Dayanand University & Anr Vs. Anand Coop. L/C Society Ltd. & Anr  Insc 451
(25 April 2007)
TARUN CHATTERJEE & P.K. BALASUBRAMANYAN
(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 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 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
(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
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
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.
(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
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 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
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
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
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
(emphasis supplied) The respondent, admittedly deposited an earnest money of
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 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
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 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. &
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 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.