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PETITIONER: FOOD CORPORATION OF INDIA

       Vs.

RESPONDENT: SREEKANTH TRANSPORT

DATE OF JUDGMENT:       14/05/1999

BENCH: Umesh C. Banerjee, V.N.Khare

JUDGMENT:

BANERJEE, J.

     These  appeals by the grant of Special Leave  pertains to  the effect of the usual ‘excepted clause’ vis-a- vis the arbitration  clause  in a Government contract.  While it  is true  and  as has been contended, that the authorisation  of the  arbitrators to arbitrate, flows from the agreement  but the  High  Court in the judgment impugned thought it fit  to direct  adjudication of ‘excepted matters’ in the  agreement itself  by  the arbitrators and hence these  appeals  before this  Court.  At the outset, it is pertinent to note that in the  usual  Governmental contracts, the reference  to  which would  be made immediately hereafter, there is exclusion  of some  matters  from the purview of arbitration and a  senior officer of the Department usually is given the authority and power  to  adjudicate the same.  The clause  itself  records that  the  decision  of  the   senior  officer,  being   the adjudicator,  shall be final and binding between the parties -  this  is what popularly known as ‘excepted matters’ in  a Government  or  Governmental agencies’ contract.   ‘Excepted matters’  obviously,  as the parties agreed, do not  require any further adjudication since the agreement itself provides a  named adjudicator - concurrence to the same obviously  is presumed  by  reason  of the unequivocal acceptance  of  the terms  of the contract by the parties and this is where  the courts  have  found  out  lacking  in  its  jurisdiction  to entertain  an  application for reference to  arbitration  as regards  the disputes arising therefrom and it has been  the consistent  view that in the event the claims arising within the  ambit  of excepted matters, question of  assumption  of jurisdiction  of  any arbitrator either with or without  the intervention  of  the  court would not arise;   The  parties themselves  have  decided to have the same adjudicated by  a particular  officer  in regard to these matters:   what  are these  exceptions however are questions of fact and  usually mentioned  in  the contract documents and forms part of  the agreement  as  such there is no ambiguity in the  matter  of adjudication  of these specialised matters and termed in the agreement as the excepted matters.

     As  noticed  above,  the High Court, however,  has  in fact,  referred matters which are in terms of the  agreement within the excepted matters to the arbitrator along with the other  arbitrable disputes.  It would be convenient to  note the Arbitration clause at this juncture.

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     "All  disputes  and differences arising out of in  any way touching or concerning this agreement whatsoever (except as to any matter the decision of which is expressly provided for  in  the  contract)  shall  be  referred  to  the   sole arbitration  of a person appointed by the Managing  Director of the FCI.  It will be no objection to any such appointment that  the  person  appointed is or was an  employee  of  the Corporation  that  he had to deal with the matters to  which the contract relates and that in the course of his duties as such  employee of the corporation he had expressed views  on all  or  any of the matters in dispute of  difference.   The Board  of such Arbitration shall be final and binding on the parties  of  this contract.  It is a term of  this  contract that  in the event of such arbitration to whom the matter is originally referred being transferred or vacating his office or  being  unable  to act for reasons  the  Manager/Managing Director  of the FCI at the time of such transfer,  vacation of  office or inability to act shall appoint another  person as  arbitrator.   Such persons shall be entitled to  proceed with  reference  from the stage at which it was left by  his predecessor.   It  is also a term of this contract  that  no person  other  than  a  person  appointed  by  the  Managing Director as aforesaid shall act as Arbitrator and if for any reasons  that  it  is  not possible the  matter  is  not  be referred to Arbitration at all.

     It  is  term  of a contract that  the  party  invoking arbitration  under  this clause shall specify  the  disputes and/or  difference  to be referred to  arbitration  together with   the   amount  claimed  in   respect  of   each   such dispute/difference,  at the time of making a request to  the Managing Director for appointment of an arbitrator.

