JUDGMENT
P. Venkatarama Reddi, J.
1. These two Civil Miscellaneous Appeals under Section 39 of the Arbitration Act arise out of a common order passed by the Principal Subordinate Judge, Visakhapatnam in O.P.Nos. 64 and 94 of 1992. O.P.No. 64/94 was filed by the respondent-contractor under Sections 30 and 33 of the Arbitration Act to set aside the award dated 25-2-1992 made by the sole arbitrator. O.P.No. 94 of 1992 was filed by the respondent herein under the same provisions for the same relief. Thus, both the appellant as well as the respondent objected to the award. The learned Subordinate Judge allowed both the O.Ps, set aside the award and appointed another retired District Judge as arbitrator to adjudicate the dispute between the parties. The operation of that judgment has been stayed by this Court, with the result, fresh proceedings have not commenced.
2. The relevant facts are these :
Pursuant to the acceptance of the tender on 26-9-1986, the work relating to “Modification of Atmospheric and Distillation Units for Re-vamping of C.D.U./V.D.U. at Visakha Refinery” was awarded to the respondent. The original value of the contract was Rs. 95.84 lakhs. A written agreement was entered into between the parties on 12-3-1987. The work dragged on much beyond the stipulated period. On the completion of the work, a final bill was submitted for about Rs. 2 crores on 22-10-1988. The final bill was not passed by the appellant. In order to resolve the disputes and differences between the parties and to settle the amounts due to the respondent-contractor, there were discussions and deliberations. Finally, at a meeting held on 2-1-1989, an agreement was reached between the parties which was recorded in the minutes of meeting. It is not necessary to refer to the various disputed claims and the amounts agreed to be paid under each head. On the basis of settlement, a balance amount of Rs. 27.47 lakhs was agreed to be paid to the respondent with a qualification that the said amount “may undergo minor variation subject to variation in measurement.” In the concluding part of the minutes of the meeting marked as Ex. C-5 before the arbitrator, it is stated as follows:
“7. No further claims: “V.D.S. confirm that this shall be taken as full and final settlement of their claims and no further claims will be made by V.D.S. nor will be accepted by the H.P.C.L.”
V.D.S is respondent and H.P.C.L. is the appellant. Pursuant to this settlement, a sum of Rs. 21 lakhs was paid by the appellant-Corporation. However, the balance amount of Rs. 6.47 lakhs due as per Ex.C-5 was not paid on the ostensible ground that the actual measurements did not admit payment over the above Rs. 21 lakhs. The respondent, thereafter, claims to have taken up the stand that the minutes of the meeting were signed by the respondent’s representatives on 2-1-1989 under the pressure exerted by the appellant. The respondent also took the stand that on account of non-payment of Rs. 6.471akhs, the settlement reached at the meeting dated 2-l-1989 stood rescinded. A further meeting was held on 8-2-1989 which could not resolve the impasse. The respondent then filed O.S.No. 55 of 1989 in the Court of the Principal Subordinate Judge, Visakhapatnam under Section 20 of the Arbitration Act with the prayer to direct the respondent to file the agreements dated 26-9-1986 , and 3-6-1988 in the Court and to order reference of the disputes to the arbitrator appointed by both the parties or the sole arbitrator appointed by the Court.
3. It is necessary at this stage to refer to the arbitration clause forming part of the general conditions attached to the agreement dated 12-3-1987. Para 91 which deals with arbitration, in so far as it is relevant, reads as follows:
“91. Arbitration:
All disputes or differences whatsoever which shall at any time arise between the parties hereto touching or concerning the works or the execution or maintenance thereof this contract or the rights touching or concerning the works or the execution or maintenance thereof this contractor the construction, meaning, operation or effect thereof or to the rights or liabilities of the parties or arising out of or in relation thereto whether during or after completion of the contract or whether before or after determination, fore closure or breach of the contract (other than those in respect of which the decision of any person is by the Contract expressed to be final and binding) shall after written notice by either party to the Contract to the other of them and to the Appointing Authority hereinafter mentioned be referred for adjudication to a sole Arbitrator to be appointed as hereinafter provided.
For the purpose of appointing the sole Arbitrator referred to above the Appointing Authority will, send, within thirty days of receipt of the notice, to the contractor a panel of three names of persons who shall all be presently unconnected with the organisation for which the work is executed.
