M/S Sms Infrastructure Limited vs Gujarat State Road Development ...
2021 Latest Caselaw 5234 Guj

        C/IAAP/42/2020                                       CAV JUDGMENT




            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

            R/PETN. UNDER ARBITRATION ACT NO. 42 of 2020


FOR APPROVAL AND SIGNATURE:


HONOURABLE MS. JUSTICE BELA M. TRIVEDI

==========================================================

1 Whether Reporters of Local Papers may be allowed to NO see the judgment ?

2     To be referred to the Reporter or not ?                              YES

3     Whether their Lordships wish to see the fair copy of the              NO
      judgment ?

4     Whether this case involves a substantial question of law              NO

as to the interpretation of the Constitution of India or any order made thereunder ?

========================================================== M/S SMS INFRASTRUCTURE LIMITED Versus GUJARAT STATE ROAD DEVELOPMENT CORPORATION ========================================================== MR KG SUKHWANI WITH PARAS K SUKHWANI(8284) for the Petitioner(s)

MR SIRAJ R GORI(2298) for the Respondent(s) No. 1 ==========================================================

CORAM: HONOURABLE MS. JUSTICE BELA M. TRIVEDI

Date : 23/04/2021

CAV JUDGMENT

1. The Arbitration Petition has been filed by the petitioner

M/s. SMS Infrastructure Limited, a Company incorporated

under the Companies Act, through its Power­of­Attorney Holder,

seeking to appoint an Arbitrator to resolve the disputes between

the parties as per the provisions contained under Section 11 (6)

of the Arbitration and Conciliation Act, 1996 (hereinafter

referred to as "the said Act").

2. The short facts giving rise to the present petition are that

the respondent Gujarat State Road Development Corporation,

Gandhinagar had invited the tenders by issuing a public notice

for the work of widening and strengthening the Sarkhej­Dholka -

Vataman - Pipli - Dholera ­ Bhavnagar Road. The offer of the

petitioner being the lowest one was accepted by the respondent

on 29.12.2010 and an Agreement No.B2/12 of 2011­12 was

executed between the parties. Clause­30 of the terms and

conditions of the contract annexed to the said agreement,

pertained to referring the disputes to the Arbitration Tribunal,

which reads as under:­

"CLAUSE 30 : (1) Disputes to be referred to Tribunal:

The disputes relating to this contract, so far as they relate to any of the following matters, Whether such disputes arise during the progress of the work or after the completion or abandonment thereof, shall be referred to the Arbitration Tribunal, Gujarat State.

(i) The rates of payment under clause 5 for any tools, materials and stores, in or upon the works of the site thereof or belonging to the contractor or procured by

him an intended to be used for execution of the work or any part thereof possession of which may have been taken by the Engineer­in­charge under the said clause­ S.

(ii) The Reduction in rates made by the Engineer­in­ Charge under clause 9 from the items of works not accepted as completed fully in accordance with the sanctioned specifications.

(iii) The rate of payment for any class of work which is included in the additional or altered work carried out by the contractor in accordance with the instructions of the Engineer­in­Charge under clause 14 and the rates for which is to be determined under the said clause 14.

(iv) The rates of payment for materials already purchased or agreed to be purchased by the contractor before receipt of notice given by the Engineer­in­ Charge under clause 15, and/or the amount of compensation payable to the contractor under the said clause for loss in respect of such materials.

(v) The amount of compensation which the contractor shall be liable to pay under clause 17 in the event of his failure to rectify, remove or reconstruct the work within the period specified in the written intimation or the amount of expenses incurred by the Engineer­in­ Charge under the said clause 17 in rectifying, removing or re­executing the work or in removing and replacing the materials or articles complained of.

(vi) The reduction of rates as may be fixed by the Engineer­in­Charge under clause 17 for the inferior work or materials as accepted or made use of.

(vii) The amount of compensation payable by the contractor for damages as estimated and assessed under clause 23.

(viii)The amount payable to the contractor for the work carried out under clause 33 in accordance with the instructions and the requirements of the Engineer­in­ Charge in a case where there are no specifications.

(2) The provision of Section­21 of the GPWD dispute Arbi. Tribunal Act ­92 & order issued by the Govt. in connection with this Act will now apply for Arbitration (As per Government in N, & W.R.D. letter No.SUT/1090/2679/K2 dtd. 9/2/94.

(3) The provision of Arbitration Act, shall in so far as they are inconsistent with the provision of this act cease of to apply to any dispute arising from a works contract and all arbitration proceedings in relation to such dispute before an arbitrator, court of authority shall stand transferred to the Tribunal.

