Madhya Pradesh High Court
Madhya Pradesh Paschim Kshetra Vidyut ... vs Secro Bpo Pvt. Ltd. on 18 December, 2017
1
HIGH COURT OF MADHYA PRADESH BENCH AT INDORE
(S.B.: HON. SHRI JUSTICE PRAKASH SHRIVASTAVA)
A.A. No. 3/2016, AA No. 4/2016, AA No. 5/2016 & AA No.
6/2016
Madhya Pradesh Paschim Kshetra Vidyut
Vitran Company Ltd
Appellant
Versus
Serco BPO Pvt. Ltd.
Respondent
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Shri Prasanna Prasad, learned counsel for appellant.
Shri R.S. Chhabra, learned counsel for respondent.
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Whether approved for reporting :
ORDER
(Passed on 18/12/2017 ) 1/ This order will govern disposal of A.A. No. 3/2016, AA No. 4/2016, AA No. 5/2016 & AA No. 6/2016 since it is jointly stated by counsel for the parties that all these appeals are between the same parties involving same issue in identical facts situation and similar orders of court below are under challenge.
2/ For convenience the facts have been noted from AA No. 3/2016.
3/ This appeal under Section 37 of Arbitration and Conciliation Act, 1996 is directed against the order of 6th Additional District Judge Indore dated 27/2/2016 allowing the respondent's application under Section 9 of the Act and staying 2 decision of the appellant contained in communication dated 17/11/2014 about blacklisting the respondent for three years.
4/ The respondent had filed an application under Section 9 of the Act with the plea that rate contract tender was floated by appellant for unskilled labour in which respondent had participated. Tender and price bids were opened on 11/4/14 and 29/5/14 respectively and on the basis of consent letter of respondent dated 6/6/14 the rate contract dated 9/6/14 was awarded to respondent. The respondent had deposited Rs. 50,000/- as earnest money. Vide letter dated 16/6/14 respondent had sought clarification in respect of liability under the Bonus Act, paid leaves/minimum leaves etc/. Since no reply was received therefore respondent had sent the reminders dated 19/6/14, 24/6/14, 7/7/14 but instead of giving reply, appellant vide communication dated 4/7/14 had cancelled the rate contract award and had informed about the forfeiture of earnest money. The respondent vide communication dated 7/7/14 had conveyed that it had never refused to perform the contract and asked for review of the decision but on 17/11/14 the communication was issued by appellant blacklisting the respondent for 3 years. On 18/2/15 the respondent had sent the letter for appointment of arbitrator in terms of clause 15 of General Terms and Condition of award and when no reply was received, the respondent had filed an application under Section 9 of the Act seeking interim measure.
5/ Appellant by filing reply had taken the plea that rate contract awarded to respondent was cancelled and looking to urgency, the work was awarded to M/s Deccan Techno Solutions, Pvt. Ltd. hence the said company was also a necessary party. It was further pleaded that no contract was 3 executed between the parties therefore, Section 9 of the Act cannot be invoked. It was also pleaded that respondent had not participated in pre-auction meeting dated 7/4/14 and vide letter dated 5/6/14 the respondent was informed to give consent as per tender specification clause 9(2) on L-01 rate and the respondent had given the consent letter dated 6/6/14. Thereafter the rate contract award dated 9/6/14 was issued and subsequently the respondent had made a representation for making changes in respect of bonus payment and paid leave. The notice dated 23/6/14 was issued to respondent to start the work failing which the action for blacklisting and confiscation was to be taken but on 24/6/14 the respondent had again asked for review of the condition and therefore, after obtaining the legal opinion dated 28/6/14 the work was awarded to another company i.e. M/s Deccan Techno Solutions, Pvt. Ltd. on 2/7/2014.
6/ The court below after examining the respective plea of the parties and considering the material on record in the impugned order has found that a contract was entered into between the parties and there was a dispute about the liability under the Bonus Act etc and that appellant after terminating the rate contract award had forfeited the earnest money and had also blacklisted the respondent without giving an opportunity of hearing. Hence considering the above relevant circumstances, the court below has stayed the communication of appellant dated 17/11/2014 blacklisting the respondent for a period of 3 years, till the dispute between the parties is resolved.
