JUDGMENT
D.K. Jain, J.
(1) This is respondent’s (State of Madhya Pradesh) application under Section 41 of the Arbitration Act, 1940 read with Section 151 Civil Procedure Code for recalling order of reference, made on 19 May 1993 in Suit No. 968/93 filed under Section 20 of the Arbitration Act, 1940, whereby two arbitrators were appointed for adjudication of claims/disputes raised by the petitioner Builder/Contractor. The material facts giving rise to the filing of the application may be summarised below :-
(2) For construction of Vidhan Sabha Bhawan at Bhopal, M/s.Puri Construction Pvt. Ltd. (hereinafter referred to as the Contractor), entered into a building contract with the State of Madhya Pradesh (for short the State) on 11 July, 1984. The contract Clause 29 stipulated differences/disputes arising from or in connection therewith, being decided by arbitration and the decision so given to be final, conclusive and binding on the parties. Prior to the execution of the contract, the State had passed an Act viz., The Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (No. 29 of 1983) (hereinafter referred to as the Act), which received the ascent of the President of India on 7 October 1983 and was enforced w.e.f. 1 March 1985 (After the present contract). Section 3 of the Act provides for constitution of a Tribunal for resolving the disputes or differences pertaining to works contract or arising out of or connected with execution, discharge or satisfaction of any such works contract. The Tribunal was constituted and notified to operate with effect from 1 March 1985. The term “Works contract” is defined in Section 2(i) of the Act, inter alia, to include a building contract with the State, like the one between the parties herein.
(3) It appears that during the execution of the contract, some disputes arose between the parties. The State stopped payment and rescinded the contract. Acting under Clause 29 of the Contract, the contractor filed suit (No. 962 A/86) under Section 20 of the Arbitration Act, 1940 in the Delhi High Court for filing the arbitration agreement and reference of disputes enumerated in the petition for being referred to the arbitrator. The defendant State resisted the suit, inter alia, on the pleas : i) lack of territorial jurisdiction of Delhi High Court to entertain the petition and ii) the suit being barred under Section 20 of the Act on which issues were framed, arguments were heard but no orders could be passed as, meanwhile, a compromise application was filed under Order 23 Rule 3 and Section 151 Civil Procedure Code for appointment of arbitrator to adjudicate the disputes/claims raised by the contractor and for settlement of other matters. The compromise was recorded in accordance therewith; the revision of the contract by the State was withdrawn by it; the time for execution of the work was extended; additional mobilisation advance was made; the contract dated 11 July 1984 was maintained intact and the claims raised by the contractor against the State were referred to the arbitration of Sh.G.P. Srivastava, Chief Engineer. While doing so the Court (S.N.Sapra, J) recorded his satisfaction the “parties had settled their disputes out of Court and the same were not contrary to law”. Sh.Srivastava, the arbitrator, gave his award on 21 June 1989, which, on being filed was made rule of the Court on 28 September 1989. On further disputes, occurring from time to time, Suits No. 3729/91, 4636/92 and finally 968/92 were filed under Sections 5,8,11,12 and 20 of the Arbitration Act, 1940 for reference of disputes in each for arbitration. The last suit was again resisted on the same pleas of lack of territorial jurisdiction and the bar of Section 20 of the Act, as in the first Suit No. 962 A/86. The objections were not pressed and on agreement between the parties, arrived at on instructions of the State, based on due consideration of the whole matter at its highest level and conscious decision taken, this Court referred the disputes to arbitration of two retired judges, one of this Court and the other of Madhya Pradesh High Court, whose names were suggested by the parties. From the details of proceedings taken before the arbitrators, it appears that the matter proceeded well ahead before them. After several hearings (thirty two in number) by the said arbitrators, the State filed I.A. No. 7186/94, under Section 11(2) of the Arbitration Act, 1940, for removal of the arbitrators on the ground of misconduct. When the application came up for hearing on 7 September, 1994, the following order was made :-. “Learned counsel for the petitioner has invited the attention of the Court to para (iv) of First Schedule to the Arbitration Act, 1940 and submitted that in case the respondents are prepared to withdraw the allegations made in the application against the Arbitrators, as also the application itself, then the petitioner may not press his application Ia 7915/94 (filed for extension of time for the arbitrators to make award) because, in his submission, in that eventuality by virtue of clause (iv) of the First Schedule the Umpire shall enter on the reference in lieu of the arbitrators. The respondents counsel wants time to seek instructions from the respondent and then make a statement. This Court would expect the respondents’ counsel to refer the matter to all the respondents and if necessary to have the instructions from the Cabinet and then make the statement of affidavit of the Chief Secretary. From the perusal of the proceedings dated 19.5.93, I find an objection, to the territorial jurisdiction of this Court having been raised on behalf of the respondents and then given up. I would also like the counsel for the respondents to have positive instructions from the respondents or this point and to make a statement on affidavit as to the circumstances in which the objection to the territorial jurisdiction of this Court was raised and then given up. The affidavit would also make a clear statement as to the authority, under whose instructions, the objection was raised and then given up. The respondents counsel if he may so choose, seek instructions from the Cabinet through the Chief Secretary. The learned counsel for the petitioner has also invited attention of the Court to the affidavit dated 8.8.94 by Mr.A.K.Trivedi filed in support of Ia 7186/94. The counsel for the respondent may examine the validity of the affidavit and file a fresh affidavit, if necessary and if so advised. Let the same be done within three weeks.”