(4) The awards declared by the arbitrator should be speaking award, giving reasons and calculations for every item of claims. The decision will have to be implemented by all the departments of the State Government and Public Sector Enterprises of Gujarat.

(Resolution                  F.                  D.
No.PB/1088/735/KT/Sachivalaya/Gandhinagar       5th
October 1988.)

(5) In case of dispute leading to the contractor or Government of Gujarat approaching to Court of Law, it shall be within the jurisdiction where the site of work is situated.

(6) The reference to arbitration proceeding under this clause shall not

(i) affect the right of the Engineer­in­charge under clause 5 to take possession of all or any tools plants materials and stores in or upon the works of site thereof belonging to the contractor or procured by him and intended to be used for the execution of the work or any part thereof.

(ii) Preclude the Engineer­in­charge from utilising the materials purchased by the contractor in any work or from removing such materials to other places, during the period the work is stopped or suspended in pursuance of notice given to the contractor under clause 15.

(iii) Entitle the contractor to stop the progress of the work or the carrying out the additional or altered work in accordance with the provisions of clause 14 or as the case may be or clause 33."

3. It appears that in connection with the said contract, the

disputes arose between the parties, and therefore, the petitioner

called upon the respondent Corporation by giving a Notice on

22.2.2020 to make payment of the dues of the petitioner or to

appoint the Arbitrator within a period of 30 days from the date of

the receipt of the notice. The said notice, though was received by

the respondent Corporation, the same was neither replied, nor

any payment was made. The petitioner, therefore, has filed the

present petition. It is stated by the petitioner in the petition that

as the respondent Corporation is not notified under the Gujarat

Public Works Contracts Disputes Arbitration Tribunal Act, 1992

(hereinafter referred to as the "Arbitration Tribunal Act"), the

Arbitration Tribunal constituted under the Arbitration Tribunal

Act would not have jurisdiction to adjudicate the disputes

between the parties.

4. The petition has been resisted by the respondent

Corporation by filing an affidavit­in­reply contending inter alia

that the petition was thoroughly misconceived in law and in

facts, and not maintainable in the eye of law. It has been further

contended that pursuant to the Road Policy of the State

Government, the Government of Gujarat has enacted the Gujarat

Infrastructure Development Act, 1999 (hereinafter referred to as

the "GID Act") for the purpose of providing regulatory frame work

for the participation of the private sector in the financing,

construction, maintenance and operation of the structures and

other development projects in the State of Gujarat. With a view

to promote the objects of the GID Act, the Government

Infrastructural Development Board has been constituted for

discharging the functions as envisaged in the GID Act. The

respondent has further contended that with a view to promote

the aims and objects of the said Road Policy, the Government of

Gujarat has constituted the respondent Corporation, a Company

incorporated under the provisions of the Companies Act with the

main object of inviting private section participation for

infrastructural development projects in the sector of roads,

bridges, and bypasses within the State of Gujarat. It is stated

that the respondent Corporation is wholly owned Government of

Gujarat undertaking, incorporated with the main object of

undertaking roads and bridges projects with the private sector

participation and also undertaking the work on item rate

contract basis and all other works entrusted by the Roads and

Buildings Department of Government of Gujarat. As regards he

maintainability of the petition, it has been contended that the

petition filed under the provisions contained in Section 11 of the

said Act is not maintainable in view of the specific provisions

contained in the Arbitration Tribunal Act and in view of the

specific stipulation contained in Clause 30 of the agreement

executed between the parties. The respondent Company being

wholly owned Government Company duly constituted under the

provisions of the Companies Act, the same is a public

undertaking as per the definition of "Public Undertaking"

contained in Clause (i) of Section 2(1)(i) of the said Act, and

therefore, the only remedy available to the petitioner would be to

invoke Clause 30 of the agreement, subject to the provisions of

the Arbitration Tribunal Act.

5. The petitioner has filed an affidavit­in­rejoinder mainly

contending inter alia that the respondent Corporation could not

be said to be a "public undertaking" as per the definition

contained in Section 2(1)(i) as the respondent Corporation is not

specified by Notification in the Official Gazette as required by the

said provision, more particularly in view of the decision of the

Supreme Court in case of Om Construction Company Vs.

Ahmedabad Municipal Corporation and Anr., reported in

(2009) 2 SCC 486. It has also been contended that the contract

entered into between the parties also could not be termed as

'works contract' as defined in Section 2(1)(k) of the Arbitration

Tribunal Act.

