{"id":32789,"date":"2003-08-21T00:00:00","date_gmt":"2003-08-20T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/bihar-state-mineral-dev-corpn-vs-encon-builders-i-pvt-ltd-on-21-august-2003"},"modified":"2018-06-07T21:58:14","modified_gmt":"2018-06-07T16:28:14","slug":"bihar-state-mineral-dev-corpn-vs-encon-builders-i-pvt-ltd-on-21-august-2003","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/bihar-state-mineral-dev-corpn-vs-encon-builders-i-pvt-ltd-on-21-august-2003","title":{"rendered":"Bihar State Mineral Dev. Corpn. & … vs Encon Builders (I) Pvt. Ltd on 21 August, 2003"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Bihar State Mineral Dev. Corpn. & … vs Encon Builders (I) Pvt. Ltd on 21 August, 2003<\/div>\n
Author: S.B. Sinha<\/div>\n
Bench: Cji, S.B. Sinha.<\/div>\n
           CASE NO.:\nAppeal (civil)  2025 of 1997\n\nPETITIONER:\nBihar State Mineral Dev. Corpn. & Anr.\t\t\n\n\nRESPONDENT:\nVs.\n\nEncon Builders (I) Pvt. Ltd.\t\t\t\t\n\n\nDATE OF JUDGMENT: 21\/08\/2003\n\nBENCH:\nCJI & S.B. Sinha.\n\n\nJUDGMENT:\n<\/pre>\n
J U D G M E N T  <\/p>\n
S.B. SINHA, J :\n<\/p>\n
\tThe appellants before the High Court are in appeal before us <\/p>\n
against the judgment and order dated 10.9.1996 passed by the High Court <\/p>\n
of Patna, Ranchi Bench, Ranchi, in Misc. Appeal No.176 of 1995 (R) <\/p>\n
dismissing an appeal preferred by the appellants herein purported to be <\/p>\n
in terms of Section 39(1)(i) of the Arbitration Act, 1940 (‘the Act’ <\/p>\n
for short), against an order dated 11.9.1995 passed by the Subordinate <\/p>\n
Judge-VI, Ranchi, allowing Arbitration (Misc.) Case No.39 of 1995 filed <\/p>\n
by the respondent herein.\n<\/p>\n
\tThe basic fact of the matter is not in dispute.  Appellant No.1 <\/p>\n
herein invited tender for removal of soil,  sandstone, shale, <\/p>\n
conglomerates\/coal etc. and stacking it up to a distance of 1. k.m.  <\/p>\n
Pursuant to or in furtherance of the notice inviting tender issued by <\/p>\n
Appellant No.1, the respondent herein submitted his tender which was <\/p>\n
accepted.  According to the appellants, the respondent failed and <\/p>\n
neglected to produce 10,000 M.T. of coal per month and stack the same <\/p>\n
in the dump yard which was the subject-matter of the agreement dated <\/p>\n
17.3.1992, as a result whereof the balance job was got done by another <\/p>\n
agency.\n<\/p>\n
\tAccording to the appellants by reason of the aforementioned acts <\/p>\n
of omission and commission on the part of the respondent, it suffered a <\/p>\n
huge loss.  The agreement of the respondent, however, was not expressly <\/p>\n
cancelled by Appellant No.2 herein.  The respondent herein allegedly <\/p>\n
invoked the purported arbitration agreement contained in the said <\/p>\n
agreement dated 17.3.1992.\n<\/p>\n
 Clauses 37, 59 and 60 which, according to the appellants, are <\/p>\n
relevant for the purpose of this case read thus :<\/p>\n
“37. It will be at the absolute discretion of the <\/p>\n
Managing Director of the Corporation to terminate the <\/p>\n
agreement in the following events :\n<\/p>\n
a.\tIf the excavation work is found to be <\/p>\n
unsatisfactory.\n<\/p>\n
b.\tIf the agency be involved in any action <\/p>\n
involving moral turpitude.\n<\/p>\n
c.\tIf the agency be involved in any action causing <\/p>\n
breach of peace indiscipline at the Mines or <\/p>\n
stops the work before the expiry of the <\/p>\n
agreement period.\n<\/p>\n
d.\tIf the agency fails to comply with any of the <\/p>\n
terms and conditions contained herein or that <\/p>\n
would be mutually agreed upon for the execution <\/p>\n
of the work.\n<\/p>\n
