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CASE NO.: Appeal (civil)  2133 of 2007

PETITIONER: MAHARSHI DAYANAND UNIVERSITY & ANR

RESPONDENT: ANAND COOP. L/C SOCIETY LTD. & ANR

DATE OF JUDGMENT: 25/04/2007

BENCH: TARUN CHATTERJEE & P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T  (Arising out of SLP(C) No. 20764 of 2005)

P.K. BALASUBRAMANYAN, J.

                1.              Leave granted.

2.              In spite of service of notice and in spite of repeated  conveying of information about the posting of the petition for  special leave to appeal for final disposal, the respondent has  not chosen to appear.  We think we have waited enough for  the appearance of the respondent and no further indulgence is  warranted.   Heard counsel for the appellant.

3.              The appellant invited tenders for construction of  sheds near its Swimming Pool at an estimated cost of Rs.10.70  lakhs.  Respondent No. 1 submitted its tender.  The tender  form submitted by the respondent contained the following  clause: "Clause 25A.  (1)       If any dispute or  difference of any kind whatsoever shall arise  between the vice-Chancellor M.D.U. Rohtak,  and the contractor in connection with or  arising out of the contract, or the execution of  the work that is (i) whether before its  commencement or during the progress of the  work or after its completion, (ii) and whether  before or after the termination, abandonment  or breach of the contract it shall in the first  instance be referred to for being settled by the  Executive Engineer in charge of the work at  the time and he shall within a period of sixty  days after being requested in writing by the  contractor to do so, convey his decision to the  contractor, and subject to arbitration as herein  after provided, such decision in respect of  every matter so referred, shall be final and  binding upon the contractor.  In case the work  is already in progress, the contractor will  proceed with the execution of the work on the  receipt of the decision of the Execution  Engineer-in-charge as aforesaid, with all due  diligence whether he or Vice-Chancellor,  M.D.U., Rohtak requires arbitration as  hereinafter provided or not.  If the Executive  Engineer, in-charge of the work has conveyed  his decision to the contractor and no claim to

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arbitration has been filed with him by the  contractor within a period of sixty days from  the receipt of letter communicating the  decision, the said decision shall be final and  binding upon the contractor and will not be  subject matter of arbitration at all.  If the  Executive Engineer in-charge of the work fails  to convey his decision within a period of sixty  days, after being requested, as aforesaid, the  contractor may, within further sixty days of  the expiry of first sixty days from the date on  which request has been made to the Executive  Engineer in-charge request the Vice- Chancellor, that the matter in dispute be  referred to arbitration, as hereinafter provided.

(2)     All disputes or differences in respect of  which the decision not final and conclusive  shall at the request in writing of either party,  made in communication sent through  registered A.D. Post, be referred to the sole  arbitration to Vice-Chancellor, M.D.U., Rohtak  at the relevant time.   It will be no objection to  any such appointment that the arbitrator so  appointed is a Government servant or that he  had to deal with the matters to which the  contract relates and that in the course of his  duties as a Government servant, he had  expressed his views on all or any of the  matters in dispute.  The arbitrator to whom  the matter is originally referred being  transferred or vacating his office, his  successor-in-office, as such shall be entitled to  proceed with the reference from the stage at  which it was left by his procedure.

In case the arbitration nominated by the Vice- Chancellor, M.D.U., Rohtak is unable to act as  such for any reason, whatsoever the Vice- Chancellor,M.D.U., Rohtak shall be competent  to appoint and nominate and other  Superintending Engineer or Chief Engineer, as  the case may be as arbitrator in his place and  the Arbitrator so appointed shall be entitled to  proceed with the reference.

(3)     It is also a term of this arbitration  agreement that no person appointed by the  Vice-Chancellor,M.D.U., Rohtak  shall act as  arbitrator and if for any reason that is not  possible the matter shall not be referred to  arbitration at all.

       In all cases where the aggregate amount  awarded exceeds Rs.25,000/- the arbitrator  must invariably give reason for his award in  respect of each claim and counter claim  separately.