The contractor shall on receipt of the name as aforesaid, select any one of the persons named to be appointed as sole Arbitrator and communicate his name to the Appointing Authority within thirty days of receipt of the names. The Appointing Authority shall there upon without any delay appoint the said person as the sole Arbitrator.
If the Appointing Authority fails to send to the Contractor the panel of three names as aforesaid within the period specified, the contractor shall send to the Appointing Authority a panel of three names of persons who shall all be unconnected with either party. The appointing authority shall on receipt of the names as aforesaid select any one of the persons named and appoint him as the Sole Arbitrator. If the Appointing Authority fails to select the person and appoint him as the sole Arbitrator within 30 days of receipt of the panel and inform the Contractor accordingly, the contractor shall be entitled to appoint one of the persons from the panel as the sole Arbitrator and communicate his name to the Appointing Authority.
If the Arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reasons whatsoever another sole Arbitrator shall be appointed as aforesaid.
xx xx xx xx”
4. The respondent’s petition under Section 20 was resisted by the appellant-corporation inter alia on the ground that the minutes of the meeting dated 2-l-1989 were signed by the plaintiff with free will and the settlement was the culmination of a series of efforts made earlier to settle the disputes. It was contended that a sum of Rs. 6.47 lakhs was not paid as the respondent-plaintiff failed to fulfil his part of obligations and the respondent never raised a dispute in this regard. The more important contention was that once the matter was settled by a fresh contract, the original contract no longer subsists and, therefore, recourse cannot be had to the arbitration clause.
5.The learned Subordinate Judge decreed the suit on 15-3-1991 and directed the defendant-Corporation to file the agreements dated 26-9-1986 and 3-6-1988 into Court and appointed a Retired District Judge as sole Arbitrator to settle the disputes and differences between the parties in respect of the said agreements. The findings/observations in the judgment rendered in O.S.No. 55 of 1989 will be referred to hereinafter at the appropriate juncture.
6. It appears that a review petition was filed against this judgment which was ultimately dismissed. In the meanwhile, the Arbitrator entered upon reference on 3-5-1991. The appellant did not respond to the notices sent by the Arbitrator, presumably because of pendency of the Review Petition. No rebuttal statement was filed. The Arbitrator set the appellant ex parte and gave the award on 12-2-1992. The learned Arbitrator held that Ex. C-5 (settlement) arrived at on 2-1-1989 was binding on both the parties. The arbitrator did not accept the plea of the claimant-contractor that on account of the breach of the terms of the settlement, the claims made with reference to the original agreements stood revived and the parties have to be placed in the position they were occupying prior to the date of Ex. C-5. The learned arbitrator commented :
“At no point of time after the date of Ex. C-5, the claimant stated that he was coerced to sign Ex. C-5 except in these proceedings. He was a willing party to Ex. C-5 and so, he cannot repudiate it and set up an exaggerated claim for any amount thereafter more than what is covered by Ex. C-5 after deducting the amount received by him………………”
As the respondent did not file a counter and explain the circumstances under which Rs. 6.47 lakhs was withheld, the arbitrator held that the claimant was entitled to that amount as per the settlement under Ex. C-5 and in addition thereto, a reasonable compensation which was estimated at Rs. 3 lakhs. Thus, in all, he awarded a sum of Rs. 9,72,000/- payable with interest at 12% per annum from the date the award was made a decree of the Court till the date of realisation. The rest of the claim was disallowed. As against this award, as already stated, both the parties filed applications under Sections 30 and 33 of the Arbitration Act.
7. Mr. K. Srinivasa Murthy, the learned Counsel for the appellant made a faint attempt to assail the award on the ground that there is no arbitrable dispute in view of the settlement (Ex. C-5). It was submitted that the settlement under Ex. C-5 was acted upon by the contractor by accepting the payment of Rs. 21 lakhs and it is not open to him to ignore that settlement and seek arbitration.