e.\tIf the agency fails to pay full wages to <\/p>\n
workmen as per prevailing act\/awards from the <\/p>\n
management premises and in presence of <\/p>\n
Corporation authorised representative.<\/p>\n
Before terminating the agreement, one month’s <\/p>\n
notice under registered post on the address <\/p>\n
given in this agreement will be given to the <\/p>\n
agency without prejudice to the right and claim <\/p>\n
under the agreement and the corporation; will <\/p>\n
have the right to adjust such amount towards <\/p>\n
the financial loss that corporation might incur <\/p>\n
due to such acts or commissions of the agency <\/p>\n
from bills or security deposit or earnest <\/p>\n
deposit or through other legal proceedings.”<\/p>\n
59. If during course of inspection or on <\/p>\n
reports of officers of the Corporation the <\/p>\n
Managing Director finds that the working <\/p>\n
operation are not carried out in a workman like <\/p>\n
manner or payments to workmen are not made <\/p>\n
timely and according to provisos of the rules <\/p>\n
and regulations he may impose fine on the <\/p>\n
agency up to a maximum of rupees five thousand <\/p>\n
at a time depending on the gravity of the <\/p>\n
violations.\n<\/p>\n<\/p>\n
60.\tIn case of any dispute arising out of the <\/p>\n
agreement, the matter shall be referred to the <\/p>\n
Managing Director, Bihar State Mineral <\/p>\n
Development Corporation Limited, Ranchi, whose <\/p>\n
decision shall be final and binding.”\n<\/p>\n<\/p>\n
\nThe respondent also allegedly made claim against the appellants.  <\/p>\n
The disputes were said to have been referred to Appellant No.2 herein <\/p>\n
purported to be in terms of clause 60 of the said agreement. But who <\/p>\n
referred the said dispute and how it was done is not borne out from the <\/p>\n
records.\n<\/p>\n
Allegedly, 22.6.1995 was the date fixed for hearing of the matter <\/p>\n
before Appellant No.2 which was subsequently adjourned to 6.7.1995.  <\/p>\n
The respondent herein questioned the validity of clause 60 of the <\/p>\n
agreement by a letter dated 15.7.1995.\n<\/p>\n
It thereafter filed an application under Section 33 of the Act in <\/p>\n
the Court of the Subordinate Judge-VI, Ranchi.  The said application <\/p>\n
was allowed by the learned Subordinate Judge, by reason of an order <\/p>\n
dated 11.9.1995, whereby and whereunder, Appellant No.2 was restrained <\/p>\n
from acting as an Arbitrator. The learned Judge further held that <\/p>\n
clause 60 of the agreement cannot be construed to be an arbitration <\/p>\n
agreement.\n<\/p>\n
Aggrieved thereby and dissatisfied therewith, the appellants <\/p>\n
preferred an appeal before the High Court.  By reason of the impugned <\/p>\n
judgment, the said appeal was dismissed.  The appellants are in appeal <\/p>\n
before us against the said judgment.\n<\/p>\n
Mr. Dinesh Dwivedi, learned senior counsel appearing on behalf of <\/p>\n
the appellants, would submit that the courts below committed manifest <\/p>\n
illegality in passing the impugned judgment insofar as they held that <\/p>\n
clause 60 of the agreement does not constitute an arbitration agreement <\/p>\n
as the same satisfies the definition thereof as contained in Section  <\/p>\n
2(a) of the Act, insofar as it contains the following essential <\/p>\n
elements of an arbitration agreement, namely, (a) the agreement is in <\/p>\n
writing; (b) the agreement is to submit a present or a future <\/p>\n
difference; (c) dispute is to be referred to a named arbitrator; and <\/p>\n
(d) the decision of the arbitrator is final.<\/p>\n
The learned counsel would contend that as the essential elements <\/p>\n