7/ Learned counsel for appellant submits that no concluded contract exists between the parties and no arbitration agreement was signed therefore, Section 9 of the Act cannot be 4 invoked. He further submits that the dispute resolution clause under agreement is not an arbitration clause and no case for issuing any interim measure under Section 9 of Act is made out.
8/ As against this learned counsel for respondent submits that the contract was entered into between the parties in terms of the Section 7 of the Act and execution of agreement was a mere formality. He further submits that arbitration clause exists and the respondent is taking steps to move under Section11 of the Act for appointment of arbitrator and that since the blacklisting was done without following the principle of natural justice therefore, the court below has rightly issued the interim measure.
9/ I have heard the learned counsel for parties and perused the record.
10/ The core issue involved in this appeal is about existence of the arbitration agreement.
11/ Section 7 of the Arbitration and Conciliation Act, 1996 (for short the Act) defines arbitration agreement and in terms of subsection 4 thereof, the arbitration agreement can be contained in a document signed by the parties or exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement or even an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. Hence in terms of Section 7 even in the absence of duly signed agreement by the parties, agreement can be inferred from other written communication exchanged between them.
12/ The Supreme Court in the matter of Trimex International FZE Limited, Dubai Vs. Vedanta Aluminium Limited, India 5 reported in 2010(3) SCC 1 has considered the earlier judgment on the point and has ruled that signed agreement between the parties is not a must but from the other documents approved and signed by the parties in the formal exchange of e- mail, letters, telex, telegrams etc., the arbitration agreement can be inferred, by holding as under:-
52/ The Court of Appeal in the case of Pagnan SPA vs. Feed Products Ltd., [1987] Vol. 2, Lloyd's Law Reports at p. 619 observed as follows:
"It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word `essential' in that context is ambiguous. If by `essential' one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by `essential' one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by `essential' one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, "the masters of their contractual fate".
Of course, the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called `heads of agreement'."
The above principle has been consistently followed by the English Courts in Mamidoil-Jetoil Greek Petroleum Co. S.A. v. Okta Crude Oil Refinery 6 AD, (2001) Vol. 2 Lloyd's Law Reports 76 at p. 89; Wilson Smithett & Cape (Sugar) Ltd. vs. Bangladesh Sugar and Food Industries Corporation, (1986) Vol. 1 Lloyd's Law Reports 378 at p. 386. In addition, Indian law has not evolved a contrary position. The celebrated judgment of Lord Du Parcq in Shankarlal Narayandas Mundade v. The New Mofussil Co. Ltd. & Ors. AIR 1946 PC 97 makes it clear that unless an inference can be drawn from the facts that the parties intended to be bound only when a formal agreement had been executed, the validity of the agreement would not be affected by its lack of formality.
53/ In the present case, where the Commercial Offer carries no clause making the conclusion of the contract incumbent upon the Purchase Order, it is clear that the basic and essential terms have been accepted by the respondent, without any option but to treat the same as a concluded contract.
54/ Though Mr. C.A. Sundaram, learned senior counsel heavily relied on the judgment of this Court in Dresser Rand S.A. v. Bindal Agro Chem Ltd., (2006) 1 SCC 751, the same is distinguishable because in that case only general conditions of purchase were agreed upon and no order was placed. On the other hand, in the case on hand, specific order for 5 shipments was placed and only some minor details were to be finalized through further agreement.
55/ This Court in Dresser Rand S.A. rejected the contention that the acceptance of a modification to the General Conditions would not constitute the conclusion of the contract itself. On the other hand, in the present case, after the suggested modifications had crystallized over several emails. Further in para 32 (at SCC p. 770) in Dresser Rand S.A. this Court held that "parties agreeing upon the terms subject to which a contract will be governed, when made, is not the same as entering into the contract itself" whereas in the case on hand, the moment the commercial offer was accepted by the respondent, the contract came into existence. Though in para 44 of the Dresser Rand S.A. it is recorded that neither the Letter of Intent nor the General Conditions contained any arbitration agreement, in the case on hand, the 7 arbitration agreement is found in clause 6 of the Commercial Offer. In view of the same, reliance placed by the respondent on Dresser Rand S.A. is wholly misplaced and cannot be applied to the case on hand where the parties have arrived at a concluded contract.