6. Learned Advocate Mr. K. G. Sukhwani for the petitioner,

placing heavy reliance on the decision in case of Om

Construction Company Vs. Ahmedabad Municipal

Corporation and Anr. (supra) vehemently submitted that the

respondent Corporation having not been notified in the official

gazette by the State Government, it could not be said to be a

"public undertaking" within the meaning contained in Section

2(1)(i) of the said Act, and therefore, the work in question also

could not be said to be "works contract" within the meaning of

Section 2(1)(k) of the said Act. According to Mr.Sukhwani, even

if the respondent Corporation is construed as a local authority,

the same having not been specified as such by the State

Government by the Notification in the official gazette, it could not

be said to be a "public undertaking", and therefore, the

provisions of the Arbitration Tribunal Act could not be said to

have been attracted. Mr.Sukhwani further submitted that even

if it is assumed that the petitioner had agreed to submit the

disputes to the Arbitral Tribunal as per Clause 30 of the

agreement in question, it is well settled proposition of law that

jurisdiction cannot be conferred by the consent of the parties to

the forum which otherwise does not have the jurisdiction, to

decide the disputes between the parties. Mr.Sukhwani has also

relied upon various decisions of this Court on the interpretation

of the "local authority" to buttress his submission that the

provisions of the Arbitration Tribunal Act are not applicable to

the facts of this case and the petitioner is entitled to invoke

Section 11 of the Arbitration Act for the appointment of

Arbitrator to resolve the disputes between the parties.

7. Per Contra, the learned Advocate Mr.Siraj Gori appearing

for the respondent Corporation, pressing into service the

provisions contained in the Arbitration Tribunal Act of 1992 in

the light of the averments made in the affidavit­in­reply

submitted that the respondent Corporation being a company

incorporated under the Companies Act and wholly owned by the

Government of Gujarat, it is a "public undertaking" as per the

definition contained in Clause (i) of Section 2(1)(i) of the said Act.

He also submitted that the alleged disputes having arisen

between the parties to the "works contract" as defined in Section

2(1)(k) of the said Act, the only remedy available to the petitioner

as per Clause­30 of the agreement would be to approach the

Arbitration Tribunal constituted under the said Act of 1992, as

may be legally permissible. Distinguishing the decisions relied

upon by the learned Advocate Mr.Sukhwani for the petitioner,

more particularly the decision in case of Om Construction

Company Vs. Ahmedabad Municipal Corporation and Anr.

(supra), Mr.Gori submitted that none of the decisions had any

application to the facts of the present case, and therefore, the

present petition filed under Section 11 of the Arbitration Act is

thoroughly misconceived and liable to be dismissed.

8. Before adverting to the rival submissions made by the

Advocates for the parties, it would be beneficial to refer to some

of the provisions contained in the Arbitration Tribunal Act of

1992, which has been enacted to provide for the constitution of a

Tribunal to arbitrate the disputes arising from the works

contract to which the State Government or a public undertaking

is a party and to provide for matters connected therewith.

Section 8 of the said Act pertains to the reference of disputes to

the Tribunal and making of the award. Sub­section (1) of

Section 8 being relevant for the purpose of the present case is

reproduced as under:­

"8. (1) Where any dispute arises between the parties to the works contract, either party shall, irrespective of whether such works contract contains an arbitration clause or not, refer, within one year from the date when the dispute has raised, such dispute in writing to the Tribunal for arbitration in such form and accompanied by such documents or other evidence and by such fees, as may be prescribed."

9. The definition of the words "public undertaking" and

"works contract" contained in Section 2(1)(i) and Section 2(1)(k)

respectively are reproduced as under:­

"2. (1) In this Act, unless the context otherwise require.­

(a) to (h) xxx

(i) "public undertaking" means­

(i) any company as defined in Section 3 of the Companies Act, 1956 in which not less than fifty­one per cent of the paid up share capital is held by the State Government or any company which is a subsidiary (within the meaning of that Act) of the first mentioned company,

(ii) any corporation (not being a company as defined in Section 3 of the Companies Act, 1956 or local authority) established by or under a

Central Act or a State Act and owned or controlled by the State Government,

(iii) such class of local authorities as the State Government may, by notification in the Official Gazette, specify;"

(j) xxx

"(k) "Works contract" means a contract made by the State Government or the public undertaking with any other person for the execution of any of its works relating to construction, repairs or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory or work shop or of such other work of the State Government or, as the case may be, of the public undertaking, as the State Government may, by notification in the Official Gazette specify, and includes­

(i) a contract made for the supply of goods relating to the execution of any of such works,

(ii) a contract made by the Central Stores Purchase Organisation of the State Government for purchase or sale of goods."

