PETITIONER: FOOD CORPORATION OF INDIA Vs. RESPONDENT: SREEKANTH TRANSPORT DATE OF JUDGMENT: 14/05/1999 BENCH: Umesh C. Banerjee, V.N.Khare JUDGMENT:
BANERJEE, J.
These appeals by the grant of Special Leave pertains
to the effect of the usual `excepted clause’ vis-a- vis the
arbitration clause in a Government contract. While it is
true and as has been contended, that the authorisation of
the arbitrators to arbitrate, flows from the agreement but
the High Court in the judgment impugned thought it fit to
direct adjudication of `excepted matters’ in the agreement
itself by the arbitrators and hence these appeals before
this Court. At the outset, it is pertinent to note that in
the usual Governmental contracts, the reference to which
would be made immediately hereafter, there is exclusion of
some matters from the purview of arbitration and a senior
officer of the Department usually is given the authority and
power to adjudicate the same. The clause itself records
that the decision of the senior officer, being the
adjudicator, shall be final and binding between the parties
– this is what popularly known as `excepted matters’ in a
Government or Governmental agencies’ contract. `Excepted
matters’ obviously, as the parties agreed, do not require
any further adjudication since the agreement itself provides
a named adjudicator – concurrence to the same obviously is
presumed by reason of the unequivocal acceptance of the
terms of the contract by the parties and this is where the
courts have found out lacking in its jurisdiction to
entertain an application for reference to arbitration as
regards the disputes arising therefrom and it has been the
consistent view that in the event the claims arising within
the ambit of excepted matters, question of assumption of
jurisdiction of any arbitrator either with or without the
intervention of the court would not arise; The parties
themselves have decided to have the same adjudicated by a
particular officer in regard to these matters: what are
these exceptions however are questions of fact and usually
mentioned in the contract documents and forms part of the
agreement as such there is no ambiguity in the matter of
adjudication of these specialised matters and termed in the
agreement as the excepted matters.
As noticed above, the High Court, however, has in
fact, referred matters which are in terms of the agreement
within the excepted matters to the arbitrator along with the
other arbitrable disputes. It would be convenient to note
the Arbitration clause at this juncture.
“All disputes and differences arising out of in any
way touching or concerning this agreement whatsoever (except
as to any matter the decision of which is expressly provided
for in the contract) shall be referred to the sole
arbitration of a person appointed by the Managing Director
of the FCI. It will be no objection to any such appointment
that the person appointed is or was an employee of the
Corporation that he had to deal with the matters to which
the contract relates and that in the course of his duties as
such employee of the corporation he had expressed views on
all or any of the matters in dispute of difference. The
Board of such Arbitration shall be final and binding on the
parties of this contract. It is a term of this contract
that in the event of such arbitration to whom the matter is
originally referred being transferred or vacating his office
or being unable to act for reasons the Manager/Managing
Director of the FCI at the time of such transfer, vacation
of office or inability to act shall appoint another person
as arbitrator. Such persons shall be entitled to proceed
with reference from the stage at which it was left by his
predecessor. It is also a term of this contract that no
person other than a person appointed by the Managing
Director as aforesaid shall act as Arbitrator and if for any
reasons that it is not possible the matter is not be
referred to Arbitration at all.
It is term of a contract that the party invoking
arbitration under this clause shall specify the disputes
and/or difference to be referred to arbitration together
with the amount claimed in respect of each such
dispute/difference, at the time of making a request to the
Managing Director for appointment of an arbitrator.
Provided further that any demand for arbitration in
respect of any claims of the contractors under the contract
shall be in writing and are made within one year of the date
of termination of completion (or expiry of the period) of
the contractor from the date of termination of the contract,
if it is terminated earlier and where such demand is not
made within that period, the claims, of the contractors
shall be discharged and released of all liabilities under
the contract in respect of these claims. It is further
provided that the Arbitrator may, from time to time, with
the consent of the parties enlarge the time for making and
publishing the award.
In all cases where the claim in dispute is Rs,25,000/-
and above the arbitrator shall record the reasons for his
award.
Subject as aforesaid the Arbitration Act 1940 shall
apply to the Arbitration proceedings under this clause. The
costs of and in connection with Arbitration shall be in the
discretion of the arbitrator who may make a suitable
provision for the same in his award”.
Turning now on to the contextual facts, it appears
that by reason of certain disputes between the parties the
Respondent herein instituted a suit under Section 20 of the
Arbitration Act for the purposes of filing the Arbitration
Agreement in Court being CSNo.304 of 1982. Incidentally, be
it noted that in the plaint filed in the suit the Respondent
herein has included four several claims of which the fourth
claim pertains to the excepted matters in terms of clause
XII of the agreement. The claims as lodged in the plaint
are as below:
(a) “Whether the Plaintiff’s are liable to pay
demurrage or whether the defendants are liable to pay the
demurrage accrued due to the omissions and commissions of
the officials of the defendants and to the abnormal
conditions prevailing at the Railway goods sheds?
