause 22 of which runs thus:

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

3. 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  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 it from time to time.”

16. In  State of Maharashtra v. M/s. Ranjeet Construction (Civil  

Appeal No.4700 of 1985), a two Judge Bench of this Court interpreted Clause 30  

of the agreement entered into between the parties, which is almost identical to  

the clauses under consideration, relied upon the judgment in State of U.P. v.  

Tipper Chand (supra) and held that Clause 30 cannot be relied upon for seeking  

a reference to an Arbitrator of any dispute arising under the contract.  

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17. In  State  of  Orissa  v.  Damodar  Das (supra),  a  three  Judge  

Bench interpreted Clause 21 of the contract entered into between the appellant  

and the respondent for construction of sump and pump chamber etc. for pipes  

W/S to Village Kentile. The respondent abandoned the work before completion  

of the project and accepted payment of the fourth running bill.  Subsequently, he  

raised dispute and sent  communication to the Chief  Engineer,  Public Health,  

Orissa  for  making  a  reference  to  an  Arbitrator.   The  Subordinate  Judge,  

Bhubaneswar allowed the application filed by the respondent under Section 8 of  

the 1940 Act and the order passed by him was upheld by the High Court. This  

Court referred to Clause 25 of the agreement, relied upon the judgment in State  

of  U.P.  v.  Tipper  Chand  (supra)  and  held  that  the  said  clause  cannot  be  

interpreted as providing resolution of dispute by an Arbitrator. Paragraphs 9 and  

10  of  the  judgment,  which  contain  discussion  on  the  subject,  are  extracted  

below:

“9. The question, therefore, is whether there is any arbitration agreement for the  resolution of the disputes. The agreement reads thus:

“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 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.”

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10. Section 2(a) of the Act defines “arbitration agreement” to mean “a written  agreement  to  submit  present  or  future  differences  to  arbitration,  whether  an  arbitrator is named therein or not”. Indisputably, there is no recital in the above  clause  of  the  contract  to  refer  any dispute  or  difference  present  or  future  to  arbitration. The learned counsel for the respondent sought to contend from the  marginal note, viz., “the decision of Public Health Engineer to be final” and any  other the words “claim, right, matter or thing, whatsoever in any way arising out  of 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” and contended  that this clause is wide enough to encompass within its ambit, any disputes or  differences arising in the aforesaid execution of the contract or any question or  claim or right arising under the contract during the progress of the work or after  the completion or sooner determination thereof for reference to an arbitration.  The High Court, therefore, was right in its conclusion that the aforesaid clause  gives right to arbitration to the respondent for resolution of the dispute/claims  raised by the respondent. In support thereof he relied on Ram Lal Jagan Nath v.  Punjab State through Collector AIR 1966 Punj 436. It is further contended that  for the decision of the Public Health Engineer to be final, the contractor must be  given an opportunity to submit his case to be heard either in person or through  counsel  and a  decision  thereon should  be given.  It  envisages  by implication  existence  of  a  dispute  between  the  contractor  and  the  Department.  In  other  words, the parties construed that the Public Health Engineer should be the sole  arbitrator. When the claim was made in referring the dispute to him, it was not  referred to the court. The respondent is entitled to avail of the remedy under  Sections 8 and 20 of  the Act.  We find it  difficult  to  give acceptance  to  the  contention.  A reading of the above clause in the contract as a conjoint whole,  would give us an indication that during the progress of the work or after the  completion or the sooner determination thereof of the contract, the Public Health  Engineer has been empowered to decide all questions relating to the meaning of  the specifications, drawings, instructions hereinbefore 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  drawings,  specifications,  estimates,  instructions,  orders  or  those  conditions  or  otherwise  concerning  the  works  or  the  execution  or  failure  to  execute  the  same  has  been  entrusted  to  the  Public  Health  Engineer  and  his  decision  shall  be  final.  In  other  words,  he  is  nominated  only  to  decide  the  questions arising in the quality of  the work or any other matters enumerated  hereinbefore and his decision shall be final and bind the contractor. A clause in  the contract cannot be split into two parts so as to consider one part to give rise  to  difference  or  dispute  and  another  part  relating  to  execution  of  work,  its  workmanship etc. It is settled now that a clause in the contract must be read as a  

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whole.  If the construction suggested by the respondent is given effect then the  decision of the Public Health Engineer would become final and it is not even  necessary to have it made rule of the court under the Arbitration Act. It would be  hazardous to the claim of a contractor to give such instruction and give power to  the  Public  Health  Engineer  to  make  any  dispute  final  and  binding  on  the  contractor.  A careful  reading of  the clause  in  the contract  would give us  an  indication  that  the  Public  Health  Engineer  is  empowered  to  decide  all  the  questions enumerated therein other than any disputes or differences that have  arisen between the contractor and the Government. But for clause 25, there is no  other  contract  to  refer  any  dispute  or  difference  to  an  arbitrator  named  or  otherwise.”