of arbitration are satisfied from clause 60 of the agreement, it was <\/p>\n
not necessary to specifically use the terminology ‘arbitration’ <\/p>\n
therefor and no particular form is required therefor.  Reliance in this <\/p>\n
connection has been placed on Smt. Rukmanibai Gupta vs. The Collector, <\/p>\n
Jabalpur and others<\/a> [AIR 1981 SC 479].\n<\/p>\n
The learned counsel would further submit that the High Court <\/p>\n
further erred insofar as it failed to take into consideration the fact <\/p>\n
that an employee of the Principal can be named as an arbitrator <\/p>\n
wherefor bias on his part cannot be presumed.  Strong reliance in this <\/p>\n
behalf has been placed on The Secretary to the Government, Transport <\/p>\n
Deptt., Madras vs. Munuswamy Mudaliar and others<\/a> [AIR 1988 SC 2232], <\/p>\n
State of U.P. vs. Tipper Chand<\/a> [(1980) 2 SCC 341], K.K. Modi vs. M.N. <\/p>\n
Modi & Ors.<\/a> [JT 1998 (1) SC 407], Michael Golodetz and Others vs. <\/p>\n
Serajuddin and Co.<\/a> [AIR 1963 SC 1044] and State of Orissa and Others <\/p>\n
vs. Narain Prasad and Others<\/a> [(1996) 5 SCC 740].   <\/p>\n
The short question which arises for consideration in this appeal <\/p>\n
is as to whether the learned court below committed an illegality in <\/p>\n
refusing to refer the matter to arbitration.  <\/p>\n
The essential elements of an arbitration agreement are as follows <\/p>\n
:\n<\/p>\n
(1)\tThere must be a present or a future difference in <\/p>\n
connection with some contemplated affair.<\/p>\n
(2) There must be the intention of the parties to settle <\/p>\n
such difference by a private tribunal.\n<\/p>\n
(3) The parties must agree in writing to be bound by the <\/p>\n
decision of such tribunal.\n<\/p>\n
(4)\tThe parties must be ad idem.\n<\/p>\n
There is no dispute with regard to the proposition that for the <\/p>\n
purpose of construing an arbitration agreement, the term ‘arbitration’ <\/p>\n
is not required to be specifically mentioned therein.  The High Court, <\/p>\n
however, proceeded on the basis that having regard to the facts and <\/p>\n
circumstances of this case, the arbitration agreement could have been <\/p>\n
given effect to.  We may, therefore, proceed on the basis that Clause <\/p>\n
60 of the Contract constitutes an arbitration agreement.<\/p>\n
A finding has been arrived at by the High Court that the Second <\/p>\n
Appellant was the only competent authority to arrive at his <\/p>\n
satisfaction that the agreement was liable to be terminated.  By reason <\/p>\n
of the power conferred upon the Managing Director of Appellant No.1, he <\/p>\n
is also entitled to impose fine on the contractor depending upon the <\/p>\n
gravity of violation of the agreement.\n<\/p>\n
 The respondent would contend that although the agreement was not <\/p>\n
expressly  terminated, the work had illegally been re-allotted to <\/p>\n
another agency by the second appellant. The correctness or otherwise of <\/p>\n
the said decision on the part of the second appellant was in question.   <\/p>\n
The High Court, therefore, arrived at a finding that as for all intent <\/p>\n
and purport the agreement was terminated by Appellant No.2, he could <\/p>\n
not assume the role of an arbitrator.\n<\/p>\n
There cannot be any doubt whatsoever that an arbitration <\/p>\n
agreement must contain the broad consensus between the parties that the <\/p>\n
disputes and differences should be referred to a domestic tribunal.  <\/p>\n
The said domestic tribunal must be an impartial one.  It is a well-<\/p>\n
settled principle of law that a person cannot be a judge of his own <\/p>\n