8. The short answer to this contention is that if there was no referable dispute at all and Section 20 had no application, the proper course for the appellant was to question the judgment in OS. 55/89, by filing an appeal under Section 39 of the Act. Having allowed that judgment to become final and having not raised the objection before the arbitrator, it is not open to the appellant to agitate that issue at this stage. In view of this, the decision cited by the learned Counsel – P.K. Ramaiah & Co., v. Chairman, NTPC, (Civil Appeal arising out of SLP (C) Nos. 15628-29 of 1992 dated 1-10-1993) has no application to this case. That apart, in the aforementioned case, the Supreme Court was dealing with a situation where the contractor acknowledged the settlement and received the amount in full and final settlement of the claim. Hence it was held that there was accord and satisfaction and there was no arbitral dispute. But there is a dispute here on the question whether accord and satisfaction pleaded by the appellant is valid and acceptable. We may, in this connection, refer to the decision of the Supreme Court in Bharat Heavy Electricals Ltd. v. Amarnath Bhan Prakash, . In that case, the Supreme Court while setting aside the finding of the High Court that there was no accord and satisfaction of the contract, directed that the matter in dispute between the parties including whether or not there was discharge of the contract by accord and satisfaction, shall be referred to arbitration under the arbitration clause contained in the contract.
9. The next and more important objection raised is the ground on which the award was set aside by the Court below. The Court held that the finding recorded in the judgment in O.S.No. 55/89 to the effect that the Minutes of the meeting (Ex.C-5) stood cancelled and the original agreement conferring the right to seek arbitration stood revived and the arbitrator should not have ignored that finding and given his own reasoning to give effect to Ex. C-5. In the impugned judgment, it is observed:
“This Court gave a categorical finding that particular minutes have no longer any validity and directed adjudication of dispute of the claim preferred by the parties afresh. So, in the light of the direction of this Court, the arbitrator has no business to act contra to the direction of this Court which is nothing but acting beyond the scope of reference, amounting to misconduct. Above all, the arbitrator made the award solely basing upon the minutes of the meeting without considering the claims put forward by the claimant, and in my view he is bound to give reasons for his disallowing the claims.”
It is on this reasoning the learned Subordinate Judge held that the arbitrator committed misconduct and therefore set aside the award.
10. Mr. Srinivasa Murthy, learned Counsel for the appellant attacks this reasoning contending that in recording a finding on the validity, enforceability and applicability of the settlement embodied in Ex. C-5, the Court acted without jurisdiction. It is contended that it was absolutely unnecessary and improper to express any view whether there was accord and satisfaction as it was a matter which had to be decided by the arbitrator and the arbitrator alone. Having referred to arbitrators the matters of dispute including the dispute as to accord and satisfaction, the Court acting under Section 20 was not competent to express any view on the merits of the contentions. The learned Counsel has placed reliance on the decisions of the Supreme Court in Bharat Heavy Electricals Ltd. v. Amarnath Bhan Praknsh, and Damodar Valley v. K.K. Kar, . We have already referred to the former case.
11. In Damoder Vallley case, the Supreme Court pointed out that the question whether there was full and final settlement of a claim under the contract is itself a dispute arising upon or in relation to contract. Referring then to the argument that the dispute whether there is or has been a settlement cannot be the subject of an arbitration, it was observed that there was a basic fallacy underlying the submission. The question of unilateral repudiation of the rights and obligations under the contract or of a full and final settlement relate to the performance or discharge of the contract. Far from putting an end to the arbitration clause, they fall within the purview of it. It was then pointed out that where the dispute was non est or voidable or whether the contract was substituted, rescinded or altered, that dispute cannot be referred to arbitration. At paragraph 13. the following significant observations were made :
“Similarly the question whether there has been a settlement of all the claims arising in connection with the contract also postulates the existence of the contract. The principle laid down by Sarkar, J. in Kishorilal Gupta Bros’ case that accord and satisfaction does not put an end to the arbitration clause was not dissented from by majority.”
Ultimately it was held that where there is an arbitration clause in the contract, that dispute can be referred to arbitration notwithstanding the plea that there was settlement between the parries.
The following observations at paragraph 9 are also apposite:
“We have adverted to these several aspects merely to show that contracts being consensual, the question whether the arbitration clause survives or perishes would depend upon the nature of controversy and its effect upon the existence or survival of the contract itself.”