(4)     The arbitrator shall award against each  claim and dispute raised by either party  including any counter claim individually and  that any lump-sum award shall not be legally  enforceable.

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(5)     The following matters shall not lie within  the purview of arbitration:-

(a)     Any dispute relating to the levy of  compensation as liquidated damages which  has already been referred to the  Superintending Engineer and is being heard  or/and has been finally decided by the  Superintending Engineer in-charge of the  work.

(b)     Any dispute in respect of substituted,  altered, additional work/committed  work/defective work referred by contractor for  the decision of the Superintending Engineer,  in-charge of the work if it is being heard or has  already been decided by the said  Superintending Engineer.

(c)     Any dispute regarding the scope of the  work or its execution or suspension or  abandonment has been referred by the  contractor for the decision of the Vice- Chancellor,M.D.U., Rohtak and has been so  decided finally by the Vice-Chancellor,M.D.U.,  Rohtak .

(6)     The independent claim of the party other  than the one getting the arbitrator appointed,  as also counter-claims of any party will be  entertained by the arbitrator notwithstanding  that the arbitrator had been appointed at the  instance of the other party.

(7)     It is also a term of this arbitration  agreement that where the party invoking  arbitration is the contractor, no reference for  arbitration shall be maintainable unless the  contractor furnishes to the satisfaction of the  Executive Engineer in-charge of the work, a  security deposit of a sum determined  according to details given below and the sum  so deposited shall, on the termination of the  arbitration proceedings, be adjusted against  the cost, if any, awarded by the arbitration  against the claimant party and the balance  after such adjustment in the absence of any  such cost being awarded, the whole of the sum  will be refunded to him within one month from  the date of the awards:

Amount of claims         Rate of security deposit  i)  For claim below      Rs.10,000/-         2% of amount claimed

ii)  For claim of       Rs.10,000/-and             above and          5% of amount claimed

    Below Rs.1,00,000/-       and above                  7= % of amount claimed

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       The stamp fee due on the award shall be  payable by the party as desired by the  arbitrator and in the event of such party’s  default the stamp fee shall be recoverable from  any other sum due to such party under this or  any other contract.

(8)     The venue of the arbitrator shall be such  place or places as may be fixed by the  arbitrator in his sole discretion.  The work  under the contract shall continue during the  arbitration proceeding.

(9)     Neither party shall be entitled to bring a  claim for arbitration if appointed for such  arbitrator has not been applied within six  months.   

(a)     of the date of completing of the work as  certified by the Executive Engineer in-charge,  or

(b)     of the date of abandonment of the work,  or

(c)     of its non-commencement within 6  months from the date of abandonment or  written orders to commence the work as  applicable, or

(e)     of the completion of the work through  any alternative agency or means after  withdrawal of the work from the contractor in  whole or in part and/or its recession, or

(f)     of receiving an intimation from the  Executive Engineer in-charge of the work that  final payment due to or recovery from the  contractor had been determined which he may  acknowledge and/or receive.  Whichever of (a)  to (e) is the latest.

       If the matter is not referred to arbitration  within the period prescribed above, all the  rights and claim of any party under the  contractor shall be deemed to have been  forfeited and absolutely barred by time even for  civil litigation now with standing.

(10)            It is also a term of this arbitration  agreement that no question relating to this  contract shall be brought before any civil court  without first involving and completing the  arbitration proceedings as above, if the scope  of the arbitration specified herein covers issues  that can be brought before the arbitrator i.e.  any matter that can be referred to arbitration  shall not be brought before a civil court.   The  pendency of arbitration proceedings shall not  disentitle the Vice-Chancellor,M.D.U., Rohtak  to terminate the contract and make alternative

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arrangements for the completion of the work.

(11)            The arbitrator shall be deemed to  have entered on the reference on the day he  issues notices to the parties fixing the first  date of hearing.   The arbitrator may, from  time to time, with the consent of the parties  enlarge the initial time for making and  publishing the award.

(12)            It is also a term of this arbitration  agreement that subject to the stipulation  herein mentioned, the arbitration proceedings  shall be concluded in poor ordinance with the  provisions of the Arbitration Act, 1940 or any  other law in force for the time being."