cause.  It is further well-settled that justice should not only be done <\/p>\n
but manifestly seen to be done.\n<\/p>\n
Actual bias would lead to an automatic disqualification where the <\/p>\n
decision maker is shown to have an interest in the outcome of the case.  <\/p>\n
Actual bias denotes an arbitrator who allows a decision to be <\/p>\n
influenced by partiality or prejudice and thereby deprives the litigant <\/p>\n
of the fundamental right to a fair trial by an impartial tribunal.<\/p>\n
The case at hand not only satisfies the test of real bias but <\/p>\n
also satisfies the real danger as well as suspicion of bias.  \t[See <\/p>\n
Kumaon Mandal Vikas Nigam Ltd. vs. Girja Shankar Pant and Others<\/a> <\/p>\n
[(2001) 1 SCC 182].\n<\/p>\n
In Judicial Review of Administrative Action, by De Smith, Woolf <\/p>\n
and Jowell (Fifth Edition at page 527), the law is stated in the <\/p>\n
following terms :\n<\/p>\n
“The various tests of bias thus range along a <\/p>\n
spectrum.  At the one end a court will require that, <\/p>\n
before a decision is invalidated, bias must be shown <\/p>\n
to have been present.  At the other end of the <\/p>\n
spectrum, the court will strike at the decision where <\/p>\n
a reasonable person would have a reasonable suspicion <\/p>\n
from the circumstances of the case that bias might <\/p>\n
have infected the decision.  In between these <\/p>\n
extremes is the “probability of bias” (this being <\/p>\n
closer to the “actual bias” test), and the <\/p>\n
“possibility of bias” (this being closer to that of <\/p>\n
reasonable suspicion)”.\n<\/p>\n<\/p>\n
In “The Law and Practice of Commercial Arbitration in England by <\/p>\n
Sir Michael J. Mustill and Stewart C. Boyd, it is stated :<\/p>\n
“Since the general principles of law relating <\/p>\n
to bias apply in the same way to arbitrations as to <\/p>\n
other tribunals, and since instances which are <\/p>\n
sufficiently serious to bring about the intervention <\/p>\n
of the Court are very rare indeed, there is no need <\/p>\n
to deal with the subject in detail.”\n<\/p>\n
\tIn  ‘Russell on Arbitration’, 22nd Edition, the law is <\/p>\n
stated thus :\n<\/p>\n
“4-030 Actual and apparent bias. A distinction is <\/p>\n
made between actual bias and apparent bias.  Actual <\/p>\n
bias is rarely established, but clearly provides <\/p>\n
grounds for removal.  More often there is a suspicion <\/p>\n
of bias which has been variously described as <\/p>\n
apparent or unconscious or imputed bias.  In such <\/p>\n
majority of cases, it is often emphasized that the <\/p>\n
challenger does not go so far as to suggest the <\/p>\n
arbitrator is actually biased, rather that some form <\/p>\n
of objective apprehension of bias exists.<\/p>\n
4-032  Pecuniary interest. There is an automatic <\/p>\n
disqualification for an arbitrator who has a direct <\/p>\n
pecuniary interest in one of the parties or is <\/p>\n
otherwise so closely connected with the party that <\/p>\n
can truly be said to be a judge in his own cause.<\/p>\n
5-052  Impartial. Section 33(1) of the Arbitration <\/p>\n
Act 1996 states that the tribunal must act <\/p>\n
“impartially”.  An arbitrator must also appear <\/p>\n
impartial and if there are justifiable doubts as to <\/p>\n
his impartiality this will provide a ground for his <\/p>\n
removal by the court under section 24(1)(a) of the <\/p>\n
Arbitration Act 1996 or may mean that the award can <\/p>\n
be challenged.”\n<\/p>\n
\tMr. Dwivedi placed strong reliance in Munuswamy Mudaliar’s case <\/p>\n
(supra).  In that case an application under Section 5 of the Act was <\/p>\n
