# M/S. P. DASARATHARAMA REDDY COMPLEX v. GOVERNMENT OF KARNATAKA AND ANOTHER

- **Citation:** [2013] 14 S.C.R. 579
- **Court:** Supreme Court of India
- **Decided:** 2013-10-25
- **Case number:** Civil Appeal No. 1586 of 2004
- **Bench:** G.S. Singhvi, V. Gopala Gowda, C. Nagappan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-p-dasaratharama-reddy-complex-v-government-of-karnataka-and-another-29178
- **Pages:** 42

## Headnote

Contract - Works contract - Disputes pertaining thereto
A
B
- Clause in the contract - Analysis of- If it could be construed C
as an arbitration clause -
Distinction between expert
determination and arbitration - Held: On facts, in terms of the
relevant clauses in the agreements entered into between· the
parties, any dispute or difference between the parties was
required to be first referred to the Chief Engineer or the
D
Designated Officer of the Department - The Chief Engineer
or the Designated Officer was not an independent authority
or person, but was in fact having over all supervision and
charge of the execution of the work - Decision of the Chief
Engineer was non-adjudicatory subject to the right of the
E
aggrieved party to seek remedy - Thus, relevant clauses in
the agreements entered into between parties provided for
settlement of disputes through Court and could not be relied
upon for seeking reference to an arbitrator of any dispute
arising under the· contract - Arbitration and Conciliation Act,
1996 - ss. 11 (6) and (8).
F
Contracts were awarded by the Government of ·
Karnataka and/or its agencies/instrumentalities for
execution of particular projecUworks. Disputes arose
between the parties out of the said contracts.
G
In the instant appeals the issue for consideration
before this Court was whether the relevant clauses in the
contracts entered into between the parties (Clause 29 in
579
H
580
SUPREME COURT REPORTS
(2013] 14 S.C.R.
A one of the contract and similar clauses in other contracts)
ought to be treated as an arbitration clause providing for
resolution of the disputes by arbitration or were in the
nature of departmental dispute resolution mechanism.
B
Disposing the appeals, the Court
HELD: There is distinction between an expert
determination and arbitration. In terms of Clause 29 of the
Agreement entered into between the parties (the
appellant and the respondents in Civil Appeal No.1586/
C 2004) and similar other clauses, any dispute or difference
irrespective of its nomenclature in matters relating to
specifications,
designs,
drawings,
quality
of
workmanship or material used or any question relating
to claim, right in any way arising out of or relating to the
D contract designs, drawings etc. or failure on the
contractor's part to execute the work, whether arising
during the progress of the work or after its completion,
termination or abandonment has to be first referred to the
Chief Engineer or the Designated Officer of the
E Department. The Chief Engineer or the Designated Officer
is not an independent authority or person, who has no
connection or control over the work. As a matter of fact,
he is having over all supervision and charge of the
execution of the work. He is not required to hear the
F
parties or to take evidence, oral or documentary. He is not
invested with the power to adjudicate upon the rights of
the parties to the dispute or difference and his decision
is subject to the right of the aggrieved party to seek relief
in a Court of Law. The decision of the Chief Engineer or
G the Designated Officer is treated as binding on the
contractor subject to his right to avail remedy before an
appropriate Court. The use of the expression 'in the first
place' unmistakably shows that non-adjudicatory
decision of the Chief Engineer is subject to the right of
H
P. DASARATHARAMA REDDY COMPLEX v.
581
GOVERNMENT OF KARNATAKA
the aggrieved party to seek remedy. Therefore, Clause
A
29 which is subject matter of consideration in most of the
appeals and similar clauses cannot be treated as an
Arbitration Clause. Liberty is given to the aggrieved party
to avail appropriate legal remedy, if any. (Paras 15, 21 and
29) [595-E; 608-D-H; 609-A-B; 620-B]
B
Mysore Construction Company v. Karnataka Power
Corporation Ltd. ILR 2000 KAR 4953 - affirmed.
Smt. Rukmanibai Gupta ~- Collector, Jabalpur and others
(1980) 4 SCC 556; Punjab State and others v. Dina Nath
C
(2007) 5 SCC 28: 2007 (6) SCR 536; Mal/ikarjun v. Gulbarga
Uni

## Text

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[2013] 14 S.C.R. 579
M/S. P. DASARATHARAMA REDDY COMPLEX
v.
GOVERNMENT OF KARNATAKA AND ANOTHER
(Civil Appeal No. 1586 of 2004)
OCTOBER 25, 2013
[G.S. SINGHVI, V. GOPALA GOWDA AND
C. NAGAPPAN, JJ.)
Contract - Works contract - Disputes pertaining thereto
A
B
- Clause in the contract - Analysis of- If it could be construed C
as an arbitration clause -
Distinction between expert
determination and arbitration - Held: On facts, in terms of the
relevant clauses in the agreements entered into between· the
parties, any dispute or difference between the parties was
required to be first referred to the Chief Engineer or the
D
Designated Officer of the Department - The Chief Engineer
or the Designated Officer was not an independent authority
or person, but was in fact having over all supervision and
charge of the execution of the work - Decision of the Chief
Engineer was non-adjudicatory subject to the right of the
E
aggrieved party to seek remedy - Thus, relevant clauses in
the agreements entered into between parties provided for
settlement of disputes through Court and could not be relied
upon for seeking reference to an arbitrator of any dispute
arising under the· contract - Arbitration and Conciliation Act,
1996 - ss. 11 (6) and (8).
