Om Construction Co vs Ahmedabad Municipal Corp.& Anr

Om Construction Co. ... Appellant

Vs.

Ahmedabad Municipal Corp. & Anr. ... Respondents

J U D G M E N T

ALTAMAS KABIR, J.

1. Leave granted.

2. The appellant herein is a "C" class approved

contractor, whose tender was accepted by the

Ahmedabad Municipal Corporation for providing and

fixing Nibhada Stone for paving and Footpath in 2

Kalupur and Dariapur wards in Central Zone within the

City of Ahmedabad. The Work Order was issued on 6th

June, 2006, and as per the appellant's version the

work was completed by the end of October, 2006.

According to the appellant, after giving credit for

payments which had been made by the Corporation, a

sum of Rs.68,46,872/- was still due towards the work

performed in the Dariapur ward, while a sum of

Rs.8,61,760/- was also due for the work carried out

in Kalupur ward. It is the case of the appellant

that despite notice having been served on the

Corporation on 24th May, 2007, the said amounts

remained unpaid. Ultimately, on 6th June, 2007, the

appellant issued a notice to the Corporation setting

out the facts relating to the work performed and the

claim made in detail and claimed a sum of

Rs.77,08,632/-, together with interest at the rate of

18% per annum, from the due date till the date of

realization, which the appellant claimed, was the

total outstanding amount. In the notice it was also

indicated that the claim made by the appellant should

be accepted and payment should be made within a 3

period of 30 days from the date of receipt of the

notice or that an Arbitrator should be appointed by

the Corporation within a period of 30 days from the

date of receipt of the notice.

3. As there was no response to the said notice from

the Municipal Corporation nor was any payment made or

Arbitrator appointed, the appellant invoked clause 30

of Form B-I, which provided for the appointment of an

Arbitrator and was made applicable in the contract

entered into between the parties when the appellant's

tender was accepted. It appears that under General

Conditions of Contract of the Engineering Department

of the Ahmedabad Municipal Corporation, under its

General Specifications it is provided that certain

conditions are required to be followed which includes

the condition that Form B-I would be applicable to

the contract and clause 30 of Form B-I is relevant

for this case. The relevant portions of clause 30 of

Form B-I reads as follows :-

"Clause 30(1) Disputes to be referred to Tribunal: The disputes relating to this 4

contract, so far as they relate to any of the following matters, whether such disputes arise during the progress of the work or after the completion or abandonment thereof, shall be referred to the Arbitration Tribunal, Gujarat State;

(2) ...............

(3) The provision of Arbitration Act, shall in so far as they are inconsistent with the provision of this Act, cease to apply to any dispute arising from a works contract and all arbitration proceedings in relation to such dispute before an Arbitrator, Court or authority shall stand transferred to the Tribunal."

4. The appellant filed a petition before the Gujarat

High Court on 9th July, 2007, being Arbitration

Petition No. 35 of 2007, under Section 11 of the

Arbitration and Conciliation Act, 1996, hereinafter

referred to as "the 1996 Act", inter alia, praying

for the appointment of an Arbitrator to resolve the

disputes between the parties. The High Court by its

order dated 20th November, 2007, rejected the said

petition. While doing so, the High Court took note of

Section 2(1)(k) of the Gujarat Public Works Contracts

Disputes Arbitration Tribunal Act, 1992, hereinafter 5

referred to as the "Gujarat Tribunal Act", which

defines "works contract" to mean a contract made by

the State Government or Public Undertaking which is

notified in the Official Gazette by the State

Government. The High Court also noticed Section 2(1)

(l) of the aforesaid Act, which defines "Public

Undertaking" to, inter alia, mean such class of local

authorities as the State Government specifies by

Notification in the Official Gazette. It was further

noticed that in the absence of such Notification, the

Ahmedabad Municipal Corporation was not a "Public

Undertaking" and the contract entered into by it with

the appellant could not, therefore, be termed as a

"Works Contract" as defined in Section 2(1)(k) of the

aforesaid Act. The High Court, therefore, held that

the Arbitration Tribunal, Gujarat State, would have

no jurisdiction to entertain the disputes between the

parties emanating from the Work Order in question.

5. The High Court then went on to consider the

applicability of the Arbitration and Conciliation

Act, 1996, to the facts of the case. The High Court 6

took note of the fact that the Agreement between the

parties, and more particularly the Arbitration

Agreement, did not lay down any procedure for

appointing an Arbitrator or Arbitrators.

