R.N. Misra, C.J.
1. Both these appeals under Section 39(1)(iv) of the Arbitration Act of 1940 are against the common order of the learned Subordinate Judge of Bhubaneswar. M. A. No. 249 of 1981 is by the State of Orissa and the Chief Engineer of Public Health who were defendants 1 and 2 in the suit and the other appeal is by the Lift Irrigation Corporation Ltd. who was defendant No. 3 in the suit.
2. Plaintiff-respondent No. 1, a firm of plumbers, filed an application under Section 20 of the Arbitration Act before the learned trial Judge alleging that in response to invitation of tenders for sinking of tube wells for drinking water purposes, issued by the defendants, it had submitted quotations and its quotations being the lowest were accepted. Plaintiff alleged that in 1965 there was severe drought in the district of Sundergarh and decision was taken by the authorities to sink one hundred drinking water tube wells and it was taken up as a crash programme and the work had to be completed within three months ending with 31st of March, 1966. It was alleged that the quotations of the plaintiff were accepted and it was asked to execute the work with a view to completing the same within the target date. No formal agreement was executed. Plaintiff claims that it had sunk 83 tube wells and was entitled to Rs. 3,77,347/- but was paid Rupees l,45,478/-. After the tube wells were sunk they were transferred to the control of the Chief Engineer, Public Health, as also the Director of Lift Irrigation. These two establishments ultimately merged into a Corporation to be known as the Lift Irrigation Corporation Limited (defendant No. 3). Plaintiff asked for settlement of the claims but when no heed was paid to the demands, the learned Trial Judge was moved by an application under Section 20 of the Arbitration Act.
3. Defendants 1 and 2 filed a common written statement while the third defendant filed a separate one. In paragraph-5 of the State's written statement, it was admitted that the work had been entrusted to the plaintiff. In paragraph-6, it was pleaded:--
'That Codal provisions under paragraph 56 dealing with administrative approval, paragraphs 112-120 dealing with inviting tenders, paragraphs 223-225 dealing with recording of measurement of works done and paragraphs 124-125 dealing with executive contract etc. of the P. W. D. Code have not been followed. In the name of speedy execution of work, there has been a complete deviation from rules and procedure.'
In paragraph 8 of the application under Section 20, plaintiff had indicated that in the tenders and quotations, the following clause was included:--
'Except where otherwise provided in the contract, all questions and disputes relating to the meaning of the specification, drawings and instructions therein before-mentioned and as to the quality of workmanship or materials used in the work or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of a Superintending Engineer of the State P. W. D. unconnected with the work at any stage nominated by the concerned Chief Engineer. If there be no such Superintending Engineer, it should be referred to the sole arbitration of the Chief Engineer concerned. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant. The award of the arbitrator so appointed shall be final, conclusiveand binding on all parties to this contract.'
With reference to the allegations in paragraph 8 of the application under Section 20, in paragraph 4 of the written statement of the State and the Chief Engineer, it was stated that the defendants had no comments.
The third defendant in its separate written statement in paragraph 10 pleaded :--
'That it is seen from the available records of the office of defendant No. 3 that no tenders were invited as the work was entrusted on an emergent basis. The contractors were selected on personal contact and they have been asked to take up the installation work. There is no evidence to establish that contracts have been signed for the necessary agreement. Hence the question of applying arbitration clause against this defendant for any settlement does not arise in this case.'
4. Before the learned Trial Judge, the main dispute was as to whether there was any contract containing an arbitration clause which alone could justify an application under Section 20 of the Arbitration Act. The learned Trial Judge referred to a case of this Court reported in (1969) 35 Cut LT 592 : (AIR 1969 Orissa 274) (State of Orissa v. Gobind Choudhury & Sons) and the celebrated decision of the Supreme Court in the case of Union of India v. A. L. Rallia Ram, AIR 1963 SC 1685. He also came to hold that the plaintiff-firm had submitted tenders and the same had been accepted before the work was executed. He, therefore, spelt out the existence of an arbitration clause and allowed the application and directed the tender papers and quotations containing the arbitration clause to be filed. This direction is assailed in these appeals.
5. The judgment was delivered on 20th of July, 1981 and the trial court directed the tender papers and quotations to be filed. The order dated 7-8-1981 is relevant and is extracted :--
'The defendants had been directed to file the tender papers and the quotation submitted by the plaintiff as admittedly there was no agreement and the tender paper contains arbitration clause. The defendant No. 1 filed some papers which contained the quotation submitted by the plaintiff and a note submitted by Executive Engineer, Lift Irrigation, Sanibal-pur to the Director, Lift Irrigation, which also shows that tenders were invited from local contractors for installation of tube wells. His note further shows that the work had been entrusted to Sri B. K. Parida and Brothers for installation of tube wells. The tender paper has not been filed either by defendant No. 1 or by defendant No. 3. Defendant No. 3 has filed a memo today that no tender papers are available with them. The tender papers are supposed to be in custody of either defendant No. 1 or defendant No. 3. When the same is not produced and a memo is filed that they are not traced adverse inference is to be drawn against the defendants that if the tender papers are filed, the same are likely to go against the interest of the defendants. Since the plaintiff has specifically pleaded that the tender papers contain the arbitration clause and the correspondence filed by the defendant No. 1 shows that the work had been entrusted to the plaintiff, the parties are directed to file a panel of names for appointment of Arbitrator.....'