Obviously, this tender form was signed on behalf of  respondent No. 1 when it was submitted to the appellant.  It  was dated 12.09.2003.

4.              The tender so submitted by the respondent was  accepted by the appellant.   It was stated in the letter of  acceptance, dated 22.11.2003, singed on behalf of the  appellant:  

"As approved by the tender committee in its  meeting held on 12.10.2003 and further  approved by the competent authorities, the  acceptance of your tender for the work cited as  subject, is further conveyed to you on behalf of  the Registrar, M.D.U., Rohtak at the rates  contained in your tender dated 12.9.2003.   This is subject to the terms and conditions of  the approved Detailed notice inviting tender  (INIT) of the above works." (emphasis supplied)

The date of start of the work was indicated to be "from the  date of issue of this letter."  The time limit was fixed as four  months.  It contained a further stipulation: "You are requested to contact the SDE (C-1)  M.D.U. Rohtak for taking the work in hand.   The document containing the detailed terms  and conditions of the contract are ready and  you are requested to attend this office on any  working day for signing the same.   No  payment will be made to you unless you sign  the contract agreement.  The contract stands  concluded with the issue of this  communication."   (emphasis supplied)

               The respondent, admittedly deposited an earnest  money of Rs. 10,700/-.

5.              It is the case of the appellant that the site was not  demarcated.  It is common case that a document containing  detailed terms and conditions of the contract as envisaged by  the acceptance letter was not signed by the parties.   In the  letter dated 8.3.2004 the appellant informed the respondent

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that it had decided not to get the work executed.  The letter  also called upon the respondent to get the earnest money of  Rs.10,700/- refunded.

6.              The respondent issued a notice to the appellant  invoking clause 25A of the tender conditions quoted above,  calling upon the appellant to appoint an arbitrator in terms of  that clause on a claim that on acceptance of his tender, the  respondent had made arrangements for commencing the work,  had put up sheds, had engaged labourers and had procured  materials and on cancellation, losses have been incurred and  the respondent was entitled to recover the same from the  appellant.  The appellant took the stand that under clause 13  of the tender conditions, the appellant was entitled to decide  not to proceed with the work and no claim, as made on the  side of the respondent, was maintainable.  Clause 25A had no  application.  The claims were also factually disputed.

7.              In that context, respondent No. 1 invoked the  jurisdiction of the District Court under Section 11 of the  Arbitration and Reconciliation Act, 1996 (for short ’the Act’)  seeking the appointment of an arbitrator.   After referring to  the invitation for tenders, its submission of tender, and of its  acceptance, the respondent also disclosed that no agreement  was signed between the parties but asserted that the  conditions mentioned in the tender form were made  applicable.  The respondent requested to the court to call upon  the appellant to produce the original tender form submitted by  the respondent.   The appellant accepted the fact that the  tender of the respondent had been accepted.  But the  appellant was not liable to pay any damages in view of clause  13 of the tender conditions.  No payment was to be made  unless the contract agreement was signed.  It also contended  that the dispute that was sought to be raised by the  respondent was outside clause 25A of the tender conditions  relied on by the respondent.

8.              The District Judge, controlled as he then was, by  the decision in Konkan Railway Corporation Ltd. & Anr. vs.   Rani Construction Pvt. Ltd. (2002 (2) SCC 388), appointed  the Superintending Engineer as arbitrator by relying on clause  25A of the tender conditions, leaving it to the parties to raise  all objections, including the objection to his jurisdiction,  before the arbitrator in terms of Section 16 of the Act.  Feeling  dissatisfied, the appellant filed a writ petition before the High  Court relying on the decision of this Court that since the order  based on the application under Section 11 was an  administrative order, a writ petition was maintainable, by  referring to State of Orissa and others vs. Gokulananda  Jena (2003 (6) SCC 465   =     AIR 2003 SC 4207).  The High  Court held that the objections sought to be raised could be  raised by the appellant before the arbitrator and there was no  reason for the High Court to interfere with the order  appointing an arbitrator in the circumstances of the case.  It is  feeling aggrieved thereby that the appellant has come up with  this appeal by special leave.

