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Hydro-tech,engineers and Contractors Vs. State of Kerala - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKerala High Court
Decided On
Case NumberA.R.No.27 of 2010
Judge
Reported inILR2011(1)Ker817
ActsThe Arbitration and Conciliation Act 1996 - Sections 11(6), 11(8); The Awards Act - Sections 3, 2(1)
AppellantHydro-tech,engineers and Contractors
RespondentState of Kerala
Advocates:SRI.RAJIV ABRAHAM GEORGE, Adv.
Cases ReferredThiruvananthapuram vs. P.T.Chacko
Excerpt:
.....and the tender submitted by the petitioner was accepted by the first respondent. on 25.3.2004, contract agreement was entered into between the applicant and the first respondent acting through the second respondent. 3. disputes and differences arose between the parties in relation to the work. correspondence took place between the parties. annexure a6 letter dated 22nd march 2010 issued by the applicant indicates that the applicant had requested for holding a mutual discussion and the project director was requested to indicate the convenient dates. mutual discussion is contemplated under clause 24.1 of the conditions of contract act forming part of the agreement. however, no discussion took place. the applicant invoked the arbitration clause contained in clause 24.2 of the conditions.....
Judgment:

1. The question involved in this Arbitration Request is whether the dispute is arbitral in view of the bar contained in the Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998, Act 12 of 1998(hereinafter referred to as the 'Awards Act').

2. The Government of Kerala, acting through the Special Officer, Theerapatham Urban Development Project, invited tenders for the work of "Water Supply Project (Short-Term) in Identified Water Scarce Areas ofThiruvananthapuram City" as per Tender Notice dated27.10.2003. The applicant submitted tender as a joint venture along with M/s.Kirloskar Brothers Ltd., Pune andM/s.Godavari Polymers Pvt. Ltd., Hyderabad. The tenders were considered and the tender submitted by the petitioner was accepted by the first respondent. On 25.3.2004, contract agreement was entered into between the applicant and the first respondent acting through the second respondent.

3. Disputes and differences arose between the parties in relation to the work. Correspondence took place between the parties. Annexure A6 letter dated 22nd March 2010 issued by the applicant indicates that the applicant had requested for holding a mutual discussion and the Project Director was requested to indicate the convenient dates. Mutual discussion is contemplated under clause 24.1 of the Conditions of Contract Act forming part of the agreement. However, no discussion took place. The applicant invoked the arbitration clause contained in clause 24.2 of the Conditions of Contract. The applicant nominated and appointed Justice B.M.Thulasidas, Former Judge of the High Court of Kerala as one of the arbitrators. The respondents were requested to nominate "the employer's nominee arbitrator". No reply was sent by the respondents to Annexure A6 letter. Therefore, the applicant has filed this Arbitration Request under Section 11(6) and (8) of the Arbitration and Conciliation Act, 1996.

4. Clauses 24.1 and 24.2 of the General Conditions of Contract provide for Dispute Resolution by arbitration, which read as follows:

"24.1 Dispute Resolution Procedure If there is any difference or dispute or controversy relating to or arising out of this agreement, the same shall be mutually discussed and resolved between the parties within fifteen working days. If the dispute or controversy hasnot been resolved mutually by the parties, thesame shall be referred for arbitration as under.24.2 ArbitrationIn the event that the parties are unable toresolve any dispute, controversy or claim relatingto or arising out of this agreement, such dispute,controversy or claim shall be finally settled by a panel of arbitrators (the "Arbitration Panel"), inaccordance with the Arbitration & ConciliationAct, 1996.The Arbitration Panel consists of threearbitrators.The employer shall appoint onearbitrator and the contractor shall appoint onearbitrator. The two arbitrators so appointed shallappoint a third arbitrator, who will be thePresiding Arbitrator and thearbitrationproceedings shall be conducted in accordancewith the Arbitration & Conciliation Act, 1996.Any award by the Arbitration Panel shall bebinding on the parties. The venue of arbitrationshall be Thiruvananthapuram."

5. In the counter affidavit filed on behalf of the firstrespondent, it is contended that going by clause 25.1 of theConditions of Contract, the contract is to be governed by andconstrued in accordance with the Indian Laws. As per Section3 of the Kerala Revocation of Arbitration Clauses andReopening of Awards Act, 1998 (Act 12 of 1998), thearbitration clause in every agreement in which Government isa party stands cancelled. The Awards Act applies to the various works of the Government of Kerala and the work inquestion being one of that nature, the arbitration clausecannot be invoked by the applicant. It is also contended thatthe arbitration clause is void ab initio.The learnedGovernment Pleader also relied on the decision in KeralaWater Authority, Thiruvananthapuram vs. P.T.Chacko(2008 (1) KLT 639).