F
Contracts were awarded by the Government of ·
Karnataka and/or its agencies/instrumentalities for
execution of particular projecUworks. Disputes arose
between the parties out of the said contracts.
G
In the instant appeals the issue for consideration
before this Court was whether the relevant clauses in the
contracts entered into between the parties (Clause 29 in
579
H
580
SUPREME COURT REPORTS
(2013] 14 S.C.R.
A one of the contract and similar clauses in other contracts)
ought to be treated as an arbitration clause providing for
resolution of the disputes by arbitration or were in the
nature of departmental dispute resolution mechanism.
B
Disposing the appeals, the Court
HELD: There is distinction between an expert
determination and arbitration. In terms of Clause 29 of the
Agreement entered into between the parties (the
appellant and the respondents in Civil Appeal No.1586/
C 2004) and similar other clauses, any dispute or difference
irrespective of its nomenclature in matters relating to
specifications,
designs,
drawings,
quality
of
workmanship or material used or any question relating
to claim, right in any way arising out of or relating to the
D contract designs, drawings etc. or failure on the
contractor's part to execute the work, whether arising
during the progress of the work or after its completion,
termination or abandonment has to be first referred to the
Chief Engineer or the Designated Officer of the
E Department. The Chief Engineer or the Designated Officer
is not an independent authority or person, who has no
connection or control over the work. As a matter of fact,
he is having over all supervision and charge of the
execution of the work. He is not required to hear the
F
parties or to take evidence, oral or documentary. He is not
invested with the power to adjudicate upon the rights of
the parties to the dispute or difference and his decision
is subject to the right of the aggrieved party to seek relief
in a Court of Law. The decision of the Chief Engineer or
G the Designated Officer is treated as binding on the
contractor subject to his right to avail remedy before an
appropriate Court. The use of the expression 'in the first
place' unmistakably shows that non-adjudicatory
decision of the Chief Engineer is subject to the right of
H
P. DASARATHARAMA REDDY COMPLEX v.
581
GOVERNMENT OF KARNATAKA
the aggrieved party to seek remedy. Therefore, Clause
A
29 which is subject matter of consideration in most of the
appeals and similar clauses cannot be treated as an
Arbitration Clause. Liberty is given to the aggrieved party
to avail appropriate legal remedy, if any. (Paras 15, 21 and
29) [595-E; 608-D-H; 609-A-B; 620-B]
B
Mysore Construction Company v. Karnataka Power
Corporation Ltd. ILR 2000 KAR 4953 - affirmed.
Smt. Rukmanibai Gupta ~- Collector, Jabalpur and others
(1980) 4 SCC 556; Punjab State and others v. Dina Nath
C
(2007) 5 SCC 28: 2007 (6) SCR 536; Mal/ikarjun v. Gulbarga
University case (2004) 1 SCC 372: 2003 (5) Suppl. SCR
272; Krishna Bhagya Jala Nigam Limited v.
G.
Harishchandra Reddy and another (2007) 2 sec 720: 2007
(1) SCR 698 and Karnataka State Road Transport
D
Corporation and another v. M. Keshava Raju 2004 (1) Arb.
LR 507; State of Orissa and others v. Bhagyadhar Dash
(2011) 7 SCC 406: 2011 (8) SCR 967; Bharat Bhushan
Bansal v. U. P. Small Industries Corporation Ltd., Kanpur
(1999) 2 sec 166: 1999 (1) SCR 181; K. K. Modi v. K. N.
E
Modi and others (1998) 3 sec 573: 1998 (1) SCR 601;
Chief Conservator of Forests, Rewa v. Ratan Singh Hans AIR
1967 SC 166: 1966 SCR 58; State of Uttar Pradesh v. Tipper
Chand (1980) 2 SCC 341 and Vishnu (dead) by L.Rs. v.
State of Maharashtra and others [decided by Supreme
F
Court on 4.10.2013); State of Orissa v. Damodar Oas (1996)
2 SCC 216: 1995 (6) Suppl. SCR 800; State of Maharashtra
v. Mis. Ranjeet Construction (Civil Appeal No.4700of1985)
Civil Appeal No.368012005; Bharat Bhushan Bansal v. Uttar
Pradesh Small Industries Corporation Limited, Kanpur (1999)
G
2 sec 166: 1999 (1) SCR 181 - referred to.
Russell on Arbitration 19th Edition, page 59 - referred
to.
