K. ABDULLA HAJI v. STATE OF KERALA — 1989 DIGILAW 525 (KER)

JUDGMENT Radhakrishna Menon, J. - The questions arising for consideration in these appeals are identical and therefore these appeals are disposed of by a common judgment. 2. M.F.A. Nos. 607, 608 and 609 of 1987 are directed against the common judgment dismissing O.S. 27/85, 25/85 and 23/85 instituted by the appellant under Section 20 of The Arbitration Act. M.F.A. 22/89 on the other hand is an appeal filed by the State challenging the judgment and decree allowing O.S. 26/85 instituted by the appellant, in the connected appeals, again under Section 20 of The Arbitration Act. 3. A Division Bench of this court dismissed M.F.A. Nos. 607, 608 and 609 of 1987 in limine observing that "the plea for arbitration is barred by limitation as per Clause 24(b) of notice inviting tenders, since it is beyond the period of three months from Ext. B. 4 dated 21-7-1981". This judgment was under challenge before the Supreme Court as is seen from the order disposing of Civil Appeal Nos. 2382-84/89. For easy reference we shall extract the order of the Supreme Court. "Having considered the facts and the circumstances of the case alongwith the documents and papers, we are of the opinion that Clause 24(b) in Form No. 83 (Notice inviting tenders for works) would have no application in the facts and the circumstances that have happened in this case. There was no scope for any final bill or any bill in the circumstances. Therefore, Clause 24(b) has no application. It was not the case of the State that they had prepared any bill or given intimation that the bill was ready. According to the counsel for the State of Kerala the contract had been terminated and as such there was no scope for preparation of any bill. Such dispute would not come within the purview of Clause 24(b) the notice inviting tenders. In that view of the matter we are of the opinion that the High Court was in error in resting its decision on this aspect. The High Court's order cannot be sustained and is therefore, set aside. The Judgment and order of the High Court are set aside. In that view of the matter we are of the opinion that the High Court was in error in resting its decision on this aspect. The High Court's order cannot be sustained and is therefore, set aside. The Judgment and order of the High Court are set aside. We remand the matter to the High Court for consideration on all the contentions including the contention sought to be urged before us on behalf of the State and the submission on the G.O. referred to in paragraph 17 of the decision of the learned Subordinate Judge. The matter be disposed of by the High Court in accordance with the law after taking into consideration all these contentions". It is clear from the above order that the Supreme Court was of the view that the finding that the claim was barred by Clause 24(b) is not sustainable. Accordingly the judgment of this court was set aside and the appeals were remitted to this court for consideration of all the contentions including "the contention sought to be urged before the Supreme Court and the submission on the G.O. referred to in paragraph 17 of the decision of the learned Subordinate Judge". 4. Certain facts are admitted, and they are : Clause 24(a) of the Notice inviting tenders (otherwise called Form No. 83) forms part of the agreement under which the contractor was to carry out the works made mention of therein; the estimated P.A.C. of the works under the contracts admittedly is above Rs. 2 lakhs; the agreements were entered into after 8-5-1978, the date on which the Government issued the Government Order, G.O.M.S. No. 53/78/PW & E which declared that "the applicability of arbitration will be restricted to works, the estimated P.A.C. of which is Rupees two lakhs and below, subject to the condition that the restriction will be applicable to future contracts only". Consistent with this clause in the G.O., the special condition which reads as follows, was incorporated in the agreements : "Special condition as per G.O.M.S. No. 53/78/PW & E dated 8-5-1978 regarding arbitration clause. Consistent with this clause in the G.O., the special condition which reads as follows, was incorporated in the agreements : "Special condition as per G.O.M.S. No. 53/78/PW & E dated 8-5-1978 regarding arbitration clause. "As the applicability of arbitration clause in Form No. 83 is restricted to works, the estimated P.A.C. of which is Rupees two lakhs and below the Government will have power to refer specific cases for arbitration and the Contractor has no right to refer to arbitration disputes arising out of works the estimated P.A.C. of which is over Rs. 2 lakhs" 5. The estimated P.A.C. of the works contemplated under the contracts as already noted, is above Rs. 2 lakhs. It can therefore be presumed that the Government refused to refer the dispute to arbitration; or else, the contractor would not have instituted the suits under Section 20 for the issue of appropriate orders directing the Government to file the contracts/agreements in court. The Subordinate Judge before whom the suits had been instituted went into the question elaborately and found that the reliefs sought for in O.S. 27, 25 and 23 of 1985 cannot be granted and as a result of which the suits were dismissed. The Additional Sub-Judge who heard O.S. 26/85 was of the view that in the light of the Division Bench ruling of this court in State of Kerala v. Joseph (1983 KLT 