     Provided  further  that any demand for arbitration  in respect  of any claims of the contractors under the contract shall be in writing and are made within one year of the date of  termination  of completion (or expiry of the period)  of the contractor from the date of termination of the contract, if  it  is terminated earlier and where such demand  is  not made  within  that  period, the claims, of  the  contractors shall  be  discharged and released of all liabilities  under the  contract  in  respect of these claims.  It  is  further provided  that  the Arbitrator may, from time to time,  with the  consent of the parties enlarge the time for making  and publishing the award.

     In all cases where the claim in dispute is Rs,25,000/- and  above  the arbitrator shall record the reasons for  his award.

     Subject  as  aforesaid the Arbitration Act 1940  shall apply to the Arbitration proceedings under this clause.  The costs  of and in connection with Arbitration shall be in the discretion  of  the  arbitrator  who  may  make  a  suitable provision for the same in his award".

     Turning  now  on to the contextual facts,  it  appears that  by reason of certain disputes between the parties  the Respondent  herein instituted a suit under Section 20 of the Arbitration  Act for the purposes of filing the  Arbitration Agreement in Court being CSNo.304 of 1982.  Incidentally, be it noted that in the plaint filed in the suit the Respondent

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herein  has included four several claims of which the fourth claim  pertains  to the excepted matters in terms of  clause XII  of  the agreement.  The claims as lodged in the  plaint are as below:

     (a)  "Whether  the  Plaintiff’s   are  liable  to  pay demurrage  or  whether the defendants are liable to pay  the demurrage  accrued  due to the omissions and commissions  of the  officials  of  the  defendants   and  to  the  abnormal conditions prevailing at the Railway goods sheds?

     (b)  Whether the plaintiffs are liable to pay costs of the water obtained from outside by the defendants?

     (c)  Whether  the defendants are entitled  to  recover amounts  allegedly  due  in  respect of  the  contract  with Express  Clearing  Agency  or any other  contract  from  the plaintiff  from  out  of  the amounts due  in  this  present contract?

     (d)  Whether  the defendants are not liable to pay  to the  plaintiffs  a  sum  of Rs.70,000/- in  respect  of  the transport  of  Rice  from Madras to Ronigunta from  June  to August 1979?"

     It  is  this  inclusion  of  Claim  (d)  which  stands objected by the Appellant herein and the learned Trial Judge by  reason of the same being covered under clause 12 of  the agreement  declined  to include the same.  Since  the  issue pertains  to such an exclusion it is convenient also to note Clause 12 of the agreement, Clause 12 reads as below:

     "The   decisions  of  the   Senior  Regional   Manager regarding   such  failure  of   the  contractors  and  their liability  for the losses etc.  suffered by the  Corporation shall be final and binding on the contractors."

     The  Factual  backdrop further depict that  after  the order  of the Learned Trial Judge the matters were taken  up to  the  appellate court wherein on an application for  stay the  respondent  herein  has  obtained  an  order  of  stay. Incidentally,  during  the  pendency of Section  20  matter, there  was also an application under Section 34 for stay  of the  suit  -  the application under Section 34  however  was dismissed  though the suit under Section 20 was not  ordered in  its  entirety as has been pleaded and prayed before  the Court.  Be that as it may when the matter came up before the appellate court, the appellate court passed an interlocutory order  of injunction directing stay of the operation of  the order.   It  is  only  thereafter however,  as  the  factual backdrop  argued before this Court that the Food Corporation of  India thought it fit to institute a suit for recovery of loss  damage  and  expenses  suffered and  incurred  by  the Appellant  herein  in  paying the  demurrage,  wharfage  and expenses  for  forfeiture  of  wagon   on  account  of   the negligence,  lapse  and  unworkmanlike  performance  of  the Respondent herein in performing their duties and obligations under  the  contract.   In paragraph 11 of the  plaint,  the Plaintiff prayed before the Court the following:

     "(a) directing the defendants jointly and severally to

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pay the plaintiff the sum of Rs.1,89,775.00 (Rupees One lakh eighty  nine  thousand seven hundred and seventy five  only) together  with interest at 18 per cent per annum on the said sum from the date of plaint till date of realisation;

     (b)  directing the defendants to pay the costs of  the suit;   and  (c) pass such further or other relief  as  this Hon’ble Court may deem fit and proper and render justice.

