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2007 DIGILAW 804 (KER)

Southern Structurals Ltd. v. K. S. E. Board

2007-11-29

A.K.BASHEER, HARUN UL RASHID, K.S.RADHAKRISHNAN

body2007
JUDGMENT K.S. Radhakrishnan, J. 1. This matter has been placed before us on a reference by a Division Bench of this Court doubting the correctness of the decision in Koshy Varghese v. Hindustan Paper Corporation ILR 2002 (2) Kerala 601 wherein a Division Bench of this Court held that this Court sitting under Article 226 of the Constitution of India can direct the parties to go for arbitration under the Arbitration and Conciliation Act, 1996 even in the absence of any arbitration agreement between the parties. 2. Petitioner is a company owned by the Government of Tamil Nadu which is engaged in the business of undertaking contracts in various parts of the country. Petitioner had undertaken a project for the Kerala State Electricity Board for erection of penstock, construction of anchors etc. and it was alleged that a total sum of Rs.1,51,44,306 was due to the company from the Board for the construction of the project undertaken by them. Since the dispute is between the Company owned by the Government of Tamil Nadu as well as the statutory Board fully owned by the Government of Kerala, it was felt that the matter be amicably settled by a committee constituted by the parties. Since the Board did not take any step in that direction petitioner had to file O.P. No.11781 o f 2001 before this court which was disposed of directing the Board to constitute a high level committee. Being a fully owned company, Government of Kerala vide G.O. (Rt.) No. 230/2001/PD. dated 31-10-2001 constituted a committee of five members to resolve the issues between the parties. Petitioner had also written to the Board as per letter dated 19-12-2001 requesting to refer the dispute to the permanent Machinery of Arbitrators in the Bureau of Public Enterprises, Government of India. Request was rejected by the Board vide reply dated 20-2-2002 stating that there was no arbitration agreement between the parties and that the matter was pending before the Committee. Aggrieved by the said order petitioner has approached this Court seeking a writ of certiorari to quash Ext. Request was rejected by the Board vide reply dated 20-2-2002 stating that there was no arbitration agreement between the parties and that the matter was pending before the Committee. Aggrieved by the said order petitioner has approached this Court seeking a writ of certiorari to quash Ext. P-5 letter of the Board refusing to refer the dispute to arbitration and also for a writ of mandamus directing the respondent Board to agree for an arbitration and also for other consequential relief's. When the matter came up before the learned Single Judge, learned judge referred the matter to a Division Bench and the Division Bench in turn referred the matter to a larger bench doubting the correctness of the Division Bench decision in Koshy Varghese's case, supra. 3. In Koshy Varghese's case dispute arose between Hindustan Paper Corporation Limited, a Government of India Undertaking and a private party in connection with the removal of waste from a soda recovery plant at Velloor. Writ petition was preferred by one Koshy Varghese seeking a writ of mandamus directing the Corporation to refer the dispute to arbitration by a panel of arbitrators submitted by the petitioner or any other retired High Court Judge to be appointed by this Court. Petitioner therein also sought a direction to the Corporation to constitute a high power committee to consider the claims of the petitioner and also for referring the matter to arbitration. Corporation resisted the petition stating that the request for reference to arbitration is misconceived and unsustainable in law since there was no arbitration clause in the contract between the parties. The Division Bench however placing reliance on the Office Memorandum dated 30-3-1989 took the view that since Government of India had taken a decision that inter se dispute between public sector enterprises should he resolved through arbitration so as to avoid unnecessary expenditure and to save time and energy and held that the same reasoning be extended to contracts between public sector enterprises and private individuals. The Bench also opined that since the Corporation had agreed to constitute a high power committee they had acquiesced in the position and there was valid and tenable claim for the petitioner for referring the matter to arbitration. The Bench also opined that since the Corporation had agreed to constitute a high power committee they had acquiesced in the position and there was valid and tenable claim for the petitioner for referring the matter to arbitration. The Bench further held as follows: "In our opinion, the respondents being instrumentalities of the State owe a duty to the appellant imposed on them under the Constitution and the law and therefore, we have no hesitation to issue a writ of mandamus to refer the dispute to arbitration. The appellant has a legal right in the present case and the respondents have a legal duty to settle the claim of the appellant. Therefore, the appellant can invoke this court's jurisdiction under Article 226 to compel the performance of the duty cast on the respondents as the duty in the present case is a statutory one imposed by the Constitution by the statute and by the rule of common law. Even in cases where the discretionary power is conferred on the authority and the statutory provisions are made for such exercise of the said power, a writ of mandamus can be issued for the enforcement of that duty. In the light of the policy of the public sector undertakings to resort to arbitration in inter se disputes, we are of the firm opinion that the same should be adopted in the case of the appellant Koshy Varghese also." Sri V.T. Gopalan, Additional Solicitor