H
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SUPREME COURT REPORTS
[2013] 14 S.C.R.
A
Case Law Reference:
ILR 2000 KAR 4953
affirmed
Para 4
2004 (1) Arb. LR 507
referred to
Para 8
B
(1980) 4 sec 556
referred to
Para 8
2007 (1) SCR 698
referred to
Para 8
2007 (6) SCR 536
referred to
Para 8
c
2011 (8) SCR 967
referred to
Para 8
1999 (1) SCR 181
referred to
Para 8
1998 (1) SCR 601
referred to
Para 8
1966 SCR 58
referred to
Para 14
D
(1980) 2 sec 341
referred to
Para 14
1995 (6) Suppl. SCR 800 referred to
Para 14
1999 (1) SCR 181
referred to
Para 14
E
2003 (5) Suppl. SCR 272 referred to
Para 24
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1586 of 2004.
From the Judgment & Order dated 10.10.2002 of the High
F
Court of Karnataka at Bangalore in Writ Petition No. 42560 of
2001 (GM/RES)].
WITH
G C.A. Nos. 1587, 1588, 4187, 5496, 6323, 6327, 6328 of 2004,
558-560 of 2006, 1374 9459, 9460, 9461, 9462, 9463, 9464,
9465, 9466, 9467-68 9469, 9470-73. 9474 & 9475 of 2013.
H
Kiran Suri, P. Harischandra Reddy, S.J. Amith, Dr. Vipin
Gupta, Amit Sharma, Kunal Chema, Anupam Lal Das, Venkata
P. DASARATHARAMA REDDY COMPLEX v.
583
GOVERNMENT OF KARNATAKA
Krishna Kunduru, Ajit S. Bhasme, Naveen R. Nath, V.N.
A
Raghupathy for the Appearing parties.
The Judgment of the Court was delivered by
G.S. SINGHVI, J.1. Leave granted in SLP (C) Nos. 16117
of 2004, 17147 of 2004, 24655 of 2004, 26073 of 2004, 5951
B
of 2006, 12552 of 2006, 12553 of 2006, 8597 of 2009, 2808728088 of 2011, 28089 of 2011, 29227-29330 of 2011, 31975
of 2011 and 13528 of 2012.
2. Of the above noted 23 appeals, 17 have been filed by c
those who had been awarded contracts by the Government of
Karnataka and/or its agencies/instrumentalities for execution of
the particular project/works. They have challenged the orders
passed by the Designated Judge/Division Benches of the
Karnataka High Court rejecting their prayer for appointment of D
Arbitrator in terms of the clauses relating to settlement of
disputes. One appeal has been filed by the contractor who was
awarded construction contract by Nagarika Yogbakashema
Mathu Gruha Nirmana Sahakara Sangha. The remaining 5
appeals have .been filed by Karnataka Neeravari Nigam
E
Limited and Kirshna Bhagya Jala Nigam Limited for setting
aside the orders passed by the learned Designated Judge
whereby he directed the concerned Chief Engineer to act as
an Arbitrator.
3. For the sake of convenience, we shall notice the facts
F
from the record of Civil Appeal No.1586 of 2004 - M/s. P.
Dasaratharama Reddy Complex v. The Government of
Karnataka and another because arguments were advanced
with reference to that case.
4. The appellant is a contractor engaged in executing work
contracts awarded by the Government of Karnataka and its
instrumentalities. In 1996, the appellant was awarded contract
for construction of bridge between Yethabadi-Buyyanadoddi
G
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584
SUPREME COURT REPORTS
(2013] 14 S.C.R.
A
across Shimsha river in Malavalli. The appellant did not
complete the work by alleging lack of cooperation on the part
of Chief Engineer, Communication and Building (South),
Bangalore (respondent No.2) and then lodged claim for
payment of the amount allegedly due to him. After some time,
B the appellant filed an application under Section 11 (6) and (8)
of the Arbitration and Conciliation Act, 1996 ·(for short, 'the
1996 Act') for appointment of an Arbitrator for adjudication of
all the disputes pertaining to Contract No.5/96-97 dated
8.5.1996. The Chief Justice of the High Court assigned the
c application to the Designated Judge, who dismissed the same
vide order dated 14.9.2001 by relying upon the judgment in
Mysore Construction Company v. Karnataka Power
Corporation Ltd. ILR 2000 KAR 4953. Paragraphs 5 and 6 of
that order read as under:
D
E
F
"5. The above clause requires the contractor specifically
to approach the civil court, if he is not satisfied with the
decision of the Chief Engineer. It does not provide for
reference to arbitration. But contrary to the specific term
of clause 29, the petitioner has sought appointment of
Arbitrator instead of approaching the Civil Court.
6. I had occasion to consider the question whether such a
clause is an arbitration agreement in Mysore Construction
Company Vs. Karnataka Power Corporation Ltd. [ILR
2000 KAR 4953] and held that the said clause is not an
arbitration agreement. Following the said decision and for
the reasons stated therein, it has to be held that clause 29
relied on by petitioner is not an arbitration agreement."
