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CASE NO.: Appeal (civil)  5197 of 2000

PETITIONER: Punjab State and Ors

RESPONDENT: Dina Nath

DATE OF JUDGMENT: 14/05/2007

BENCH: Tarun Chatterjee & Altamas Kabir

JUDGMENT: J U D G M E N T

W I T H CIVIL APPEAL NO.5198 OF 2000 The Executive Engineer, Anandpur Sahib Hydel Construction Division   VERSUS Dina Nath and Ors. Respondents     

TARUN CHATTERJEE, J.

1.      The crucial question that needs to be decided in these  appeals is whether Clause 4 of Work Order No.114 dated 16th of  May, 1985 (in short ’Work Order’) which says that: "Any dispute  arising between the department and the contractor/society shall be  referred to the Superintending Engineer, Anandpur Sahib, Hydel  Circle No. 1 Chandigarh for orders and his decision will be final  and acceptable/binding on both the parties" constituted an  arbitration agreement. 2.      Before proceeding further, we may bring it on record  that though the facts in both the appeals are identical, but for  purposes of disposal of these appeals, the facts in CA No. 5197 are  being considered which are as follows: 3.      The parties entered into a contract for the work of  dowel drain and wire crate at RD No. 9400 to 10400 kms. in the  State of Punjab. The appellants made running payments to the  respondent during the period of execution of the works in terms of  the Work Order. However, after completion of the work, the final  measurements were not made, nor the final bills were prepared.  The dispute remained pending with the department for which the  respondent called upon the appellants to finalise the dispute and  prepare the final bill as per the rates quoted by the respondent and  accepted by the appellants. A final notice was issued on 16th April,  1990, calling upon the appellants to refer the dispute to an  arbitrator as per Clause 4 of the Work Order. Since the appellants  had failed to appoint an Arbitrator, the respondent filed an  application before the Additional Senior Subordinate Judge, Ropar,  Punjab under Section 20 of the Arbitration Act, 1940 (in short ’the  Act’) seeking appointment of an Arbitrator.  4.      By an order dated 20th October, 1993 the learned  Additional Senior Subordinate Judge, Ropar, Punjab after hearing  both the parties, allowed the application filed by the respondent  and referred the dispute for decision to the Superintending  Engineer, Anandpur Sahib, Hydel Circle No. 1 Chandigarh. The  Additional Senior Subordinate Judge, Ropar, while allowing the  application, held that Clause 4 of the Work Order must be  construed to be an arbitration agreement within the meaning of  Section 2(a) of the Act and that the application filed under Section  20 of the Act was filed within the period of limitation. According

