Kerala High Court
State Of Kerala And Anr. vs N.E. Thomas on 14 January, 1997
Equivalent citations: AIR1997KER126, AIR 1997 KERALA 126, ILR(KER) 1997 (2) KER 310, 1997 (2) ARBI LR 70, (1997) 2 ARBILR 70
JUDGMENT Mohamed Shafi, J.
1. The M.F.A. is filed by the defendants in O.S. No. 303/82 on the file of the Subordinate Judge's Court, Tellicherry challenging the judgment dated 20-12-1986 referring the disputes involved in this case to an arbitrator for adjudication.
2. C.R.P. No. 444/1989 is filed by the plaintiff in the same suit challenging the quantum of remuneration of the arbitrator fixed by the Court.
3. It is the common case that an agreement was entered into between the respondent-plaintiff and the appellant-defendants on 3-1-1979 to execute certain contract work which was to be completed on 4-9-1979. The site was handed over to the respondent on 5-1-1979. The work was completed on 10-9-1981. The respondent-contractor contended that the delay in completion of the work was due to the negligence and inaction on the part of the appellants. But the appellants have contended that the delay in the execution of the work was due to the intentional laches and negligence on the part of the respondent.
4. The respondent filed the above suit before the lower Court to direct the appellants to produce the agreement and to appoint an arbitrator to adjudicate the disputes involved in this case. Though the appellants vehemently contended that the disputes involved in this case are not arbitrable since there is no arbitration clause in the agreement, the lower Court negativing the contention raised by the appellants, appointed an arbitrator to adjudicate the disputes involved in this case.
5. The lower Court after scrutinising the agreement entered into between the appellants and the respondent in this case, found that since the agreement in question is executed subject to the conditions set forth in the M.D.S.S. and those conditions in the M.D.S.S. will form part of the contract, the arbitration clause envisaged in condition No. 73 of the M.D.S.S. will form part of the contract and therefore, the disputes involved in this case are arbitrable on the basis of that arbitration clause. In support of this finding the lower Court relied upon the decision of a Division Bench of this Court in State of Kerala v. Joseph, 1983 Ker LT 583.
6. The learned Govt. Pleader vehemently argued that the arbitration clause is deleted in this case, from the notice inviting tenders for this work as well as from the agreement entered into between the appellants and the respondent. According to the appellants clause 24 regarding arbitration is deleted from the notice inviting tenders for the work and in the agreement entered into between the respondent and the appellants Clause 29 pertaining to arbtration is deleted. Therefore, according to them there is no arbitration clause in the agreement entered into between the appellants and the respondent and therefore the disputes involved in this case are not arbitrable and as such the above suit itself being not maintainable, the decree and judgment passed by the lower Court referring the disputes involved in this case to an arbitrator are absolutely illegal and unsustainable.
7. It is clear from the file Ext. B1 relating to the agreement involved in this case produced by the appellants that the arbitration clause is deleted from the agreement entered into between the appellants and the respondent as well as from the notice inviting tenders for the work involved in this case. It is clear from the conditions of contract found in Ext. B1 that condition No. 29 pertaining to arbitration is deleted from the agreement enterted into between the appellants and respondent for execution of the work involved in this case. The notice inviting tenders for the work found in the file also shows that Clause 24 pertaining to arbitration is scored off. Deletion of Clause 29 from the agreement is seen attested and deletion of Clause 24 regarding arbitration is not seen attested in the notice inviting tenders, found in Ext. B1.
8. The counsel for the respondent vehemently argued' that though those clauses, pertaining to arbitration are scored off in the agreement as well as in the notice, as they are not properly attested, it cannot be construed that there is proper deletion of those clauses from the agreement and from the notice, inyting tenders and therefore, the clauses relating to arbiration subsist in the tender notice as well as in the agreement.
9. A careful perusal of the agreement entered into between the respondent and the appellants and the notice inviting tenders issued in this case found in Ext BI found in Ext B1 clearly cstablishes that the above argument advanced by the counsel for the respondent is devoid of any merits. As already noted deletion of Clause 29 pertaining to arbitration is attested in the agreement and there is only omission to attest the deletion of Clause 24 in the notice inviting tenders. The omission to attest the deletion of the arbitration clause in the tender notice is of no significance since the respondent has signed the agreement deleting the condition for arbitration and properly attested the same.