5. The writ petition filed by the appellant questioning the
G order of the Designated Judge was dismissed by the Division
Bench of the High Court by observing that Clause 29 of the
Contract cannot be construed as an Arbitration Agreement or
an Arbitration Clause for settlement of disputes.
H
P. DASARATHARAMA REDDY COMPLEX v.
585
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
6. In some of the other appeals, the appellants have
A
challenged the orders passed by the Designated Judge
rejecting their applications for appointment of Arbitrator under
the relevant clause of their respective agreements.
7. In the 5 appeals, Karnataka Neeravari Nigam Limited
and Krishna Bhagya Jala Nigam Limited have challenged the
orders passed by the Designated Judge for appointment of the
Chief Engineer as an Arbitrator and directed him to adjudicate
the matter in dispute.
THE ARGUMENTS
B
c
8. Mrs. Kiran Suri, Senior Advocate and other learned
counsel appearing for the contractors argued that the impugned
orders are liable to be set aside because the learned
Designated Judge and the Division Bench of the High Court
D
misconstrued the relevant clauses of the agreements. She
further argued that in view of the judgment of the Division Bench
of the High Court in Karnataka State Road Transport
Corporation and another v. M. Keshava Raju 2004 (1) Arb.
LR 507 and of this Court in Smt. Rukmanibai Gupta v.
E
Collector, Jabalpur and others (1980) 4 SCC 556, Krishna
Bhagya Jala Nigam Limited v. G. Harishchandra Reddy and
another (2007) 2 SCC 720, Punjab State and others v. Dina
Nath (2007) 5 SCC 28, State of Orissa and others v.
Bhagyadhar Dash (2011) 7 SCC 406, Bharat Bhushan
F
Bansal v. U. P. Small Industries Corporation Ltd., Kanpur
(1999) 2 sec 166 and K. K. Modi v. K. N. Modi and others
(1998) 3CC 573, the judgment in Mysore Construction
Company v. Karnataka Power. Corporation Limited (supra)
cannot be treated as laying down correct law. Mrs. Suri also
G
relied upon Section 20 of the Arbitration Act, 1940 (for short,
'the 1940 Act') and argued that Clause 29 of the agreement
executed between appellant P. Dasaratharama Reddy
Complex and the Government of Karnataka and similar clauses
contained in other agreements provide for resolution of
H
586
SUPREME COURT REPORTS
[2013) 14 S.C.R.
A disputes by arbitration and the High Court committed serious
error by refusing to appoint an Arbitrator.
9. Shri Naveen R. Nath, learned counsel, who appeared
on behalf of Krishna Bhagya Jala Nigam Limited and
B Karnataka Neeravari Nigam Limited, who are the appellants
in the five appeals and respondents in some of the other cases
argued that Clause 29 of the agreement executed between the
appellant and the Government of Karnataka in Civil Appeal
No.1586 of 2004 and similar clauses in other agreements are
c in the nature of departmental dispute resolution mechanism and
the same cannot be treated as an arbitration clause. He pointed
out that Clause 29 and similar clauses contained in other
agreements neither postulate hearing of the parties by the Chief
Engineer nor he can adjudicate the dispute. Shri Nath pointed
0 out that the relevant clauses in the agreements entered into
between the parties provide for settlement of disputes through
Court and, therefore, the decision, if any, taken by the Chief
Engineer cannot be treated as an award of the Arbitrator.
10. We have considered the respective submissions.
E Clause 29 of the Agreement entered into between the parties
(the appellant and the respondents in Civil Appeal No.1586/
2004) and majority of other cases read as under:
F
G
H
"Clause-29: (a) If any dispute or difference of any kind
whatsoever were to arise between the Executive Engineer/
Superintending Engineer and the Contractor regarding the
following matters namely,
(i) The meaning of the specifications designs, drawings
and instructions herein before mentioned;
(ii) The quality of workmanship or material used on the work
and
(iii) Any other questions, claim right, matter, thing,
whatsoever, in any way arising out of or relating to the
P. DASARATHARAMA REDDY COMPLEX v.
587
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
contract designs, drawings, specifications estimates,
A
instructions, or orders, or those conditions or failure to
execute the same whether arising during the progress of
the work, or after the completion, termination or
abandonment thereof, the dispute shall, in the first place,
be referred to the Chief Engineer who has jurisdiction over B
the work specified in the contract. The Chief Engineer shall
within a period of ninety days from the date of being
requested by the Contractor to do so, given written notice
of his decision to the contractor.
Chief Engineer's decision final
c
(b) Subject to other form of settlement hereafter provided,
the Chief Engineer's decision in respect of every dispute
or difference so referred shall be final and binding upon
the Contractor. The said decision shall forthwith be given D
effect to and contractor shall proceed with the execution
of the work with all due diligence.