General, appearing for the appellant placed heavy reliance on the above-mentioned decision and submitted that since the respondent Board is a State owned Corporation they are bound by the policy of the Government of India which is reflected in the Office Memorandum dated 30-3-1989 and therefore even if there is no specific clause in the contract for referring the matter to arbitration this court sitting under Article 226 of the Constitution of India in exercise of the plenary powers can compel the Board to agree to refer the dispute for arbitration under the Arbitration and Conciliation Act, 1996. Learned counsel also made reference to the decision of the apex court in M.M. Thomas v. State of Kerala 2000 (1) SCC 666 and submitted that the High Court as a court of record is a superior court of plenary jurisdiction and is competent to determine the scope or jurisdiction and in appropriate cases it can exercise that jurisdiction and compel the statutory Board to agree for arbitration. 4. Learned Senior Counsel also tried to explain the various decisions referred to in the orders of reference of the learned Single Judge as well as the Division Bench and submitted that in the absence of any contrary view than what was taken by the Division Bench in Koshy Varghese's case reference to a Larger Bench was not warranted. Learned counsel also referred to the decision of a learned Single Judge of this Court in Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. 2007 (1) KLT 196 and submitted that the principle adopted in the said decision would equally apply when this court exercises its jurisdiction under Article 226 of the Constitution. 5. Sri C.K. Karunakaran, learned Standing Counsel appearing for the Board on the other hand contended that in the absence of any arbitration clause in the contract this Court sitting under Article 226 of the Constitution of India cannot compel any unwilling party to agree for an arbitration so as to be governed by the provisions of the Arbitration and Conciliation Act, 1996 Learned counsel submitted that jurisdiction is conferred on the arbitrator under the Act only if there is an arbitration agreement as provided under Section 7 of the Act. In the absence of any arbitration agreement between the parties in the contract no power is conferred on the arbitrator to act under the provisions of the Arbitration and Conciliation Act, 1996. Learned counsel also referred to the decision of the apex court in Travancore Devaswom Board v. Pancbamy Pack (P) Ltd. (2004) 13 SCC 510 in support of his contention. 6. The existence of an arbitration agreement between the parties is prerequisite for exercising powers by the Arbitrator. Section 7 defines "arbitration agreement" to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. 6. The existence of an arbitration agreement between the parties is prerequisite for exercising powers by the Arbitrator. Section 7 defines "arbitration agreement" to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Section 10 of the Indian Contract Act, 1 872 says that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void. Therefore, only if there is an agreement made by the parties by their free consent then only that agreement becomes a contract binding between the parties. The expression "free consent" is defined in Section 14 of the Contract Act which says that consent is said to be free when it is not caused by (1) coercion, as defined in Section 15, or (2) undue influence, as defined in Section 16, or (3) fraud, as defined in Section 17, or (4) misrepresentation, as defined in Section 18, or (5) mistake, subject to the provisions of Sections 20, 21 and 22. Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake. The word "consent" is defined in Section 13 of the Contract Act which says that two or more persons are said to consent when they agree upon the same thing in the same sense. Section 16 of the Arbitration and Conciliation Act says that the arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement and for that purpose an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract and a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Section 34 of the Act says that recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3) of the Act. Section 34 of the Act says that recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3) of the Act. Sub-section (2) of Section 34 says that an arbitral award may be set aside by the court only if the party making the application furnishes proof that a party was under some incapacity; or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force. We are of the view, if the court compels a party to agree for arbitration that can be characterised as an illegality since permission has been obtained not on free consent but on judicial command. 7. The question as to whether the court sitting under Article 226 of the Constitution of India can compel a party to agree for arbitration under the Arbitration and Conciliation Act, 1996 came up for consideration before the apex court in Panchami Pack's case. It was a case where the High Court appointed an arbitrator even though there was no agreement in writing for referring the matter to arbitration between the parties. On appeal by the Travancore Devaswom Board, the apex court set aside the order of-the Division Bench and held as follows: "The impugned order, therefore, cannot he sustained. In the absence of any agreement, the arbitrator could not have any jurisdiction. The participation of the appellant in the preliminary sittings before the arbitrator would not make any difference. It is to be noted that under Section 16 sub-section (2), the ground challenging the jurisdiction of the arbitrator is required to be taken at the earliest and not later than the filing of the defence but a party shall not he precluded from raising such a plea merely because it has appointed or participated in the appointment