M/S Palannattill Construction Company v. State of Kerala and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR** **WEDNESDAY, THE 12TH DAY OF APRIL 2017/22ND CHAITHRA, 1939** ## **AR.No. 24 of 2016** **----------------------------** ## **APPLICANT :** **--------------------** **M/S.PALANNATTIL CONSTRUCTION COMPANY, REVIEW BUILDING, NALAMCHIRA.P.O., THIRUVANANTHAPURAM-695 015, REPRESENTED BY ITS MANAGING PARTNER, P.P.POULOSE.** **BY ADVS. SRI.P.A.MOHAMMED SHAH SRI.SOORAJ T.ELENJICKAL SMT.V.A.HARITHA SMT.MARY RESHMA GEORGE SMT.P.M.MAZNA MANSOOR** **RESPONDENT(S) :** **----------------------------** **1. THE STATE OF KERALA, REPRESENTED BY THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT, (RURAL DEVELOPMENT), SECRETARIAT, THIRUVANANTHAPURAM.** **2. THE COMMISSIONER OF RURAL DEVELOPMENT, COMMISSIONERATE OF RURAL DEVELOPMENT DEPARTMENT, LMS COMPOUND, THIRUVANANTHAPURAM.** **3. THE PROJECT OFFICER, DISTRICT RURAL DEVELOPMENT AGENCY, KOLLAM-691 001.** ## **BY SPL.GOVERNMENT PLEADER SRI. MANOJ KUMAR K.V** **THIS ARBITRATION REQUEST HAVING BEEN FINALLY HEARD ON 10-03-2017, ALONG WITH AR. NO. 7 OF 2016, THE COURT ON 12-04-2017 PASSED THE FOLLOWING:** Msd. ## **AR.No. 24 of 2016** ## **----------------------------** ## **APPENDIX** ## **PETITIONER(S)' ANNEXURES :** - **ANNEXURE I: THE RELEVANT PORTION OF THE AGREEMENT EXECUTED ON 25.05.2002.** - **ANNEXURE II: THE COPY OF THE PETITIONER FILED BY THE PETITIONER DATED 27.01.2016.** - **ANNEXURE III: A PHOTOCOPY OF THE NOTICE INVITING TENDERS.** - **ANNEXURE IV: TRUE PHOTOCOPY REQUEST SUBMITTED TO THE RESPONDENTS ON 16.02.2016 SEEKING REFERENCE OF THE DISPUTES TO ARBITRATION.** - **ANNEXURE V: THE RELEVANT PAGE OF THE SPECIAL CONDITIONS WHEREIN CLAUSE 35 RELIED UPON BY THE RESPONDENTS AND ALSO THE AMENDMENTS MADE TO CLAUSE 24 OF THE GENERAL CONDITIONS.** ## **RESPONDENT(S)' ANNEXURES :** - **ANNEXURE R3(A): TRUE COPY OF THE RELEVANT PAGE OF CLAUSE 24 IN R3(A).** - **ANNEXURE R3(B): TRUE COPY OF THE GWD FORM-182.** - **ANNEXURE R3(C): TRUE COPY OF THE RELEVANT PAGE OF FINAL BILL FOR THE WORK PAID ON 31.05.2008 VIDE CHEQUE NO. 655247 DATED 31.05.2008.** **//TRUE COPY//** **P.A.TO JUDGE** Msd. ## **P.B.SURESH KUMAR, J.** ## **--------------------------------------------** ## **A.R.Nos.7 and 24 of 2016** ## **---------------------------------------------------------------** ## **Dated this the 12[th] April, 2017** ## **O R D E R** The applicant who is one and the same in the above arbitration requests, is a Government contractor. The applicant have entered into agreements with the respondents in the arbitration requests for the construction of two road works, one in Kollam District and the other in Thiruvananthapuram District. According to the applicant, out of the said works, they have completed one and the contract in respect of the other was terminated by the respondents before the completion of the work. In both cases, according to the applicant, amounts are due to them from the respondents. It is alleged by the applicant that there exists arbitration clauses in the contracts entered into by them with the respondents and the disputes relating to the payments due to them are, therefore, to be resolved by recourse to arbitration. It is also alleged by the applicant that though they have called upon the respondents to resolve the disputes by recourse to arbitration, the respondents are not acceding to the said demand. Hence these arbitration requests. 2. Counter affidavits have been filed by the respondents in the arbitration requests contending that there are no arbitration clauses in the contracts entered into by the applicant with the respondents and therefore, the arbitration requests are not maintainable. 3. Heard Adv.C.R.Shyam Kumar for the applicant and Smt.C.K.Sherine, the learned Senior Government Pleader for the respondents. 4. The fact that Clause 24 of the notice inviting tenders for the works referred to in the arbitration requests is an arbitration clause is not disputed by the respondents. The contention of the respondents is that the said clause has been amended and the amendment has been acknowledged by the applicant. Annexure R3(a) document is relied on by the respondents to substantiate the said contention. Annexure R3(a) in which the applicant is a party, no doubt, recites that all disputes and differences arising out of the contracts that may be executed, in pursuance at the notification shall be settled only by the Civil Court in whose jurisdiction the work covered by the contract is situated or in whose jurisdiction the contract was entered into in case the work extended the jurisdiction of more than one court. The case of the applicant is that there are various other clauses in the specifications of the contract which is part of the contract providing for arbitration and as such, merely for the reason that the arbitration clause in the notice inviting tenders of the work is deleted, it cannot be contended that there is no arbitration clause at all in the contract. The specifications of the contract containing the arbitration clauses were made available to the Court by the applicant at the time of hearing. As regards this plea, the case of the respondents is that in the light of the clause contained in Annexure R3(a) amendment, all other provisions contained in the specifications of the contract would stand superseded. In short, the dispute is as to whether their exists an arbitration agreement between the parties. When it was suggested by the Court to the learned counsel on either side that the arbitration requests can be allowed directing the Arbitral Tribunal to decide the issue relating to the existence of