Remedy when Chief Engineer's decision is not acceptable
to Contract
(c) In case the decision of the Chief Engineer is not
acceptable to the contractor. he may approach the Law
Courts at for settlement of dispute after giving due written
notice in this regard to the Chief Engineer within a period
of ninety days from the date of receipt of the written notice
of the decision of the Chief Engineer.
Time limit for notice to approach law Court by Contractor
E
F
(d) If the Chief Engineer has given written notice of his
decision to the Contractor and no written notice to approach
G
the law court has been communicated to him by the
Contractor within a period of ninety days from receipt of
such notice, the said decision shall be final and binding
upon the Contractor.
H
A
B
c
0
E
F
G
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SUPREME COURT REPORTS
[2013] 14 S.C.R.
Time limit for notice to approach law court by contractor
when decision is not given by CE as at (b)
(e) If the Chief Engineer fails to give notice of his decision
within a period of ninety days from the receipt qf the
Contractors request in writing for settlement of any dispute
or difference as aforesaid, the contractor may within ninety
days after the expiry of the first named period of ninety
days approach the Law Courts at giving due notice to the
Chief Engineer.
Contractor to execute and complete work pending
settlement of disputes;
(f) Whether the claim is referred to the Chief Engineer or
to the Law Courts, as the case may be, the contractor shall
proceed to execute and complete the works with all due
diligence pending settlement of the said dispute or
differences.
Obligations of the Executive Engineer and Contractor shall
remain unsettled during consideration of dispute.
(g) The reference of any dispute or difference to the Chief
Engineer or the Law Court may proceed notwithstanding
that the works shall then be or be alleged to be complete,
provided always that the obligations of the Executive
Engineer and the Contractor shall not be altered by reason
of the said dispute or difference being referred to the Chief
Engineer or the Law Court during the Progress of the
works."
(emphasis supplied)
11. Clause 7 of the Agreement, which was subject matter
of consideration in Civil Appeal No.4187/2004 -
C.C.
Kondaiah v. the Secretary, Nagarika Yogbakashema Mathu
Gruha Nirmana Sahakara Sangha, reads thus:
P. DASARATHARAMA REDDY COMPLEX v.
589
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
"7. In all matters of dispute arising out of this contract
A
agreement regarding the quality of materials, work, etc.,
the decision of the Board of Directors of the Sangha, shall
be final and binding o.n the part of the Contractor."
12. Clause 66 of the contract, which is subject matter of
8
consideration in the appeals arising out of SLP(C)Nos. 31975/
2011 and 13528/2012, reads thus:
"Clause 66 : SETTLMENT OF DISPUTES:
66. If any disputes or difference of any kind whatsoever and c
contractor in connection with, or raising out of the contract
or the execution of works, whether during the progress of
the work;? or after their completion and whether before or
after the termination abandonment or breach of the
contract, it shall, in the first place, be referred to and settled
D
by the Engineer who shall, within a period of forty five days
from the date of being requested by the contractor to do
so, give written notice of his decision to the contractor.
Subject to other form of settlement hereafter provided,
such decision in respect of every dispute or difference so
E
referred shall be final and binding upon the contractor. The
said decision shall forthwith be given effect to, and the
contractor shall proceed with the execution of the works
with all due diligence. In case the decision of the Engineer
is not acceptable to the contractor. he may approach the
F
law courts for settlement of dispute after giving due written
notice in this regard to the Engineer within a period of forty
five days form the date of receipt of the written notice of
the decision of the Engineer. If the Engineer has given
written notice of his decision to the contractor and no
G
written notice to approach the law courts has been
communicated to him by the contractor within a period of
forty five days from receipt of such notice, the said decision
shall be final and binding upon the contractor. If the
Engineer shall fail to give notice of his decision within a
H
A
B
c
D
E
F
G
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590
SUPREME COURT REPORTS
[2013] 14 S.C.R.
period of forty five days form the receipt of the contractor's
request in writing for settlement of any dispute or difference
as aforesaid, the contractor may within forty five days after
the expiration of the first named period of forty five days
approach the law courts, giving due notice to the Engineer.
Whether the claim is referred to t. ' Engineer or the law
courts, as the case may be, the co •.. actor shall proceed
to execute and complete the works with all due diligence
pending settlement of the said dispute or differences. The
reference of any dispute or difference to the engineer or
law courts may proceed not withstanding that the works
shall then be or be alleged to be complete, provided
always that the obligations of the Engineer and the
contractor shall not be altered by reason of the said dispute
or difference being referred to the engineer or law courts
during the progress of the works.
Neither party is entitled to bring a claim to resolution of
disputes if the dispute or differences are not notified in
writing within thirty (30) days after expiration of the
maintenance period."