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to the learned Additional Senior Subordinate Judge, Ropar, the  cause of action arose from the date the final notice of demand was  sent, i.e., 16th April 1990, which was well within the period of 3  years from the date of filing the application as contemplated under  Article 137 of the Limitation Act 1963.  Feeling aggrieved by the  aforesaid order, the appellants preferred an appeal in the Court of  the District Judge, Roopnagar, Punjab, which by an order dated  24th April, 1997 was allowed, inter alia, on a finding that Clause 4  of the Work Order could not be held to be an ’arbitration  agreement’ nor the dispute was covered within the ambit of the  Act. On the question of limitation in filing the application under  Section 20 of the Act, the appellate court held that the application  under   Section 20 of the Act was barred by limitation. Feeling  aggrieved by the order of the learned Additional District Judge,  Roopnagar, Punjab, reversing the order of the Additional Senior  Subordinate Judge, Ropar, the respondent filed a Civil Revision  Case before the High Court of Punjab and Haryana at Chandigarh,  which by the impugned order was allowed and the order of the  Additional Subordinate Judge, Ropar was restored. Dissatisfied  with this order of the High Court, a special leave petition was filed  by the appellants, which on grant of leave was heard in the  presence of the learned counsel for the parties.         5.      Having heard the learned counsel for the parties and  after going through the impugned order of the High Court as well  as the orders of the appellate court and the trial court and the  materials on record and considering the clauses in the Work Order,  we are of the view that the High Court was fully justified in setting  aside the order of the appellate court and restoring the order of the  Additional Subordinate Judge by which the dispute was referred to  arbitration for decision. Before proceeding further, we may,  however, take note of some of the relevant clauses in the Work  Order which read as under: -  "Clause 13 of the Work Order: - "If the contractor does not carry  out the work as per the registered specifications, the department  will have the option to employ its own labour or any other agency  to being the work to the departmental specification and recover the  cost therefrom." Clause 4: "Any dispute arising between the department and the  contractor/society shall be referred to the Superintending Engineer,  Anandpur Sahib, Hydel Construct Circle No. 1, Chandigarh for  orders and his decision will be final and acceptable/binding on both  parties." 6.      As pointed out herein earlier, the trial court on  consideration of Clause 4 of the Work Order held that Clause 4 of  the Work Order must be held to be an arbitration agreement and  accordingly an arbitrator was appointed in compliance with Clause  4 of the Work Order     At this stage we feel it appropriate to  examine in detail whether clause 4 of the Work Order can be held  to be an arbitration agreement within the meaning of Section 2(a)  of the Act.   7.      Section 2[a] of the Act defines ’arbitration agreement’  which means a written agreement to submit present or future  differences to arbitration whether arbitrator is named therein or not.   Mr. Tathore learned Additional Solicitor General appearing on  behalf of the appellants contended that although the Work Order  was allotted to the respondent on 16th May, 1985, the respondent  had failed to execute the work allotted to him and the appellants  had got the work executed at its own cost in terms of clause 13 of  the Work Order which, as noted herein earlier, provides that in case  the contractor does not execute the allotted work, the department  could get the same executed by other agencies or by itself.  He  further contended that owing to such failure on the part of the  respondent, final bills were not prepared nor were the final  measurements taken for the purpose of payment to the respondent.  Accordingly, Mr. Tathore contended that there was no existence of

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any dispute and accordingly the question of referring such disputes  in terms of Clause 4 of the Work Order could not arise at all.  This  submission of Mr. Tathore was contested by the learned counsel  for the respondent.  Therefore, a dispute arose as to whether the  respondent had completed the work allotted to him under the Work  Order.  This is an issue, according to the High Court as well as the  Subordinate Court, which should be referred for decision to an  arbitrator.   8.      A bare perusal of the definition of arbitration  agreement would clearly show that an arbitration agreement is not  required to be in any particular form.  What is required to be  ascertained is whether the parties have agreed that if any dispute  arises between them in respect of the subject matter of the contract,  such dispute shall be referred to arbitration.  In that case such  agreement would certainly spell out an arbitration agreement. [See  Rupmani Bai Gupta v. Collector of Jabalpur AIR 1981 SC 479]   However, from the definition of the arbitration agreement, it is also  clear that the agreement must be in writing and to interpret the  agreement as an ’arbitration agreement’ one has to ascertain the  intention of the parties and also treatment of the decision as final. If  the parties had desired and intended that a dispute must be referred  to arbitration for decision and they would undertake to abide by  that decision, there cannot be any difficulty to hold that the  intention of the parties to have an arbitration agreement; that is to  say, an arbitration agreement immediately comes into existence.  9.      In the case of Bihar State Mineral Development  Corporation v. Encon Building, [(2003) 7 SCC 418], this Court  held that "there is no dispute with regard to the proposition that for  the purpose of construing an arbitration agreement, the term  "arbitration" is not required to be specifically mentioned therein."  Looking to the opinion of the Hon’ble Judges in the said case and  also considering clause 4 of the Work Order in depth, we are of the  opinion that Clause 4 of the Work Order between the parties can be  interpreted to be an arbitration agreement even though the term  "arbitration" is not expressly mentioned in the agreement. In this  decision of this Court the test of ’dispute’ and ’reference’ was  again reiterated. In Para 17, it was stated that there cannot be any  doubt whatsoever that an arbitration agreement must contain broad  consensus between the parties that the disputes and differences  should be referred to a domestic tribunal. 10.     We have already noted Clause 4 of the Work Order as  discussed hereinabove.  It is true that in the aforesaid Clause 4 of  the Work Order the words "arbitration" and "arbitrator" are not  indicated; but in our view, omission to mention the words  "arbitration" and "arbitrator" as noted herein earlier cannot be a  ground to hold that the said clause was not an arbitration agreement  within the meaning of Section 2[a] of the Act.  The essential  requirements as pointed out herein earlier are that the parties have  intended to make a reference to an arbitration and treat the decision  of the arbitrator as final.  As the conditions to constitute an  ’arbitration agreement’ have been satisfied, we hold that clause 4  of the Work Order must be construed to be an arbitration  agreement and dispute raised by the parties must be referred to the  arbitrator. In the case of K.K. Modi v. K.N. Modi [(1998) 3 SCC  573], this Court had laid down the test as to when a clause can be  construed to be an arbitration agreement when it appears from the  same that there was an agreement between the parties that any  dispute shall be referred to the arbitrator. This would be clear when  we read Para 17 of the said judgment and points 5 and 6 of the  same which read as under: "5. That the agreement of the parties to refer their  disputes to the decision of the tribunal must be intended to  be enforceable in law; and  6. Agreement must contemplate that the tribunal will  make a decision upon a dispute, which is already formulated