of an arbitrator. The language of the section, therefore. The language of the section, therefore. leaves no room for doubt that mere participation in the proceedings would not tantamount to an acceptance of the jurisdiction of the arbitrator to arbitrate disputes between the parties." The decision of the apex court in Panchami Pack's case lays down the preposition that the court sitting under Article 226 of the Constitution cannot compel an unwilling party to go in for arbitration in the absence of any specific arbitration clause in the agreement. Reference may also be made to the decision of the apex court in Tamil Nadu Electricity Board v. Sumathi and others 2000 (4) SCC 543 wherein the court has held that there is no provision in the Arbitration and Conciliation Act, 1996 for referring a matter to an Arbitrator by the intervention of this court, however if during the pendency of proceeding in the court parties have entered into an arbitration agreement then they have to proceed in accordance with the new Act and the award is made a decree and has to be filed in the case as defined in clause (e) of Section 2 of the new Act for enforcement. 8. Counsel for the petitioner placed reliance on the decision of a learned Single Judge of this court in Afcons Infrastructure Ltd.'s case in support of his case and submitted that the reasonings of the learned Single Judge in that case would equally apply to a plea under Article 226 of the Constitution of India as well. We are not called upon to examine the scope of Section 89 of the Code of Civil Procedure in this case. However, since the decision in Afcons Infrastructure Ltd.'s case was quoted as an authority we may deal with the same also. Code of Civil Procedure deals with procedure mailers dealing with a mechanism for enforcement of substantial rights. Procedural provision cannot be allowed to take away substantive provisions of law. There is difference in the matter of construction between a law dealing with substantive rights and one relating to procedure. Code of Civil Procedure should yield to the special Act dealing with specified subject-matter. When a special law like the Arbitration and Conciliation Act, 1996 dealing with arbitration provides for a form of adjudication of certain matters, procedure like C.P.C. cannot make any inroad to the special statute. Code of Civil Procedure should yield to the special Act dealing with specified subject-matter. When a special law like the Arbitration and Conciliation Act, 1996 dealing with arbitration provides for a form of adjudication of certain matters, procedure like C.P.C. cannot make any inroad to the special statute. Court must resist the temptation to impose anything on an unwilling party especially when dispute is purely a private dispute, however strongly court feels the dispute be resolved at the earliest using alternate dispute resolution mechanism. Arbitration and Conciliation Act is a special Act dealing with the law of arbitration and C.P.C. is a general statute dealing with procedure and in case of conflict special statute overrides the general law. Existence of arbitration agreement is sine qua non for exercising jurisdiction by arbitrator appointed under the provisions of the Arbitration and Conciliation Act. Arbitration agreement is entered into between the parties only if they mutually agree to refer the dispute for arbitration. "Meeting of minds", consensus of ad idem is a prerequisite factor before referring a matter to arbitration. We need not further elaborate on that issue since the same question came up for consideration before the apex court in Jagdish Chander v. Ramesh Chancier and others 2007 (5) SCC 719 . Apex court while dealing with the provisions of Section 89 C.P.C. considered the question as to whether parties can be mandated to take recourse to ADR process including arbitration to settle their disputes even in the absence of a provision for arbitration. The apex court held as follows: "This contention, though attractive, has no merit. The object and scope of Section 11 of the Act is specific and narrow. Though the power exercised under Section 11 of the Act has been held to be a judicial power (see: SBP & Co. v. Patel Engg. Ltd.) the proceedings relate only to appointment of Arbitral Tribunal. 'The disputes as such are not before the Chief Justice or his designate for adjudication. Therefore, Section 89 C.P.C. has no application. Though the power exercised under Section 11 of the Act has been held to be a judicial power (see: SBP & Co. v. Patel Engg. Ltd.) the proceedings relate only to appointment of Arbitral Tribunal. 'The disputes as such are not before the Chief Justice or his designate for adjudication. Therefore, Section 89 C.P.C. has no application. It should not also be overlooked that even though Section 89 mandates courts to refer pending suits to any of the several alternative dispute resolution processes mentioned therein, there cannot be a reference to arbitration even under Section 89 C.P.C., unless there is a mutual consent of all parties, for such-reference." In view of the above-mentioned decision, in our view, the decision rendered by the learned Single Judge in Afcon Infrastructure Ltd.'s case is no more good law. We have already held that Koshy Varghese's case also was not correctly decided and the direction of the Division Bench in that case that this court sitting under Article 226 can direct the parties to go for arbitration under the Arbitration and Conciliation Act, 1996 even in the absence of an arbitration agreement between the parties is not the correct enunciation of law. In such circumstances, we overrule the decision in Koshy Varghese's case and also hold that the decision in Afcons Infrastructure Ltd.'s case is no more good law in view of the decision of the apex court in Jagdis Chander's case. Reference is answered accordingly and the original petition would stand dismissed.