(emphasis supplied)
13. Clause 67 of the contract, which is subject matter of
consideration in the appeal arising out of SLP(C) No.12553/
2006, reads thus:
"SETTLEMENT OF DISPUTES
67) If any dispute or difference of any kind whatsoever shall
arise between the Engineer and the Contractor in
connection with, or arising out of the Contract, or the
execution of works, whether during the progress of the
works or after their completion and whether before or after
the termination, abandonment or breach of the Contract,
it shall, in the first place, be referred to and settled by the
Engineer who shall, within a period 9f ninety days from the
P. DASARATHARAMA REDDY COMPLEX v.
591
GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
date of being requested by the Contractor to do so, give
A
written notice of his decision of the Contractor.
Subject to other form of settlement hereafter provided,
such decision in respect of every dispute or difference so
referred shall be final and binding upon the Contractor. The
said decision shall forthwith be given effect to, and the
Contractor shall proceed with the execution of the works
with all due diligence. In case the decision of the Engineer
is not acceptable to the Contractor, he may approach the
B
law Courts at Bangalore for settlement of dispute after
giving due written notice in this regard to the Engineer
C
within a period of ninety days from the date of receipt of
the written notice of the decision of the Engineer. If the
Engineer has given written notice of his decision to the
Contractor and no written notice to approach the law courts
has been communicated to him by the Contractor within a
D
period of ninety days from receipt of such notice, the said
decision shall be final and binding upon the contractor. If
the Engineer shall fail to give notice of his decision within
a period of ninety days from the receipt of the Contractor's
request in writing for settlement of any dispute of difference
as aforesaid, the Contractor may within ninety days after
the expiration of the first named period of ninety days
approach the law Courts at Bangalore, giving due notice
E
F
to the Engineer. However the claim is referred to the
Engineer or to the law Courts, as the case may be, the
Contractor shall proceed to execute and complete the
works with all due diligence pending settlement of the said
dispute or differences. The reference of any dispute or
difference to the Engineer or law Courts may proceed not
withstanding that the works shall then be or be alleged to
G
be complete,. provided always that the obligations of the
Engineer and the Contractor shall not be altered by reason
of the said dispute or difference being referred to the
Engineer or law Courts during the progress of the works."
(emphasis supplied)
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SUPREME COURT REPORTS
[2013] 14 S.C.R.
A
14. In Mysore Construction Company v. Karnataka Power
Corporation Limited and others (supra), the learned
Designated Judge referred to the passage from Russell on
Arbitration (19th Edition, page 59), the judgments of this Court
in K. K. Modi v. K. N. Modi and others (supra), Chief
B Conservator of Forests, Rewa v. Ratan Singh Hans Al R 1967
SC 166; Smt. Rukmanibai Gupta v. the Collector, Jabalpur
(supra); State of Uttar Pradesh v. Tipper Chand (1980) 2 SCC
341; State of Orissa v. Damodar Das (1996) 2 SCC 216;
Bharat Bhushan Bansal v. Uttar Pradesh Small Industries
C Corporation Limited, Kanpur (1999) 2 SCC 166 a'nd observed:
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"The above decisions make it clear that an agreement or
a clause in an agreement can be construed as an
arbitration agreement, only if,
(i) it provides for or contemplates reference of disputes or
difference by either party to a private forum (other than a
Court or Tribunal) or decision;
(ii) it provides either expressly or impliedly, for an enquiry
by the private forum giving due opportunity to both parties
to put forth their cases; and
(iii) it provides that the decision of the forum is final and
binding upon the parties, without recourse to any other
remedy and both would abide by such decision.
Where there is no provision either for reference of disputes
to a private forum, or for a fair and judicious enquiry, or for
a decision which is final and binding on parties to the
dispute, there is no arbitration agreement."
The learned Designated Judge then analysed Clause 29
(old Clause 67) and recorded his observations in the
following words:
"(a) The heading of the clause is 'settlement of disputes'.
There is no reference to either 'arbitration' or 'Arbitrator'.
P. DASARATHARAMA REDDY COMPLEX v.
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GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
(b) Clause (a) provides that if any dispute or difference of
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any kind whatsoever to arise between the Executive
Engineer/Superintending Engineer and the Contractor,
regarding the matters mentioned therein, the dispute shall
in the first place be referred to Chief Engineer, who has
jurisdiction over the work specified in the contract. Thus
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the reference to the Chief Engineer is only the first phase
of the process of settlement of disputes and not the final
phase of the settlement of disputes. This is evident from
the provision that when a dispute arises, it should in the
first place, be referred to the Chief Engineer for decision.
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(c) The reference is to a person, who has jurisdiction over
the contract work and not to an independent Authority nor
to an officer of the Corporation, who has no connection or
control over the work. In other words, the decision of Chief
Engineer is a decision by a person who has overall
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supervision and charge of the execution of the work. This
gives an indication that the decision of the Chief Engineer
is not intended to be an adjudication of the rights of the
parties to the dispute, but intended to be a decision of one
party in regard to the claim of the other party, to enable
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the other party to seek relief in a Court of law, if he is not
satisfied with the decision.