Some of these observations are pressed into service by the learned Counsel for the appellant to drive home the point that the dispute with regard to full and final settlement or to put it in other words, accord and satisfaction, should have been allowed to be decided by the arbitrator and the Court was not competent while referring the dispute under Section 20 to give any finding. Cases have been cited to emphasise the point that merits of dispute cannot be gone into by the Court under Section 20. In doing so, it is contended that the Court out stepped its limits. Therefore, the learned Counsel submits that the principle of res judicata does not come into play and irrespective of the finding of the Court, the arbitrator was free to decide the dispute concerning the settlement under Ex. C-5 and the mutual rights and obligations thereunder. It is also contended by the learned Counsel that the said finding is not categorical and clear.
12. On the other hand, it is contended by the learned Counsel for the respondent, Mr. M.R.K. Choudary, that the finding recorded by the Court in O.S. 55/89 is not a finding extraneous to Section 20. In the light of the plea taken by the appellant that the original contract containing the arbitration clause did not survive in view of the substitution of the new contract, the Court had to necessarily decide whether the arbitration clause existed or not and in doing so, the validity and binding nature of the alleged settlement (Ex. C5) had to be necessarily gone into. Hence it is submitted that the finding reached by the Court that the agreement embodied in Ex. C5 stood rescinded by reason of the subsequent conduct of the appellant, is fully within its competence. As the question relating to full and final settlement was directly and substantially in issue in O.S. 55/89 and that point having been held against the appellant, the principle of res judicata bars such plea to be raised again in a Section 30 application. The learned Counsel submits that the order under Section 20 including the finding cannot be challenged in a subsequent collateral proceeding. Right or wrong, the finding binds the parties. In any case, it is submitted that there was no patent lack of jurisdiction on the part of the Court to record the crucial finding and therefore it could not have been ignored by the arbitrator. Relying upon the observations in Orissa Mining Corporation v. P.V. Rawlley, the learned Counsel commented that the arbitrator cannot enlarge the scope of reference. He also submitted that the settlement under Ex. C5 does not have the effect of putting an end to the old contract, but it is only a method and manner of resolving the dispute under the original contract and therefore it does not come in the way of arbitering on all disputes concerning the rights and liabilities of the parties under the old contract.
13. Before proceeding further, one undeniable fact that ought to be noticed is that the Court while deciding OS. 55/89 (filed under Section 20) did not address itself to the question whether the old contract was substituted by the new contract-that is to say, the ‘settlement contract’ embodied in Ex. C-5. Whether there was novation of contract was not specifically gone into. We have mentioned this fact for the reason that the question as to existence or survival of the contract containing arbitration clause is a matter for decision of the Court under Section 20. But if the question is merely whether there was accord and satisfaction, that relates to the discharge of the contract and the arbitrator alone has to decide that question. This is the principle discernible from Damodar Valley case (2 supra). The decision in Atnarnath Bhan Prakash (1 supra) also makes it clear that it lies within the domain of the arbitrator to decide whether there was accord and satisfaction and the contract got discharged by it.
14. When the Court did not give any finding on the larger question whether there was substitution of one contract to the other, one thing which we ought to say is that it was unnecessary for the Court exercising jurisdiction under Section 20 to express any view on the effectiveness and binding force of Ex. C5 settlement. That issue also could have been left to the decision of the arbitrator. Whether in doing so, the Court acted without jurisdiction, is a point which would then arise. We do not wish to express any opinion on this aspect. We would prefer to rest out judgment on other grounds.
15. On a perusal of the judgment in O.S.55/89, we are of the considered view that the finding on which reliance was placed in the judgment under appeal is not unequivocal and categorical inasmuch as it flies in the face of the other findings/observations in the very same order. The findings which the Court gave while disposing of Section 20 petition, as mentioned hereinafter, are mutually contradictory. It is not possible to say definitely that the Court decided the issue regarding the validity and enforceability of the settlement recorded in Ex. C-5, once for all without leaving it for the decision of the arbitrator. A finding such as the one given by the Court in O.S. 55/89, if at all to be considered as a finding, cannot be given effect to for want of definiteness and clarity, apart from the fact that the expression of any view on that aspect was clearly unnecessary. Such a finding cannot claim to have binding force and efficacy. In such a situation, we are inclined to think that there is no room for application of the doctrine of res judicata, stoppel or the like, preventing the arbitrator from recording his own conclusions on the issue concerning settlement or accord and satisfaction.