     Significantly enough in paragraph 8 of the Plaint, the appellant  Food  Corporation  of India being  the  Plaintiff therein stated as below:

     "8.   The Senior Regional Manager, Food Corporation of India,  Tamil Nadu Region, as the Head of the Offices of the Corporation  in the State of Tamil Nadu and as party to  the tender  contract  is entitled to and competent to  file  the suit  for the recovery of the sum due to the Corporation, as set  out  in  this  Plaint.  The  District  Manager,  Madras Distrcit  of  the  Food  Corporation  of  India  is  also  a Principal  Officer of the Corporation and has been not  only closely  associated  with the contract and the work  covered thereon  but  also is the authority who has  been  effecting payments,  supervising and controlling the actual  execution of  the  work  by the defendant  contractor.   The  District Manager  and his men have been duly authorised for the  said purpose and has been authorised to institute the proceedings and  sign and execute the pleadings and the Vakalath for and on  behalf of the Senior Regional Manager, Food  Corporation of  India.   This  is the position under the  provisions  of Clause III of the Contract also.

     But  what about the rights preserved under clause  12, we  searched  in  vain,  in  that  regard:   The  plaint  is delightfully  silent on that score excepting the averment as contained  in  paragraph  8  as  noticed  above.   The  Food Corporation  therefore,  as  a  matter of  fact  desired  an adjudication  of their claim to the extent of  Rs.1,89,775/- together  with interest at the rate of 18 per cent per annum from  the  Civil  Court  rather   than  relying  on  to  the adjudicatory  process  available  in   the  contract  itself through their own Senior Regional Manager.  The agreement as noticed  above expressly provide that the adjudication shall be  effected by the Senior Regional Manager and by no  other authority  and  the  decision, it has been recorded  in  the agreement,  of  the Senior Regional Manager, would be  final and  binding on the parties.  There is therefore, a positive act  on the part of the Food Corporation of India not to put any  reliance on to that particular clause of the agreement. There  is, as a matter of fact, thus on the state of  facts, as  above,  appears  to  be  a  positive  relinquishment  or abandonment  of  a right so far as the adjudication  of  the excepted  matters are concerned by the Appellant Corporation since  the Corporation itself wanted to have it  adjudicated by  a Civil Court.  Learned Advocate appearing in support of these  appeals  very strongly contended that as a matter  of fact,  the  Corporation has had no other alternative but  to initiate  a civil suit by reason of the order of  injunction and  in any event it has been contended that initiation of a civil  suit  in  the  Civil Court does  not  and  cannot  be identified  to be acceptance of the Arbitration Agreement in the  matter  -  whether  it does or it does  not  amount  to acceptation of Arbitration or not, we are not expressing any opinion  in  that regard but the fact remains that in  fact,

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there  was an abandonment of a right of adjudication by  one of the Corporation’s officer so far as the wharfage claim is concerned  and it is on this perspective that the  Appellate Bench  of the High Court was pleased to direct that all  the issues  in  dispute  in suit No.C.S.  304 of 1982  shall  be referred  to  L.R.Kohli,  Arbitrator.  The High Court  as  a matter  of  fact  came to a conclusion that the  dispute  in Civil  Suit No.368 of 1986 has intrinsic connection with the fourth  claim  of  the Respondent herein in Suit  No.304  of 1982.  The Appellate Bench observed:

     "Since three of the four times of the disputes between the  parties  in  C.S.No.304 of 1982 have been  referred  to arbitration,  it  is indeed improper to exclude one item  in respect  of damage connected with the other matter which  is before  the Arbitrator for Court’s adjudication.  There  can be  in a situation like this conflict in the  pronouncements all connected facts and the Arbitrator may take one view and the court another depending upon evidence brought before the court and the Arbitrator respectively by the parties.  There can  be no finality to the adjudication in this behalf until all  proceedings in the Court independent of the proceedings under  the  Arbitration  act  are   concluded.   In  such  a situation just and proper order, in our opinion, is that the dispute in C.S.No.368 of 1986 which is nothing but a subject connected  with  CS No.304 of 1986 shall be included in  the reference  to the Arbitrator and is accordingly referred  to the  same  Arbitrator before whom the reference  is  pending adjudication."

     The  facts  of the matter in issue is thus  singularly singular  since the Corporation being a party dominant feels it  expedient  to  institute  a civil  suit  without  taking recourse to the provisions of the agreement for adjudication of  its  claims.  The other party namely the contractor  has already filed a suit in terms of Section 20 and the suit has been  disposed  of by an order of reference by the Court  in terms  of  provisions  of  Section 20 in  so  far  as  three principal   disputes  are  concerned.    The   other   claim concerning  wharfage  stands  negated by the  learned  Trial Judge and in our view very rightly by reason of clause 12 of the  agreement - here comes thereafter a situation which  is rather  significant and as noted above singularly  singular: the  Food  Corporation itself gives a go by to its right  of adjudication  through the Senior Regional Manager as regards the  wharfage  claim and initiates proceeding in  the  Civil Court.   It is this initiation which has been objected to by the  contractor  on  the plea that since the  civil  courts’ adjudicatory  process  has  been taken recourse  to  by  the dominant  litus, the court ought to direct to sub-serve  the ends  of justice in a manner so that the issue covering  the Corporation’s  suit  be also referred to  arbitration  since that has direct nexus with the other three issues as already been  directed  to be referred to arbitration.  The  learned advocate  for the contractor strongly contended that in  the event  the same is not ordered, as has been directed by  the High Court then and in that event two sets of evidence would be  required  covering the identical field and as  such  the Appellate  Bench  thought  it fit to refer the  disputes  in Corporation’s  suit  as well to arbitration so  to  minimise expenses  and  to  observe  and follow  the  requirement  of justice  in the matter of expeditious disposal of the entire matter in dispute between the parties

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     In  the normal circumstances, course of events as they are,  this court would not have dealt with the matters as is being  presently  dealt with but as has been pointed out  by the  High Court itself that the matters have been dealt with upon  consideration of the cause of justice and to sub-serve the  need of justice, we also do deem it fit and proper that by  reason of the factual situation in the matter, the  High Court  was  not  left with any option but to direct  such  a course   of  action  more  so  by  reason  of   an   express ‘abandonment  of  right’  as noticed above.  In  the  normal course  of  events  if  this particular clause  12  was  not available  in the contract between the parties the  disputes in  its  entirety by reason of the scope and purview of  the Arbitration  Clause, could have been referred to arbitration and there would not have been any necessity for delving into a  matter in the manner as we have, herein before, but it is by  reason  of the factum of incorporation of clause 12  and the  subsequent abandonment thereof by reason of a  decision to  have the claim covered under clause 12 to be adjudicated by  a  forum  different  from that of  the  Senior  Regional Manager,  we  also  have no option left but  to  record  our concurrence  with  the  finding of the High Court  that  the fourth  dispute  being  the subject matter of a  civil  suit initiated  by the Food Corporation of India be also referred to  arbitration.   Be it noted that this order is passed  in the  peculiar facts and circumstances of the facts in  issue and  the issue as regards the excepted matters have not been delved into in detail excepting however as above.

     In  that  view  of the matter, we do deem  it  fit  to record  our concurrence with the findings of the High  Court more  so  in the peculiar facts and circumstances  centering round  these  Appeals.  The appeals therefore, fail and  are dismissed.  No order as to costs.