(d) Sub-clause (b) provides that subject to other form of
settlement provided in the ensuing sub-clause, the Chief
Engineer's decision in respect of every dispute or
difference so referred, shall be final and binding upon the
Contractor. This clause makes it clear that the final remedy
of the Contractor is to approach the law Court for decision
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on the dispute. It is also significant that the decision given
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by the Chief Engineer is made final and binding upon the
Contractor (subject to other remedies specified) and not
KPC. Any decision, which is made binding only on one
party and not on both the parties, cannot be an adjudicatory
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decision. The very principle of adjudication of a dispute
is that it is binding on both the parties.
(e) Clause (c) provides that if the Contractor is not satisfied
with the decision of the Chief Engineer, he can approach
the law Court at Karwar for settlement of the dispute The
clause requires the Contractor to approach the law Court
for settlement of disputes. If as contended by the petitioner,
the disputes are to be settled by way of arbitration by the
Chief Engineer, acting as Arbitrator, then the question of
one of the parties being permitted to approach the law
Courts for settlement of the disputes does not arise. If tlie
Chief Engineer is the Arbitrator and his decision is an
award, then a party can approach the Civil Court only for
setting aside the award and not for settlement of the
disputes. This provision makes it clear that the decision
of the Chief Engineer is not intended to be a decision by
way of adjudication of the disputes/differences between
the parties by way of arbitration but is intended to be
merely a decision of the party (employer) which, when
intimated to the other side, gives rise to a cause of action
to the other party (Contractor) to approach the Civil Court
for adjudication of its dispute/claim.
(f) Similarly, sub-clause (d) which provides that if the Chief
Engineer does not give his decision within a particular
period, the Contractor can approach the Civil Court for
settlement of the dispute, again demonstrates that no
finality is intended to be attached to the decision of the
Chief Engineer and the final adjudication should be by the
Civil Court and not by the Chief Engineer.
The scheme of Clause 29 (or old Clause 67) therefore is,
whenever the Contractor has a claim which is not settled
by the Executive Engineer or Superintending Engineer, he
has to make the claim before the Chief Engineer. If the
Chief Engineer examines the matter and gives his decision
P. DASARATHARAMA REDDY COMPLEX v.
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GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
which is not acceptable to the Contractor, or if the Chief
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Engineer does not give his decision within the time
specified, the Contractor has to approach the Civil Court,
by filing a civil suit and get his disputes/claims
· adjudicated, on merits. Use of words 'to approach the Civil
Court for settlement of disputes' makes it clear that final
adjudicating authority in the case of a dispute is the Civil
Court and not the Chief Engineer. Thus, the Intention of the
parties is not to refer any dispute for adjudication by way
of arbitration but to get adjudicated the dispute only
through the normal procedure of approaching law Courts.
The said clause does not also contemplate or require the
Chief Engineer to hold any enquiry or hear the parties
before deciding the matter. On the other hand, the clause
merely requires the Chief Engineer to consider the claim
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of the Contractor and give his decision thereon. Such
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decision being on behalf of KPC, the Contractor can either
accept it or approach the Civil Court for adjudication. Thus
the petitioner has failed to make out two of the three
ingredients -
requirement of enquiry by the named
Authority and requirement of finality by a binding decision."
15. The distinction between an expert determination and
arbitration has been spelt out in Russell on Arbitration, 21st
Edn., in the following words:
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"Many cases have been fought over whether a contract's
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chosen form of dispute resolution is expert determination
or arbitration. This is a matter of construction of the
contract, which involves an objective enquiry into the
intentions of the parties. First, there are the express words
of the disputes clause. If specific words such as 'arbitrator',
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'arbitral tribunal', 'arbitration' or the formula 'as an expert
and not as an arbitrator' are used to describe the manner
in which the dispute resolver is to act, they are likely to be
persuasive although not always conclusive .... Where there
is no express wording, the court will refer to certain
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guidelines. Of these, the most important used to be,
whether there was an 'issue' between the parties such as
the value of an asset on which they had not taken defined
positions, in which case the procedure was held to be
expert determination; or a 'formulated dispute' between the
parties where defined positions had been taken, in which
case the procedure was held to be an arbitration. This
imprecise concept is still being relied on. It is unsatisfactory
because some parties to contract deliberately choose
expert determination for dispute resolution. The next
guideline is the judicial function of an arbitral tribunal as
opposed to the expertise of the expert; .... An arbitral
tribunal arrives at its decision on the evidence and
submissions of the parties and must apply the law or if the
parties agree, on other consideration; an expert, unless it
is agreed otherwise, makes his own enquiries, applies his
own expertise and decides on his own expert opinion ... ."
A clause substantially similar to the clauses referred to
hereinatrove was interpreted by a three Judge Bench in
State of U.P v. Tipper Chand {supra) and it was held that
the same cannot be construed as an arbitration clause.