56/ ********************************* 57/ ********************************* 58/ Smita Conductors Ltd. vs. Euro Alloys Ltd. (2001) 7 SCC 728 was a case where a contract containing an arbitration clause was between the parties but no agreement was signed between the paties. The Bombay High Court held that the arbitration clause in the agreement was binding. Finally, this Court upholding the judgment of the Bombay High Court held that the arbitration clause in the agreement that was exchanged between the parties was binding.
59/ In Shakti Bhog Foods Limited vs. Kola Shipping Limited, (2009) 2 SCC 134, this Court held that from the provisions made under Section 7 of the Arbitration and Conciliation Act, 1996 that "the existence of an arbitration agreement can be inferred from a document signed by the parties, or an exchange of letters, telex, telegrams or other means of telecommunication, which provide a record of the agreement" (SCC p.142, para 14).
60/ It is clear that in the absence of signed agreement between the parties, it would be possible to infer from various documents duly approved and signed by the parties in the form of exchange of e- mails, letter, telex, telegrams and other means of telecommunication."
13/ Counsel for the respondent has placed reliance upon the judgment of the Supreme Court in the matter of U.P. Rajkiya Nirman Nigam Ltd. Vs. Indure Pvt. Ltd. and others reported in (1996) 2 SCC 667 but the said judgment in strict terms is not attracted in the present case because it was rendered keeping 8 in view the provisions of the Arbitration Act, 1940 whereas in the present case the existence of the agreement is to be seen in the light of the provisions contained in Arbitration Act, 1996 and especially Section 7 thereof, which defines the arbitration agreement. Counsel for the respondent has placed reliance upon the judgment of the Supreme Court in the matter of M/s Vedanta Limited (Formerly known as Sesa Sterlite Limited and successor in interest of erstwhile Sterlite Industries (India) Ltd) Vs. M/s Emirates Trading Agency LLC Reported in 2017 SCC Online 454 but in that case there was proposal and counter proposal but no concluded contract had come into existence, whereas the present case stands on a different footing.
14/ In the present case the bid was submitted by respondent for rate contract award for outsourcing of skilled manpower required for ministerial office work and clerical work. The bid of respondent was accepted and vide communication dated 9/6/14 rate contract award was issued. The contract was for a period of 24 months and clause 4 of rate contract award makes it clear that extension was to be governed by terms and condition as specified in the bid document.
15/ Clause 8 of the rate contract award dated 9/6/14 contains the requirement of security deposit/contract performance guarantee and clause 8.3 reads as under:
"8.3 Failure by the successful bidder to furnish the prescribed security deposit/contract performance guarantee or to execute the agreement within the period specified in bid document after his/her bid has been accepted or notice to start the work within such time as is determined by the Engineer-in- Chief/Controlling officer after notification of the acceptance of the bid shall entail action as deemed 9 appropriate by the purchaser/service recipient shall be initiated (including forfeiture of the earnest money deposit (EMD), cancellation of the contract, blacklisting of bidder, etc."
16/ The above clause by its very nature comes into operation on acceptance of bid and if the formalities as mentioned in this clause are not completed, then action including cancellation of contract, blacklisting etc. is contemplated.
17/ The order of the court below as well as the documents on record reveal that though no written agreement was signed between the parties but bid of respondent was duly accepted and rate contract award was issued. Not only this the appellant itself had treated it to be a concluded contract therefore, they had subsequently sent the communication dated 4/7/14 cancelling the rate contract award and forfeiting the EMD. Even the blacklisting vide communication dated 17/11/14 has been done on the ground of non compliance of rate contract award.
18/ Having regard to the aforesaid, I am of the opinion that an agreement and concluded contract had come into existence between the parties.
19/ The connected issue is if there was an arbitration clause in the agreement.
20/ The objection of counsel for the respondent is that the clause 15 contained in the general conditions of contract is not an arbitration clause but it is a clause relating to the binding nature of the decision by the departmental authority relating to resolution of dispute.
21/ Under Section 7 of the Act what is contemplated between the parties is "arbitration agreement" and not mere agreement, 10 hence for attracting the provisions of Arbitration Act, 1996 the existence of the valid arbitration clause in the agreement is necessary.