the arbitration agreement, the learned Government Pleader contended that the said issue cannot be relegated to be decided by the Arbitral Tribunal. The issue, therefore, is whether it is obligatory for this Court to decide the question relating to the existence of arbitration agreement in a proceedings under Section 11 of the Arbitration and Conciliation Act. 5. The scope of the jurisdiction of this Court under Section 11 of the Act has been examined by the Apex Court in **SBP & CO. v. Patel Engineering Ltd. and Another** [(2005) 8 SCC 618] as under: “39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense whether the party making the motion has approached the right High Court. He has to decide Whether there is an arbitration agreement, as defined in the Act and Whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11 (6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of Arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal.” It is evident from the aforesaid judgment of the Apex Court that what this Court is bound to consider in an application under Section 11 of the Act are the following issues namely, (i) whether the party making the application has approached the appropriate High Court, (ii) whether there is an arbitration agreement, and (iii) whether the party who has applied under Section 11 of the Act is a party to the said arbitration agreement. It is relevant in this context to refer to Section 16 of the Act, which reads thus: “16. Competence of arbitral tribunal to rule on its jurisdiction- (1) The arbitral tribunal may rule own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,- (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers delay justified. (5) The arbitral tribunal shall decide on a plea referred to in a sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. (6) A party aggrieved by such an arbitral award may make an application for setting aside such a arbitral award in accordance with section 34.” It is clear from Section 16 of the Act that the Arbitral Tribunal functioning under the Act has the jurisdiction to decide the question relating to existence of arbitration agreement as well. In **Wellington Associates Ltd. v. Kirit Mehta** [(2000) 4 SCC 272], it was held by the Apex Court that the jurisdiction of the court exercising the power under Section 11 of the Act is not excluded by Section 16 of the Act and that such power can be exercised, in appropriate cases, by the court exercising the power under Section 11. After adverting to the said decision, the Apex Court in **Nimet Resources INC and another v. Essar Steels Ltd.** [(2000)7 SCC 497) held that when the existence or non existence of an arbitration agreement is not clear, the appropriate course would be to relegate the said question to be decided by the Arbitral Tribunal. The relevant paragraph of the said judgment reads thus: “I am conscious of the fact that M.Jagannadha Rao, J. in Wellington Associates Ltd. v. Kirit Mehata (2000 (4) SCC 272) held that the jurisdiction of the nominee of the Chief Justice of India to decide the question is not excluded by S.16 of the Act and such a power can be exercised in a suitable case. On this basis it is no doubt permissible under S.11 of the Act to decide a question as to the existence or otherwise of the arbitration agreement but when the correspondence or exchange or documents between the parties are not clear as to the existence or non existence of an arbitration agreement, in terms of S.7 of the Act, the appropriate course would be that the arbitrator should decide such a question under S.16 of the Act rather the Chief Justice of India or his nominees under S.11 of the Act.” From the voluminous documents made available by the respondents at the time of hearing, it is not easy to decide the question as to the existence of an arbitration agreement in a proceedings of this nature. In the circumstances, in the light of the aforesaid decision of the Apex Court, I am of the view that the issue between the parties as to the existence of the arbitration agreement can be relegated to be decided by the Arbitral Tribunal. 6. The learned Government Pleader, relying on the decision of this Court in **Kaikkara Construction Company v. State of Kerala** [2010 (4) KLT 373] contended that in an exactly identical case, this Court has considered the effect of a similar agreement. It is seen that this Court has considered the existence and validity of the arbitration agreement involved in the said case in a proceedings under Section 11 of the Act. The question as to whether it is obligatory for this Court to consider the said question in a proceedings under Section 11 of the Act has not been considered. In the circumstances, I do not think that the said judgment would fetter this Court from relegating the issue to be decided by the Arbitral Tribunal. In the result, the arbitration requests are allowed and Sri.K.J.Thomas Stanely, C-14, Saranya Apartments, Chakkalapadam road, Kaloor, Kochi, a retired District Judge from the panel of arbitrators maintained by this Court is appointed provisionally as the arbitrator in these matters. The Arbitrator so appointed shall decide the question whether there exists an arbitration agreement between the parties as a preliminary issue and pass an interim award in respect of the said issue, so as to enable the parties concerned to take up the matters further. The Registry shall obtain the disclosure in writing from the arbitrator appointed, as provided for under Section 11(8) of the Act in the prescribed form and place the matters again before the Court for confirmation of the appointment. Sd/- **P.B.SURESH KUMAR JUDGE** rsr