(emphasis supplied)

18. In K.K. Modi v. K.N. Modi (supra),  this Court interpreted  

Clause 9 of the Memorandum of Understanding signed by two groups of Modi  

family.  Group  ‘A’  consisted  of  Kedar  Nath  Modi  (younger  brother  of  Seth  

Gujjar Mal Modi and his three sons) and Group ‘B’ consisted of five sons of  

Seth Gujjar  Mal  Modi.  To resolve the disputes and differences between two  

groups,  the  financial  institutions,  which  had  lent  money,  got  involved.  

Ultimately,  a  Memorandum  of  Understanding  was  signed  by  the  parties  on  

24.1.1989, Clause 9 of which reads as under:

“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.”

The  Chairman,  Industrial  Finance  Corporation  of  India  (IFCI)  formed  a  

committee of experts to assist him in deciding various questions. The committee  

of experts and the Chairman held discussion with both the groups. On 8.12.1995,  

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the Chairman, IFCI gave his detailed report / decision. In his covering letter, the  

Chairman  indicated  that  the  Memorandum  of  Understanding  had  been  

substantially implemented during 1989 to 1995 and with his decisions on the  

disputes  /  clarifications  given  by  him,  it  will  be  possible  to  implement  the  

remaining part. The report of the Chairman was neither filed in the competent  

Court as an award nor any application was submitted for making the report a rule  

or decree of the Court. However, the Chairman issued series of directions for  

implementing the  report.  On  18.5.1996,  the  appellants  filed  a  petition  under  

Section 33 of the 1940 Act in the Delhi High Court challenging report dated  

8.12.1995  by  asserting  that  it  was  an  award  in  arbitration  proceedings.  The  

opposite parties filed civil suit in the High Court to challenge the report of the  

Chairman.  

One of the questions formulated by this Court was whether  

Clause  9  of  the  Memorandum  of  Understanding  constituted  an  Arbitration  

Agreement  and  whether  the  decision  of  the  Chairman,  IFCI  constituted  an  

award.  The  two  Judge  Bench  first  culled  out  the  following  attributes  of  an  

Arbitration Agreement:

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

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(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.

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.”

The Court then referred to several precedents including English cases and held:

“In the present case, the Memorandum of Understanding records the settlement  of  various  disputes  as  between  Group  A  and  Group  B  in  terms  of  the  Memorandum of Understanding.  It  essentially  records a settlement  arrived at  regarding disputes and differences between the two groups which belong to the  same  family.  In  terms  of  the  settlement,  the  shares  and  assets  of  various  companies are required to be valued in the manner specified in the agreement.  The valuation is to be done by M/s S.B. Billimoria & Co. Three companies  which  have  to  be  divided  between  the  two  groups  are  to  be  divided  in  accordance  with  a  scheme to  be  prepared  by Bansi  S.  Mehta  & Co.  In  the  implementation of the Memorandum of Understanding which is to be done in  consultation with the financial institutions, any disputes or clarifications relating  to  implementation  are  to  be  referred to  the Chairman,  IFCI or  his  nominees  whose decision will be final and binding. The purport of clause 9 is to prevent  any further disputes between Groups A and B. Because the agreement requires  division of assets in agreed proportions after their valuation by a named body  and under a scheme of division by another named body. Clause 9 is intended to  clear  any  other  difficulties  which  may  arise  in  the  implementation  of  the  agreement by leaving it to the decision of the Chairman, IFCI. This clause does  not contemplate any judicial determination by the Chairman of the IFCI. He is  

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entitled to nominate another person for deciding any question. His decision has  been  made  final  and  binding.  Thus,  clause  9  is  not  intended  to  be  for  any  different decision than what is already agreed upon between the parties to the  dispute. It is meant for a proper implementation of the settlement already arrived  at.  A judicial determination, recording of evidence etc. are not contemplated.  The decision of the Chairman, IFCI is to be binding on the parties. Moreover,  difficulties and disputes in implementation may not be between the parties to the  Memorandum of Understanding. It is possible that the valuers nominated in the  Memorandum of Understanding or the firm entrusted with the responsibility of  splitting some of the companies may require some clarifications or may find  difficulties in doing the work. They can also resort to clause 9. Looking to the  scheme of the Memorandum of Understanding and the purpose behind clause 9,  the learned Single Judge, in our view, has rightly come to the conclusion that  this was not an agreement to refer disputes to arbitration. It was meant to be an  expert’s decision. The Chairman, IFCI has designated his decision as a decision.  He has consulted experts in connection with the valuation and division of assets.  He did not file his decision in court nor did any of the parties request him to do  so.”