6. The Awards Act extends to the whole of the State ofKerala. The Act shall be deemed to have come into force on14th November, 1997. Section 3 of the Awards Act provides forcancellation of arbitration clauses and revocation of authorityof arbitrator. Section 3 is extracted below for convenience.

"3. Cancellation of arbitration clauses andrevocation of authority of arbitrator :-

(1) Notwithstanding anything containedin the Indian Contract Act, 1872 (Central Act 9 of1872) or in the Arbitration Act, 1940 (Central Act10 of 1940) or in the Arbitration and ConciliationAct, 1996 (Central Act 26 of 1996) or in any other law for the time being in force or in anyjudgment, decree or order of any court or otherauthority orinanyagreementor otherinstrument,

(i) thearbitration clausesin everyagreement shall stand cancelled ;

(ii)theauthority of anarbitratorappointed under an agreement referred to inclause (i) shall stand revoked ; and

(iii) any agreement referred to in clause (i)shall cease to have effect in so far as it relates tothe matters in dispute or difference referred, witheffect on and from the date of commencement ofthis Act.

(2) Nothing in sub-section (1) shall be abar for any party to an agreement to file a suit inthe court having jurisdiction in the matter towhich the agreement relates and all questionsregarding the validity or effect of the agreementbetween the parties to the agreement or personsclaiming under them and all matters in disputeor difference betweentheparties to theagreement shall be decided by the court, as if the

7. On a plain reading of Section 3, the argumentsadvanced by the learned Government Pleader may appear tobe attractive. But Section 3 has to be read along with thedefinitions contained in Section 2.

In Section 2(1),"agreement" and "local competitive bidding specification" aredefined, thus :

"2.Definitions :-

(1)In thisAct,unless thecontextotherwise requires, -

(a)'agreement' means anagreementexecuted in terms of the local competitive biddingspecification for various works of the Governmentof Kerala ;

(b)'local competitive bidding specification'means the local competitive bidding specificationadopted by the Government in their Order G.O.(Ms) No.3/81/I& R dated the 20th January,1981."

8. The preamble of the Awards Act is the following :

"Preamble: WHEREASthe KalladaIrrigation Project, the largest Irrigation Project inthe State of Kerala, was started in the year1961 ;AND WHEREAS the said project was inreceipt of financial assistance from the WorldBank from June, 1982 to March, 1989 ;AND WHEREAS aspecialcondition,namely,the local competitive biddingspecification envisaged by the World BankAuthorities was included as desired by the WorldBank in the agreements relating to worksconnected with the said irrigation project ;AND WHEREAS clauses 51 and 52 of thesaidlocalcompetitivebidding specificationprovide for the settlement of matters in disputeor difference through arbitration ;AND WHEREAS inclusion of arbitrationclauses in the agreements executed in terms ofthe local competitive bidding specification waswith a view to enable the speedy settlement ofmatters in dispute or difference in a just andequitable manner ;AND WHEREAS the arbitration referencesdid not have the desired effect as severalarbitrators have wrongly and arbitrarily awardedunconscionable amounts against provisions ofagreements and without materials on record incollusion with the claimant-contractors andofficials of the department causing heavy loss tothe State ;AND WHEREAS the Government consideredit necessary, in public interest, to cancel thearbitration clauses in the agreements executed intermsof thelocalcompetitive biddingspecification, to revoke the authority of thearbitrators appointed thereunder and to enablethe filing of appeals against the awards ordecrees already passed in certain arbitrationreferences in respect of which the period oflimitation has expired."

9. It is one of the cardinal principles of construction ofstatutes that where the language of an Act is clear, thepreamble must be disregarded. Where the object or meaningof an enactment is not clear, the preamble may be consideredto explain it. Where very general language is used in anenactment, which, it is clear must be intended to have alimited application, the preamble may be used to indicate towhat particular instances the enactment is intended to apply.A preamble is a key to open the mind of the legislature, but itcannot be used to control or qualify precise and unambiguous language of the enactment. When there is a doubt as to themeaning of a provision, recourse may be had to the preambleto ascertain the reasons for the enactment and the intentionof the parliament. If the language of the enactment is capableof more than one meaning, the interpretation which comesnearest to the purpose and scope of the preamble is to bepreferred [See M/s.Burrakur Coal Co. Ltd. vs. The Union ofIndia and others (AIR 1961 Supreme Court 954) andTribhuban Parkash Nayyar vs. The Union of India (AIR1970 Supreme Court 540)].