(4) In response thereto, Mr.A.K. Trivedi, Super-intending Engineer, Pwd, Bhopal filed an additional affidavit on 5 October 1994, to the effect that the objection regarding the jurisdiction of this Court was not pressed in the fervent hope that the Contractor would, as promised, complete the remaining construction work within 18 months as against double the period a new contractor would take, withdraw all pending cases and that all disputes arising out of the contract would be decided through the arbitration of the Secretary, Pwd, Government of Madhya Pradesh, Bhopal. It is sought to be explained that if the offer of the contractor was not accepted, the remaining work could not be started as he had raised disputes with regard to the measurements also, for which a local Commissioner had been appointed. It is also stated that the decision not to press the plea of jurisdiction was taken after due deliberations with the Chief Minister, who was keen to have the work started within a month, and the Law Ministry of the State, with the hope and belief that the project would be completed soon. It is further stated that keeping in view the conduct of the Arbitrators, an independent application for recall, review and reconsideration of the order dated 19 May 1993, inter alia, on the ground of misconduct was being filed.
(5) According, the present application, being I.A. No. 10669/94, has been filed by the State for recalling the order of reference dated 19 May 1993 on the plea that though made with the consent of parties, the order was without jurisdiction, illegal, and barred by Section 20 of the Act.
(6) The contractor, has vehemently opposed the application on diverse grounds that : i) the application is not maintainable under Section 41 of the Arbitration Act, 1940; ii) this Court did have territorial jurisdiction and had inherent jurisdiction to make the impugned order to refer disputes/claims to the arbitration as the initial contract was made/executed in Delhi on 14 May 1984; the applicant State had made a counter offer, imposing new conditions on 11 May 1984, which also was accepted in Delhi on 14 May 1984 and; the contract was accepted in Delhi and the State Government, while agreeing to the reference in Suit No. 962 A/86, as a part of the compromise arrived at after due deliberations at the highest level also agreed in Delhi to withdraw the revision of the contract etc., iii) the State having earlier objected to the jurisdiction of this Court on the said two counts took a conscious decision regarding jurisdiction of the Delhi High Court, to refer the disputes to the arbitrators, the objection to it was waived by it and iv) in any case the decision in the first case (Suit No. 926 A/86) operates as res judicata on the point of jurisdiction now raised and thus, the reference order dated 19 May 1993 is perfectly legal and valid and in fact the State has been playing hide and seek, taking opportunistic stands, first to oppose the reference by this Court on contractor’s motion but later with a view to have the work continued and completed in spite of revision of the contract by it thought it expedient and convenient to agree to the reference of disputes being made to independent arbitrators and still later to get rid of the arbitrators, moved for their removal, inter alia, on the same pleas of want of territorial jurisdiction of this Court, which, it should not be allowed to do.
(7) I have heard Sh.Shanti Bhushan and Dr.Rajiv Dhawan, Senior Advocates on behalf of the contractor and Sh.P.P. Rao and Sh.A.K. Chitley, Senior Advocates on behalf of the State at considerable length.
(8) On objections regarding maintainability of the application under Section 41 of the Arbitration Act read with Section 151 Civil Procedure Code being raised, in the objections, it was stated in the replication that the present application, No. 10669/94, be treated as being under Section 33 of the Arbitration Act. Thus, objection (i) does not survive.