I have already pointed out that the plaintiff had specifically pleaded that there were tender papers containing the arbitration clause which has been extracted in the petition. Defendants 1 and 2 have specifically indicated in their written statement that they had nothing to comment about the plaintiff's averment. Admittedly, the third defendant was not in existence when the work was executed and the work had either been handled by the Chief Engineer (defendant No. 2) or the Director of Lift Irrigation before the Corporation was formed. The Corporation (defendant No. 3) has also not specifically pleaded that there was no tender paper. It has only taken the stand that no such papers are forthcoming from its records. In the absence of any denial by defendants 1 and 2, the learned Trial Judge was entitled to come to the conclusion that there were tender papers and the arbitration clause as pleaded by the plaintiff was a part of the same.
6. Admittedly no contract has been executed. The question for consideration, therefore, is whether from the correspondence and the conduct of the parties, the existence of an arbitration clause can be spelt out. The Supreme Court in the case of Jugal Kishore v. Mrs. Goolbai Honmusji, AIR 1955 SC 812 (at p. 815) held :--
'.....it is settled law that to constitute an arbitration agreement in writing it is not necessary that it should be sign-ed by the parties, and that it is sufficientif the terms are reduced to writing andthe agreement of the parties thereto isestablished.'
In the case of Union of India v. A. L.Rallia Ram, AIR 1963 SC 1685, the Courthad two aspects to consider -
(i) Whether there was an arbitration agreement within the meaning of Section 2(a) of the Arbitration Act; and
(ii) Whether the requirements of Section 175(3) of the Government of India Act, 1935 (corresponding to Article 299 of the Constitution of India) had been satisfied. Dealing with these aspects, Shah, J., as the learned Judge then was, speaking for the Court observed (paras 10, 11):--
'The authority of an arbitrator depends upon the authority conferred by the parties by agreement to refer their differences to arbitration. By Section 2(a) of the Arbitration Act, 1940 arbitration agreement means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. A writing incorporating a valid agreement to submit differences to arbitration is therefore requisite; it is however not a condition of an effective arbitration agreement that it must be incorporated in a formal agreement executed by both the parties thereto, nor is it required to be signed by the parties. There must be an agreement to submit present or future differences to arbitration, this agreement must be in writing, and must be accepted by the parties. Clause 13 in Form F. D. (M) 70 fulfils all these requirements. But the Dominion of India being a party to the arbitration agreement, to be binding the agreement had also to conform to the requirements of Section 175(3) of the Government of India Act, 1935, for an arbitration agreement is a contract within the meaning of the Government of India Act and it must, to bind the Dominion of India, be made in the form prescribed by that section. The question which then falls to be determined is whether the letter accepting the tender of the respondent conformed to the requirements of Section 175(3) of the Government of India Act.
Section 175(3) does not in terms require that a formal document executed on behalf of the Dominion of India, and the other contracting party, alone is effective. In the absence of any direction by the Governor-General under Section 175(3) of the Government of India Act pre-scribing the manner, a valid contract may result from correspondence if the requisite conditions are fulfilled. The contracts for sale of war disposal goodswere not directed by the Governor-General to be made by a formal document executed on behalf of the Governor-General as well as by the purchasing party. It is true that Section 175(3) uses the expression executed but that does not by itself contemplate execution of a formal contract by the contracting parties, A tender for purchase of goods in pursuance of an invitation issued by or on behalf of the Governor-General of India and acceptance in writing which is expressed to be made in the name of the Governor-General and is executed on his behalf by a person authorised in that behalf would conform to the requirements of Section 175(3).'
It is the plaintiff's case that the tender contained the arbitration clause, plaintiff gave quotations on the basis of the tender and the quotations were accepted and the plaintiff was asked to execute the work. The learned Trial Judge has also accepted this stand of the plaintiff.
A Division Bench of the Calcutta High Court in the case of Union of India v. Himco (India) Private Ltd., AIR 1965 Cal 404, on similar facts as here came to hold that the consensus of both the parties to the terms embodied in acceptance of tender in writing has been established and relying on the observations of Venkatarama Ayyar, J. in Jugal Kishore's case (AIR 1355 SC 812), held that an arbitration clause could be spelt out.
In view of the non-denial of the plaintiffs' assertion to the existence of arbitration clause in the tender, defendants 1 and 2 are precluded from raising this question. Plaintiff's plea with reference to existence of the arbitration clause was a plea of fact and when there was no denial, it must follow that there was no dispute which could be put as an issue for determination. As I have already pointed out, it is the admitted position that the third defendant was not in existance at the relevant time. Therefore, the competent parties to plead in denial were defendants 1 and 2. As they have not disputed the existence of the tender paper, the plea raised before the Trial Judge at a subsequent stage should not have been entertained.
7. No other question was canvassed at the hearing. Since I have repelled the contentions of learned Advocate-General appearing for the State with reference tothe point canvassed, these appeals must fail and are dismissed. Parties are directed to bear their own costs in this Court.