Food
Corporation of India Vs. Sreekanth Transport [1999] INSC
212 (14 May 1999)
Umesh
C. Banerjee, V.N.Khare 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.
"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 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 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, 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 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.
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