C.P. Sen, J.
1. The plaintiff has preferred this appeal under Section 39(1) of the Arbitration Act, 1940, against the dismissal of its application under Section 20 of the Act.
2. The plaintiff-firm is a registered Engineering Contractor at Tawa in Ho-shangabad district. It submitted tender on 4-11-70 for Group VI-B of Tawa Project at Tawa. The tender was accepted by the State Government on 22-12-70 to the extent of the works amounting to Rs. 40 lacs. The acceptance of tender was communicated to the plaintiff on 29-12-70 by the Chief Engineer. The contract was signed on behalf of Governor of the State of M. P. by the Chief Engineer at Tawa on that date. The work was commenced by the plaintiff in January 1971 and continued up to February 1972. Under Clause 3-3-29 of the contract, the Superintending Engineer, Tawa, was the person in charge of the project and his decision was final on all questions. However, if the contractor was dissatisfied with his order, he could give a notice in writing to the Superintending Engineer for referring the dispute to Arbitration. The Government was the competent authority to appoint an arbitrator. On 16-10-1971 the Executive Engineer asked the plaintiff to get concurrence of the Reserve Bank of India regarding bank guarantee furnished by it and pending such furnishing of concur-rence, the running payments were stopped. In his letter dated 25-3-72 the Superintending Engineer stopped the work of the plaintiff under Clause 3-3-3 (c) of the contract. The plaintiff on 12-4-72 served a notice under Section 80 of C.P.C. on the defendants. The plaintiff then filed an application for temporary injunction before Civil Judge, Class II, Indore, on 17-4-72. On 22-4-72 the plaintiff served a notice on the Superintending Engineer to refer the dispute to Arbitrator which was forwarded by the Superintending Engineer to the State Government. It appears that the plaintiff failed in its attempt to get injunction from Civil Court at Indore restraining the defendants from allotting the work to a third party. In the meanwhile, the incomplete work was entrusted to M/s. Southern Engineering Works, Tawa. The plaintiff then filed a writ petition in the High Court challenging withdrawal of the work but the same was dismissed in limine on 18-10-72. The plaintiff thereafter filed Civil Suit No. 122-A/72 for declaration and perpetual injunction against the defendants in the Court of Civil Judge, Class I. Bhopal. The plaint was returned on 20-11-72 to the plaintiff for presentation to the proper court as that Court had no jurisdiction to proceed with the suit. The plaintiff then filed the present peti-tion under Section 20 of the Arbitration Act on 20-12-72 in the Court of Third Additional District Judge, Bhopal pray-ing that the arbitration agreement be filed in Court and an independent person be appointed an Arbitrator to decide the dispute between the parties. The petition has been dismissed by the trial Judge on 31-10-73. On the same day he also dismissed the plaintiffs appeal against return of its plaint in civil suit No. 122-A/72. Aggrieved by both the orders, the plaintiff filed this appeal and Civil Revision No. 227 of 1974. During arguments the plaintiff only pressed this appeal and it did not press the revision.
3. The plaintiff has assailed the findings of the trial Judge that (i) the Court at Bhopal had no jurisdiction to proceed with the matter as no part of cause of action arose at Bhopal, (ii) the plaintiff having filed suit prior to the filing of this application on the same cause of action, the conduct of the plaintiff amounts to waiver of its right under the arbitration Clause regarding compensation due to it because of the breach of contract, (iii) no specific dispute has been raised by the plaintiff in its notice dated 22-4-72 to the Superintending Engineer and (iv) the order of the Superintending Engineer withdrawing work from the plaintiff has become final and the same cannot be annulled by the Arbitrator.
4. In this appeal it is contended on behalf of the appellant that the trial Judge was in error in holding that the Court at Bhopal had no jurisdiction to proceed with the matter. The contract Was for construction of dam and the construction of dam being a business, the suit could be filed at Bhopal where the State Government is located. The suit could also be filed at Bhopal because the tender was accepted at Bhopal by the State Government. Filing of suit does not amount to waiver of the arbitration clause. The trial Judge was also in error in going into the merits of the claim which was a matter within the exclusive jurisdiction of the Arbitrator. The trial Judge further erred in holding that the order of the Superintending Engineer withdrawing the work from the plaintiff has become final. It is certainly open to the Arbitrator to go into the question whether the Superintending Engineer could have validly withdrawn the work from the plaintiff in absence of any breach committed by the plaintiff. The withdrawal of the work by the Superintending Engineer itself is a dispute and the State Government having not appointed an Arbitrator as per clause of the contract, the plaintiff is entitled to file this application under Section 20 of the Arbitration Act. The defendants on the other hand supported the order of the trial Judge and contended that no error has been committed by him and the plaintiff's application has been rightly dismissed.
5. The application under Section 20 could be filed in any Court having jurisdiction in the matter to which the agreement relates. The plaintiff in its application under Section 20 has not shown as to how the cause of action arose within the jurisdiction of the Bhopal Court. On the other hand, the defendants in their written statement submitted that the plaintiff submitted tender at Tawa in Hoshanga-bad District. The acceptance of tender was communicated to the plaintiff on 29-12-70 at Tawa by the Chief Engineer and the contract was also executed on that day by the Chief Engineer on behalf of Governor of M. P. The work was to be executed at Tawa. The Superintending Engineer, who was the final authority and who was in-charge of the work, had his headquarters at Tawa. The running bills were payable at Tawa. The payments of running bills were stopped by the Executive Engineer at Tawa on 16-10-71, though subsequently payments were made. The work was stopped under Clause 3-3-3 (c) by the Superintending Engineer at Tawa. Therefore, no part of cause of action arose at Bhopal. On the preliminary issue regarding jurisdiction, the plaintiff led no evidence and it has simply tiled 3 documents, i.e. its notice dated 22-4-72 to the Superintending Engineer and the reply of the Superintending Engineer. As against this, the defendants have filed the contract document and the correspondence between the parties and have examined the Divisional Accountant Taranekar at Tawa.