filed.  Furthermore, the fact of the said case is not applicable in the <\/p>\n
present case inasmuch as therein actual work by the contract did not <\/p>\n
start. In that situation, the risk and cost clause was invoked. The <\/p>\n
only contention raised therein was that as the said clause was invoked <\/p>\n
by the Chief Engineer; the Superintending Engineer being an inferior <\/p>\n
authority to him would not be in a position to dispense with the <\/p>\n
justice effectively.  It was, in that situation, held by this Court as <\/p>\n
under :\n<\/p>\n
“This is a case of removal of a named arbitrator <\/p>\n
under S.5 of the Act which gives jurisdiction to the <\/p>\n
Court to revoke the authority of the arbitrator.  <\/p>\n
When the parties entered into the contract, the <\/p>\n
parties knew the terms of the contract including <\/p>\n
arbitration clause.  The parties knew the scheme and <\/p>\n
the fact that the Chief Engineer is superior and the <\/p>\n
Superintending Engineer is subordinate to the Chief <\/p>\n
Engineer of the particular Circle.  In spite of that <\/p>\n
the parties agreed and entered into arbitration and <\/p>\n
indeed submitted to the jurisdiction of the <\/p>\n
Superintending Engineer at that time to begin with, <\/p>\n
who, however, could not complete the arbitration <\/p>\n
because he was transferred and succeeded by a <\/p>\n
successor.  In those circumstances on the facts <\/p>\n
stated no bias can reasonably be apprehended and made <\/p>\n
a ground for removal of a named arbitrator.  In our <\/p>\n
opinion this cannot be, at all, a good or valid legal <\/p>\n
ground.  Unless there is allegation against the named <\/p>\n
arbitrator either against his honesty or capacity or <\/p>\n
mala fide or interest in the subject-matter or <\/p>\n
reasonable apprehension of the bias, a named and <\/p>\n
agreed arbitrator cannot and should not be removed in <\/p>\n
exercise of a discretion vested in the Court under <\/p>\n
S.5 of the Act.”\n<\/p>\n
Such is not the position here.\n<\/p>\n
In Serajuddin’s case (supra), this court was concerned with an <\/p>\n
application under Section 34 of the Arbitration Act.  It was held : <\/p>\n
“…The Court insists, unless sufficient reason to <\/p>\n
the contrary is made out upon compelling the parties <\/p>\n
to abide by the entire bargain, for not to do so <\/p>\n
would be to allow a party to the contract to <\/p>\n
approbate and reprobate, and this consideration may <\/p>\n
be stronger in cases where there is an agreement to <\/p>\n
submit the dispute arising under the contract to a <\/p>\n
foreign arbitral tribunal…”\n<\/p>\n
It was further observed :\n<\/p>\n
“…The Court ordinarily requires the parties to <\/p>\n
resort for resolving disputes arising under a <\/p>\n
contract to the tribunal contemplated by them at the <\/p>\n
time of the contract.  That is not because the Court <\/p>\n
regards itself bound to abdicate its jurisdiction in <\/p>\n
respect of disputes within its cognizance : it merely <\/p>\n
seeks to promote the sanctity of contracts, and for <\/p>\n
that purpose stays the suit…”\n<\/p>\n
In the said case, the question of bias on the part of the <\/p>\n
arbitrator did not fall for consideration.  <\/p>\n
In Narain Prasad’s case (supra), this Court was not dealing with <\/p>\n
an arbitration matter but with the conduct of the parties in relation <\/p>\n
to enforcement of a contract in a liquor vend.  Therein the respondent <\/p>\n
filed a writ petition for coming out his contractual obligation and in <\/p>\n
the said fact situation obtaining therein this Court observed :<\/p>\n
“…A person who enters into certain contractual <\/p>\n