(emphasis supplied)

19. In  Bharat  Bhushan  Bansal  v.  U.P.  Small  Industries  

Corporation Limited, Kanpur (supra), a two Judge Bench interpreted Clauses 23  

and 24 of the agreement entered into between the parties for execution of work  

of  construction  of  a  factory  and  allied  buildings  of  the  respondent  at  India  

Complex, Rai Bareli. Those clauses were as under:

“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  

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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 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.”

It was argued on behalf of the appellant that Clause 24 should be construed as an  

arbitration clause because the decision of the Managing Director was binding on  

both  the  parties.   The  two Judge Bench  analysed  Clauses  23 and 24 of  the  

agreement, referred to the judgment in  K.K. Modi v. K.N. Modi (supra), State  

of U.P. v. Tipper Chand (supra), State of Orissa v. Damodar Das (supra) and  

observed:

“In the present case, the Managing Director is more in the category of an expert   who will decide claims, rights, or matters in any way pertaining to the contract.  The intention appears to be more to avoid disputes than to decide formulated  disputes  in  a  quasi-judicial  manner.  In  para  18.067 of  Vol.  2  of  Hudson on  Building and Engineering Contracts.  Illustration (8) deals with the case where,  by the terms of a contract, it was provided that the engineer   

“shall  be  the  exclusive  judge  upon  all  matters  relating  to  the  construction,  incidents,  and  the  consequences  of  these  presents,  and  of  the  tender,  specifications,  schedule  and  drawings  of  the  contract,  and  in  regard  to  the  execution of the works or otherwise arising out of or in connection with the  contract, and also as regards all matters of account, including the final balance  payable to the contractor, and the certificate of the engineer for the time being,  given under his hand, shall be binding  and conclusive on both parties.”

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It was held that this clause was not an arbitration clause and that the duties of the  Engineer were administrative and not judicial.

Since  clause  24 does  not  contemplate  any arbitration,  the  application  of  the  appellant under Section 8 of the Arbitration Act, 1940 was misconceived. The  appeal is, therefore, dismissed though for reasons somewhat different from the  reasons given by the High Court. there will, however, be no order as to costs.”

20. In Civil Appeal No.3680/2005 - Vishnu (dead) by L.Rs. v.  

State of Maharashtra and others decided on 4.10.2013, this Court considered the  

question  whether  Clause  30  of  B-1  Agreements  entered  into  between  the  

Government of Maharashtra and the appellant is in the nature of an arbitration  

clause. That clause was substantially similar to the clauses being considered in  

these cases. After noticing precedents on the subject, the Court observed:

“In terms of Clause 29 of B-1 Agreement, the Superintending Engineer of the  Circle was invested with the authority to approve all works to be executed under  the  contract.  In  other  words,  the  Superintending  Engineer  was  to  supervise  execution of all works.  The power conferred upon him to take decision on the  matters enumerated in Clause 30 did not involve adjudication of any dispute or  lis  between  the  State  Government  and  the  contractor.   It  would  have  been  extremely  anomalous  to  appoint  him  as  Arbitrator  to  decide  any  dispute  or  difference between the parties and pass an award.  How could he pass an award  on any of the issues already decided by him under Clause 30?  Suppose, he was  to decline approval to the designs, drawings etc. or was to object to the quality of  materials etc. and the contractor had a grievance against his decision, the task of  deciding  the  dispute  could  not  have  been  assigned  to  the  Superintending  Engineer.  He could not be expected to make adjudication with an un-biased  mind. Even if he may not be actually biased, the contractor will always have a  lurking apprehension that  his  decision  will  not  be free from bias.  Therefore,  there  is  an  inherent  danger  in  treating  the  Superintending  Engineer  as  an  Arbitrator. This facet of the problem was highlighted in the judgment of the two  Judge Bench in Bihar State Mineral Development Corporation and another v.  Encon Builders (I)(P) Limited (2003) 7 SCC 418.  In that case, the agreement  entered into between the parties contained a clause that any dispute arising out of  the agreement shall be referred to the Managing Director of the Corporation and  

