REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 753 OF 2007                                         

Eastern Coalfields Ltd.    .…Appellant

Versus

Sanjay Transport Agency & Anr.               ....Respondents

JUDGMENT

Dr. Mukundakam Sharma, J.   

1. This  appeal  is  directed  against  the  order  dated  9th January,  2006  

whereby the Calcutta High Court referred the dispute arising between  

the parties herein to the sole arbitration of Hon’ble Mr. Justice D.K.  

Basu a retired Judge of Calcutta High Court, with a request to him to  

adjudicate  upon  and  decide  the  dispute  between  the  parties.   The  

aforesaid  order  came  to  be  passed  on  an  application  filed  by  the  

respondents  herein  under  Section  11  (6)  of  the  Arbitration  and  

Conciliation Act, 1996 (hereinafter referred to as ‘the Act’).   By filing  

the  said  application,  the  respondents  prayed  for  appointment  of  an  

Page 1 of 5

arbitrator  relying  on the  alleged  arbitration  agreement  being  clause  

No. 14.

2. The  parties  entered  into  an  excavation  contract  whereby  the  

respondents  undertook  to  carry  out  certain  works  on  behalf  of  the  

appellant herein.  In the contract signed by the parties there is a clause  

being  clause  No.  14  with  the  caption  “Settlement  of  

Disputes/Arbitration”.  Part of the said clause which is relevant to the  

context of this case is reproduced hereunder :  

“…….It  is  incumbent  upon  the  contractor  to  avoid  litigations  and  disputes  during  the  course  of  execution.  However, if such disputes take place between the contractor  and the department, effort shall be made first to settle the  disputes through committees at different levels made for this  purpose by the company.”

3.   The aforesaid clause 14 in the Agreement, however, was scored out  

and the same was replaced by another  clause being clause No. 14.  

When the parties entered into the agreement and signed the agreement  

what remains in the agreement was clause No. 14 with the caption  

“Arbitration  with  regard  to  the  commercial  disputes  between  the  

Public Sector Enterprises inter se and Public Sector Enterprises and  

Government Departments.”  It reads as follows :  

“ARBITRATION  WITH  REGARD  TO  THE  COMMERCIAL  DISPUTES  BETWEEN  THE  PUBLIC  SECTOR  ENTERPRISES  INTER  SE  AND  BETWEEN  

Page 2 of 5

THE  PUBLIC  SECTOR  ENTERPRISES  AND  GOVERNMENT DEPARTMENTS.”

“In the  event  of  any dispute  of  difference  relating  to  the  interpretation  and  application  of  the  provisions  of  the  commercial terms of the contract such dispute or difference  shall be referred by either party to the arbitration, to one of  the arbitrators in the Department of Public Enterprises, to be  nominated  by  the  Secretary  to  the  Government  of  India  incharge  of  the  BUREAU  OF  PUBLIC  ENTERPRISES.  The  Arbitration  Act,  1940  shall  not  be  applicable  to  the  arbitration under this  clause.   The award of the arbitrator  shall  be binding upon the parties  to the dispute,  provided  however,  any  party  aggrieved  by  such  award,  may make  further reference for setting aside or revision of the award to  the Law Secretary, Department of Legal Affairs, Ministry of  Law & Justice, Government of India.  Upon such reference,  the  dispute  shall  be decided by the  Law Secretary  or  the  Special Secretary/Additional Secretary when so authorised  by the Law Secretary, whose decision shall bind the parties  finally  and  conclusively.   The  parties  to  the  dispute  will  share  equally  the  cost  of  arbitration,  as  intimated  by  the  arbitrator.”

4. The aforesaid clause No. 14 relates to disputes of commercial nature  

arising between the Public Sector Enterprises inter se and between the  

Public Sector Enterprises and Government Departments.  The text that  

follows also makes the said position clear which provides that after the  

award is  given by the arbitrator  in the department  of  public  sector  

enterprises, reference for setting aside or revision of the award is to be  

made to the Law Secretary, Department of Legal Affairs, Ministry of  

Law & Justice,  Government  of  India.   The  said  clause,  therefore,  

concerns the commercial  disputes arising between the Public Sector  

Page 3 of 5

Enterprises  inter  se  and  between  such  enterprises  and  Government  

Departments.   The  said  clause  will  have  no  application  to  an  

agreement  which  is  entered  into  between  the  appellant  and  the  

respondents, one of whom is a private party.  Since that arbitration  

clause is not applicable to the case in hand, therefore, the appointment  

of  the  arbitrator  by the  Calcutta  High Court  exercising  jurisdiction  

under Section 11 (6) of the Act was improper.

5. It  is  well  settled  rule  of  interpretation  that  the  section  heading  or  

marginal note can be relied upon to clear any doubt or ambiguity in  

the interpretation of any provision and to discern the legislative intent.  

The section heading constitutes an important part of the Act itself, and  

may be read not only as explaining the provisions of the section, but it  

also affords a better key to the constructions of the provisions of the  

section which follows than might  be afforded by a mere  preamble.  

The said interpretation can well be applied to understand and construct  

the various clauses of an arbitration agreement also, which is in the  

realm of commercial  contract.  While interpreting so, the Court may  

not  depend  only  on  the  text  but  context  as  well  in  order  to  fully  

comprehend the context and the meaning of the clause.

6.  We,  accordingly,  set  aside  the  said  order  and  give  liberty  to  the  

respondents to approach the Civil Court for adjudication and resolving  

Page 4 of 5

the disputes and lis between the parties arising out of the said contract.  

Needless to say that the respondents herein will be entitled to get the  

benefit of Section 14 of the Limitation Act.

7. Accordingly, the appeal stands disposed of to the aforesaid extent.

  ...............………………………J.         [Dr. Mukundakam Sharma]

   …................………………..J.              [Dr. B.S. Chauhan]

New Delhi, May 22, 2009

Page 5 of 5