583), the suit required to be decreed and accordingly decreed the same. 6. The learned counsel for the contractor reiterated his argument which found favour with the Additional Sub-Judge, before this court. According to him the Division Bench in Joseph's case has had occasion to consider the impact of the Government Order on an identical issue and hence the dispute, in the light of the said ruling, requires to be referred to arbitration although the estimated P.A.C. of the work is more than Rupees two lakhs. In our view the Division Bench in Joseph's case had no occasion to consider the impact of the Government Order on the contracts. The only argument the State advanced in that case, to quote their Lordships, is : "... Mr. In our view the Division Bench in Joseph's case had no occasion to consider the impact of the Government Order on the contracts. The only argument the State advanced in that case, to quote their Lordships, is : "... Mr. John Mathew, Government Pleader, appearing on behalf of the defendants-appellants contended that since Article (3) of the agreement to the following effect "the arbitrator to fulfil the duties set forth in the arbitration clause of the Standard Preliminary Specification shall be Superintending Engineer of ... Circle" has been scored off, there is no valid and effective clause by which the disputes between the parties could be referred to arbitration. According to counsel, the parties were not ad idem regarding the personnel of the arbitrator. So the arbitration clause is vague, becomes ineffective and meaningless. This is so, notwithstanding the condition No. 73 of the preliminary specifications of M.D.S.S. extracted above, envisages that dispute or difference between the parties to the contract "shall be and is hereby referred to the arbitration of the Superintending Engineer" of the nominated circle. Article (3) dealing with this matter has been scored off. So there is no valid provision for arbitration. It was the contention of counsel that the provision regarding arbitration is not available in such circumstances and so unenforceable". This argument was refuted by the counsel representing the contractor. Dealing with the said argument, the Division Bench has stated thus : "... It is true, that Clause (3) of the agreement containing the provision naming a particular person as arbitrator has been scored off. Counsel argued that Clause (3) can relate only to the person who should be appointed as the arbitrator and it has no relation to or connection regarding the reference clause. There is a valid and effective arbitration clause even though the person who should arbitrate has not been specified. Counsel referred to S. 2(a) of the Arbitration Act and contended that even if an arbitrator is not named there can be a valid provision for arbitration under the Act. Counsel for the respondent particularly stressed that there are two aspects arising in the matter : (1) as to whether there is a provision for arbitration; and (2) if so, who is the person agreed to by the parties as the arbitrator ? Counsel for the respondent particularly stressed that there are two aspects arising in the matter : (1) as to whether there is a provision for arbitration; and (2) if so, who is the person agreed to by the parties as the arbitrator ? According to counsel, scoring off of what had been printed as Clause (3) in the agreement, will only affect the second or the later aspect. It has nothing to do with the provision for referring the matter to arbitration, which remains and is valid and effective as per condition No. 73 of M.D.S.S. The decision of the lower court, according to counsel is justified and no interference is called for". From the above except, it is clear that there was no need for the Division Bench to consider the impact of the G.O. on the contracts although in the statement of facts the Bench had noted the argument of the State based on the G.O. 7. Considering these aspects that arose from the above competing contentions of the parties, the Division Bench held that "there is a valid arbitration clause in the agreement executed between the parties and that the plaintiff is entitled to get the dispute arising out of the contract settled by an arbitrator as held by the court below". We therefore would hold that the said judgment shall confine to the facts of that case. 8. The short question that arises for consideration therefore the contractor entitled to get the dispute referred to arbitration under Clause 24 of the contracts. The dispute, after the issuance of the G.O. referred to above can be the subject-matter of an arbitration provided it is shown that the estimated P.A.C. of the work under the contract is Rupees two lakhs and below. It is true that the power of the Government to refer specific cases to arbitration notwithstanding the above restriction is reserved by the G.O. That the Government has not exercised that power is clear from the fact that the contractor has instituted the suits under Section 20 of The Arbitration Act. To put it differently, had the Government exercised that power and referred the dispute to arbitration, there was no need for the contractor to institute the suits under Section 20. That the estimated P.A.C. of the works under the contracts is more than Rupees two lakhs is beyond dispute. To put it differently, had the Government exercised that power and referred the dispute to arbitration, there was no need for the contractor to institute the suits under Section 20. That the estimated P.A.C. of the works under the contracts is more than Rupees two lakhs is beyond dispute. If that be the position, the disputes arising out of the contracts cannot be referred to arbitration unless the Government exercises the power reserved by the G.O. and order reference. In the circumstances of the case the contractor is not entitled to get the disputes referred to arbitration through court. In other words the suits instituted by the contractor under Section 20 of the Arbitration Act are not maintainable. 