16. We shall now refer to the relevant portions of the judgment in O.S.55/89 to reinforce our viewpoint. At paragraph 20, the learned Subordinate Judge referred to the minutes of the meeting dated 2-1-1989 (Ex. C-5) and referred to the fact that the defendant (appellant herein) released the amount agreed to be paid but left a balance of Rs. 6.47 lakhs. Then he referred to the judgment of the Supreme Court – Amarnath Bhan Prakash case (1 supra) and noted the principle that “whether there was a discharge of the contract by accord and satisfaction or not, is a dispute arising out of the contract and to be referred to arbitration.”
Then he said:
“Hence I hold that the original contract subsists and the plaintiff is entitled to file a suit under Section 20 of the Arbitration Act.”
Then follows certain crucial findings/observations at paragraph 34:
“In the present case on hand, both the parties entered into an agreement, dated 26-9-1986 and the amended agreement dt. 3-6-1988; and because there are disputes and differences between the parties, both parties executed Ex. A-1 original on 2-1-1989. The defendant did not pay the amount due to the plaintiff in pursuance of Ex. A-1 original on 2-1-1989; and the plaintiff claimed that the defendant had to pay Rs. 6.47 lakhs under the Minutes dt. 2-1-1989; and also a sum of Rs. 44,000/- towards deductions made by the defendant at the time of payment, in pursuance of the Minutes dt. 2-1-1989. Hence, there are disputes between the parties and defendant should produce the agreements dated 26-9-1986 and 3-6-1988.”
The above passages in the judgment, without anything more, would clearly indicate that the learned Subordinate Judge was of the view that there were disputes between the parties in regard to the payment of the amount stipulated in the Minutes of the meeting dated 2-1-1989 (marked as Ex. A-l in that suit) and that dispute as well as other disputes were referable to arbitration on the principle laid down by the Supreme Court in Amar Nath Bhan Prakash case (1 supra). It was also his view that having regard to the subsistence of such disputes, the arbitration clause contained in the original contract comes into play. But, confusion is created by reason of the view expressed at paragraph 25 in the following terms:
“In the present case on hand, when the parties entered into the Minutes of the meeting dt. 2-1-1989, the defendant ought to have released the amount agreed thereunder, and only Rs. 6.47 lakhs was not paid, as the plaintiff failed to honour his part of obligation. Hence, it can safely be said and I hold that due to non-payment of the entire amount as agreed in the minutes dt.2-1-1989 by the defendant herein to the plaintiff, the subsequent minutes dt. 2-1-1989 stood cancelled and the earlier agreement conferring the right on the plaintiff stood revived. Hence it can safely be said and I hold that the original contract subsists, and the plaintiff is perfectly right in filing the suit invoking the arbitration clause in the original contract dt. 26-9-1986.”
This finding in paragraph 25, if at all one can call it a finding, is contradictory to the findings/observations extracted earlier, especially at paragraph 34. On the one hand, the learned Judge said that the disputes arose with reference to the agreement reached on 2-1-1989 and whether there was discharge of contract in the light of the agreement arrived at on 2-1-89 could be referred to arbitration. At the same time, he observed that on account of non-payment of the balance amount due as per the said agreement dt. 2-1-1989, it stood cancelled. It does not appear from the judgment that the question whether the non-payment of the balance amount was justified or not was gone into by the learned Judge. There is no discussion on that aspect in the judgment. We are left with an impression that it may not be the intention of the Court to give a definite and final finding on the question of accord and satisfaction by means of settlement dated 2-1-1989. Inasmuch as the learned Subordinate Judge held in so many terms that it was an arbitrable dispute, in the next breath, he could not have intended to say anything which has the effect of taking away that issue out of the purview of arbitration. The expression of view on this aspect could at best be regarded as a prima facie view not foreclosing the arbitration on this contentious issue.