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his decision shall be final and binding on both the parties. After noticing several  precedents, the two Judge Bench observed:

“There  cannot  be  any  doubt  whatsoever  that  an  arbitration  agreement  must  contain the broad consensus between the parties that the disputes and differences  should be referred to a domestic tribunal. The said domestic tribunal must be an  impartial one.  It is a well-settled principle of law that a person cannot be a judge  of his own cause. It is further well settled that justice should not only be done  but manifestly seen to be done.

Actual  bias  would  lead  to  an  automatic  disqualification  where  the  decision- maker  is  shown to have an  interest  in  the  outcome of  the  case.  Actual  bias  denotes an arbitrator  who allows a decision to be influenced by partiality or  prejudice and thereby deprives the litigant of the fundamental right to a fair trial  by an impartial tribunal.

As the acts of bias on the part of the second appellant arose during execution of  the agreement, the question as to whether the respondent herein entered into the  agreement with his eyes wide open or not takes a back seat.  An order which  lacks inherent jurisdiction would be a nullity and, thus, the procedural law of  waiver or estoppel would have no application in such a situation.  

It will bear repetition to state that the action of the second appellant itself was in  question  and,  thus,  indisputably,  he  could  not  have  adjudicated  thereupon in  terms of the principle that nobody can be a judge of his own cause.”  ”

21. To the aforesaid proposition, we may add that in terms of Clause 29(a)  

and  similar  other  clauses,  any  dispute  or  difference  irrespective  of  its  

nomenclature in matters relating to specifications, designs, drawings, quality of  

workmanship or material used or any question relating to claim, right in any way  

arising out of or relating to the contract designs, drawings etc. or failure on the  

contractor’s part to execute the work, whether arising during the progress of the  

work or after its completion, termination or abandonment has to be first referred  

to the Chief  Engineer or the Designated Officer of the Department.   The Chief  

Engineer or the Designated Officer is not an independent authority or person,  

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who has no connection or control over the work.  As a matter of fact,  he is  

having over all supervision and charge of the execution of the work.   He is not  

required to hear the parties or to take evidence, oral or documentary. He is not  

invested with the power to adjudicate upon the rights of the parties to the dispute  

or difference and his decision is subject to the right of the aggrieved party to  

seek  relief  in  a  Court  of  Law.   The  decision  of  the  Chief  Engineer  or  the  

Designated Officer is treated as binding on the contractor subject to his right to  

avail remedy before an appropriate Court.  The use of the expression ‘in the first  

place’ unmistakably shows that non-adjudicatory decision of the Chief Engineer  

is subject to the right of the aggrieved party to seek remedy. Therefore, Clause  

29 which is subject matter of consideration in most of the appeals and similar  

clauses cannot be treated as an Arbitration Clause.

22. As a corollary to the above, we hold that the judgment of the Designated  

Judge in Mysore Construction Company v. Karnataka Power Corporation Ltd.  

(supra) lays down the correct law.

23. Before parting with the case, we may notice the judgments relied upon by  

the learned counsel for the contractors and find out whether the proposition laid  

down therein supports their argument that Clause 29 and other similar clauses in  

the agreements entered into between the parties should be treated as arbitration  

clause.  

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24. The facts of Mallikarjun v. Gulbarga University case (2004)  

1  SCC  372  were  that  the  respondent-University  had  accepted  the  tender  

submitted by the appellant for construction of an indoor stadium. In pursuance of  

the work order issued by the competent authority, the appellant completed the  

construction. Thereafter, he invoked the arbitration clause for resolution of the  

disputes which arose from the execution of the project. Superintending Engineer,  

PWD, Gulbarga Circle was entrusted with the task of deciding the disputes.  The  

parties  filed  their  respective  claims  before  the  Superintending  Engineer.  He  

considered the same and passed an award. The appellant filed execution petition  

in  the  Court  of  Principal  Civil  Judge  (Senior  Division),  Gulbarga.  The  

respondent  filed  an  objection  petition  under  Section  47  of  the  CPC.  The  

Executing Court rejected the objection. The University challenged the decision  

of the Executing Court and pleaded that the agreement on the basis of which the  

dispute  was  referred  to  the  Superintending  Engineer  was  not  an  arbitration  

agreement and, as such, award made by him cannot be treated as one made under  

the 1940 Act. The High Court accepted the plea of the University and set aside  

the order  of  the trial  Court.  Clause  30 of  the agreement  which came up for  

interpretation by this Court was as under:

“The decision of the Superintending Engineer of Gulbarga Circle 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, designs, drawings and  instructions hereinbefore 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,  

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drawings, specifications, estimates, instructions, orders or those 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  in  case  of  dispute  arising  between  the  contractor  and  Gulbarga University.”   