10. On a combined reading of Sections 2 and 3 of theAwards Act, I am of the view that in order to attract thecancellation of the arbitration agreement, revocation ofauthorityof arbitratorand cessation ofarbitrationagreements, the agreement must be one as defined in Section2(1)(a).To constitute an agreement within the meaning ofSection 2(1)(a), it should be one executed in terms of the local competitive bidding specification as defined in Section 2(1)(b).A local competitive bidding specification is the one adopted bythe Government in G.O.(Ms) No.3/81/I & R dated 20thJanuary 1981. In order to correctly understand the scope ofthe definition of local competitive bidding specification, it isalso relevant to take into account G.O.(Ms) No.3/81/I & Rreferred to above. A copy of the Government Order was madeavailable by the Government Pleader. The relevant part of theGovernment Order reads as follows :

"Kallada Irrigation Project has been posedfor World Bank Assistance as Phase I of theKerala Composite Irrigation Project as per ordersissued in the G.O. read above. Adoption of LocalCompetitive Bidding procedure for tendering ofcivil works, as approved by the Central WaterCommission and World Bank Officers, is acondition imposed by the World Bank for grantingassistance. The Chief Engineer (Projects III) hasrecommended to follow the above procedure oftendering.Government,havingconsidered thequestion in detail, are pleased to order the adoption of the Local Competitive Biddingprocedure in respect of civil works under theKallada Irrigation Project, with immediate effect."

11. The question to be resolved is whether the AwardsAct would apply to each and every contract in which theGovernment is a party or whether the bar under Section 3would apply only to those contracts as defined in Section 2(1)of the Awards Act. Had it been the intention of the legislaturethat Section 3 will apply to all contracts in which theGovernment is a party, it was not required to provide adefinition clause and to define "agreement" and "localcompetitive bidding specification".Though the Act containsonly eight Sections, on a reading of the Act, common manwould not be able to easily understand the scope and ambit ofthe Act. It is most likely that a person may get confused as tothe applicability or otherwise of the Act to a particularcontract. It would have been ideal to make the Act clear andspecific. But that is not a bar for the interpretive process to be made by the Court in respect of the provisions of the Act.If the Awards Act applies, the Arbitration Request is notmaintainable. However, if the Act does not apply, there is nodispute that the Arbitration Request is maintainable. On areading of Sections 2 and 3, the preamble and G.O.(Ms)No.3/81/I & R dated 20.1.1981, there can be no doubt thatthe Awards Act applies only in respect of contracts relating tothe Kallada Irrigation Project. The Act does not apply to eachand every contract in which the Government is a party. I amof the view that the Awards Act does not nullify the Arbitrationand Conciliation Act in so far as it relates to the contracts inwhich the Government is a party, except in the case ofagreements within the meaning of Section 2(1)(a) read withSection 2(1)(b).

12. In Kerala Water Authority, Thiruvananthapuram vs. P.T.Chacko (2008 (1) KLT 639), the question which arose forconsideration was whether in respect of an arbitration agreement in a contract in which the Kerala Water Authorityis a party, the bar under Section 3 of the Awards Act would apply. It was held that the Act would not apply in respect of the contract in which the Kerala Water Authority is a party, since the Kerala Water Authority is not part of the Government of Kerala.The learned Government Pleader pointed out that in paragraph 4 of the judgment in Kerala Water Authority, Thiruvananthapuram vs. P.T.Chacko (2008(1) KLT 639), it is stated that "the term "agreement" for the purpose of the Act, going by Section 2(1) (a), means an agreement executed in terms of the local competitive bidding specification for various works of the Government of Kerala."Stress is made by the learned Government Pleader on the expression for "for various works of the Government of Kerala".Relying on that sentence in the judgment, it is contended by the learned Government Pleader that in respect of all the works of the Government of Kerala, the Awards Actwould apply. In Kerala Water Authority, Thiruvananthapuram vs. P.T.Chacko (2008 (1) KLT 639), the learned Single Judge did not decide that question at all as it did not arise for consideration. Therefore, the decision in Kerala Water Authority, Thiruvananthapuram vs. P.T.Chacko (2008 (1) KLT639) is not an authority for the proposition that whenever the Government of Kerala is a party to a contract, the Awards Act would apply.

13. For the foregoing reasons, I overrule the contentions raised by the respondents. Accordingly, the Arbitration Request is allowed. JusticeV.Bhaskaran Nambiar, Former Judge of the High Court of Kerala is appointed as the arbitrator to facilitate constitution of the panel of arbitrators consisting of three arbitrators as provided in the arbitration clause in the contract. 


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