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at the time when reference is made to tribunal." 11.     That apart, in Para 23 of the decision in the case of  K.K. Modi (supra), this Court also noticed its earlier decision in the  case of State of U.P. v Tippar Chand [1980 (3) SCC 241]. In that  case, the test as indicated above was also recorded in which it was  stated that "this court said that there was no mention in this clause  in any dispute much less any reference thereof."  12.     Keeping the ingredients as indicated by this Court in  the case of K. K. Modi (supra) in mind for holding a particular  agreement as an arbitration agreement, we now proceed to examine  the aforesaid ingredients in the context of the present case.  a.      Clause 4 of the Work Order categorically states that the  decision of the Superintending Engineer shall be binding on the  parties.  b.      The jurisdiction of the Superintending Engineer to decide  the rights of the parties has also been derived from the consent of  the parties to the Work Order.  c.      The agreement contemplates that the Superintending  Engineer shall determine substantive rights of parties as the clause  encompasses all varieties of disputes that may arise between the  parties and does not restrict the jurisdiction of the Superintending  Engineer to specific issues only.  d.      That the agreement of the parties to refer their disputes to  the decision of the Superintending Engineer is intended to be  enforceable in law as it is binding in nature. 13.     In view of the aforesaid conditions being satisfied,  which were based on the principles laid down by this Court in K.K.  Modi’s case (supra), there cannot be any doubt in our mind that the  arbitration agreement does exist. Clause 4 of the Work Order is an  Arbitration Agreement. The learned Counsel appearing on behalf  of the appellants contended that the ingredients laid down in the  case of K.K. Modi are not satisfied in the present case and  therefore following the principles laid down in that case, this Court  must hold that clause 4 of the Work order cannot be construed as  an arbitration agreement. We are unable to accept this contention  of the learned counsel of the appellants for two reasons. First, in  view of our discussions herein earlier, to the effect that all the  ingredients to hold a particular agreement as an arbitration  agreement have been satisfied in the preset case. Secondly, the  factual situations in the case of KK Modi (supra) and in the case  before us are very different. That case dealt with the evaluation and  distribution of assets, which required expert decision rather than  arbitration. The clause in the K.K Modi case (supra) had a very  restricted operation as it dealt with only disputes regarding  implementation of contract whereas, in the case before us, Clause 4  is much wider in its ambit as it deals with any dispute between the  contractor and the department. 14.     The words "any dispute" appears in Clause 4 of the  Work Order.  Therefore only on the basis of the materials produced  by the parties in support of their respective claims a decision can be  arrived at in resolving the dispute between the parties. The use of  the words ’any dispute’ in Clause 4 of the Work Order is wide  enough to include all disputes relating to the said Work Order.  Therefore, when a party raises a dispute for non-payment of money  after completion of the work, which is denied by the other party,  such a dispute would come within the meaning of ’arbitration  agreement’ between the parties.  Clause 4 of the Work Order also  clearly provides that any dispute between the department and the  contractor shall be referred to the Superintending Engineer, Hydel  Circle No. 1, Chandigarh for orders. The word ’orders’ would  indicate some expression of opinion, which is to be carried out, or  enforced and which is a conclusion of a body (in this case  Superintending Engineer, Hydel Circle No. 1, Chandigarh). Then  again the conclusion and decision of the Superintending Engineer  will be final and binding on both the parties. This being the