22/ There is a distinction between arbitration clause and the clause empowering an expert or departmental authority to give a decision of binding nature. In the adjudicatory process the arbitrator is required to act judicially and impartially, where both the parties are given opportunity to put forth their claim. As against this, an agreement may contain a clause giving power to the departmental or other experts or authorities to give their decision in respect of supervision, drawing, design etc. of the work without following any adjudicatory process and attach finality to such a decision but such a clause relating to decision by the expert or the authority cannot be termed as arbitration clause in view of missing elements of judicious decision making process.
23/ The intention of the parties as regards the resolution of dispute by the arbitration can be inferred by the reading of the clause as a whole. The agreement should either expressly or by clear implication provide for referring the dispute to the arbitrator, distinct and different from mere one sided decision by the departmental authority.
24/ Hon'ble J. Murtaza Fazal Ali in the matter of State of U.P. Vs. Tipper Chand reported in (1980) 2 SCC 341 while considering the clause of the agreement which provides for giving finality to the decision of the Superintending Engineer as to the quality of workmenship, material used or any other question, claim, right, matter arising out of or relating to the contract without any element of adjudication has held that the 11 clause does not contain any arbitration agreement and it merely vests the Superintending Engineer with the supervision of execution of the work and administrative control over it from time to time. In the matter of Tipper Chand (supra) it has been held:-
"2. The suit out of which this appeal has arisen was filed by the respondent before us for recovery of Rs. 2,000/- 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 herein before 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. The defendant respondent made an application under Section 34 of the Arbitration Act to the trial Court on the plea that the above extracted Clause 22 amounted to an arbitration agreement. The plea found favour with the trial Court as well of the appellate Court but was rejected by the High Court in revision on the ground that it merely conferred power on the Superintending Engineer to take decisions on his own and that it did not authorise the partis-to refer any matter to his arbitration. In this connection the High Court particularly adverted to the marginal note to the said clause which was to the following effect:12
Direction of work.
4. After perusing the contents of the said clause and hearing learned Counsel for the parties we find ourselves a 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 as administrative control over it from time to time.
5. Mr. Dixit relied on Governor-General v. Simla Banking and Industrial Company Ltd. AIR 1947 Lah 215, Dewan Chand v. State of Jammu and Kashmir AIR 1961 J & K 58 and Ram Lal v. Punjab State . In the first of these authorities the clause appearing in the contract of the parties which was held by Abdur Rahmaa, J., to amount to an arbitration agreement was practically, word for word, the same with which we are concerned here but we are of the opinion that the interpretation put thereupon was not correct. As pointed out by the High Court such a clause can be interpreted only as one conferring power on the Superintending Engineer to take decisions all by himself and not by reason of any reference which the parties might make to him.
6. 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, 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's case (supra) which ran thus :13
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.
7. Holding, in conformity with the judgment of the High Court, that Clause 22 above extracted does not amount to an arbitration agreement, we find no force in this appeal which is dismissed with the costs."
25/ In the matter of State of Orissa and another Vs. Damodar Das reported in (1996) 2 SCC 216 in a case where clause 25 of the agreement gives finality to the decision of the Public Health Engineering, it is held that 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.
26/ In (1998) 3 SCC 573 in the matter of K.K. Modi Vs. K.N. Modi and others, the Hon'ble Supreme Court taking note of the earlier judgment on the point, has held that since the clause under consideration did not contemplate any judicial determination by the Chairman of IFCI therefore, it was not an arbitration clause.
27/ In the matter of Bharat Bhushan Bansal Vs. U.P. Small Industries Corporation Ltd., Kanpur reported in AIR 1999 SC 899 in a case where the clause did not mention that the dispute could be referred to arbitration of Managing Director, 14 nor did it spelt any duty on him to record evidence or hear both parties before deciding the question before him, it is held that the Managing Director was more in the category of an expert for deciding the matters pertaining to contract and the intention appear to be to avoid dispute than to decide the formal dispute in quasi judicial manner, hence the clause was not held to be an arbitration clause. Similarly in the matter of State of Rajasthan Vs. Nav Bharat Construction Co. reported in 2005(11) SCC 197 in a case where the contractual clause was in respect of the settlement of question relating to specification, design, quality and workmanship and other technical aspects by officer of one party, it has been held that such a clause is not an arbitration clause. In the matter of Jagdish Chander Vs. Ramesh Chander and others reported in JT 2007(6) SC 375 the principle in this regard have been culled out as under:-
"8. This Court had occasion to refer to the attributes or essential elements of an arbitration agreement in K K Modi v. K N Modi [1998 (3) SCC 573], Bharat Bhushan Bansal vs. U.P. Small Industries Corporation Ltd. [1999 (2) SCC 166] and Bihar State Mineral Development Corporation v. Encon Builders (I)(P) Ltd. [2003 (7) SCC 418]. In State of Orissa v. Damodar Das [1996 (2) SCC 216], this Court held that a clause in a contract can be construed as an 'arbitration agreement' only if an agreement to refer disputes or differences to arbitration is expressly or impliedly spelt out from the clause. We may at this juncture set out the well settled principles in regard to what constitutes an arbitration agreement :
(i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and an willingness to be bound by the decision of such 15 tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement.
