1

Reportable  

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4152 OF 2009 (Arising out of SLP [C] No.7656 of 2006)

H.Lathakumari … Appellant

Vs.

Vamanapuram Block Panchayat & Ors. ... Respondents

J U D G M E N T

R.V. RAVEENDRAN, J.

Leave granted. Heard both parties.

2. The Vamanapuram Block Panchayat, first respondent herein, entered  

into a “contract agreement” dated 15.3.1999 with the appellant under which  

the  work  of  “RIDF-III,  Pangode  Sivakshetram  -  Thannichal  Road  

improvements” was entrusted to her as per the articles of agreement, plans,  

specifications  and conditions  of  contract  approved by the  Superintending  

Engineer,  Commissionerate  of  Rural  Development,  State  of  Kerala.  The

2

Articles of agreement confirmed that the contractor had also signed the copy  

of  the  Madras  Detailed  Standard  Specifications  (for  short  ‘MDSS’)  and  

addenda  volume thereto  in  acknowledgement  of  being  bound  by  all  the  

conditions  of  the  clauses.  The  MDSS  which  thus  became  a  part  of  the  

contract  between  the  parties,  provided  for  settlement  of  disputes  by  

arbitration vide clause 73 which is extracted below :  

“73. Arbitration.—In case of any dispute or difference between the parties  to the contract either during the progress or after the completion of the  works or after the determination, abandonment, or breach of the contract  as to the interpretation of the contract, or as to any matter or thing arising  thereunder  except  as  to  the  matters  left  to  the  sole  discretion  of  the  Executive Engineer under clauses 20, 22, 27(c), 29, 36, 37 and 40 of the  Preliminary  Specification,  or  as  to  the  withholding  by  the  Executive  Engineer of payment of any bill to which the contractor may claim to be  entitled, then either party shall forthwith give to the other notice of such  dispute or difference, and such dispute or difference shall be and is hereby  referred to the arbitration of the Superintending Engineer of the nominated  circle  mentioned in  the ‘Articles  of  Agreement”  (hereinafter  called the  “arbitrator”) and the award of such arbitrator shall be final and binding on  the parties.”  

3. Certain  disputes  having  arisen  in  respect  of  the  said  contract,  the  

appellant, by letter dated 28.12.2000, sought reference to arbitration of its  

claims aggregating to Rs.13,06,936/-  in terms of  the aforesaid arbitration  

clause contained in the MDSS forming part  of the agreement.  The Block  

Development Officer, Vamanapuram Panchayat, sent a reply dated 4.1.2001  

denying the claims and informing the contractor that if she did not resume  

the  work,  the  contract  would  be  terminated  at  her  risk  and  cost.  The

3

respondents,  however,  did  not  deny  the  existence  of  the  arbitration  

agreement in the said reply.  

4. Thereafter, the appellant filed an application under section 11 of the  

Arbitration & Conciliation Act, 1996 (‘Act’ for short) seeking appointment  

of an Arbitrator. The first respondent filed a counter denying the claims and  

also contending that there was no arbitration agreement. The said application  

was dismissed by the designate of the Chief Justice of the High Court by  

order dated 13.1.2003. He considered the contention of the appellant that  

there  was  an  arbitration  agreement  in  terms  of  clause  73  of  MDSS for  

resolving  the  disputes.  He   also   referred   to  the  contention  of  the  

respondents  that  the  government  had  decided  to  scrap  arbitration  by  

Government  Order  dated  19.11.1988,  relevant  portions  of  which  read  as  

under :

“On  a  detailed  examination  of  the  matter,  Government  finds  that  the  system  of  arbitration  has  generally  gone  against  the  interests  of  the  government and therefore, government has decided to stop altogether the  system of referring the disputes for arbitration under any circumstances.  