(9) It is abundantly clear that the State has been shifting its stands at its will. The conduct of the State in taking contradictory stands, at different times, as and when it suited it convenience, reflected in the contractor’s two matters, namely, Suit No. 962 A/86 and 968 A/93, in the first instance resisting them on the same basic pleas of: i) want of territorial jurisdiction of Delhi High Court and ii) setting up a bar of Section 20 of the Act in both the matters and later waiving the said objections and agreeing to the reference being made to independent arbitrators cannot be said to be honest and bonafide but was opportunistic. Such a conduct hardly behaves the State.
(10) The crux of the matter, however, is: 1) whether this Court did have the territorial jurisdiction to entertain and allow the relief sought for in Suit No. 968/93 and 2) whether the jurisdiction of this Court to entertain the present suit was barred by Section 20 of the Act? If so, does the State’s consenting to reference by waiving the said objections raised, by it, operate as an estoppel against it or does the decision in the earlier Suit No. 962 A/86 operate as res judicata against the State’s submission for recalling the order dated 19 May 1993?
(11) It is common ground that for construction of Vidhan Sabha Complex at Bhopal, the State invited tenders, the contractor herein submitted the tend which was accepted and a formal agreement between the parties was executed on 11 July 1984 in Bhopal. Anything prior to it merged in the concluded contract dated 11 July 1984. There is nothing to show that any initial contract was made in Delhi on 14 May 1984 or that there was any counter offer, if so, the same was accepted by the contractor in Delhi. The contentions raised on these pleas that the Delhi Courts had jurisdiction have no force. In any case the operating contract dated 11 July 1984 has been executed in Bhopal and any thing or correspondence prior to it was in the nature of preliminary negotiations that culminated in the said final contract, which was executed at Bhopal. Recalling the revision of the said contract or granting some concessions etc., to the contractor by the State in compromise in Suit No. 962 A/86 does not amount to novation of the said contract, which is evident from the penultimate Clause 5 of the letter issued by the State on 26 December 1988 (placed on record by the contractor with its affidavit dated 14 May 1997), reproduced below :- “All the conditions detailed in the joint petition will be complied with by the contractor and Supdt. Engineer, Capital project administration and the conditions of original Contract shall remain unchanged and conditions prescribed later on shall remain as supplementary conditions.” It is thus clear that the contract dated 11 July 1984 was, in the circumstances, specifically kept alive, intact and operative and was not novated.
(12) The contract having been entered and concluded at Bhopal, strictly speaking, this Court had no territorial jurisdiction. However, the reference by order of 19 May 1993 cannot be said to be bad for want of territorial jurisdiction as the objection as to it stood waived on the State first taking this objection in its reply to contractor’s petition under Section 20 of the Arbitration Act but subsequently agreeing to the reference being made by this Court to the two arbitrators named by them in their statements made in Court. The lack of territorial jurisdiction is not inherent lack of jurisdiction and can be waived. Once it is waived, it cannot be raked up subsequently. Section 21 of the Code of Civil Procedure is a statutory recognition that a defect as to place of suing under Sections 15 to 20 Civil Procedure Code may be waived (See Seth Hira Lal Patni Vs. Kali Nath , Bahrein Petroleum Co.Ltd. Vs. P.J. Pappu & Anr. , Church of South India Trust Association Vs. Telugu Church Council ).
(13) The next question is whether there was lack of inherent jurisdiction of this Court to grant relief in Suit No. 968/92 due to the bar in Section 20 of the Act and, if so, does the State’s consenting to reference made in Order 19 May 1993, as is alleged by the contractor, operate as an estoppel against its submission for recalling the said order or acts as res judicata in view of earlier reference made in similar circumstance in Suit No. 962-A/86.
(14) Taking the above in reverse order, reference, in Suit No.962-A/86 would not operate as res judicata as the State’s objection of lack of inherent jurisdiction of Delhi High Court to entertain the said suit or make the reference to arbitrator was not heard or finally decided. The reference was made on an application under Order 23 Rule 3 Civil Procedure Code and with the consent of the parties. The decision in that suit would not operate as res judicata against the State or estop it from raising the same objection.
