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State of Orissa Vs. Gobind Choudhury and Sons - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtOrissa High Court
Decided On
Case NumberCivil Revn. No. 385 of 1968
Judge
Reported inAIR1969Ori280; 35(1969)CLT592
ActsArbitration Act, 1940 - Sections 8(2), 11(1) and 12(2); Constitution of India - Article 299(1)
AppellantState of Orissa
RespondentGobind Choudhury and Sons
Appellant AdvocateD.P. Rath, Addl. Standing Counsel
Respondent AdvocateR.N. Misra, Adv.
DispositionPetition dismissed
Cases ReferredUnion of India v. A.L. Rallia Ram
Excerpt:
.....decision, they appointed an umpire as provided in the arbitration clause who ultimately passed the award. the contracts for sale of 'war disposal' goods were 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. the correspondence therefore clearly indicates that execution of a separate agreement in form f-2 relating to the construction of superstructure was contemplated between the contractor on one side and the chief engineer acting on behalf of the state on the other. except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings, and instructions hereinbefore mentioned and as to the quality of workmanship, or..........in terms require that a formal document executed on behalf of the dominion of india, and the other contract party, alone is effective, and that a valid contract may result from correspondence if the requisite conditions are fulfilled. their lordships further observed: 'in the absence of any direction by the governor general under section 175(3) of the government of india act prescribing the manner, a valid contract may result from correspondence if the requisite conditions are fulfilled. the contracts for sale of 'war disposal' goods were 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.....
Judgment:

Patra, J.

1. This application in revision is directed against an order of the Subordinate Judge, Berhampur allowing an application under Sections 8(2), 11(1) and 12(2) of the Arbitration Act filed by opposite party praying to refer a certain dispute between the parties to the arbitration of Sri S.K. Palit, retired Chief Engineer of the Government of Orissa. The opposite party who is a contractor had been entrusted by Government with the construction of a bridge over the river Rushikulya near Purushottampur in Ganjam district. He completed the construction of the bridge proper minus the super-structure. As certain disputes arose between the parties regarding rates of payment, the matter was referred to the arbitration of Shri S.K. Palit, a retired Chief Engineer of the Government of Orissa who, in due course, passed an award.

It is the' common case of both the parties that in the award so passed, Shri Palit not only gave his decision in regard to rates for the work already completed but also indicated the rates at which the Contractor should be paid for the super-structure. When that award was sought to be enforced, the State of Orissa contended inter alia that the award of the Arbitrator in so far as it related to the super-structure was outside the scope of the reference. It is the case of both the parties that the matter relating to that award is pending decision in this Court in First Appeal No. 140 of 1987.

2. Meanwhile, at a conference held at the Secretariat which was attended amongst others by the Secretary, Works Department, the Chief Engineer, Roads & Buildings and the opposite party, it was agreed that the construction of the super-structure of the Rushikulya bridge at Purshottampur should be completed by the opposite party for which he should execute a fresh agreement. Accordingly, the opposite party undertook and completed the work. As disputes arose between the parties regarding payment for this work, the opposite party served a notice dated 2nd March 1968 on the Executive Engineer, Roads & Buildings Berhampur Division, requesting him to refer the dispute to the arbitration of Shri S.K. Palit, and as obviously this was not complied with, he filed the application under Sections 8(2), 11(1) and 12(2) of the Arbitration Act in the Court of the Subordinate Judge, Berhampur.

That application was contested by the State Government on the main ground that as the present dispute is connected with the dispute which is the subject matter of F. A. No. 140 of 1967 pending in this Court, the application is not maintainable. The learned Subordinate Judge held that the previous dispute which is the subject matter of F. A. No. 140 of 1967 arose out of an agreement between the parties for construction of the bridge minus the superstructure whereas, the present matter arises out of the subsequent agreement for construction of the super-structure of the bridge and that as such the previous award of 1965 which is the subject matter of F. A, 140/67 has nothing to do with the present dispute. In this view of the matter, he allowed the application and directed the parties to file a panel of names for consideration of the Court regarding appointment of an arbitrator. It is against this order, that the present revision application has been filed.

3. It is clear from the letter dated 10-8-66 addressed by the opposite party to the Secretary, Works Department, Government of Orissa, which is on record, that the work of construction of the super-structure over the bridge is a work independent of the construction of the bridge minus the super-structure, although the Contractor for both the works has been the same person. The previous award passed by Sri S.K. Palit has not been produced in this case and it is therefore not known under what circumstances Sri Palit in the previous award, had given certain directions regarding the rates at which payment should be made for the super-structure which admittedly had not been constructed by the time the award was given. During the course of the argument in this case, Sri R.N. Misra appearing for the opposite party stated that he on his part is prepared to abide by the award already given by Sri Palit regarding the super-structure, if it is the contention of the State that both the items of work are inter-connected and that what Shri Palit has decided about the super-structure is binding on the parties.