10. The appellants also contended that as per the Government Order No. MS. No. 53 / 78/ PH & E dated 8-5-1978 the arbitration clause in the agreement was deliberately scored off since by that G.O. arbitration was restricted to works involving amounts less than Rs. 2 lakhs and the amount involved in this case being much more than Rs. 2 lakhs, the arbitration clause is not applicable.
11. There is no dispute that the agreement in this case was entered into between the respondent and the appellants on 3-1-1979, long after 8-5-1978 on which date the Government Order restricting arbitration to works involving less than Rs. 2 lakhs came into force.
12. The question to be considered in this case is whether the arbitration clause is validly and legally deleted from the agreement or whether the arbitration clause subsists in view of the incorporation of the M.D.S.S. conditions as part of the agreement.
13. As already noted the lower Court relying upon the decision reported in 1983 Ker LT 583 referred to above, found that the arbitration clause subsists in the agreement and the disputes involved in this case should be referred to an arbitrator for adjudication. But we find that the facts and circumstances involved in that reported case and in this case arc entirely different. In that case Clause 3 in the agreement regarding the person who should be appointed as the arbitrator alone was deleted retaining the other clauses intact. Therefore the Division Bench of this Court has held in that case that there is a valid arbitration clause in the agreement entered into between the parties. But in this case as already noted the arbitration clause in the agreement as well as in the notice inviting tenders is deleted. Therefore the principle laid down in the decision reported in 1983 Ker LT 583, relied upon by the lower Court has no application to the facts and circumstances of this case.
14. In the decision in State of Kerala v. Siby Varghese, (1987) Ker LJ 860 a Division Bench of this Court has observed as follows ;
"The arbitration clause in the M.D.S.S. must be deemed to have been specifically excluded by reason of the specific incorporation in the agreement of an additional clause to the effect that the disputes between the parties would not be referred to arbitration unless the Government decided to the contrary, and also by reason of the deletion of Clauses 3 and 24."
In that case Clause 3 of the agreement which says that the Superintending Engineer shall be the arbitrator for fulfilling the duties set forth in the arbitration clause of the Standard Preliminary Specification (M.D.S.S.) and Clause 24 of the notice inviting tenders regarding arbitration were deleted. The Division Bench after considering the decision reported in 1983 Ker LT 583 found that the facts obtaining in that case and the facts in the case before the Division Bench were different. Accordingly the Division Bench held that incorporation of M.D.S.S. in the agreement without deleting the arbitration clause therein will not make the dispute arbitrable and the arbitration clause in the M.D.S.S. should be deemed to have been specifically excluded by reason of deletion of Clauses 3 and 24 referred to above.
15. In the decision in State of Kerala v. Abraham, (1988) 2 Ker LT 768 : (AIR 1989 Kerala 61) (FB), a Full Bench of this Court considered the very same question. The facts and circumstances obtaining in that case and the case before us are almost identical. In that reported case Clauses 3 and 24 pertaining to arbitration were struck off as in this case. The Full Bench after elaborately considering the decisions reported in 1983 Ker LT 583 and (1987) 1 Ker LT 860 referred to above, observed as follows:
"In a situation in which Clauses 2 and 24 have been deliberately and consciously struck off, the clearest intention is a deletion of the arbitration provision altogether is our conclusion. Looked that way, the ultimate decision in M.F.A. 114 of 1984 is also correct. As noted earlier, the further discussions and observations have necessarily to be read and understood subject to the ratio and the decision in AIR 1987 SC 643 (supra).
34. A total extinguishment and even wiping off of all traces of arbitration arrangement, is thus clearly visible in the present case. The case is quite unlike in 1983 Ker LT 583 inasmuch as the latter did not have situation where the arbitration clause specifically incorporated in the notice in the contract had got chopped off. It is different from 1987 (1) Ker LT 860 which does not have a provision as express and explicit in the contract, which states that the arbitration procedure is not contemplated at all in relation to the work in question. It is, however, identical with the facts in M.F.A. 114 of 1984. On an examination of the clauses in the contract and the legal principles governing the same, we are of the view that arbitration provision in the M.D.S.S. does not any longer have application when the parties had by a conscious act, done away with the arbitration machinery. In that view of the matter, we hold, overruling the subordinate Court, that the agreement does not visualise any arbitration arrangement between the parties and consequently the Court has no jurisdiction to make any subsidiary exercise visualised in a situation when in fact an arbitration arrangement exists but with some gaps or deficiencies in the working arrangement."