6. Under Section 20 of C.P.C. a suit could be filed at the place where the defendants or any of them actually and voluntarily resides or carries on business or personally works for gain and (ii) where cause of action wholly or in part arises. It is now settled law that the words 'actually and voluntarily re-sides' do not apply to Union of India or State Government. They refer only to natural persons and not to legal entities. However, the Government can carry on business and, therefore, a suit can be filed where the business is carried on. The Supreme Court in Union of India v. Ladulal Jain, AIR 1963 SC 1681 has held as under (at pp. 1683, 1684, 1685):--
'The expression 'voluntarily resides' or 'personally works for gain' cannot be appropriately applied to the case of the Government. The Government can, how- ever, carry on business. The mere fact that the expression 'carries on business' is used along with the other expressions, does not mean that it would apply only to such persons to whom the other two expressions regarding residence or of personally working for gain would apply.
The provisions of Article 298 and Article 19(6) of the Constitution clearly indicate that the State can carry on business and can even exclude citizens completely or partially from carrying on that business. It is not denied that running of railways was a business when the railways were run by private companies and individuals. There appears to be no good reason to hold that it ceases to be a business when the railways are run by the Government. It is the nature of the activity which defines its character. Running of railways is such an activity which comes within the expression 'business'. The fact as to who runs it and with what motive cannot affect it.
The Union of India thus carries on the business of running railways and the Union Government can be sued in a court within whose territorial jurisdiction the headquarter of the railway run by the Union is situated.'
7. The question, therefore, is whether construction of dam amounts to carrying on business by the Government. Firstly, there is no plea to this effect nor any material placed on record to show as to how construction of dam will amount to carrying on business. Under the directive principles of the Constitution, State is required to promote welfare of the people, economic activity and proper development of the State so as to promote agriculture and industries in order to improve living conditions of the people and expand social and cultural activities. The plaintiff, under the circumstances, should have placed material to show that the construction of Tawa Project was only a business proposition and not under any of the duties cast on the State under the directive principles of the Constitution. In the absence of any material on record the learned trial Judge was justified in rejecting the contention of the plaintiff that construction of dam is a business activity by the State. A suit based on contract can be filed (i) at a place where the contract was made or (ii) where breach was committed. The Court at Bhopal could only have jurisdiction if any part of cause of action arose within its jurisdiction. The plaintiff for this purpose relies on the fact that its tender was accepted by the State Government at Bhopal and so, according to it, the contract was completed at Bhopal and the application was rightly filed at Bhopal. The contention is without any merit. No valid or binding contract came into being on the mere acceptance of the tender by the Government. It is true that the tender was accepted by the State Government and as stated by Shri Taranekar (P. W. 1) that contracts of more than 5 lacs in value could only be accepted by the State Government, but the acceptance was communicated to the plaintiff through the Chief Engineer at Tawa. The communication of acceptance was complete when it was communicated to the plaintiff. This was at Tawa. The suit contract was also executed at Tawa by the Chief Engineer on behalf of Governor of State of M. P. Therefore, a valid and enforceable contract came into force at Tawa under Article 299 of the Constitution when the same was executed by the Chief Engineer on behalf of the Governor of State of M. P. The withdrawal of the work from the plaintiff was also at Tawa by the Superintending Engineer. The withdrawal of the work came into force when it was communicated to the plaintiff at Tawa. Simply sending a notice to the defendants for appointment of an Arbitrator would not give a cause of action at Bhopal. As such, cause of action wholly arose within the jurisdiction of the Hoshangabad Court and no part of cause of action arose within the jurisdic-diction of Bhopal Court. We, therefore, affirm the finding of the trial Judge on this question.
8. After having found that it had no jurisdiction to entertain the application under Section 20 of the Arbitration Act, the trial Judge was in error in proceeding to decide the other issues. The proper course was to return the application for presentation to the proper Court. His findings are also open to question. The Supreme Court in Union of India v. M/s. Chaman Lal & Co., AIR 1957 SC 652 has held that on an application under Section 20, ordinarily the only point for decision for the court was if there was an arbitration agreement and the question of liability was one for the arbitrator and not for the Court to decide. Therefore, it is for the Arbitrator to go into the question of merits of the claim of the respective parties. Under the arbitration clause it is open to the Arbitrator to examine the question as to whether any breach of the contract has been committed and by whom. Though the Arbitrator cannot annul the withdrawal of the work from the plaintiff and direct the contractor to proceed with the work but certainly he can award damages for the breach committed, if any. But this fact itself will not divest the Arbitrator of its jurisdiction to adjudicate in the dispute between the parties. The plaintiff has challenged withdrawal of the work and that itself is a dispute to be decided by Arbitrator whether the withdrawal of work was justified or not. We, however, express no final opinion on this question and leave it open for decision by the competent Court. The adverse findings on other questions are not binding on the plaintiff and it can reagitate the matter before the competent Court.
9. Accordingly, the appeal fails and it is dismissed with costs. Counsel's fee Rs. 200, if certified.