(15) In Isabella Johnson(Smt.) Vs. M.A. Susai (Dead) by Lrs. , the Supreme Court, while disagreeing with the view expressed in an earlier judgment in Avtar Singh Vs. Jagjit Singh and following its still earlier decision in Mathura Prasad Bajoo Jaiswal & Ors vs. Dossibai N.B. Jeejeebhoy , held that a Court which has no jurisdiction in law cannot be conferred with the jurisdiction by applying principles of res judicata and there could be no estoppel on a pure question of law such as one on jurisdiction of Court. In any case the doctrine of res judicata cannot be exalted to the status of legislative direction between the parties so as to determine the question relating to the interpretation of enactment effecting the jurisdiction of a Court finally between them. (See : Mathura Prasad Bajoo Jaiswal & Ors vs. Dossibai N.B. Jeejeebhoy ).
(16) The decision of the Supreme Court in Hindustan Construction Company Ltd. vs. Governor of Orissa and Others , heavily relied upon by learned counsel for the contractor, holding, in the facts and circumstances of that case, that the Government could not be permitted to challenge the jurisdiction of the special Tribunal after it had submitted to its jurisdiction merely because the award went against it, is distinguishable on facts. In that case, there was no inherent lack of jurisdiction. The bar in Section 20 of the Act being statutory, the State is not estopped in law from raising the issue by merely agreeing to the reference being made, howsoever dishonest its conduct may seem to be.
(17) The question which remains to be considered is whether the bar of Section 20 of the Act is absolute and mandatory resulting in lack of inherent jurisdiction of this Court to make the order dated 19 May 1993. 18. A perusal of the Act would show that it is a complete code, enacted to provide for the establishment of a “Tribunal” in the State of Madhya Pradesh, to arbitrate in disputes to which the State Government or a Public Undertaking of the State is a party and for matters incidental thereto or connected therewith. It came into force on 1 March 1985. Clause (d) and (1) of the definition Section 2 of the Act, inter alia, define a “dispute” and “works contract” respectively. The term “dispute” is defined to mean claim of ascertained money valued at Rs. 50,000.00 or more, relating to any difference arising out of execution or non-execution of a Works Contract or part thereof. The term “works contract” is defined as an agreement in writing for the execution of any work relating to construction, repair or maintenance of any building or such other works of the State Government etc. Section 3 provides for constitution of the “Tribunal” and provides that the State Government shall by notification constitute an arbitration Tribunal for resolving of such disputes or differences pertaining to works contract or arising out of or connected with the execution, discharge or satisfaction of any such works contract. Section 7 stipulates that either party to a works contract shall, irrespective of the fact whether the agreement contains an arbitration clause or not, refer in writing the dispute to the Tribunal; which the Tribunal may, if it is a fit case, admit; Section 7A deals with reference petition and 7B lays down the Limitation period for admission of a reference by the Tribunal; Sections 8 to 15 deal with the procedure; Section 16 deals with awards and orders of the Tribunal and Section 17 makes such award final. Section 17A deals with inherent powers of the Tribunal and Section 17B provides for correction of clerical or arithmetical mistakes by it. Section 18 holds that award of the Tribunal will have the force of decree Section 20 bars the jurisdiction of the Civil Court regarding matters which are cognizable by the Tribunal. The material part of Section 20, relevant to the case, reads as under : “20. Bar of jurisdiction of Civil Court-(1) As from the date of the constitution of the Tribunal and notwithstanding anything contained in Arbitration Act, 1940 (No. 10 of 1940) or any other law, for the time being in force, or in any agreement or usage to the contrary, no Civil Court shall have jurisdiction to entertain or decide any dispute of which cognizance can be taken by the Tribunal under this Act. ….. …… ….. ….. …… ….. The Tribunal having been constituted, Section 20 imposes an absolute and mandatory bar on Civil Courts competence to entertain or decide the disputes of which the cognizance can be taken by the Tribunal under the Act, notwithstanding anything contained in the Arbitration Act, 1940, or other law or agreement or contract to the contrary. The agreement dated 11 July 1984 was entered into between the parties for construction of Vidhan Sabha complex at Bhopal and thus undoubtedly and admittedly relates to construction of works of the State Government. It squarely falls within the ambit of the term “Works Contract” defined in Section 2(i) of the Act. The disputes or claims arising under the contract, notwithstanding provisions of the Arbitration Act, 1940, or any other law, are referable necessarily to the duly constituted Tribunal. In my view use of word “shall” in Section 7, in the context, excludes the jurisdiction of any other for a to entertain or deal with the matter. In view of the mandatory bar in Section 20 of the Act, in my considered opinion, formed after hearing the parties at length, this Court was not competent to entertain the Suit (No. 968/93) under Section 20 of the Arbitration Act, 1940, nor could refer the disputes between the parties to any arbitrator. As noted above, total lack of inherent jurisdiction cannot be cured by consent of parties or waiver. Support is lent to this view by the decision of the Supreme Court in Seth Hiralal Patni Vs. Kali Ram (Supra), wherein it was held that objection to its territorial jurisdiction is one which does not go to the competence of the Court and can, therefore, be waived but on the other hand competence of a Court to try a case goes to the very root of the jurisdiction and where it is lacking it is a case of inherent lack of jurisdiction, which cannot be cured by consent or waiver. A similar view is expressed in Sushil Kumar Mehta Vs. Gobind Ram Bohra ; Balai Chandra Hazra Vs. Shewdhari Jadav and A.R. Antulay Vs. R.S. Nayak & Anr. .