10. Since heavy reliance has been placed by the learned

Advocate Mr.Sukhwani for the petitioner on the decision of the

Supreme Court in case of Om Construction Company Vs.

Ahmedabad Municipal Corporation and Anr. (supra), it would

be necessary to narrate certain facts of the said case. In the said

case, the petitioner Om Construction Company and the

Ahmedabad Municipal Corporation had entered into an

agreement for providing and fixing Nibhada Stone for paving the

footpath in Kalupur and Dariapur Wards in Central Zone within

the city of Ahmedabad. In the said case, Clause 30 as contained

in the agreement in the instant case, for referring the dispute to

the Arbitration Tribunal was the same. In the said case, the

High Court held that the Ahmedabad Municipal Corporation

though a "local authority" was not specified by the State

Government by Notification in the official gazette, and therefore,

was not a "public undertaking" as per Clause (iii) of Section 2(1)

(i) of the said Act, and therefore, the contract entered into by it

with the petitioner could not be termed as a "works contract" as

defined in Section 2(1)(k) of the said Act. The High Court while

considering the applicability of the Arbitration and Conciliation

Act, 1996 held that the Arbitration Agreement between the

parties did not lay down any procedure for appointing an

Arbitrator or Arbitrators, and therefore, in absence of such

procedure, the designated Court could not invoke its jurisdiction

under Sub­section (6) of Section 11 of the said Act, which

contemplates a situation where the appointment procedure as

agreed to by the parties under Sub­section (2) of Section 11 is

not acted upon. The High Court, therefore, rejected the petition.

The said decision having been challenged before the Supreme

Court by the petitioner - appellant, the Supreme Court held as

under:­

"19. We have carefully considered the submissions made on behalf of the respective parties and it appears that we are called upon to decide two questions in order to decide this appeal. The first and possibly basic question is whether in the absence of a Notification in the Official Gazette, the Municipal Corporation can at all be considered as a Public Authority for the purpose of Section 2(1)(k) of the Gujarat Tribunal Act, 1992. The other question is whether the absence of a procedure for appointment of an Arbitrator in the Arbitration Agreement itself, would constitute a bar for the appointment of an Arbitrator under Section 11(6) or any other provision of the 1996 Act, when not only the parties to these proceedings, but the High Court as well, had arrived at a conclusion that the provisions of the Gujarat Tribunal Act, 1992, would not be applicable in the instant case.

20. In this regard, we are inclined to accept the submissions of Mr. Gambhir notwithstanding the fact that the Ahmedabad Municipal Corporation had not been notified to be a "Public Undertaking" as defined in Section 2(1)(iii) of the Gujarat Tribunal Act, 1992. There is no dispute that the Ahmedabad Municipal Corporation is a local authority and it could assume the garb of a "Public Undertaking" only pursuant to a Notification published in that regard in the Official Gazette. On the other hand, even if Form B­I loses its relevance as far as the present contract is concerned, since the parties have agreed to resolution of their disputes by arbitration, the provisions of Sub­section (5) (sic of Section 11) of the 1996 Act can be pressed into service to enable the parties to invoke the powers of the Chief Justice to appoint an Arbitrator. The stand taken by Mr. Divan is highly technical and is not in aid of resolution of the disputes between the parties by an Arbitral Tribunal.

21. While recognizing the right of the appellant to approach the Chief Justice or the Designated Court under Section 11(6) of the 1996 Act, the stand of the respondent Corporation has been that the party should be relegated to

suit, which is quite contrary to the stand taken by it in the case of other employees.

22. Section 11 of the 1996 Act deals exclusively with the appointment of Arbitrators. Sub­section (2) provides that the parties are free to agree on a procedure for appointing the Arbitrator or Arbitrators but subject to Sub­section (6) which provides that if an agreed procedure had not been acted upon, the parties could approach the Chief Justice or his Designate for appointment of an Arbitrator. Sub­ sections (3), (4) and (5) contemplate different situations in which the Chief Justice or his Designate could be requested to appoint an Arbitrator. In our view, in the facts of this case, the answer to the question thrown up in this appeal lies in Sub­clause (5) of Section 11 of the 1996 Act, which reads as follows :­

"11. (5) Failing any agreement referred to in sub­ section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him."

11. Thus, it is clear that in case of Om Construction

Company (supra), the respondent Municipal Corporation being

a local authority was required to be notified in the Official

Gazette by the State so as to fall it into the Clause (iii) of Section

2(1)(i) of the Arbitration Tribunal Act, which was not done and

therefore said Municipal Corporation was not treated as a

"public undertaking". Resultantly, the contract entered into

between the parties was not treated as the "works contract"

within the meaning of Section 2(1)(k) of the said Act. So let us

examine whether in the instant case, the respondent­GSRDC

could be said to be a "public undertaking" within the meaning of

Section 2(1)(i) of the said Arbitration Tribunal Act or not.