(ii) Even if the words 'arbitration' and 'arbitral tribunal (or arbitrator)' are not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are : (a) The agreement should be in writing. (b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. (d) The parties should have agreed that the decision of the Private Tribunal in respect of the disputes will be binding on them.
(iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to Arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically excludes any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of 16 the Authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the Authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement.
(iv) But mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as "parties can, if they so desire, refer their disputes to arbitration" or "in the event of any dispute, the parties may also agree to refer the same to arbitration" or "if any disputes arise between the parties, they should consider settlement by arbitration" in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that "if the parties so decide, the disputes shall be referred to arbitration" or "any disputes between parties, if they so agree, shall be referred to arbitration" is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises.
Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future."
28/ From the aforesaid principles it is clear that for ascertaining the nature of the arbitration agreement, the intention of the parties is relevant which is to be ascertained from the terms of the agreement and that the use or absence of the word 'Arbitrator', 'Arbitration' or 'Arbitration Tribunal' in the clause is immaterial but the clause should have the necessary 17 ingredients to term as the arbitration clause and that the intention of the parties to refer the dispute to the arbitrator should be clear from the clause itself, without there being any requirement of further or fresh consent of the parties for reference to the arbitrator.
29/ What is culled out from the above pronouncements is that one of the distinguishing feature between the decision by the departmental expert or authority and the arbitrator is that the process before the arbitrator is adjudicatory process wherein the parties can put forth their respective claim, lead evidence in support thereof and the award is passed in independent and impartial manner. In the case of missing adjudicatory process before the departmental authorities or experts, proceedings by them are not held to be arbitral proceedings. 30/ Counsel for appellant has placed reliance upon division bench judgment of this court in the matter of State of MP and another Vs. Dewas Udyog Indore and others reported in 2012(1) MPLJ 269 but the said judgment is distinguishable on facts because in that case it was found that the order was passed in wrong notion that there was a written arbitration clause for reference to the arbitrator. He has also placed reliance upon judgment of the Supreme court in the matter of International Amusement Ltd. Vs. Indian Trade Promotion Organization reported in (2015) 12 SCC 677 and Full Bench judgment of Patna High Court in the matter of State of Bihar and others Vs. M/s. Shiv Shankar Construction Co.(P) Ltd. reported in AIR 2008 Patna 143 and Allahabad High Court in the matter of M/s Ganga Plumbering Works Vs. Kanpur Development Authority Moti Jheel Kanpur and others Reported in AIR 2008 Allahabad 107 and has argued that 18 dispute resolution clause cannot be termed as arbitration clause. But in the present case clause 15 under consideration is very differently worded.
31/ In the present case clause 15 of the General Condition of Contract provides for settlement of dispute and reads as under:
"15. Settlement of disputes 15.1 If any dispute or difference of any kind whatsoever arises between the purchaser/service recipient and the service provider in connection with or arising out of the contract, the parties will make every effort to resolve amicably such dispute or difference by mutual consultation. After seven (7) days from the date the dispute is first brought to the notice of either party, if the parties have failed to resolve their dispute or difference by such mutual consultation, then the dispute shall be referred in writing by either party to the adjudicator, with a copy to the other party.
15.2 In the event of any dispute between the parties, resolution shall be done in following manner:
15.2.1 First Stage- The Superintending Engineer of the concerned circle shall be the dispute resolution authority.
15.2.2 Second stage- If dispute is not resolved in first stage then Chief Engineer (concerned region) shall be dispute resolution authority at second stage.