Accordingly, in the absence of such procedure, the

Designated Court could not invoke its jurisdiction

under Sub-section (6) of Section 11 of the 1996 Act,

which contemplates a situation, where the appointment

procedure as agreed to by the parties under Sub-

section (2) of Section 11 is not followed. The High

Court, therefore, while rejecting the applicability

of the Gujarat Tribunal Act, also closed the doors

for relief under the provisions of the 1996 Act.

6. The said order of the High Court, which has been

challenged in this appeal, therefore, gives rise to

the question as to whether in the absence of any

procedure in the Arbitration clause for the

appointment of an Arbitrator, can the Chief Justice

of the High Court or the Designated Court appoint an

Arbitrator under Section 11(6) of the 1996 Act in 7

terms of the Agreement between the parties to have

their disputes settled by arbitration.

7. Mr. S.K. Gambhir, learned Senior Advocate

appearing for the appellant company, submitted that

having regard to the specific condition contained in

the General Conditions of Contract regarding the

application of Form B-I, the parties to the

Arbitration Agreement could not be forced to file a

suit simply because the procedure for arbitration, as

required under Section 11(6) of the 1996 Act, had not

been agreed upon by the parties or specified therein.

Mr. Gambhir urged that when there was a specific

Arbitration Agreement between the parties, the remedy

in respect thereof under the 1996 Act could not be

denied on a mere technicality and if no procedure had

been mentioned in the Arbitration Agreement, it could

not be contended that on such ground alone the

provisions of Sub-section (6) of Section 11 could not

be invoked in view of the provisions of Sub-section

(2) thereof. Mr. Gambhir submitted that, in any

event, Sub-section (2) of Section 11 would have to be 8

read with Sub-clauses (3) to (5) as well and the

powers of the Chief Justice or the Designated Court

could not be fettered by Sub-section (6). It was

submitted that the Chief Justice or the Designated

Court could in given circumstances appoint an

Arbitrator by applying the provisions of Sub-section

(6) of Section 11 of the said Act. It was submitted

that while the High Court had correctly held that the

provisions of the Gujarat Tribunal Act would have no

application in the present case, it had gone wrong in

holding that no relief could be provided to the

appellant under the provisions of the 1996 Act also.

8. Mr. Gambhir also contended that the requirements

of Sub-section (6) of Section 11 of the 1996 Act have

all been fulfilled, although, the appointment

procedure had not been indicated by the parties. He

submitted that what was most important is that the

parties had failed to reach an agreement regarding

the appointment of an Arbitrator to resolve their

disputes, which was the basic requirement to request

the Chief Justice or the Designated Court to secure

the appointment of an Arbitrator. Mr. Gambhir drew 9

our attention to the opinion provided by the Legal

Department of the Ahmedabad Municipal Corporation

itself indicating that in the event of a dispute

between a contractor and the Corporation in the work

of the Engineering Department, proceedings will have

to be initiated under the Arbitration and

Conciliation Act, 1996. Mr. Gambhir also drew our

attention to an earlier order passed by the

Designated Court of the Gujarat High Court in

Arbitration Petition Nos.46-55 of 2003 in respect of

a similar contract, where a retired Judge of the said

High Court was appointed as Sole Arbitrator to

resolve the disputes between the parties after the

parties had arrived at a consensus regarding the

passing of such an order.

9. Mr. Gambhir submitted that the Ahmedabad

Municipal Corporation had themselves agreed to the

appointment of an Arbitrator under the 1996 Act and

could not, therefore, resile from such position in

the instant case.

10

10. The stand taken by Mr. Gambhir was opposed by Mr.

Shyam Divan, learned Senior Advocate, who supported

the view taken by the High Court and submitted that

the appellant's remedy lay in the filing of a suit.

In the alternative, it was also submitted that the

decision in the matter could be deferred and a notice

could be issued to the State of Gujarat to indicate

as to whether it had any intention of publishing a

Notification as contemplated in Section 2(k) of the

Gujarat Tribunal Act.

11. Mr. Divan further submitted that in the absence

of such Notification, clause 30 of Form B-I would

remain inoperative and consequently the provisions

relating to the settlement of disputes by arbitration

would also not be available to the parties.