The above observations made by the Full Bench are squarely applicable to the facts of this case. Therefore, it is clear that by deliberate deletion of the arbitration clauses from the notice inviting tenders and the agreement entered into in this case, the arbitration clause incorporated in the M.D.S.S. whichis made part of the agreement is clearly effaced from the agreement and the arbitration clause altogether is annihilated.
16. The intention of the parties to the agreement is a very important factor while considering whether the arbitration clause is available or not as per the agreement. It is clear from the facts and circumstances of the case that the agreement entered into between the appellants and the respondent does not contain an arbitration clause but also the arbitration clause is deliberately deleted from the tender notice and the agreement. Therefore, the intention of the parties in this case is manifest not to resort to arbitration to settle the disputes arising out of the agreement. In the decision in M. Dayanand Reddy v. A. P. Industrial Infrastructure Corporation Ltd., AIR 1993 SC 2268 the Supreme Court has observed as follows (Para 9):
"In the instant case, the original agreement signed between the parties does not contain any clause for arbitration. It is not the case of the applicant that the applicant had no occasion to know the terms of the agreement since signed by the parties and there was any clear representation that the copy of agreement was to be followed by the parties and terms contained in the copy were to be treated as the terms of agreement between the parties. Hence, it cannot be held that after the (having) signed agreement the parties had clearly intended to include arbitration clause in the standard specifications. In the absence of clear intention of both the parties, agreement for arbitration cannot and should not be inferred more so when the specific case of the respondents is that by mistake the clause relating to arbitration crept in the copy of agreement. In our view, the High Court was justified in holding that in the facts of the case, only the original agreement, and not the copy, was binding between the parties. Hence no reference to arbitration could be made."
17. In the decision in K. Sasidharan v. K. S. Film Development Corporation, AIR 1994 SC 2534 the Supreme Court observed as follows (Paras 6 and 7):
"The appellant and the respondent having specifically excluded the arbitration clause in the contract, by necessary implication they excluded the Clause 73 in M.D.S.S. If it were to be contract it must expressly and specifically be incorporated in the contract which admittedly was not done. When the parties to the agreement, in terms of the documents, have not incorporated the arbitration agreement in Clause 73 of M.D.S.S., it cannot, by implication, be imported by interpretation that the terms of Clause 73 including arbitration clause therein stands attracted. By necessary implication, it conflicts with the expressly agreed terms of the Contract, Thereby, it is manifest that what the terms in the M.D.S.S., referred to in Clause 12 is only of the terms referable to the execution of the work, etc., and not one concerned with an agreement to refer any dispute arising between the parties to an arbitration, at a later point of time, or during the course of the execution of the work or after the completion thereof of any dispute arising between the parties in relation to the contract.
7. Therefore, the High Court is right in its conclusion that there is no arbitrable agreement for reference to the Arbitrator. The Civil Court in the circumstances cannot exercise its power under Section 20 of the Act to appoint an arbitrator and refer the dispute for arbitration."
18. It is clear from the above observations of the apex Court that once it is found that there is no arbitration clause in the agreement, the Civil Court has no jurisdiction to pass any order appointing an arbitrator to adjudicate the issues involved in this case and refer the disputes to the arbitrator for adjudication. Hence the decree and judgment passed by the lower Court appointing an arbitrator to adjudicate the issues involved in this case is absolutely illegal as passed without jurisdiction since there is no arbitration clause in the agreement entered into between the appellants and the respondent.
19. The C.R.P. is filed by the plaintiff in the suit challenging the quantum of remuneration for the arbitrator fixed by the lower Court in this case. In view of the fact that we have already found that the lower Court has no jurisdiction to appoint an arbitrator and refer the issues to the arbitrator for adjudication, the payment of remuneration to the arbitrator does not arise in this case. The order fixing remuneration to the arbitrator vanishes once the very appointment of the arbitrator is set aside. In view of the above Observations the C.R.P. is dismissed.
20. From the above discussions it is clear that the Civil Court; has no jurisdiction to appoint an arbitrator and refer the disputes involved in this case for adjudication under Section 20 of the Arbitration Act. Hence the appeal is allowed. The decree and judgment passed by the lower Court are set aside and the suit is dismissed. Under the circumstances of the case we direct the parties to bear their respective costs in the appeal as well as in the revision petition.