(b) Whether the plaintiffs are liable to pay costs of
the water obtained from outside by the defendants?
(c) Whether the defendants are entitled to recover
amounts allegedly due in respect of the contract with
Express Clearing Agency or any other contract from the
plaintiff from out of the amounts due in this present
contract?
(d) Whether the defendants are not liable to pay to
the plaintiffs a sum of Rs.70,000/- in respect of the
transport of Rice from Madras to Ronigunta from June to
August 1979?”
It is this inclusion of Claim (d) which stands
objected by the Appellant herein and the learned Trial Judge
by reason of the same being covered under clause 12 of the
agreement declined to include the same. Since the issue
pertains to such an exclusion it is convenient also to note
Clause 12 of the agreement, Clause 12 reads as below:
“The decisions of the Senior Regional Manager
regarding such failure of the contractors and their
liability for the losses etc. suffered by the Corporation
shall be final and binding on the contractors.”
The Factual backdrop further depict that after the
order of the Learned Trial Judge the matters were taken up
to the appellate court wherein on an application for stay
the respondent herein has obtained an order of stay.
Incidentally, during the pendency of Section 20 matter,
there was also an application under Section 34 for stay of
the suit – the application under Section 34 however was
dismissed though the suit under Section 20 was not ordered
in its entirety as has been pleaded and prayed before the
Court. Be that as it may when the matter came up before the
appellate court, the appellate court passed an interlocutory
order of injunction directing stay of the operation of the
order. It is only thereafter however, as the factual
backdrop argued before this Court that the Food Corporation
of India thought it fit to institute a suit for recovery of
loss damage and expenses suffered and incurred by the
Appellant herein in paying the demurrage, wharfage and
expenses for forfeiture of wagon on account of the
negligence, lapse and unworkmanlike performance of the
Respondent herein in performing their duties and obligations
under the contract. In paragraph 11 of the plaint, the
Plaintiff prayed before the Court the following:
“(a) directing the defendants jointly and severally to
pay the plaintiff the sum of Rs.1,89,775.00 (Rupees One lakh
eighty nine thousand seven hundred and seventy five only)
together with interest at 18 per cent per annum on the said
sum from the date of plaint till date of realisation;
(b) directing the defendants to pay the costs of the
suit; and (c) pass such further or other relief as this
Hon’ble Court may deem fit and proper and render justice.
Significantly enough in paragraph 8 of the Plaint, the
appellant Food Corporation of India being the Plaintiff
therein stated as below:
“8. The Senior Regional Manager, Food Corporation of
India, Tamil Nadu Region, as the Head of the Offices of the
Corporation in the State of Tamil Nadu and as party to the
tender contract is entitled to and competent to file the
suit for the recovery of the sum due to the Corporation, as
set out in this Plaint. The District Manager, Madras
Distrcit of the Food Corporation of India is also a
Principal Officer of the Corporation and has been not only
closely associated with the contract and the work covered
thereon but also is the authority who has been effecting
payments, supervising and controlling the actual execution
of the work by the defendant contractor. The District
Manager and his men have been duly authorised for the said
purpose and has been authorised to institute the proceedings
and sign and execute the pleadings and the Vakalath for and
on behalf of the Senior Regional Manager, Food Corporation
of India. This is the position under the provisions of
Clause III of the Contract also.
But what about the rights preserved under clause 12,
we searched in vain, in that regard: The plaint is
delightfully silent on that score excepting the averment as
contained in paragraph 8 as noticed above. The Food
Corporation therefore, as a matter of fact desired an
adjudication of their claim to the extent of Rs.1,89,775/-
together with interest at the rate of 18 per cent per annum
from the Civil Court rather than relying on to the
adjudicatory process available in the contract itself
through their own Senior Regional Manager. The agreement as
noticed above expressly provide that the adjudication shall
be effected by the Senior Regional Manager and by no other
authority and the decision, it has been recorded in the
agreement, of the Senior Regional Manager, would be final
and binding on the parties. There is therefore, a positive
act on the part of the Food Corporation of India not to put
any reliance on to that particular clause of the agreement.
