1. This order shall govern the disposal of Misc. (First) Appeal No. 209 of 1970, (Pannalal Malviya v. The Heavy Electricals Ltd. Bhopal) also. These appeals are directed against the same order (wrongly described as a judgment) dated 3-9-1970, passed by the Third Addl. District Judge, Bhopal in Civil Suit No. 1-A of 1970.
2. The Heavy Electricals Ltd., which is a Government undertaking, but which is a separate corporation having its separate legal entity, gave a contract for the work of filling certain area. Under the agreement the contractor was to be paid 3% above the rate of Rs. 00.80 paise per cubic meter for morum or sand spreading, including dressing 50 meters lead, and 1.5 meters free lift The extent of work done as also the rate at which the payment was to be made were points of dispute between the parties. When the contractor submitted the final bill, the Heavy Electricals deducted an amount of Rs. 17.169.52 paise.
3. The plaintiff Pannalal's contention was that he, had done the work of 23,334.47 cubic meters. The defendant alleged that the work done was of 8041.03 meters. Thus, the extent of the work involved a sum of Rs. 2309.64. The second point of difference was about the rate. The plaintiff maintained that there was no deviation and, therefore, he was entitled to obtain payment at the agreed rate. The defendant alleged that there was deviation and as such, the corporation, namely, the Heavy Electricals Ltd. was entitled to make payment at a lower rate fixed by the Chief Engineer. This involved the sum which had been deducted put of the final bill. The other point of dispute, was that the plaintiff contended that the question whether there was in fact deviation or not would be a question which the arbitrator would be competent to decide. On the other hand, the defendant's contention was that this question could not be referred to the arbitrator as a decision had already been given by the Chief Engineer and which decision was binding on the parties, as per Clause 54 of the written agreement. The learned trial Judge, by the order impugned, referred the other two questions regarding the extent of the work done and justification for deduction to the named arbitrator. But held that the question relating to deviation and the deductions on those accounts which had been finally decided by the Chief Engineeer, as per Clause 54 of the agreement could not be referred to the arbitrator. Hence aggrieved by the said order both the sides have filed the appeals.
4. The contention of the Heavy Electricals is that the plaintiffs application under Section 20 of the Arbitration Act was not maintainable and, therefore, the matter could not be settled through arbitration. We may observe that there is no substance in the said stand taken on behalf of the Heavy Electricals. The agreement in question, which is in a printed form, is an agreement of arbitration and under Clause 62, the dispute would certainly be referable to the arbitrator named in the clause. It may be relevant to reproduce Clause 62 of the agreement, which is as follows:--
'Clause 62:-- All disputes, between, the parties to the contract (other than those for which the decision of the C. E. (C) or any other officer of the Company is by the Contractor expressed to be final and conclusive or binding shall after written notice by either party to the contract to the other of them be referred to the sole arbitration of an Engineer Accounts Officer to be appointed by the Chairman, General Manager. H. E. (I) Ltd., Bhopal in his sole discretion,
Unless the parties otherwise agree, such reference shall not take place until after the completion, alleged completion or abandonment of the work or determination of contract.
The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion.
The award of the Arbitrator shall be final, conclusive and binding on both parties to the contract'.
Therefore. Clause 62 contemplates reference of all disputes to the named Arbitrator except those questions, which have become final and binding by virtue of other clauses of the contract. In the present case we are concerned with Clause 54 of the agreement. It is unnecessary to reproduce other Sub-clauses, but the relevant portions only are as follows:--
'54:-- Valuation of Deviations.
Rates for deviated items or new items of work will be fixed as follows by the accepting Officer whose decision shall be final, conclusive and binding on the other party (contractor).. ... ... ... ... ... ... ... ...... ... ... ... ... ... ... ... ...... ... ... ... ... ... ... ... ...All disputes regarding the settlement of rates of deviated or new items of work shall be referred to the P.E./D.C.E./A.C.E. whose decision shall be final and conclusive.
54 (A).-- The pates provided in the schedule attached with the tender will be binding for payment and in respect of all disputes in relation thereto the decision of P.E./D.C.E.(C)/A.C.E.(C) shall be final, binding and conclusive.'