15.2.3 Third stage- If dispute is not resolved in second stage the corporate level authority (as decided by the Managing Director of authority designated by him) shall be the dispute resolution authority.
Section V of General Condition of Contract as contained in the tender document also provides that:-
"15.3 Notwithstanding any disputes with reference to the contract pending for arbitration, the contractor shall continue to perform his obligations in accordance with the purchaser/service recipient's decision or instruction, and purchaser/service recipient shall also continue to perform his obligations under the 19 contract including payment of any undisputed monies due to the contractor."
32/ The aforesaid clause clearly reveals that at the first instance the parties are required to make an effort to resolve the dispute amicably through mutual consultation in three stages with dispute resolution authorities, failing which the dispute is to be referred to the 'adjudicator'. In place of "arbitrator" the parties have used the word "adjudicator" to convey the same meaning. The aforesaid clause makes it clear the intention of the parties is to resolve the dispute through the adjudicatory process in case of failure of consultation process. Clause 15.3 noted above makes the said intention further clear, hence the Clause 15 is not a clause relating to the one sided decision by the departmental authority or the expert but it is in fact an arbitration clause.
33/ Counsel for the respondent has also raised an issue that the agreement between the parties has not been executed in terms of Article 299 of the Constitution but he has not disputed the fact that the respondent is not covered within the meaning of State for the purposes of Article 299 and therefore, he has not carried this argument any further.
34/ Learned counsel for appellant has also raised a ground that interim measure has wrongly been issued in the facts of the present case. But such a contention cannot be accepted in view of the undisputed position that respondent has been blacklisted without issuing any show cause notice and without giving any opportunity of hearing. Blacklisting has serious civil and penal consequences as it takes away the right of a party to participate in future tenders, therefore, before taking such an action 20 compliance of principle of natural justice and giving clear show- cause notice disclosing the proposed acts is necessary.
35/ Supreme court in the matter of M/s Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal and another reported in (1975) 1 SCC 70 has held that blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the government for purposes of gains, therefore, fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the black list.
36/ In the matter of Gorkha Security Services Vs. Government (NCT of Delhi) and others reported in (2014) 9 SCC 105 it has been held that blacklisting has to be preceded by a show-cause notice since blacklisting has many civil and/or evil consequences and it is also described as civil death of a person who is foisted with the order of blacklisting.
37/ In the matter of Gorkha Security Services (supra) it has been held that:
"16. It is a common case of the parties that the blacklisting has to be preceded by a show cause notice. Law in this regard is firmly grounded and does not even demand much amplification. The necessity of compliance with the principles of natural justice by giving the opportunity to the person against whom action of blacklisting is sought to be taken has a valid and solid rationale behind it. With blacklisting many civil and/ or evil consequences follow. It is described as "civil death"
of a person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such a person from participating in Government Tenders which means precluding him from the award of Government contracts.
17. Way back in the year 1975, this court in the case of . Erusian Equipment & Chemicals Ltd. v. State of West 21 Bengal highlighted the necessity of giving an opportunity to such a person by serving a show cause notice thereby giving him opportunity to meet the allegations which were in the mind of the authority contemplating blacklisting of such a person. This is clear from the reading of Para Nos. 12 and 20 of the said judgment. Necessitating this requirement, the court observed thus:
"12. Under Article 298 of the Constitution the executive power of the Union and the State shall extend to the carrying on of any trade and to the acquisition, holding and disposal of property and the making of contracts for any purpose. The State can carry on executive function by making a law or without making a law. The exercise of such powers and functions in trade by the State is subject to Part III of the Constitution. Article 14 speaks of equality before the law and equal protection of the laws. Equality of opportunity should apply to matters of public contracts. The State has the right to trade. The State has there the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of blacklisting. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation. When the State acts to the prejudice of a person it has to be supported by legality.
20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist".