Paragraphs 2 and 3 of the judgment which contain the
reasons for the aforesaid conclusion are reproduced
below:
"2. The suit out of which this appeal has arisen was filed
by the respondent before us for recovery of Rs. 2000 on
account of dues recoverable from the Irrigation
Department of the petitioner State for work done by the
plaintiff in pursuance of an agreement, clause 22 of which
runs thus:
"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 parties to the
contract upon all questions relating to the meaning of the
P. DASARATHARAMA .REDDY COMPLEX v.
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GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
specifications, design, drawing and instructions
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hereinbefore mentioned. The decision of such Engineer as
to the quality of workmanship, or materials used on the
work, or as to any other question, claim, right, matter or
things whatsoever, in any way arising out of or relating to
the contract, designs, drawing 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 abandonment of the contract by
the contractor, shnll also be final, conclusive and binding
on the contractor."
3. After perusing the contents of the said clause and
hearing learned Counsel for the parties we find ourselves
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in complete agreement with the view taken by the High
Court. Admittedly the clause does not contain any express
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arbitration agreement. Nor can such an agreement be
spelled out from its terms by implication, there being no
mention in it of any dispute, much less of a reference
thereof. On the other hand, the purpose of the clause
clearly appears to be to vest the Superintending Engineer
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with supervision o( the execution of the work and
administrative control over it from time to time."
16. In State of Maharashtra v. Mis. Ranjeet Construction
(Civil Appeal No.4700 of 1985), a two Judge Bench of this
Court interpreted Clause 30 of the agreement entered into
between the parties, which is almost identical to the clauses
under consideration, relied upon the judgment in State of U.P.
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v. Tipper Chand (supra) and held that Clause 30 cannot be
relied upon for seeking a reference to an Arbitrator of any
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dispute arising under the contract.
17. In State of Orissa v. Damodar Das (supra), a three
Judge Bench interpreted Clause 21 of the contract entered into
between the appellant and the respondent for construction of
sump and pump chamber etc. for pipes WIS to Village Kentile.
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The respondent abandoned the work before completion of the
project and accepted payment of the fourth running bill.
Subsequently, he raised dispute and sent communication to the
Chief Engineer, Public Health, Orissa for making a reference
to an Arbitrator. The Subordinate Judge, Bhubaneswar allowed
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the application filed by the respondent under Section 8 of the
1940 Act and the order passed by him was upheld by the High
Court. This Court referred to Clause 25 of the agreement, relied
upon the judgment in State of UP. v. Tipper Chand (supra) and
held that the said clause cannot be interpreted as providing
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resolution of dispute by an Arbitrator. Paragraphs 9 and 10 of
the judgment, which contain discussion on the subject, are
extracted below:
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"9. The question, therefore, is whether there is any
arbitration agreement for the resolution of the disputes.
The agreement reads thus:
"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 out 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."
10. Section 2(a) of the Act defines "arbitration agreement"
to mean "a written agreement to submit present or future
P. DASARATHARAMA REDDY COMPLEX v.
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GOVERNMENT OF KARNATAKA [G.S. SINGHVI, J.]
differences to arbitration, whether an arbitrator is named
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therein or not". Indisputably, there is no recital in the above
clause of the contract to refer any dispute or difference
present or future to arbitration. The learned counsel for the
respondent sought to contend from the marginal note, viz.,
"the decision of Public Health Engineer to be final" and any
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other the words "claim, right, matter or thing, whatsoever
in any way arising out of 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
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during the progress of the work or after the completion or
the sooner determination thereof of the contract" and
contended that this clause is wide enough to encompass
within its ambit, any disputes or differences arising in the
aforesaid execution of the contract or any question or claim
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or right arising under the contract during the progress of
the work or after the completion or sooner determination
thereof for reference to an arbitration. The High Court,
therefore, was right in its conclusion that the aforesaid
clause gives right to arbitration to the respondent for
resolution of the dispute/claims raised by the respondent.
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In support thereof he relied on Ram Lal Jagan Nath v.
Punjab State through Collector AIR 1966 Punj 436. It is
further contended that for the decision of the Public Health
Engineer to be final, the contractor must be given an
opportunity to submit his case to be heard either in person
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or through counsel and a decision thereon should be given.
It envisages by implication existence of a dispute between
the contractor and the Department. In other words, the
parties construed that the Public Health Engineer should
be the sole arbitrator. When the claim was made in
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referring the dispute to him, it was not referred to the court.
The respondent is entitled to avail of the remedy under
Sections 8 and 20 of the Act. We find it difficult to give
acceptance to the contention. A. reading of the above
clause in the contract as a conjoint whole. would give us
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an indication that during the progress of the work or after
the completion or the sooner determination thereof of the
contract. the Public Health Engineer has been empowered
to decide all questions relating to the meaning of the
specifications. drawings. instructions hereinbefore
mentioned and as to the quality of workmanship or material
used on the work or as to any other question. clai1111. right.
matter or thing whatsoever in any way arising out of. or
relating to, the contract drawings. specifications. estimates.
instructions. orders or those conditions or otherwise
concerning the works or the execution or failure to execute
the same has been entrusted to the Public Health Engineer
and his decision shall be final.