12. It appears that there is no dispute that the contract

agreement entered into between the parties contained the

Clause­30 with regard to referring the disputes, that may arise

between the parties, to the Arbitration Tribunal, Ahmedabad.

The said Clause further provided that the provisions of Section

21 of the GPWC Disputes Arbitration Tribunal Act, 1992 and the

order issued by the Government in connection with the said Act

will apply to the arbitration. It also provided that the provisions

of Arbitration Act shall, in so far as they are inconsistent with

the provisions of the Act of 1992, cease to apply to any dispute

arising from a "works contract".

13. The bone of contention raised by the learned Advocate

Mr.Sukhwani is that the respondent Corporation even if is

treated as a local authority, was not notified in the official

gazette as such by the State Government, as required under

Clause (iii) of Section 2(1)(i) of the Act of 1992, and therefore,

could not be said to be a "public undertaking" as per Section 2(1)

(i) of the said Act, and the contract awarded to the petitioner

also, therefore, could not be said to be a "works contract" withing

the definition of Section 2(1)(k) of the said Act as interpreted by

the Supreme Court in case of Om Construction Company Vs.

Ahmedabad Municipal Corporation and Anr. (supra). The

said submissions appear to be thoroughly misconceived on the

facts and the law. The said submissions have been made

overlooking the contentions raised in the affidavit­in­reply filed

on behalf of the respondent Corporation, in which it has been

categorically stated that the respondent Corporation is a

Company incorporated under the Companies Act and is wholly

owned Government Company. Pertinently, the said fact has not

been disputed or challenged by the petitioner in the affidavit­in­

rejoinder filed by the petitioner. The respondent Corporation,

therefore, being a Company incorporated under the Companies

Act and wholly owned by the Government, it would be a "public

undertaking" within the meaning of Clause (i) of Section 2(1)(i) of

the Act of 1992. Neither Clause (ii) nor Clause (iii) of the said

Section 2(1)(i) would be attracted in case of the respondent

Corporation. The question of notifying class of local authority in

the official gazette by the State Government, as contemplated in

Clause (iii), would arise only when the respondent is a local

authority. In the instant case, the respondent Corporation being

a Company wholly owned by the Government, Clause (i) of

Section 2(1)(i) would be applicable, and not Clause (iii) thereof.

The work in question awarded to the petitioner by the

respondent Corporation as a "public undertaking" for widening

and strengthening the Sarkhej­Dholka - Vataman - Pipli -

Dholera ­ Bhavnagar Road, would therefore, certainly fall within

the meaning of "works contract" as defined in Section 2(1)(k) of

the said Act of 1992.

14. In case of Om Construction Company (supra) and other

decisions relied upon by Mr.Sukhwani, the concerned

respondents were the local authorities and were not notified in

the official gazette by the State Government, and therefore, it

was held in the said cases that such authorities could not be

said to be a public undertaking under Section 2(1)(i), and that

the contracts entered into by such authorities could not be said

to be the "works contract" within the meaning of Section 2(1)(k)

of the said Act. Such is not the position in the instant case.

15. In the instant case, as held herein above, the respondent

Corporation is a "public undertaking" as contemplated in Clause

(i) of Section 2(1)(i) and the contract entered into between the

parties was a "works contract" as contemplated in Section 2(1)(k)

of the said Act of 1992, and hence Section 8 of the said Act

would come into play, which mandates the parties to refer the

disputes arising between them to the Tribunal constituted under

the Act for arbitration, within one year from the date when the

dispute arises. Section 21 thereof also provides that the

provisions of the Arbitration Act,1996, shall insofar as they are

inconsistent with the provisions of the Act of 1992, cease to

apply to any dispute arising from a works contract. The said

provision of Section 21 has also been specifically mentioned in

Clause 30 of the agreement in question and admitted by the

parties. The Arbitration Tribunal Act of 1992 therefore being

applicable to the facts of the case, the petitioner could not have

invoked Section 11 of the Arbitration Act of 1996.

16. In that view of the matter, the present petition invoking

Section 11 of the Arbitration Act is not be maintainable and is

liable to be dismissed. It is clarified that the Court has not

expressed any opinion on the merits of the case and it would be

open for the petitioner to take recourse to any other remedy as

may be permissible under the law. The petition is dismissed

accordingly.

(BELA M. TRIVEDI, J) SINDHU NAIR/V.V.P PODUVAL