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position in the present case and in view of the fact that Clause 4 of  the Work Order is not under challenge before us, the decision that  would be arrived at by Superintending Engineer, Hydel Circle No.  1, Chandigarh must also be binding on the parties as a result  whereof Clause 4 must be held to be a binding arbitration  agreement.  15.     In the decision of this Court in the case of State of UP  v. Tippar Chand (supra), this Court however held that the clause  in dispute in that decision between the parties did not amount to an  arbitration agreement.  In that decision, this Court further held that  clause under consideration before them which provided that except  where otherwise specified in the contract the decision of the  Superintending Engineer for the time being shall be final,  conclusive and binding on all the parties to the contract upon all  questions relating to the meaning of the specifications etc and the  decision of the Superintending Engineer as to the quality,  workmanship etc. shall be final, conclusive and binding between  the parties does not constitute an arbitration agreement but while  arriving at such a conclusion this Court referred to a decision of the  Jammu and Kashmir High Court in the case of  Dewan Chand v.  State of Jammu and Kashmir  [AIR 1961  J & K 58]. In the  Dewan Chand case (supra) the relevant clause runs as follows:- "  For any dispute between the contractor and the Department the  decision of the Chief Engineer PWD Jammu and Kashmir, will be  final and binding upon the contractor.  This Court in that decision  had put strong reliance on the expression "any dispute between the  contractor and the department" and approved the conclusions  arrived at by the J & K High Court.  It came to the conclusion by  interpretation of that clause that there did not exist any arbitration  agreement as the decision of the Superintending Engineer in  connection with the work done by the contractor was meant for  supervision and execution of the work and administrative control  over it from time to time.  However, in Clause 4 of the Work Order  in the present case, which specifically states that in case of any  dispute between the appellants and the contracting parties, the  matter shall be referred to the Superintending Engineer. Therefore,  the use of the words "any dispute" would clearly mean that it  would lead to conclude that the said agreement was in fact an  arbitration agreement and thus these words do not restrict the scope  of the contract.   16.     Before parting with this aspect of the matter we may  note the decision of State of Orissa v.  Damodar Das  [1996(2)  SCC 216] on which strong reliance was placed before us by the  learned counsel for the appellants. This decision of this court may  not be helpful to the appellants as we find the agreement in  question in that case was different from Clause 4 of the Work  Order. For proper appreciation, we may reproduce the agreement in  the case of Damodar Das which reads as under:- "25. Decision of Public Health Engineer to be final -  Except where otherwise specified in this contract, the  decision of the Public Health Engineer for the time being  shall be final, conclusive and binding on all parties to the  contract upon all questions relating to the meaning of the  specifications; drawings and instructions hereinbefore  mentioned and as to the quality of workmanship or materials  used on the work, or as to any other question, claim, right,  matter or thing, whatsoever in any way arising our of, or  relating to, the contract, drawings specifications estimates,  instructions, orders or these conditions, or otherwise  concerning the works or the execution or failure to execute  the same, whether arising during the progress of the work or  after the completion or the sooner determination thereof of  the contract." 17.     A plain reading of this clause in the case of Damodar  Das, it is evident that the powers of the Public Health Engineer