17. The analysis of the judgment in O.S. 55/89 thus leaves no room for doubt that it was wholly unnecessary for the Court to give a finding on the question whether the agreement arrived at on 2-1-1989 with reference to the disputes arising out of the contract ceased to have effect and secondly the observation or finding at paragraph 25 that the agreement dated 2-1-1989 stood cancelled, is contradictory to the observations made and finding recorded elsewhere in the judgment. On the one hand, the Court cannot say that the arbitrator can decide all questions including those relating to accord and satisfaction and on the other the Court could not have expressed any opinion on the merits. The observation or finding in paragraph 25 cannot therefore be construed as placing limitation on the power of the arbitrator to whom the dispute was referred, to decide according to law. In any case, the arbitrator or the parties are not bound by the finding which was either unnecessary for the decision of the case or contradictory to the other finding. The arbitrator was therefore free to decide the matter including the issue as to accord and satisfaction to the best of his judgment without being fettered by any observations or views to the contra contained in the judgment. When the Court clothed the arbitrator with the authority to settle the disputes and differences between the parties in respect of the agreements entered into by them, it would be a contradiction in terms to say that the Court which passed the order under Section 20 wanted him to decide a dispute arising out of the contract in a particular manner. It is trite to say that the Court exercising jurisdiction under Section 20 is not concerned with the merits of the dispute. It would have been a different matter if the question was considered from the angle whether there was no ovations or substitution of the old contract by the new contract entered into on 2-1-1989 so as to see whether the arbitration clause perished. But the question was not posed in that fashion and no answer was recorded thereto.
18. In view of the above discussion, we are of the view that the finding/ observation at paragraph 25-unnecessary as it was and contradictory at any rate, does not attract the principle of res jndicata and could not have come in the way of the arbitrator deciding the crux of the dispute before him independently.
19. In the view we have taken, it is not necessary for us to refer to the decisions cited at the bar on the subject of res judicata and the scope of the Court’s power under Section 20. We should only say that no decision cited by the learned Counsel for the respondent would come in conflict with the view taken by us. The learned Counsel who, we must say, has ably put forward his client’s case, referred to some decisions dealing with the application of the principle of res judicata and the cases highlighting the distinction between patent and latent lack of jurisdiction. It is also (not) necessary for us to refer to the cases cited by the learned Counsel Mr. Srinivasa Murthy, to substantiate his point that the finding being a nullity, res judicata has no application.
20. There is one more aspect which we have to advert to before closure of our discussion. The additional reason given by the trial Court while setting aside the award is that the arbitrator did not consider the claim put forward by the contractor and he failed to give reasons for disallowing the claims. The Court observed that the award solely based upon the Minutes of the meeting dated 2-1-89 without discussing the claims put forward by the contractor amounted to misconduct. We are unable to uphold this view. When once the arbitrator decided that the settlement reached on 2-1-89 was binding on both the parties and the contractor cannot claim any thing more than what was agreed to under the settlement, he must be deemed to have entered on a finding that there was accord and satisfaction and the contract stood discharged on account of that. In the view which the arbitrator had taken, it was not open to him nor was it appropriate to enter into merits of the claims raised by the respondent. In this context, it is apposite to take note of the directions given by the Supreme Court in Amur Nath Bhan Prakash Case (1 supra). This is what the Supreme Court directed:
“The arbitrator will make his award within three months from the date of entering upon the reference. He will first determine the question whether there was accord and satisfaction between the parties and/or whether the contract was discharged and if the decision on this issue is in favour of the appellant, the arbitrator will not proceed further in the matter and dismiss the claim of the respondent. But, if, on the other hand, he finds that there was no discharge of the contract by accord and satisfaction or otherwise, he will proceed to determine the claim of the respondent against the appellant on merits.”
Our ultimate conclusion therefore is that there were no valid grounds to set aside the award and the same should have been confirmed and made a decree of the Court.
21. Before parting with the case, we would only refer to the contention advanced by the learned Counsel for the appellant that the Court fell into an error of law in appointing an arbitrator of its choice instead of directing adjudication of the dispute by the arbitrators to be appointed as per the procedure provided by the arbitration clause in the agreement. It is contended that the Court must have due regard to the method and manner of arbitration agreed to by the parties while exercising its power under Section 8 or Section 20 of the Act. It is not necessary to go into this question, as we have held that the award is not liable to be set aside and the question of fresh arbitration does not arise.
22. The C.M. As. are, therefore, allowed and O.Ps. Nos. 94/92 and 64/92 filed respectively by the appellant and the respondent shall stand dismissed. The award shall be made the rule of the Court and there shall be a decree in terms thereof. We make no order as to costs in both.