After  analyzing  the  aforesaid  clause  and  making  a  reference  to  essential  

elements  of  arbitration  agreement  enumerated  in  Bihar  State  Mineral  

Development  Corporation  v.  Encon  Builders  (I)(P)  Limited  (supra),  a  three  

Judge Bench held:

“Applying the aforesaid  principle  to  the present  case,  clause  30 requires  the  Superintending Engineer, Gulbarga Circle, Gulbarga, to give his decision on any  dispute  that  may  arise  out  of  the  contract.  Further,  we  also  find  that  the  agreement  postulates  present  or  future  differences  in  connection  with  some  contemplated  affairs  inasmuch  as  there  also  was  an  agreement  between  the  parties to settle such difference by a private tribunal, namely, the Superintending  Engineer, Gulbarga Circle, Gulbarga. It was also agreed between the parties that  they would be bound by the decision of the Tribunal. The parties were also ad  idem.

In  the  aforesaid  view of  the  matter,  it  must  be  held  that  the  agreement  did  contain an arbitration clause.”

The  Bench  distinguished  the  judgment  in  Bharat  Bhushan  Bansal’s  case  by  

making the following observations:

“A bare  comparison  of  clause  30 of  the  contract  agreement  involved  in  the  present matter and clauses 23 and 24 involved in Bharat Bhushan Bansal case  would show that they are not identical. Whereas clause 30 of the agreement in  question provides for  resolution of  the dispute  arising out  of  the contract  by  persons named therein; in terms of clause 24, there was no question of decision  by a named person in the dispute raised by the parties to the agreement. The  matters which are specified under clauses 23 and 24 in Bharat Bhushan Bansal  case were necessarily not required to arise out of the contract, but merely claims  

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arising during performance of the contract. Clause 30 of the agreement in the  present case did provide for resolution of the dispute arising out of the contract  by the Superintending Engineer, Gulbarga Circle, Gulbarga. For that reason, the  case relied upon by the learned counsel for the respondent is distinguishable.

Once  clause  30  is  constituted  to  be  a  valid  arbitration  agreement,  it  would  necessarily follow that  the decision of the arbitrator named therein would be  rendered only upon allowing the parties to adduce evidence in support of their  respective  claims  and counter-claims as  also  upon hearing the  parties  to  the  dispute. For the purpose of constituting the valid arbitration agreement, it is not  necessary that the conditions as regards adduction of evidence by the parties or  giving an opportunity of hearing to them must specifically be mentioned therein.  Such conditions, it  is trite, are implicit in the decision-making process in the  arbitration proceedings. Compliance with the principles of natural justice inheres  in an arbitration process. They, irrespective of the fact as to whether recorded  specifically in the arbitration agreement or not are required to be followed. Once  the principles of natural justice are not complied with, the award made by the  arbitrator would be rendered invalid. We, therefore, are of the opinion that the  arbitration clause does not necessitate spelling out of a duty on the part of the  arbitrator  to  hear  both  parties  before  deciding  the  question  before  him.  The  expression “decision” subsumes adjudication of the dispute. Here in the instant  case, it will bear repetition to state, that the disputes between the parties arose  out  of  a  contract  and in  relation to  matters  specified therein and,  thus,  were  required to be decided and such decisions are not only final and binding on the  parties,  but  they are  conclusive  which clearly  spells  out  the  finality  of  such  decisions as also their binding nature.

A clause which is inserted in a contract agreement for the purpose of prevention  of dispute will not be an arbitration agreement. Such a provision has been made  in the agreement itself by conferring power upon the Engineer-in-Charge to take  a decision thereupon in relation to the matters envisaged under clauses 31 and 32  of the said agreement. Clauses 31 and 32 of the said agreement provide for a  decision of the Engineer-in-Charge in relation to the matters specified therein.  The jurisdiction of the Engineer-in-Charge in relation to such matters are limited  and they cannot be equated with an arbitration agreement. Despite such clauses  meant for prevention of dispute arising out of a contract, significantly, clause 30  has been inserted in the contract agreement by the parties.