Thus, by virtue of Clause 62 of the agreement any dispute, which has become final by virtue of Clause 54 of the agreement cannot at all be referred to arbitrator. As such, the question is whether the contractor is to accept the said decision arrived at under Clause 54 of the agreement as binding, final and conclusive or whether he can have an opportunity to challenge it at some stage. There can be no doubt that an employee of one of the parties whose decision is made final, binding and conclusive, is required to act judicially and he cannot merely decide the question administratively or departmentally. Therefore, the Court, when the matter comes before it has always the power to examine whether the officer whose decision is made final has acted judicially or administratively. If the Court finds that the officer had acted judicially, the Court may uphold his decision. But, if the Court finds that the officer had acted administratively, in that event, the Court has the jurisdiction to set aside the acts not performed judicially. That is what Varadachariar, J. laid down in South India Rly. Co. Ltd. v. S. M. Bhashyam Naidu. AIR 1935 Mad 356. Thus, whatever questions are decided by an officer as contemplated by Clause 54 of the agreement, are open to judicial scrutiny, although by virtue of a specific stipulation in Clause 62 of the agreement, those questions cannot be referred to the arbitrator envisaged by Clause 62 of the agreement.
5. From this point of view, we would agree with the contention of the defendant, namely, the Heavy Electricals (India) Ltd, that the question of deviation as held by the trial Judge, cannot at all be referred to the arbitrator. But we ape unable to accept the contention of the learned counsel for the defendant that this question cannot be examined by the Court This question will certainly be open to examination by the Court, but the only question will be as to at what, stage this question should be so examined.
6. Similarly, we are unable to accept the contention of the learned counsel for the plaintiff-contractor that the question of deviation should be referred to the arbitrator. In our opinion, Clause 62 of the agreement clearly excludes the reference of that question to the arbitrator and, therefore, we uphold the order of the trial Judge in that behalf. But the counsel for both the sides are agreed that the question of deviation, which was decided by the Chief Engineer by virtue of Clause 54 of the agreement will be open to a judicial scrutiny when the matter reaches the Court of law. About that, there can be no doubt But the counsel for the contractor contends that this question should be decided by the Court as per the view of Varadachariar, J. in the said case before making a reference to the arbitrator, as per Clause 62 of the agreement. On the other hand, the contention of the learned counsel for the defendant, namely, the Heavy Electricals (India) Ltd., is that such a question may be raised by the contractor in any proceeding directed against the ultimate award of the arbitrator. Therefore, it is necessary for us to lay down the principles governing the procedure to be followed in such cases. We may observe that the agreement in question is a peculiar agreement, which is an agreement of its own kind and which has come up before a law Court for adjudication probably for the first time. However, it appears that such agreements are usual now-a-days, which are entered into on behalf of the Government with contractors undertaking to do the work. But, there is no judicial precedent on this question. In fact Clause 62 of the agreement contemplates reference of certain disputes to the arbitrator and excludes reference of certain disputes to the arbitrator, which had already become final by virtue of Clause 54 or some other Clause of the agreement. Evidently, it cannot be the intent and the purport of such agreements that the disputes envisaged by Clause 54 or by some other Clauses cannot at all be subject to a judicial scrutiny. Such a contention would evidently not be tenable. However, as indicated by us the only question would be regarding the procedure as to at what stage that question can be raised by one of the parties to the dispute.
7. On this question we feel that where an award to be delivered by an arbitrator by virtue of Clause 62 of the agreement is likely to be affected by the decision of the question under Clause 54 of the agreement, all arbitration proceedings would be rendered ineffective if the Court ultimately sets aside the decision of the Chief Engineer or other authority given under Clause 54 of the agreement end in that event, there would be unnecessary waste of time, money and energy on both sides. However, if the Court upholds the decision of the Chief Engineer or the other authority arrived at under Clause 54 of the agreement, the arbitration award delivered by virtue of Clause 62 of the agreement would stand on its own merits and would not be required to be set aside merely on the ground of the Chief Engineer's decision under Clause 54 being erroneous. Therefore, we feel that it is necessary to devise some ways and means to meet such an unusual situation created by the fact that the parties entered into an agreement which also contains a sub agreement and in respect of which, an independent arbitration may have to be conducted apart from Cause 62 of the agreement. Therefore, the question arises whether there should be two references to arbitration.