The learned Counsel appearing for the petitioner was not however agreeable to such a course. Shri Misra also indicated that if the present application for arbitration regarding the super-structure is allowed, he would not dispute the contention of the State in the First appeal that Sri Palit's award regarding superstructure may be ignored. Apart from the fact that the stand which the State took in the Court below, that the present arbitration proceeding would not be maintainable in view of Sri Palit's award in the previous dispute, is inconsistent with the stand taken by the State in the previous proceeding that the award so far as it relates to the super-structure is beyond the scope of the previous reference. I agree with the finding of the learned Subordinate Judge, having regard to the correspondence on record that the work relating to the superstructure is distinct and separate from the work of the construction of the bridge minus the super-structure.

4. The other ground on which the application of the opposite party is opposed is that the opposite party having not executed an agreement in the manner laid down under Article 299 of the Constitution, he cannot claim a reference of the dispute to arbitration. In support of this contention reliance is placed on a decision of the Supreme Court in K.P. Chowdhury v. State of Madhya Pradesh, AIR 1967 SC 203. The short facts of that case are these. The appellant, a forest contractor, agreed to bid for certain contracts in pursuance of the notification issued by the Divisional Forest Officer, for auction of various contracts in that Division. The conditions of the auction specified inter alia (i) that any bidder had to sign a sale notice in token of his agreement to abide by the conditions of the contract and to deposit a sum of Rs. 500/- as earnest money before he could take part in the bidding; (ii) that the sales of contracts beyond the power of sanction of the Divisional Forest Officer were subject to the sanction of the competent authority and the bidder was bound by his bid until orders were passed by the competent authority; and (iii) that if the successful bidder failed to pay the amount of consideration or to complete the formalities, the earnest money deposited by him was to be forfeited to Government and the contract was to be reauctioned at the risk of the bidder and any deficiency occurring was to be recoverable from the bidder as arrears of land revenue.

The appellant successfully bid for certain contracts, and the consideration therefor being beyond the power of the Divisional Forest Officer they were referred to the Chief Conservator of Forests who had the necessary authority to accept the bid. After the close of the auction, the appellant had signed the contract form as required under the rules, and the documents were also sent to the Chief Conservator of Forests for his sanction. Before, however, the contract was accepted, the appellant raised a dispute as to the marking of the trees according to the material notified at the time of auction and as the dispute was not settled, he refused to complete the contract or to pay any instalment of consideration as per the rules. After due notice to the appellant, the contract was reauctioned and the deficiency was sought to be enforced against the appellant as arrears of land revenue.

It was held by their Lordships of the Supreme Court that there was no contract between the appellant and the Government before the bid at the auction, nor was there any contract between him and the Government after the auction was over as required by Article 299(1) of the Constitution and further in view of the mandatory terms of Article 299(1), no implied contract could be spelled out between the Government and the appellant at the stage of bidding, because Article 299 in effect ruled out all implied contracts between Government and other persons. In the course of discussion, their Lordships referred with approval to their previous decision in Union of India v. A.L. Rallia Ram, AIR 1963 SC 1685, a decision on which considerable reliance is placed by Sri R.N. Misra appearing for the opposite party in this case. That was a case relating to the enforceabilifcy of an arbitration agreement which, as in the present case, had not been executed in accordance with Section 175(3) of the Government of India Act 1935 which is practically in the same terms as Article 299(1) of the Constitution.

The short facts of that case are that a tender notice was issued by the Government of India, Department of Food in the name of the Chief Director of Purchases who had authority to contract for sale of 'War disposal' goods and sign the contract. In his letter submitting a tender the respondent Rallia Ram offered to purchase certain goods at certain rates and conditions. The acceptance note was signed by the Chief Director of Purchases in his official designation without stating in the description that the contract was executed on behalf of the Governor General. To the acceptance note was enclosed Form No. F. p. (M) 70 setting out the general conditions of contract and this contained an arbitration clause to the effect that in the event of any question or dispute arising under those conditions the same shall be referred to the award of an arbitrator to be nominated in the manner indicated therein. Certain disputes having arisen in relation to this contract, the respondent intimated the Director General of Disposals that he had appointed a certain gentleman as arbitrator on his behalf in accordance with the arbitration clause and called upon the Director General to appoint his arbitrator. The Director General appointed another gentleman as his arbitrator and these two arbitrators having failed to arrive at a decision, they appointed an umpire as provided in the arbitration clause who ultimately passed the award.