12. Mr. Divan urged that other than Clause 30 of Form

B-I, there was no other provision for arbitration in

the contract between the parties and the question of

invoking jurisdiction under the 1996 Act was,

therefore, misconceived. Mr. Divan urged that as the 11

basic requirement of Sub-section (6) of Section 11

regarding an agreed procedure had not been fulfilled,

neither the Chief Justice nor the Designated Court

could assume jurisdiction thereunder for appointing

an Arbitrator.

13. We have carefully considered the submissions made

on behalf of the respective parties and it appears

that we are called upon to decide two questions in

order to decide this appeal. The first and possibly

basic question is whether in the absence of a

Notification in the Official Gazette, the Municipal

Corporation can at all be considered as a Public

Authority for the purpose of Section 2(1)(k) of the

Gujarat Tribunal Act, 1992. The other question is

whether the absence of a procedure for appointment of

an Arbitrator in the Arbitration Agreement itself,

would constitute a bar for the appointment of an

Arbitrator under Section 11(6) or any other provision

of the 1996 Act, when not only the parties to these

proceedings, but the High Court as well, had arrived

at a conclusion that the provisions of the Gujarat 12

Tribunal Act, 1992, would not be applicable in the

instant case.

14. In this regard, we are inclined to accept the

submissions of Mr. Gambhir notwithstanding the fact

that the Ahmedabad Municipal Corporation had not been

notified to be a "Public Undertaking" as defined in

Section 2(1)(iii) of the Gujarat Tribunal Act, 1992.

There is no dispute that the Ahmedabad Municipal

Corporation is a local authority and it could assume

the garb of a "Public Undertaking" only pursuant to a

Notification published in that regard in the Official

Gazette. On the other hand, even if Form B-I loses

its relevance as far as the present contract is

concerned, since the parties have agreed to

resolution of their disputes by arbitration, the

provisions of Sub-section (5) of the 1996 Act can be

pressed into service to enable the parties to invoke

the powers of the Chief Justice to appoint an

Arbitrator. The stand taken by Mr. Divan is highly

technical and is not in aid of resolution of the

disputes between the parties by an Arbitral Tribunal. 13

While recognizing the right of the appellant to

approach the Chief Justice or the Designated Court

under Section 11(6) of the 1996 Act, the stand of the

respondent Corporation has been that the party should

be relegated to suit, which is quite contrary to the

stand taken by it in the case of other employees.

15. Section 11 of the 1996 Act deals exclusively with

the appointment of Arbitrators. Sub-section (2)

provides that the parties are free to agree on a

procedure for appointing the Arbitrator or

Arbitrators but subject to Sub-section (6) which

provides that if an agreed procedure had not been

acted upon, the parties could approach the Chief

Justice or his Designate for appointment of an

Arbitrator. Sub-sections (3), (4) and (5) contemplate

different situations in which the Chief Justice or

his Designate could be requested to appoint an

Arbitrator. In our view, in the facts of this case,

the answer to the question thrown up in this appeal

lies in Sub-clause (5) of Section 11 of the 1996 Act,

which reads as follows :-

14

"(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him."

16. Having arrived at the aforesaid conclusion, the

only question that remains to be decided is whether

this matter should be remitted to the High Court for

appointment of an Arbitrator or whether we should

ourselves appoint an Arbitrator in terms of the

Arbitration Agreement. Remitting the matter to the

High Court would only mean another round of

litigation, whereas if the appointment is made by us,

the matter will achieve finality, which would

ultimately be beneficial for all concerned.

17. We, accordingly, allow the appeal and appoint

Hon'ble Mr. Justice C.K. Thakker, a former Judge of

the Supreme Court, presently settled at D-64, Akash

Towers, Judges' Bungalow Road, Vastrapur, Ahmedabad 15

to be the Arbitrator for settlement of the disputes

which have arisen between the parties. The learned

Arbitrator shall fix his own fees and shall also

formulate the procedure to be adopted by him during

the arbitration proceedings. The Arbitrator shall try

and publish his Award as expeditiously as possible,

but positively within six months from the date of

entering upon the Reference. The Arbitrator will also

decide the venue and sittings of the Arbitral

Tribunal in consultation with the parties. The

judgment and order of the High Court impugned in this

appeal is, accordingly, set aside. The costs of this

appeal shall be the costs in the arbitration

proceedings.

_______________J.

(ALTAMAS KABIR)

_______________J.

(MARKANDEY KATJU)

NEW DELHI Dated: 13.01.2009