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were essentially to supervise and inspect. His powers were limited  to the questions relating to the meaning of the specifications;  drawings and instructions, quality of workmanship or materials  used on the work, or any other question, claim, right, matter,  drawings specifications estimates, instructions, orders or these  conditions, or otherwise concerning the works or the execution or  failure to execute the same. However, in the case before us, the  Superintending Engineer was given full power to resolve any  dispute arising between the parties which power in our view is  wide enough to cover any nature of dispute raised by the parties.  The Clause in the instant case categorically mentions the word  "dispute" which would be referred to him and states "his decision  would be final and acceptable/binding on both the parties." 18.     That being the position, we are of the view that the  clause in the case of Damodar Das and Clause 4 of the Work Order  of the present case are totally different. We accordingly do not find  any reason to hold otherwise.  19.     At the risk of repetition we may also say before  parting with this judgment that Clause 4 of the Work Order speaks  for a dispute between the parties.  It also speaks of a dispute and all  such disputes between the parties to the Work Order shall be  decided by the Superintending Engineer, Anandpur Sahib Hydel  Circle No. 1.  Obviously, such decision can be reached by the  Superintending Engineer, Anandpur Sahib Hydel Circle No. 1 only  when it is referred to him by either party for decision.  The  reference is also implied.  As the Superintending Engineer will  decide the matter on reference, there cannot be any doubt that he  has to act judicially and decide the dispute after hearing both the  parties and permitting them to state their claim by adducing  materials in support.  In Clause 4 of the Work Order it is also  provided as noted herein earlier that the decision of the  Superintending Engineer shall be final and such agreement was  binding between the parties and decision shall also bind both the  parties.  Therefore, the result would be that the decision of the  Superintending Engineer would be finally binding on the parties.   Accordingly, in our view, as discussed herein above that although  the expression "award" or "arbitration" does not appear in Clause 4  of the Work Order even then such expression as it stands in Clause  4 of the Work Order embodies an arbitration clause which can be  enforced. 20.     For the reasons aforesaid, we are of the view that  Clause 4 of the Work Order can safely be interpreted to be an  arbitration agreement even though the term ’arbitration’ is not  expressly mentioned in the agreement. In view of our discussions  made herein earlier, we therefore conclude that Clause 4 of the  Work Order constitutes an arbitration agreement and if any dispute  arises, such dispute shall be referred to Superintendent Engineer for  decision which shall be binding on the parties. 21.     Before parting with this judgment, we may consider a  short submission advanced at the Bar on the question of limitation  in filing the application under Section 20 of the Act. At the risk of  repetition, we may keep it on record that the Additional Senior  Subordinate Judge, Ropar, held that the application was filed in  time whereas the appellate court held that the application was  barred by limitation. However, the High Court in revision restored  the order of the Additional Senior Subordinate Judge, Ropar, by  holding that application was filed within the period of limitation. 22.      For the purpose of deciding the question of limitation,  it may be stated that the application under Section 20 of the Act  was filed within 3 years from the date the demand notice was made  by the respondent as contemplated under Article 137 of the  Limitation Act. 23.     In order to determine when the cause of action arose,  it is essential for us to refer to a case decided by this court. In the  case of S. Rajan v. State of Kerala [(1992) 3 SCC 608] it was

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held by this Court that the right to apply for arbitration proceeding  under Section 20 of the Arbitration Act, 1940 runs from the date  when the dispute arises. It observed: "Reading Article 137 and Sub-section (1) of Section 20  together, it must be said that the right to apply accrues when the  difference arises or differences arise, as the case may be, between  the parties. It is thus a question of fact to be determined in each  case having regard to the facts of that case." 24.     Accepting the principles laid down in the case of S.  Rajan (supra), this Court in the case of Hari Shankar Singhania  and Ors. v. Gaur Hari Singhania and Ors. [(2006) 4 SCC 658]  again reiterated the principle that an application under section 20 of  the Act for filing the arbitration agreement in Court and for  reference of the dispute to arbitration in accordance therewith is  required to be filed within a period of three years when the right to  apply accrues and that the said right accrues when difference or  dispute arises between the parties to the arbitration agreement.  Keeping the principles in mind, let us now examine as to when  difference or dispute arises between the parties to the arbitration  agreement, when the right to apply accrues. As noted herein earlier,  demand notice was served on the appellants by the respondent on  16th April 1990 and the application under section 20 of the Act was  filed on 13th November 1990 which is admittedly within the period  of limitation as contemplated under Article 137 of the Limitation  Act. 25.     The Additional District judge, Roopnagar, Punjab,  held on the question of limitation in filing the application under  section 20 of the Act that the cause of action did not arise when  notice of demand was served but arose when the respondent first  acquired either the right of action or the right to require that  arbitration takes place upon the dispute concerned. 26.     Keeping the decisions of this court in the cases of S.  Rajan (supra) and Hari Shankar Singhania (supra) in mind, in our  opinion, the view of the Additional District Judge was totally  erroneous. In the aforesaid two decisions, it was held that the right  to apply accrued for the difference arising between the parties only  when service of demand notice was effective, which should be the  date for holding that the difference had already arisen between the  parties. Such being the settled law, we are of the view that the  application under section 20 of the Act was clearly filed within the  period of limitation.  27.     For the reasons aforesaid we do not find any merit in  these appeals. Accordingly, the appeals are disposed of with no  orders as to cost.