The Superintending Engineer, Gulbarga Circle, Gulbarga, is  an officer of the  Public Works Department in the Government of Karnataka. He is not an officer  of  the  University.  He  did  not  have  any  authority  or  jurisdiction  under  the  agreement or otherwise either to supervise the construction works or issue any  direction(s) upon the contractor in relation to the contract job. He might be an ex  officio member of the Building Committee, but thereby or by reason thereof, he  

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could not have been given nor in fact had been given an authority to supervise  the contract  job or for  that matter  issue any direction upon the contractor as  regards performance of the contract.”

(emphasis supplied)

25. In Punjab State v. Dina Nath (supra), a two Judge Bench was  

called upon to consider whether clause 4 of work order No.114 dated 16.5.1985  

constituted an arbitration agreement. The clause in question was as under:

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

After noticing the judgment in K.K. Modi v. K.N. Modi, the Court observed:

“Keeping the ingredients as indicated by this Court in K.K.Modi in mind for  holding a particular agreement as an arbitration agreement, we now proceed to  examine the aforesaid ingredients in the context of the present case:

(a) Clause  4  of  the  Work  Order  categorically  states  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 has also been derived from the consent of  the parties to the Work Order.

(c) The  agreement  contemplates  that  the  Superintending  Engineer shall determine substantive rights of parties as the  clause encompasses all  varieties of disputes that may arise  between the parties and does not restrict the jurisdiction of  the Superintending Engineer to specific issues only.

(d) That the agreement of the parties to refer their disputes to the  decision  of  the  Superintending  Engineer  is  intended  to  be  enforceable in law as it is binding in nature.

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The words “any dispute” appears in clause 4 of the Work Order. Therefore, only  on  the  basis  of  the  materials  produced  by  the  parties  in  support  of  their  respective claims a decision can be arrived at in resolving the dispute between  the parties. The use of the words “any dispute” in clause 4 of the Work order is  wide enough to include all disputes relating to the said Work Order. Therefore,  when a party raises a dispute for non-payment of money after completion of the  work, which is denied by the other party, such a dispute would come within the  meaning of “arbitration agreement” between the parties. Clause 4 of the Work  Order also clearly provides that  any dispute  between the department and the  contractor shall be referred to the Superintending Engineer, Hydel Circle No.1,  Chandigarh for orders. The word “orders” would indicate some expression of  opinion, which is to be carried our, or enforced and which is a conclusion of a  body (in this case  Superintending engineer, Hydel Circle No.1, Chandigarh).  Then again the conclusion and decision of the Superintending Engineer will be  final and binding on both the parties. This being the position in the present case  and in view of the fact that clause 4 of the Work Order is not under challenge  before us,  the decision that  would be arrived at  by Superintending Engineer,  Hydel Circle No.1, Chandigarh must also be binding on the parties as a result  whereof clause 4 must be held to be a binding arbitration agreement.”

The Bench distinguished the judgment in State of Orissa v. Damodar Das (supra)  

by making the following observations:

“From a plain reading of this clause in Damodar Das it is evident that the powers  of the Public Health Engineer were essentially to supervise and inspect.   His  powers  were  limited  to  the  questions  relating  to  the  meaning  of  the  specifications, drawings and instructions, quality of workmanship or materials  used on the work or as to any other question,  claim, right,  matter,  drawings,  specifications,  estimates,  instructions,  orders  or  these conditions or  otherwise  concerning the works or the execution or failure to execute the same.  However,  in  the  case  before  us,  the  Superintending  Engineer  was  given  full  power  to  resolve any dispute arising between the parties which power in our view is wide  enough to cover any nature of dispute raised by the parties. The clause in the  instant case categorically mentions the word “dispute” which would be referred  to him and states “his decision would be final and acceptable/binding on both the  parties.”  