8. There can be no doubt that Clause 54 of the agreement would be construed to be a quasi-agreement of arbitration, as laid down by Varadachariar, J. in the said decision and moreover, after the enactment of the Arbitration Act. 1940, such an agreement cannot escape the jurisdiction of an arbitrator to decide the matter in the event of a dispute. Therefore, it would be futile to contend that any decision given under Clause 54 of the agreement would not be referable to the arbitrator. It may be that it will not be to an arbitrator contemplated by Clause 62 of the agreement, but it will certainly be referable to an arbitrator in accordance with the provisions of the Arbitration Act, 1940, if the parties have not named an arbitrator. At any rate, it will be subiect to judicial review in appropriate proceedings when they reach the Court of law.
9. As per the view of Varadachariar, J. in the said Division Bench case of the Madras High Court, such an agreement amounts to a quasi-agreement of arbitration. Therefore, it may be that all the provisions of the Arbitration Act 1940, may not be made applicable to such an agreement as the Court may have to start from the stage of appointing arbitrators or arbitrator on the premises that it amounts to an agreement of arbitration. However, we feel that the proper procedure in such a case would be for the Court to examine when the matter reaches it to see if the officer named, namely, the Chief Engineer, has acted judicially with the realisation of the need to act that way. If the officer concerned has merely acted is his executive capacity or in his administrative capacity, his decision, which is deemed to be final, cannot be upheld by the Court of law. On the other hand, if the Court finds that the officer concerned acted in a judicial capacity with full realisation of his responsibility, the Court may uphold the decision. Therefore, we feel that it would be for the Court to examine the said aspect and not to allow the said agreement of quasi-arbitration to be confused with the agreement of arbitration proper. There may be different ways in which this problem might be solved. But, in our opinion, the only proper way would be for the Court, to examine the decision of the named officer and decide whether it is a judicial or a quasi-judicial decision or a mere administrative or a decartmental decision. If it be a departmental or an administrative decision, the Court ought to reject it and hold it not to be final and binding on the parties. In that event, the Court ought to decide the question on merits upon whatever material the parties might produce before the Court. After doing that, the Court might refer the dispute to arbitration (arbitrator?) in accordance with Clause 62 of the agreement in the present case. In our opinion, following some other procedure will be cumbrous and it may not meet the requirements of the situation. The learned counsel for the contractor insisted on the said question under Clause 54 of the agreement to be referred to the arbitrator named in Clause 62 of the agreement. However, we are unable to accept that suggestion for the simple reason that Clause 62 of the agreement specifically excludes any decision given by the Chief Engineer or other officer under Clause 54 of the agreement from the jurisdiction of the arbitrator named under Clause 62 of the agreement Therefore, we feel that the procedure suggested by us would be the only proper procedure to be followed in these cases. Therefore, we reject the contention of the learned counsel for the contractor. Pannalal Malviya and we have suggested a middle course which would meet the ends of justice.
10. In this connection we might advert to some decided cases. In Hickman & Co. v. Roberts, 1913 AC 229 Lord Loreburn. L.C. observed that the valuer or the architect, who was to have issued a certificate, had not acted judicially but he had acted in the interest of one of the parties and, therefore, he was not fit to issue a certificate. In that view the certificate issued by the architect was altogether ignored and the other Law Lords agreed with that view. Thus, where a person is appointed as an authority to adjudicate on certain matters and whose decision becomes final and binding on both the parties and where such a person happens to be an employee of one of the parties, it is all the more necessary for him to act in judicial capacity and not in an administrative or a departmental capacity.
11. Similarly, in Bristol Corporation v.John Aird & Co., 1913 AC 241 LordAtkinson, with whom the other LawLords concurred, made the following observations:--
'If a contractor chooses to enter into a contract binding him to submit the disputes which necessarily arise to a great extent between him and the engineer of the persons with whom he contracts, to the arbitrament of that engineer, then he must be held to his contract. Whether it be wise or unwise, prudent or the contrary, he has stipulated that a person who is a servant of the person with which he contracts shall be the judge to decide upon matters upon which necessarily that arbitrator has himself formed opinions. But though the contractor is bound by that contract, still he has a right to demand that, notwithstanding those preformed views of the engineer, that gentleman shall listen to argument and determine the matter submitted to him as fairly as he can as an honest man; and if it be shown in fact that there is any reasonable prospect that he will be so biassed as to be likely not to decide fairly upon those matters, then the contractor is allowed to escape from his bargain and to have the matters in dispute tried by one of the ordinary tribunals of the land. But I think he has more than that right. If. without any fault of his own, the engineer has put himself in such a position that it is not fitting or decorous or proper that he should act as arbitrator in any one or more of those disputes, the contractor has the right to appeal to a Court of law and they are entitled to say, in answer to an application to the Court to exercise the discretion which the 4th section of the Arbitration Act vests in them. 'We are not satisfied that there is not some reason for not submitting this question to the arbitrator'.'