There is, as a matter of fact, thus on the state of facts,
as above, appears to be a positive relinquishment or
abandonment of a right so far as the adjudication of the
excepted matters are concerned by the Appellant Corporation
since the Corporation itself wanted to have it adjudicated
by a Civil Court. Learned Advocate appearing in support of
these appeals very strongly contended that as a matter of
fact, the Corporation has had no other alternative but to
initiate a civil suit by reason of the order of injunction
and in any event it has been contended that initiation of a
civil suit in the Civil Court does not and cannot be
identified to be acceptance of the Arbitration Agreement in
the matter – whether it does or it does not amount to
acceptation of Arbitration or not, we are not expressing any
opinion in that regard but the fact remains that in fact,
there was an abandonment of a right of adjudication by one
of the Corporation’s officer so far as the wharfage claim is
concerned and it is on this perspective that the Appellate
Bench of the High Court was pleased to direct that all the
issues in dispute in suit No.C.S. 304 of 1982 shall be
referred to L.R.Kohli, Arbitrator. The High Court as a
matter of fact came to a conclusion that the dispute in
Civil Suit No.368 of 1986 has intrinsic connection with the
fourth claim of the Respondent herein in Suit No.304 of
1982. The Appellate Bench observed:
“Since three of the four times of the disputes between
the parties in C.S.No.304 of 1982 have been referred to
arbitration, it is indeed improper to exclude one item in
respect of damage connected with the other matter which is
before the Arbitrator for Court’s adjudication. There can
be in a situation like this conflict in the pronouncements
all connected facts and the Arbitrator may take one view and
the court another depending upon evidence brought before the
court and the Arbitrator respectively by the parties. There
can be no finality to the adjudication in this behalf until
all proceedings in the Court independent of the proceedings
under the Arbitration act are concluded. In such a
situation just and proper order, in our opinion, is that the
dispute in C.S.No.368 of 1986 which is nothing but a subject
connected with CS No.304 of 1986 shall be included in the
reference to the Arbitrator and is accordingly referred to
the same Arbitrator before whom the reference is pending
adjudication.”
The facts of the matter in issue is thus singularly
singular since the Corporation being a party dominant feels
it expedient to institute a civil suit without taking
recourse to the provisions of the agreement for adjudication
of its claims. The other party namely the contractor has
already filed a suit in terms of Section 20 and the suit has
been disposed of by an order of reference by the Court in
terms of provisions of Section 20 in so far as three
principal disputes are concerned. The other claim
concerning wharfage stands negated by the learned Trial
Judge and in our view very rightly by reason of clause 12 of
the agreement – here comes thereafter a situation which is
rather significant and as noted above singularly singular:
the Food Corporation itself gives a go by to its right of
adjudication through the Senior Regional Manager as regards
the wharfage claim and initiates proceeding in the Civil
Court. It is this initiation which has been objected to by
the contractor on the plea that since the civil courts’
adjudicatory process has been taken recourse to by the
dominant litus, the court ought to direct to sub-serve the
ends of justice in a manner so that the issue covering the
Corporation’s suit be also referred to arbitration since
that has direct nexus with the other three issues as already
been directed to be referred to arbitration. The learned
advocate for the contractor strongly contended that in the
event the same is not ordered, as has been directed by the
High Court then and in that event two sets of evidence would
be required covering the identical field and as such the
Appellate Bench thought it fit to refer the disputes in
Corporation’s suit as well to arbitration so to minimise
expenses and to observe and follow the requirement of
justice in the matter of expeditious disposal of the entire
matter in dispute between the parties
In the normal circumstances, course of events as they
are, this court would not have dealt with the matters as is
being presently dealt with but as has been pointed out by
the High Court itself that the matters have been dealt with
upon consideration of the cause of justice and to sub-serve
the need of justice, we also do deem it fit and proper that
by reason of the factual situation in the matter, the High
Court was not left with any option but to direct such a
course of action more so by reason of an express
`abandonment of right’ as noticed above. In the normal
course of events if this particular clause 12 was not
available in the contract between the parties the disputes
in its entirety by reason of the scope and purview of the
Arbitration Clause, could have been referred to arbitration
and there would not have been any necessity for delving into
a matter in the manner as we have, herein before, but it is
by reason of the factum of incorporation of clause 12 and
the subsequent abandonment thereof by reason of a decision
to have the claim covered under clause 12 to be adjudicated
by a forum different from that of the Senior Regional
Manager, we also have no option left but to record our
concurrence with the finding of the High Court that the
fourth dispute being the subject matter of a civil suit
initiated by the Food Corporation of India be also referred
to arbitration. Be it noted that this order is passed in
the peculiar facts and circumstances of the facts in issue
and the issue as regards the excepted matters have not been
delved into in detail excepting however as above.
In that view of the matter, we do deem it fit to
record our concurrence with the findings of the High Court
more so in the peculiar facts and circumstances centering
round these Appeals. The appeals therefore, fail and are
dismissed. No order as to costs.