9. The above position notwithstanding the learned counsel for the contractor argued that clause 24 of the agreement was still available to the contractor to be pressed into service; and if that be the position, he further argued, the dispute required to be referred to arbitration dehorse the Government Order referred to above. In support of this argument he made reference to the following observations contained in the order of the Supreme Court remanding the appeals to this court. "Having considered the facts and the circumstances of the case alongwith the documents and papers, we are of the opinion that Clause 24(b) in Form No. 83 (Notice inviting tenders for works) would have no application in the facts and the circumstances that have happened in this case. There was no scope for any final bill or any bill in the circumstances. Therefore, Clause 24(b) has no application ... Such dispute would not come within the purview of Clause 24(b) the notice inviting tenders. In that view of the matter we are of the opinion that the High Court was in error in resting its decision on this aspect". This argument at the first blush is attractive; but if we are to consider the scope of this argument in the light of the following observations of the Supreme Court and the provisions contained in the G.O. read with the special conditions incorporated in the contracts, we could see that this argument is without substance. This argument at the first blush is attractive; but if we are to consider the scope of this argument in the light of the following observations of the Supreme Court and the provisions contained in the G.O. read with the special conditions incorporated in the contracts, we could see that this argument is without substance. The Supreme Court has observed that "all the contentions including the contention sought to be urged before us on behalf of the State and the submission on the G.O. referred to in paragraph 17 of the decision of the learned Subordinate Judge" require to be considered by the High Court. The scope of Clause 24 therefore necessarily has to be considered afresh. Clause 24(a) enumerates the disputes that can be referred to arbitration. The disputes enumerated therein take in the dispute specifically dealt with by Clause (b) also. Clause (b) provides that if the contractor(s) do/does not make any demand for arbitration in the respect of any claims (1) in writing within 90 days of receiving the intimation from the Department that bill is ready for payment, the claim of the contractor(s) will be deemed to have been waived and absolutely barred and the Department shall be discharged and released of all liabilities under the contract in respect of these claims". Clause (b) in our view carves out a particular dispute from out of the various disputes coming under Sub-clause (a) of Clause 24. That means the arbitration possible under Clause 24(a) in respect of disputes other than the one covered by 24(b) could be had only if the special condition, based on the G.O. and incorporated in the contracts, is satisfied. It therefore, follows that, if a dispute other than the dispute which is covered by Clause (b) concerning a work, the estimated P.A.C. of which is more than Rupees two lakhs, then that dispute cannot be referred to arbitration. The special condition, when once it is accepted by the contractor, would form part of Clause 24(a) and Clause 24(a) thereafter shall be read and understood in the light of the special condition. The special condition, when once it is accepted by the contractor, would form part of Clause 24(a) and Clause 24(a) thereafter shall be read and understood in the light of the special condition. Clause 24 in the contracts which came into being after 8-5-1978, the date on which the G.O. came into force must therefore be read and understood as if the said clause stood modified by the G.O., the special condition formulated on the basis of the said G.O. The decision in State of Kerala v. Siby Varghese ((1987) 1 KLT 860) according to us supports the above view. See also the decision in M.F.A. 507/1985. 10. M.F.A. 607, 608 and 609 of 1987 therefore are dismissed and M.F.A. 22/1989 is allowed with cost, which we fix at Rs. 4,000/- (one set). This cost shall be paid to the Government Pleader Sri M. C. John for the commentable work he has done in these appeals. The learned counsel for the appellant who is also representing the respondent in M.F.A. 22/1989 submits that there may be a declaration that the appellant (who is the respondent in M.F.A. 22/1989) is entitled to press into service Section 14 of The Limitation Act to get over the bar of limitation in instituting regular suits for redressal of his grievances. This is an aspect which can be agitated before the civil court. We make it clear that this judgment will not stand in the way of the contractor taking up such a contention before the Civil Court.