STATE OF KARNATAKA Vs. PRABHAKAR REDDY

JUDGEMENT

(1.) THE short question that arises for consideration in this appeal is whether a valid arbitration agreement exists between the parties so as to call for a reference to the Arbitrator for adjudication of the disputes between them. The question is concluded by the decision of the Supreme Court in State of Uttar Pradesh v Tipper Chand, and that of this Court in State of Karnataka v Sudhakar Reddy and Others. The Supreme Court as also this Court have interpreted a similar clause appearing in the agreement executed between the parties in those cases and held that the same did not constitute an arbitration agreement so as to warrant the reference of the disputes to the Arbitrator for adjudication. The question arises in the following backdrop.

(2.) THE respondent is a Class-I Contractor registered in Public Works Department of the Government of Karnataka. A certain civil work relating to the construction of a high level bridge on Kolhar-Talikot road was allotted to the respondent in terms of an agreement dated 20th September, 1985 executed between the Executive Engineer and the respondent. The estimated cost of the work was Rs. 55. 58 lakhs approximately. The work had to be completed within thirty-six months from the date it was allotted, i. e. , by 6th December, 1989 excluding the monsoon period. On account of the failure of the respondent to keep pace with prescribed schedule for the completion of the work, the Executive Engineer rescinded the contract in terms of an order dated 15th January, 1990 imposing penalty of Rs. 30,15,762/- on the respondent for his failure to complete the work. The respondent also it appears raised certain disputes claiming a reference to the Arbitrator in terms of Clause 30 of the agreement for adjudication thereof. Since no such reference was made, the respondent filed Arbitration Case No. 4 of 1992 before the III Additional Civil Judge of Bijapur in terms of Sections 8 and 20 of the Arbitration Act, 1940 for a direction to the appellant-Executive engineer to file the original arbitration agreement in the Court and for reference of the dispute to the Arbitrator for adjudication. The said petition has been allowed by the Court below in terms of its order dated 18th february, 1997 impugned in this appeal. The Court has relying upon the decisions of the High Court of Delhi in Mrs. Sushila Seth and Others v State of Madhya Pradesh , Uttam Wires and Machines (Private) Limited v State of rajasthan and Another and the decision of the High Court of Allahabad in state of Uttar Pradesh and Another v M/s. Sardul Singh Kulwant Singh and another, held that Clause 30 found in the agreement executed between the parties constitutes an arbitration agreement and envisages adjudication of dispute between the parties by way of arbitration. It has accordingly allowed the petition filed by the respondent-Contractor and referred the dispute raised by him for the arbitration of Sri M. S. Ramanathan, Retired Chief Engineer at mysore. Aggrieved, the State Government has preferred the present appeal against the said order.

(3.) APPEARING for the appellants learned Government Advocate in the petition argued that Clause 30 of the agreement executed between the parties does not constitute an arbitration agreement so as to call for a reference to Arbitrator. He urged that this Court had in Sudhakar Reddy's case, supra, considered the effect of a similar clause and declared that the same did not constitute an arbitration agreement. He also drew our attention to the judgment of the Supreme Court in Tipper Chand's case, supra and State of Maharashtra v Ranjit Constructions , where clauses identical to the one with which we are concerned in the instant case fell for interpretation. The Court had upon consideration of the provisions of the Arbitration Act and the language employed in the clause declared that the same did not constitute an arbitration agreement. He urged that the Court below was in error in holding that Clause 30 appearing in the agreement executed between the parties constituted an arbitration agreement which could provide a sound basis for a reference to the Arbitrator.