Thus, according to the learned Law Lords, an architect and an engineer placed in such a position is required to act judicially. If he had not acted judicially, then the matter can be tried by an ordinary Court of law.
12. In AIR 1935 Mad 356 Varadachariar, J., on behalf of the Court made the following observations :--
'Our attention has been drawn to several cases dealing with the position of architects or engineers whose decision is made final, in respect of contracts whose execution is put under their supervision. It is not necessary to refer to them in detail. There has no doubt been a consensus of opinion that they are not 'arbitrators' in the sense in which that term is used in the Arbitration Act, but all the cases recognise that whether called arbitrators or quasi-arbitrators or by any other label, they are, when exercising that kind of power discharging 'judicial' functions. Decisions of the Privy Council and of the House of Lords particularly empihasize that engineers placed in that situation, especially when they happen to be the employees of one of the contracting parties, are in a very delicate and embarrassing situation and while on the one hand it is true that the other party is bound by by a contract into which he has entered with his eyes open knowing that finality is attached the decision of an employee of the other side, that party is entitled to insist that that person should have acted judicially with a full realisation of the responsibilities of his position in dealing with a matter of that kind.'
13. It is, therefore, clear that it is for the Court ultimately to find if there is any decision of the architect or the engineer which had become final. If the Court finds that there is a judicial decision, it may give effect to the same. In the present case this question can in no case be referred to the arbitrator named under Clause 62 of the agreement. If the Court finds that there is no decision judicially arrived at by the architect or the engineer named in Clause 54 of the agreement, in that event, the Court might declare that decision of the architect Or the engineer to be of no legal effect and it will be open to the parties to have that adjudicated upon in a Court of law or at any rate, in the proceedings that might be pending in the law Courts. But in no case can it be made the subject-matter of arbitration contemplated by Clause 62 of the agreement. It would be for the parties and the Court before which the question comes up for consideration to devise proper ways and means to have such a question adjudicated upon.
14. As a result of the discussion aforesaid, we feel that the order of the learned trial Judge is required to be modified by directing that the trial Judge shall first decide the question relating to deviation, which the Chief Engineer or some other officer may have decided as per Clause 54 of the agreement. If the said decision is found to have been arrived at judicially, the trial Judge may uphold the same. But, if it is found to be administrative or departmental decision, the trial Judge may leave the parties to seek their remedy in that behalf or if any of the parties makes a request for converting the present proceedings into a suit, the trial Judge may permit. It is to be noted that the said question cannot at all be referred to the arbitrator contemplated by Clause 62 of the agreement. Therefore, the trial Judge can either uphold that decision arrived at under Clause 54 of the agreement or can declare it to be of no legal effect. These are the only two courses open to the Court. It is however, open to the Court to refer to the arbitrator other questions as per Clause 62 of the agreement. It is necessary to follow this course as the decision of the dispute under Clause 54 of the agreement may have a bearing on the dispute under Clause 62 of the agreement and without adjudicating on the dispute under Clause 54 of the agreement, it will not be possible for the arbitrator to adjudicate on the dispute under Clause 62 of the agreement We have also given a thought to the question whether the provisions of the Arbitration Act, 1940, can be applied to a dispute under Clause 54 of the agreement. However, in view of the decided cases mentioned by us above, we do not find it possible to apply the provisions of the Arbitration Act, 1940. Such an agreement in which an engineer or an architect is liable to decide certain disputes cannot exactly be said to be agreements of arbitration although it is incumbent on the architect or the engineer to act judicially. Therefore, the only scope that the Court has in this matter is to examine whether there has been a judicial decision and if the Court finds it to be a judicial decision, then it must uphold it. If not, it is only the Court which will have the jurisdiction to decide such a dispute on merits and in any event, the arbitrator named in Clause 62 of the agreement, will have no jurisdiction to decide that dispute. We hope, we have clarified the position sufficiently and there would be no confusion hereafter.
15. Consequently, we modify the order of the trial Judge with a direction to act in accordance with the observations made by us above. However, in view of the divided success of both parties, we direct that costs of this Court as also the trial Court shall be borne as incurred. Consequently, both the appeals are partly allowed to the extent indicated and the order of the trial Judge is modified accordingly.