(18) In this view of the matter, I am constrained to hold that the reference to two arbitrators vide order dated 19 May 1993 being coram non judice, would, as held in East India Corporation Ltd. Vs. Shree Meenakshi Mills Ltd. , be a nullity.
(19) It was, however, vehemently argued by Dr.Rajiv Dhawan, learned counsel for the contractor that the Act being only a State enactment of Madhya Pradesh, would be extra territorial legislation so far as the Courts in Delhi are concerned and it would not bind them. Reliance for it was placed on State Bank of India Vs. Jaipur Udyog & Ors. .
(20) There is no gain saying the fact that a State legislature has no legislative competence to make laws having extra territorial operation but so long as a law made by a State legislature is applicable to the facts of a case, as in the present case, the contention that since the suit was filed in Delhi, the Act would not apply, as doing so, would make its operation extra-territorial, is fallacious. Filling of the suit in a Court having no territorial jurisdiction, would not make the application of the Act extra territorial, (See Vrandavandas Kikabhai Shroff & Anr Vs. Shri Khan Memlatedar and Agricultural Land Tribunal, District Surat and Another 1974 (5) Scc 460), if so, any State enactment could be rendered nugatory simply by taking a matter to a Court of another State, but this would be fudging the law.
(21) The case of Jaipur Udyog (Supra) relied on by learned counsel for the contractor is clearly distinguishable on facts. That case related to protection given by a Rajasthan State Act, being invoked in an execution proceedings in Delhi, filed by a person not resident of that State but of Delhi and it was held that generally speaking the legislation of the State (Rajasthan) cannot affect property and person beyond the territory of the enacting State. It was explained that jurisdiction whether judicial, legislative or executive is based on the theory of power, which itself is based on persons or property, within its territorial limits. As held above, strictly speaking, Delhi Courts had no territorial jurisdiction in the matter of a contract entered into between the State of Madhya Pradesh and the Contractor at Bhopal, where it was to be performed. Since Delhi Courts had no territorial jurisdiction, proceedings here being coram non judice, it is not a case where the bar of Section 20 of the Act could be termed as extra territorial in application.
(22) For the view, I have taken above with regard to the effect of correspondence exchanged between the contractor and the State prior to 11 July 1984 and the subsequent letter issued by the State on 26 December 1988, the question of applicability or otherwise of Article 299 of the Constitution of India, raised by Sh.P.P. Rao, learned Senior Counsel for the State, does not arise.
(23) In view of the foregoing discussion, I am of the considered opinion that the order dated 19 May 1993, referring the disputes raised in Suit No. 968/93 to the two arbitrators needs being recalled. I order accordingly.
(24) However, as it has been observed above, the State Government has been adopting an attitude of convenience to suit its requirements and in the process not only the adjudication of disputes between the parties have been delayed unnecessarily, the contractor has been made to suffer monetary loss on account of payment of his share of fees to the two arbitrators etc., it would be just and fair that the State at least bears the entire burden of the fee paid to the two arbitrators. Accordingly, I direct the State to reimburse the Contractor with the amount of fees paid by him to the two arbitrators. In the result, the application is allowed in the above terms.
(25) Ia Nos. 7186/94, 7915/94, 7877/94, 7878/94, 8818/94, 8819/94, 9068/94 and 8485/95 In view of the decision in Ia 10669/94, these applications are rendered infructuous and are accordingly dismissed. Suit No. 968/93
(26) Since order dated 19 May 1993, disposing of the suit has been recalled, the suit under Section 20 of the Arbitration Act, 1940 stands revived. As discussed and held in Ia No. 10669/94, the suit for reference to arbitration cannot be entertained, it is not maintainable and is dismissed as such.