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26. Krishna Bhagya Jala Nigam Ltd. v. G.Harishchandra Reddy  

(supra) was decided on the peculiar facts of that case. The contract which was  

subject  matter  of  interpretation  in  that  case  contained  Clause  29.  When  the  

respondent  raised  disputes  and  called  upon  the  Chief  Engineer  to  act  as  an  

Arbitrator,  the  latter  refused  to  do  so.  The  Designated  Judge  allowed  CMP  

No.26/1999  filed  under  Section  11  of  the  1996  Act  and  directed  the  Chief  

Engineer to act as an Arbitrator. Thereafter, both the parties filed their respective  

statements before the Arbitrator and produced evidence. The Arbitrator passed  

award dated 25.6.2000.  The appellant – Krishna Bhagya Jala Nigam Ltd. filed a  

petition under Section 34(2)(v) of the 1996 Act. The Civil Court confirmed the  

award of the Arbitrator.  Appeal filed against the judgment of the Civil Court  

was dismissed by the High Court. Before this Court, an argument was raised that  

Clause  29 of  the  contract  was  not  an  arbitration  clause.  While  rejecting  the  

argument, the two Judge Bench observed:

“We do not find any merit in the above arguments. The plea of “no arbitration  clause” was not raised in the written statement filed by Jala Nigam before the  arbitrator. The said plea was not advanced before the civil court in Arbitration  Case No. 1 of 2001. On the contrary, both the courts below on facts have found  that Jala Nigam had consented to the arbitration of the disputes by the Chief  Engineer.  Jala  Nigam  had  participated  in  the  arbitration  proceedings.  It  submitted  itself  to  the  authority  of  the  arbitrator.  It  gave  consent  to  the  appointment of the Chief Engineer as an arbitrator. It filed its written statements  to the additional claims made by the contractor. The Executive Engineer who  appeared on behalf of Jala Nigam did not invoke Section 16 of the Arbitration  Act. He did not challenge the competence of the Arbitral Tribunal. He did not  call  upon the Arbitral Tribunal to rule on its jurisdiction.  On the contrary, it  submitted  to  the  jurisdiction  of  the  Arbitral  Tribunal.  It  also  filed  written  arguments.  It  did not challenge the order of the High Court dated 10-9-1999  

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passed in CMP No. 26 of 1999. Suffice it to say that both the parties accepted  that  there  was  an  arbitration  agreement,  they  proceeded  on  that  basis  and,  therefore, Jala Nigam cannot be now be allowed to contend that clause 29 of the  contract did not constitute an arbitration agreement.”

27. One of  the questions which arose for  consideration in Karnataka State  

Road  Transport  Corporation  and  another  v.  M.  Keshava  Raju  (supra)  was  

whether the appointment of Arbitrator under Section 11 of the 1996 Act was  

proper. The facts of that case show that on an application filed by the respondent  

under Section 11 of the 1996 Act, the Designated Judge appointed an Arbitrator.  

After hearing the parties, the Arbitrator passed award dated 15.10.1998 whereby  

he allowed some claims of the respondent. The objections filed by the appellant  

under Section 34 of the 1996 Act were rejected by VI Additional  City Civil  

Judge, Bangalore. In the appeal filed against the judgment of the trial Court, the  

High Court formulated the following points:

“(1) Whether the appellant can be permitted to raise the ground regarding the  alleged want of jurisdiction in this Court to refer the dispute between the parties  to an Arbitrator under Section 11 of the Act, for the first time, in this appeal.

(2) Whether the ground regarding the legality and justification on the part of  the  Arbitrator  to  Award  a  sum  of  Rs.  2,85,000  towards  reimbursement  of  overhead charges and another sum of Rs. 2,85,000 towards compensating the  loss  of  profits  was  raised  before  the  Court  below,  and  if  it  was  not  raised,  whether such plea can be allowed to be raised in this appeal for the first time and  if  the  above  plea  was  in  fact  raised  before  the  Court  below,  whether  the  Arbitrator is justified in awarding a sum of Rs. 2,85,000 towards reimbursement  of overhead charges and another sum of Rs. 2,85,000 towards compensating loss  of profits having regard to Clause 15(a) of the agreement.”

The Division Bench referred to Section 16 and held:

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“In our considered opinion, the above plea cannot be entertained for more than  one  reason.  Firstly,  one  of  the  objects  in  enacting  the  Act  is  to  have  early  completion of arbitration proceedings minimising the supervisory role of Courts  in arbitral process. Sections 4, 5 and 16 of the Act have been enacted to give  effect  to  that  object.  Secondly,  even  the  method  of  arbitration  as  a  dispute  resolution mechanism and the procedure envisaged for that are intended to reach  the finality to resolve the dispute between the parties as  quickly as possible.  Therefore, it is imperative that the party raising jurisdiction point, should raise  such plea at the earliest, that is to say, at the threshold of the proceeding. If that  is not insisted, it is trite, the very object in enacting the Act, on the basis of the  'UNCITRAL Modern Law', would be defeated. The jurisdiction plea now raised  for the first time in the Memorandum of Appeal was not raised either directly or  by necessary implication before this Court in C.M.P. No. 4/1996 or before the  Arbitrator or before the Court below. The appellant having acquiesced in the  jurisdiction  of  the  Arbitral  Tribunal  without  any  demur  and  protest,  having  participated in the proceedings and having suffered an award cannot now turn  round and raise the plea that the orders of this Court in C.M.P. No. 4 of 1996, the  award of the Arbitrator and the judgment of the Civil Court dated 20-6-2000 in  Arbitration Suit No. 6 of 1998 are nullity.