18. Again, in Raghunath Thakur v. State of Bihar and Ors.;(1989) 1 SCC 229 the aforesaid principle was reiterated in the following manner:-
22"4. Indisputably, no notice had been given to the appellant of the proposal of blacklisting the appellant. It was contended on behalf of the State Government that there was no requirement in the rule of giving any prior notice before blacklisting any person. Insofar as the contention that there is no requirement specifically of giving any notice is concerned, the respondent is right. But it is an implied principle of the rule of law that any order having civil consequence should be passed only after following the principles of natural justice. It has to be realised that blacklisting any person in respect of business ventures has civil consequence for the future business of the person concerned in any event. Even if the rules do not express so, it is an elementary principle of natural justice that parties affected by any order should have right of being heard and making representations against the order. In that view of the matter, the last portion of the order insofar as it directs blacklisting of the appellant in respect of future contracts, cannot be sustained in law. In the premises, that portion of the order directing that the appellant be placed in the blacklist in respect of future contracts under the Collector is set aside. So far as the cancellation of the bid of the appellant is concerned, that is not affected. This order will, however, not prevent the State Government or the appropriate authorities from taking any future steps for blacklisting the appellant if the Government is so entitled to do in accordance with law i.e. after giving the appellant due notice and an opportunity of making representation. After hearing the appellant, the State Government will be at liberty to pass any order in accordance with law indicating the reasons therefor. We, however, make it quite clear that we are not expressing any opinion on the correctness of otherwise of the allegations made against the appellant. The appeal is thus disposed of."
19. Recently, in Patel Engineering Ltd. v. Union of India and Anr.; (2012) 11 SCC 257 speaking through one of us (Jasti Chelameswar, J.) this Court emphatically reiterated the principle by explaining the same in the following manner:
"13. The concept of "blacklisting" is explained by this Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. as under:23
"20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains."
14. The nature of the authority of the State to blacklist the persons was considered by this Court in the abovementioned case and took note of the constitutional provision (Article 298), which authorises both the Union of India and the States to make contracts for any purpose and to carry on any trade or business. It also authorises the acquisition, holding and disposal of property. This Court also took note of the fact that the right to make a contract includes the right not to make a contract. By definition, the said right is inherent in every person capable of entering into a contract. However, such a right either to enter or not to enter into a contract with any person is subject to a constitutional obligation to obey the command of Article 14. Though nobody has any right to compel the State to enter into a contract, everybody has a right to be treated equally when the State seeks to establish contractual relationships. The effect of excluding a person from entering into a contractual relationship with the State would be to deprive such person to be treated equally with those, who are also engaged in similar activity.
15. It follows from the above judgment in Erusian Equipment case that the decision of the State or its instrumentalities not to deal with certain persons or class of persons on account of the undesirability of entering into the contractual relationship with such persons is called blacklisting. The State can decline to enter into a contractual relationship with a person or a class of persons for a legitimate purpose. The authority of the State to blacklist a person is a necessary concomitant to the executive power of the State to carry on the trade or the business and making of contracts for any purpose, etc. There need not be any statutory grant of such power. The only legal limitation upon the exercise of such an authority is that the State is to act fairly and rationally without in any way being arbitrary--thereby such a decision can be taken for some legitimate purpose. What is the legitimate purpose that is sought to be achieved by the State in a given case can vary depending upon various factors."
2420. Thus, there is no dispute about the requirement of serving show cause notice. We may also hasten to add that once the show cause notice is given and opportunity to reply to the show cause notice is afforded, it is not even necessary to give an oral hearing. The High Court has rightly repudiated the appellant's attempt in finding foul with the impugned order on this ground. Such a contention was specifically repelled in Patel Engg."
38/ Having regard to the aforesaid settled position in law and the fact that respondent has been blacklisted without issuing any show cause notice and without giving an opportunity of hearing I am of the opinion that no error has been committed by the court below in issuing interim measure and staying the order dated 17/11/14 by which the respondent was blacklisted.
39/ The above analysis makes it clear that the order under challenge in these appeals do not suffer from any error and no case for interference is made out. The appeals are accordingly dismissed. The signed order be placed in the record of AA No. 3/2016 and copy whereof be placed in the record of connected appeals.
C.C. as per rules.
(Prakash Shrivastava) Judge BDJ Digitally signed by Bhuneshwar Datt Bhunesh DN: c=IN, o=High Court of Madhya Pradesh, ou=Administration, postalCode=452001, st=Madhya Pradesh, war Datt 2.5.4.20=3fb5bcda9fd75d95d6c7c dcbd092ee5a74a94a5534aed3a66 d9385cfcfc201e0, cn=Bhuneshwar Datt Date: 2017.12.23 15:39:55 -08'00'