9.              Learned counsel for the appellant submitted that no  contract as contemplated by the parties containing the  detailed terms and conditions was signed by the parties and in  the circumstances there was no arbitration agreement as  understood in the Act justifying the appointment of an  arbitrator.  Counsel brought to our notice Section 7 of the Act.   Counsel also referred to the fact that in the subsequent

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decision in S.B.P. & Company vs.  Patel Engineering Ltd. &  Anr. (2005 (8) SCC 618) this Court has overruled the decision  in Konkan Railway Corporation Ltd. & anr. (supra) and the  ratio thereof is no more available to the respondent.  Counsel  also referred to the decision in Willington Associates Ltd. vs.  Kirit Meta (2000(4) SCC 272) to submit that a question  whether there was an arbitration clause or not, had to be  decided by the court even under the dispensation recognized  by the earlier decision in Konkan Railway Corporation Ltd.  & anr. (supra).  Counsel submitted that in view of the fact that  a contract in writing had not come into existence by both the  parties by affixing their signatures as contemplated by them,  there was no concluded contract in the case on hand and it  was just and necessary to interfere with the order appointing  the arbitrator.  As we have indicated earlier, the respondent  has not chosen to appear before us to answer these  contentions.  

10.             The present case is governed by the procedure that  was available when Konkan Railway Corporation Ltd. & anr.  (supra) held the field.  That orders already made were not to be  affected by the ratio of the decision in S.B.P. & Company  (supra) is clear from paragraph 46 of that decision wherein  prior orders and proceedings have been saved.  Therefore, the  only question for decision is whether the fact that the parties  have not signed the contract containing the detailed  specifications as contemplated by the letter of acceptance  would preclude the respondent from seeking an arbitration by  falling back on clause 25A of the tender conditions quoted  above.  It is true that when parties during negotiations  contemplate the execution of a formal agreement incorporating  the terms of the bargain, so long as a formal agreement has  not been entered into, it may be open to contend that there  was no concluded contract between the parties.  As against  this, what is the position in a case where the tender submitted  is accepted, its acceptance conveyed and the time for  completing the work is stipulated to start from such  acceptance, and the work was to commence on the basis of  that acceptance but no payment was to be made until a formal  contract was signed, is the first question that arises in this  case.  We think that in the circumstances, this is a question  that must be left to be decided by the arbitrator, since in  terms of Section 16 of the Act the question can be raised  before the arbitrator.   Considering that we are dealing with  the pre S.B.P. & Company (supra) dispensation, we do not  think that it is necessary or proper for us to go into that  question and decide the same in these proceedings.  Same is  the position regarding the scope of clause 13 of the tender and  the clauses relied on by counsel for the appellant in his  attempt to take the present claim out of clause 25A of the  tender conditions.  We are, therefore, satisfied that it would be  appropriate to leave this question, as also the other questions  to be decided by the arbitrator rather than our trying to  answer them at this stage in view of the fact that this case is  not governed by the principles recognized by S.B.P. &  Company (supra).

11.             But we make it clear that the arbitrator, in the first  instance, has to decide whether the existence of an arbitration  agreement in terms of Section 7 of the Act is established and  also to decide whether the claim now made is a claim that  comes within the purview of clause 25A of the tender  conditions in case it is found to be an agreement within the

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meaning of Section 7 of the Act.  Only on deciding these two  aspects can the arbitrator go into the merits of the claim made  by the respondent.  But we clarify that it does not mean, that  he should treat these two aspects as preliminary issues and  decide them first; but only that he must decide them without  fail while proceeding to finally pronounce his award.

12.             In this view of the matter, we see no reason to  interfere with the appointment of an arbitrator.  We dismiss  this appeal giving liberty to the parties to raise all their  contentions based on lack of jurisdiction of the arbitral  tribunal before the arbitrator.  The arbitrator will permit the  appellant to amend or supplement the objections already filed  by it if it is felt necessary by the appellant.  We make no order  as to costs.