obligations with his eyes open and works the entire <\/p>\n
contract, cannot be allowed to turn round, according <\/p>\n
to this decision, and question the validity of those <\/p>\n
obligations or the validity of the Rules which <\/p>\n
constitute the terms of the contract.  The <\/p>\n
extraordinary jurisdiction of the High Court under <\/p>\n
Article 226, which is of a discretionary nature and <\/p>\n
is exercised only to advance the interests of <\/p>\n
justice, cannot certainly be employed in aid of such <\/p>\n
persons.  Neither justice nor equity is in their <\/p>\n
favour”.\n<\/p>\n
In K.K. Modi’s case (supra), clause 9 of a memorandum of <\/p>\n
agreement came up for consideration, which was in the following terms :<\/p>\n
\t“Implementation will be done in consultation with the <\/p>\n
financial institutions.  For all disputes, <\/p>\n
clarifications etc. in respect of implementation of <\/p>\n
this agreement, the same shall be referred to the <\/p>\n
Chairman, IFCI or his nominees whose decisions will <\/p>\n
be final and binding on both the groups.”\n<\/p>\n
It was held that the same did not constitute an arbitration <\/p>\n
clause.\n<\/p>\n
Yet again in Tipper Chand’s case (supra) whereupon reliance has <\/p>\n
been placed by Mr. Dwivedi, the following clause was not held to be <\/p>\n
an arbitration clause :\n<\/p>\n
“For any dispute between the contractor and the <\/p>\n
Department the decision of the Chief Engineer PWD <\/p>\n
Jammu and Kashmir, will be final and binding upon the <\/p>\n
contract.”\n<\/p>\n
As in the instant case, the test of bias on the part of Appellant <\/p>\n
No.2 is fully satisfied, the impugned order is unassailable. As bias on <\/p>\n
the part of the second Appellant goes to the root of his jurisdiction <\/p>\n
to act as an arbitrator, the entire action is a nullity.<\/p>\n
As the acts of bias on the part of the second appellant arose <\/p>\n
during execution of the agreement, the question as to whether the <\/p>\n
respondent herein entered into the agreement with his eyes wide open or <\/p>\n
not takes a back-seat.  An order which lacks inherent jurisdiction <\/p>\n
would be a nullity and, thus, the procedural law of waiver or estoppel <\/p>\n
would have no application in such a situation.<\/p>\n
It will bear repetition to state that the action of the second <\/p>\n
appellant itself was in question and, thus, indisputably he could not <\/p>\n
have adjudicated thereupon in terms of the principle that nobody can be <\/p>\n
a judge of his own cause.\n<\/p>\n
 Furthermore, as the learned Subordinate Judge, inter alia, held <\/p>\n
that clause 60 did not constitute an arbitration agreement, the same <\/p>\n
could not have been the subject-matter of an appeal under Section <\/p>\n
39(1)(i) of the Act inasmuch as thereby the arbitration agreement was <\/p>\n
not superseded.\n<\/p>\n
For the reasons aforementioned, there is no merit in this appeal <\/p>\n
which is dismissed.  As the respondent did not appear, there shall be <\/p>\n
no order as to costs.\n<\/p><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Bihar State Mineral Dev. Corpn. & … vs Encon Builders (I) Pvt. Ltd on 21 August, 2003 Author: S.B. Sinha Bench: Cji, S.B. Sinha. CASE NO.: Appeal (civil) 2025 of 1997 PETITIONER: Bihar State Mineral Dev. Corpn. & Anr. RESPONDENT: Vs. Encon Builders (I) Pvt. Ltd. DATE OF JUDGMENT: 21\/08\/2003 BENCH: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-32789","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nBihar State Mineral Dev. Corpn. & ... vs Encon Builders (I) Pvt. 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