When this award was sought to be enforced, a plea was taken on behalf of the Union of India that there was no legally binding contract between the Union of India and the respondent, for the acceptance note was not signed on behalf of the Governor General of India, and therefore, the entire proceedings were vitiated for want of compliance with Section 175(3) of the Government of India Act. Their Lordships while laying down that where the Dominion of India was a party to the arbitration agreement which is a contract within the meaning of Section 175(3) of the Government of India Act 1935, it must to bind the Dominion of India, be made in the form prescribed under that section, held that Section 175(3) does not in terms require that a formal document executed on behalf of the Dominion of India, and the other contract party, alone is effective, and that a valid contract may result from correspondence if the requisite conditions are fulfilled. Their Lordships further observed:

'In the absence of any direction by the Governor General under Section 175(3) of the Government of India Act prescribing the manner, a valid contract may result from correspondence if the requisite conditions are fulfilled. The contracts for sale of 'War Disposal' goods were 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).'

With reference to the facts of that case, their Lordships observed:

'The correspondence between the parties ultimately resulting in the acceptance note, in our judgment, amounts to a contract expressed to be made by the Government and therefore by the Governor General, because it was the Governor General who had invited the tender through the Director of Purchases, and it was the Governor General who through the Chief Director of Purchases accepted the tender of the respondent subject to the conditions prescribed therein. The authority of the Chief Director of Purchases to contract for sale of 'War disposal' goods and sign the contract is not denied. The Chief Director of Purchases has subscribed his signature in his official designation and he has not stated in the description that the contract was executed on behalf of the Governor-General, but on a fair reading of the contents of the letter, in the light of the obligations undertaken thereunder, it would be reasonable to hold that the contract was executed on behalf of the Governor General. No rules made by the Governor General have been placed before the Court showing that in executing a contract for the sale of 'War disposal' goods, the officer authorised id that behalf must describe himself as signing on behalf of the Governor General of India.'

As stated earlier, the decision in this case was referred to with approval by their Lordships of the Supreme Court in K.P. Chowdhury's case, AIR 1967 SG 203. The material distinction so far as the facts of the two cases go, appears to be that while in Rallia Rani's case, AIR 1963 SC 1685, the contract was complete except for the fact that a formal document was not executed, in Chowdhury's case, AIR 1967 SC 203, not only was there no execution of a formal document but before the contract was accepted by the Chief Conservator of Forests, certain disputes arose between the parties as a result of which the appellant Chowdhury refused to complete the contract.

5. Turning now to the facts of the present case, it is not in dispute that the construction of the super-structure which was completed by the opposite party is wholly different from the construction of the bridge as such (minus the superstructure). The correspondence which is on record shows that at a conference held at the Secretariat which was attended amongst others by the Secretary to Government, Works Department, the Chief Engineer, Roads and Buildings, and the Contractor, it was agreed that the Contractor should complete the superstructure over the bridge and that he should execute a fresh agreement for the purpose. On 18-3-67, the Executive Engineer, Roads and Buildings Division, Berhampur wrote a letter to the Contractor asking him to attend his office to sign the F-2 agreement relating to the construction of the bridge. In a letter dated 8th May, 1967, addressed by the Chief Engineer, Roads & Buildings to the opposite party he was told that no payment could be made to him in the absence of the agreement. The correspondence therefore clearly indicates that execution of a separate agreement in form F-2 relating to the construction of superstructure was contemplated between the Contractor on one side and the Chief Engineer acting on behalf of the State on the other. There is no dispute that the Chief Engineer is the properly authorised person who, in this case, would have signed the F-2 agreement on behalf of the State. Admittedly, the superstructure has already been constructed by the opposite party and it is now the property of Government. The Government far from ever repudiating the contract have been enjoying the benefits thereof, In these circumstances, it appears to me that the principles laid down by the Supreme Court in Rallia Ram's case, AIR 1963 SC 1685 referred to above fully apply to the facts of this case and that although a formal agreement in F-2 form had not been executed between the parties, yet having regard to the circumstances of the case and the correspondence between the parties, I hold that there has been substantial compliance of the requirements of Article 299(1) of the Constitution and that therefore the provisions in F-2 agreement would govern the rights and liabilities between the parties.

6. A copy of the prescribed F-2 agreement is on record. Clause 23 thereof which provides for arbitration is in the following terms:

'Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings, and instructions hereinbefore mentioned and as to the quality of workmanship, or materials used on 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, or otherwise concerning the work 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 Public Works Department 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, conclusive and binding on all parties to these contracts.'

7. The only two grounds urged against the correctness of the order of the learned Subordinate Judge are that (1) the present arbitration proceedings are not maintainable in view of the pendency of F. A. No. 140 of 1967 and (2) viewed as a separate and distinct transaction it is hit by Article 299(1) of the Constitution. For the reasons stated above, both the contentions must fail.

8. In the result, the revision petition fails and is dismissed, but in the circumstances, without costs.


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