Accordingly, Government orders the following :  

(1) xxxxxxxx

(2) Disputes and differences arising between the department and the  contractors  in  the  PWD  contracts  shall  not  be  referred  to  arbitration hereafter and all provisions relating to arbitration in the  tender documents shall be deleted or scored off under the signature  of the executing parties.  However, if any work is financed by an  agency and that agency insists to have provision for arbitration,  

4

provision  for  arbitration  may  be  provided  in  the  agreement  in   respect of such work.

(3) xxxxx

(4) The question of adopting the above procedure in other departments  and  organizations  like  Kerala  State  Electricity  Board  will  be  examined by the concerned department.”  

[emphasis supplied]

The learned Designate of the Chief Justice accepted the said contention of  

the respondents and held as follows :

“In view of the above notification (Government  Order?)  the arbitration  clause in the tender documents and in the agreement shall stand deleted or  scored off. When the above arbitration clause from the tender documents  had  been  specifically  deleted  by  the  above  notification,  the  applicant  cannot again rely on the above arbitration clause and seek an order for  appointing an arbitrator. As the above arbitration clause has been deleted  by  the  above  notification,  the  prayer  for  appointing  an  arbitrator  for  resolving  the  disputes  and  differences  between  the  parties  cannot  be  allowed.”

5. The  said  order  is  challenged  in  this  appeal  by  special  leave.  The  

question therefore is whether there is an arbitration agreement between the  

parties?  The first  respondent did not  deny the existence of  an arbitration  

clause in terms of clause 73 of MDSS, which was admittedly a part of the  

agreement. The contention was that the said arbitration clause stood deleted  

from  contracts  in  view  of  the  G.O.  dated  19.11.1988.  The  question  is  

whether the arbitration clause has, in fact, stood deleted. A reading of the  

said order dated 19.11.1988 clearly shows that the deletion of the arbitration

5

clause was directed only in regard to the Public Work Department contracts.  

In fact, it specifically provided that the question of adopting such deletion by  

other  departments  of  the  Government  or  by  statutory  bodies  would  be  

examined by the concerned department/statutory body. It is thus clear that  

the deletion of clause 73 of MDSS from the contract was made applicable  

only in regard to the contracts entered into by the Public Works Department  

of the State of Kerala and the question whether other governmental or quasi-

governmental  agencies  should  delete  such  a  provision,  was  left  to  the  

individual decision/discretion of the respective authorities.  

6. Admittedly,  neither  the  first  respondent  nor  the  Panchayat  Raj  

Department, decided to delete the arbitration clause. On the other hand, the  

first respondent entered into an agreement with the appellant long after the  

said Government Order dated 19.11.1988, that is, on 15.3.1999 and did not  

choose to delete clause 73 from the MDSS made part of the agreement. If  

the first respondent wanted to delete the arbitration agreement, it ought to  

have scored out clause 73 from the MDSS which was signed and made a  

part of the agreement or included a clause in the agreement that clause 73 of  

MDSS would not apply or that there shall be no arbitration. That was not  

done. In fact, in PWD contracts, to which the bar on arbitration was applied,  

the printed form of Articles of Agreement was amended to include a clause

6

which confirmed that the “contractor has also signed the copy of the Madras  

Detailed  Standard  Specifications  excluding  clause  73  and  other  clauses   

relating to arbitration......”  Significantly such an exclusion is not made in  

the articles of Agreement entered by the first respondent Panchayat. It is thus  

clear that the arbitration clause was intended to form a part of the contract  

between  the  parties.  Therefore,   the  disputes  between  the  parties  are  

referable to arbitration in terms of the said arbitration agreement. No other  

objection to the arbitration is raised.  

7. In view of the above, the appeal is allowed and the first respondent is  

directed to refer the disputes to the Superintending Engineer in terms of the  

arbitration  agreement  contained in  clause  73 of  MDSS within  six  weeks  

from today. Nothing stated above shall be construed as an expression of any  

opinion on the merits of the claim.

…………………………J. (R V Raveendran)

New Delhi; ………………………..J. July 7, 2009. (J M Panchal)