Thirdly, the appellant should be deemed to have waived his right to object to the  jurisdiction  of  the  Arbitrator  to  pass  the  impugned  award  in  terms  of  the  provisions of Section 4 of the Act. Section 4 reads as follows :-

"(4) Waiver of right to object

A party who knows that -

(a) any provision of this Part from which the parties may derogate, or

(b) any requirement under the arbitration agreement,

has not been complied with and yet proceeds with the arbitration without stating  his objection to such non-compliance without undue delay or, if a time limit is  provided for stating that objection, without that period of time, shall be deemed  to have waived his right to so object."

17. Section 4 narrates the circumstances in which the party, who knowingly fails  to object the non-compliance of any non-mandatory provisions of Part-I or any  requirement under the arbitration agreement by the other party, is  deemed to  have waived his right to object. This section is based on general principles such  as  "estoppel"  or  "venire  contra  factum proprium".  It  is  intended to  help  the  arbitral process function efficiently and in good faith. If there is non-compliance  of any non-mandatory provision of Part I or of any requirement of the arbitration  agreement by a party to an arbitration agreement of which the other party to the  

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agreement  though  has  the  knowledge  of  such  non-compliance  but  does  not  object  without  undue  delay,  or  if  a  time  limit  is  provided  for  stating  that  objection and no objection is taken within that period of time, such a party later  on can neither raise objection about that non-compliance of any provision of Part  I  nor  any requirement  of  the arbitration agreement  since  such party shall  be  deemed to have waived its objection. Though, in order to apply the doctrine of  waiver by invoking Section 4, the first condition is that the non-compliance must  be  of  non-mandatory  provision  of  Part  I  or  of  any  requirement  under  the  arbitration agreement, certain mandatory provisions of the Act also provide for a  grant of waiver in the event of failure to object. For example, sub-sections (2)  and (3) of Section 16 are one of such mandatory provisions. Section 16 (2) of the  Act provides that a plea that the Arbitral Tribunal does not have jurisdiction  shall be raised not later than the submission of the statement of defence. Section  16 (3) of the Act provides that a plea that the Arbitral Tribunal is exceeding the  scope of its authority shall be raised as soon as the matter alleged to be beyond  the scope of its authority is raised during the arbitral proceedings.”

28. Thus,  none  of  the  judgments  relied  upon  by  learned  counsel  for  the  

contractors is of any help to their cause.

29. In the result, Civil Appeal Nos. 1586, 1587, 1588, 4187, 5496, 6323, 6327  

and 6328 of 2004; Civil Appeal Nos. 558-560 of 2006; Civil Appeals arising out  

of SLP(C) Nos. 16117, 17147, 24655 and 26073 of 2004; Civil Appeals arising  

out of SLP(C) Nos. 5951, 12552 and 12553 of 2006, Civil Appeal arising out of  

SLP(C) No. 8597 of 2009 and Civil Appeal arising out of SLP(C) No. 13528 of  

2012  are  dismissed.   However,  liberty  is  given  to  the  appellants  to  avail  

appropriate  legal  remedy  for  recovery  of  the  amount,  if  any,  due  from  the  

respondents.

30. Civil Appeals arising out of SLP(C) Nos. 28087-28088, 28089, 29227-

29230 and 31975 of 2011 and Civil Appeal No.1374 of 2013 are allowed. The  

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orders passed by the Designated Judge, which are subject matter of challenge in  

the five appeals are set aside.  It is, however, made clear that the respondents  

shall be free to avail appropriate legal remedies for recovery of the amount, if  

any, payable to them in terms of their respective agreements.

 ..….………………….…J.            (G.S. SINGHVI)

..….………………….…J.            (V. GOPALA GOWDA)

..….………………….…J.            (C. NAGAPPAN)

New Delhi, October 25, 2013.  

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