Uttam Wires And Machines (P) Ltd. vs State Of Rajasthan And Another
1989 Latest Caselaw 355 Del

ORDER

1. The petition u/ S. 20 of the Arbitration Act, 1940 has been filed by the petitioner seeking direction from this Court that the respondent should file the arbitration agreement agreed between the parties as mentioned in letter No. F-815(4)/7/ Part III/ Sec. IV/ D-9/ 72-73 dated 27-3-73 and refer the dispute to the arbitration in accordance with law.

2. The relevant facts which are necessary to be mentioned are that the petitioner being a manufacturer of Rollers gave a quotation to Chief Engineer (Roads), P.W.D. (B & R), Rajasthan (Jaipur) for supply of Road Rollers of a particular description to begin with and as a result of this tender respondents issued a letter for supply of 14 Rollers to the petitioner but of different specification and description. The petitioner after having received this counter offer of the respondents to purchase the Rollers of different description and specification in the interest of maintaining cordial business relations accepted the same and thereby vide letter No. F-815(4)/ 7/ Part III/ Sec. IV/ D-9/ 72-73 dated 27-3-73 which also mentioned about the arbitration agreement contract was concluded. The petitioner started manufacturing the Rollers and in fact manufactured all the 14 Rollers within the scheduled delivery period of May 30, 1973. However, according to the petitioner on 21-6-1973 the only one Roller was inspected and purchased out of the offered quantity. On protest of the petitioner that the respondents are supposed to have purchased 14 Rollers, 10 more Rollers were purchased by the respondents. Four Rollers, however, were not purchased. The petitioner, as a result thereof, because of increased price on account of change of description unilaterally by the respondents and non-purchase of four Rollers has suffered a loss. The petitioner in paras 11, 14 and 16 of the petition have raised a serious dispute that they are entitled to receive the payment of Rs. 3,48,280/- on account of increased price, on account of change of description and specification of the Rollers unilaterally by the respondents plus Rs. 1,25,000/- for non-purchase of the additional four rollers which the respondents were supposed to have purchased aggregating to Rs.4,53,280/-. On the other hand, the respondents have claimed from the petitioner Rs. 96,390/- as liquidated damages.

3. The respondents/ defendants in the written statement have raised various objections that there is no arbitration agreement between the parties and a Criminal case is pending against the plaintiff at Jaipur in respect of the same subject matter. The claim of the plaintiff is time barred and this Court has no territorial jurisdiction in this matter and hence the matter should not be referred to Arbitrator.

4. When the case came up for hearing before this Court today, the parties chose to argue the matter on the basis of agreement and contract concluded without issues having been framed and going for trial.

5. The main thrust of argument of the learned counsel for the respondents was that there is no arbitration agreement between the parties and as such the application S. 20 of the Arbitration Act, 1940 is not maintainable in law. However, the learned counsel for the plaintiff, on the other hand, vehemently argued that there is valid and subsisting arbitration agreement between the parties and there is a Cl. 6 in the agreement which clearly stipulates an arbitration clause and the case accordingly has got to be referred to the Arbitration of the Government of Rajasthan.

6. In order to resolve this controversy, it is necessary to produce Cl. 6 of the agreeement:

"(6) All disputes arising out of this agreement and all questions relating to the interpretation of this agreement shall be decided by the Government and the decision of the Government shall be final."

7. It is no doubt true that in this clause the word "Arbitration" does not find place. That cannot be construed to mean that this clause is not an arbitration clause. In order to determine whether or not this clause amounts to arbitration clause, we have to look to the substance of the clause and not to the mere form. This clause clearly shows that there is an agreement between the parties, secondly, that the disputes arising out of this and all questions relating to the interpretation of the agreement are to be decided by the Government, thirdly, the decision of the Government shall be final. In another words, the very fact that a reference of disputes arising out of the agreement and all questions relating to the interpretation of the agreement is for a final decision of the Government clearly shows that the decision of the Government in this context only has a reference to the Government Arbitrator and this clause certainly is an arbitration clause.

8. 1 am finally supported in my views in a case State of Uttar Pradesh v. M/s. Sardul Singh Kulwant Singh, thereof the question which fell for consideration before that Court was about the interpretation of Cl. 34 of the agreement which provided as follows (at p. 68 of AIR):

"All disputes in respect of the contract arising between contractor and the department will be put up to the Chief Engineer, Madhya Ganga, Irrigation Department, Lucknow and his decision shall be final and legally binding on both the parties."

It was held that:-

"The mere absence of the word 'arbitration' does not make any difference. The substance of the clause clearly is that all disputes between the contractor and the department will be referred to the arbitration of the Chief Engineer, Madhya Ganga Canal, Irrigation Department and his decision shall be final and legally binding on the parties. It is the substance and not the form of an arbitration clause which is material."

9. Almost similar question arose before the Division Bench of this Court in case Mrs. Sushila Seth v. The State of Madhya Pradesh in regarding interpretation of clause 25 of the agreement. Cl. 25 of the agreement was to this effect (para 2) : -

"Except where otherwise specified in the contract the decision of the C.E. of the 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 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, designs, drawings, specifications, estimates, instructions, orders or their conditions or otherwise concerning the works, or the execution work or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof."

In para. 3 of the judgment their Lordships held :

"The first question which arises for decision is whether Cl. 25 of the contract amounts to an arbitration agreement. As pointed out by us in our order of 16-1-1980 this clause ought to be reasonably construed as amounting to an arbitration clause because a decision of a dispute necessarily involves the hearing of the parties and this is the essence of arbitration. It cannot be that the dispute is decided by the Chief Engineer of the circle behind the back of the contractor or without hearing him and without any quasi-judicial procedure being followed. The principles relating to natural justice have advanced too far for such an argument being accepted by a court of law which is also a court of justice. We have, therefore, no difficulty in agreeing with the learned single Judge that a mere perusal of Cl. 25 of the contract is sufficient to show that the disputes under the contract had to be decided and the very words 'dispute' and 'decision' imply a quasi-judicial procedure to be followed by the Chief Engineer and, therefore, the clause cannot be distinguished from any ordinary arbitration agreement. We hold, therefore, that Cl. 25 amounted to an arbitration agreement."

10. In view of the above, I have no hesitation to hold that clause 6 of the agreement amounts to arbitration clause and to say that there is no arbitration clause in the agreement, is wholly unacceptable.

11. Learned counsel for the defendant vehemently further argued that even if clause 6 of the agreement is construed as arbitration clause, reference to Government, is vague and uncertain and this cannot be enforced. The reference to Government is certainly not vague; or uncertain. Every State Government has Rules of the business in which the Government acts through its offices and functionaries and as such, such an argument is not tenable in the eyes of law. He further made a faint effort in raising the question of jurisdiction and of limitation. In the absence of any issue having been framed or any trial, it is not permissible to go in for and decide this question. Again it was submitted that some criminal complaints about cheating are pending in respect of the same subject matter against the petitioner before the Courts in Rajasthan and, therefore, the matter should not be referred to arbitration. I fail to understand how merely the pendency of the criminal complaints before the Courts in Rajasthan are relevant for determining the points of controversy.

12. Once it is held that Cl. 6 is an arbitration clause, it shall apply to all the disputes and differences having been arisen in the present case. In order to invoke the order of reference under Section 20, both conditions are satisfied that there is a valid and subsisting arbitration agreement and disputes and differences having been arisen, to which this agreement applies.

13. In the result, the respondents are directed to file the arbitration agreement and appoint an arbitrator in accordance with the law.

14. Order accordingly.