PREM CHANDRA & ANOTHER vs STATE OF MADHYA PRADESH AND ANOTHER

Plaintiff being aggrieved by judgment and decree dated 06.09.1997 passed in civil suit No.2-B/1996 has preferred this Appeal under Section 96 of the Code of Civil Procedure, 1908.

Plaintiff filed a suit for recovery of Rs.103415.40 contending

inter alia that for a work of construction of ''Workers Institute'' at

Nandan Washery in the Kanhan Area, in Chhindwara District in

response to the notice inviting tender, the tender given by the

defendant was accepted. An agreement was executed on

16.11.1991. As agreed, the date of commencement of work was

07.05.1991 and the work was to be completed on or before

06.02.1992. The valuation of contract was Rs.481097.04. Besides

agreeing that the work is to be completed by 06.02.1992, it was

also agreed to adhere to maintain proportionate rate of progress as

per clause 9 of the agreement. That clause 7 stipulated that the

contract may be rescinded and the security deposit and other dues

of the work or any other work done under the Coalfields may be

forfeited and brought under the absolute disposal of the coalfields,

if in the opinion of the coalfield either the work is not progressing

satisfactorily or is not likely to be completed within stipulated

time or if the contractor fails to comply with the terms and

conditions. It was also the term of contract that all disputes and

differences whatsoever arising between the parties out of or

relating to the constructions, meaning and operation or effect of

this contract or breach thereof shall be settled by a sole arbitrator

appointed by the CMD of Western Coalfields Limited.

As the contractor executed only a part of the construction

work of the value of Rs.172420.24 and then abandoned the work.

And even after agreeing to complete the work as per work

programme by the end of November 1993 did not accomplish the

same, the contract was rescinded vide intimation dated 21.4.1995.

After cancellation of contract the balance work was required to be

completed by another agency on extra cost, for recovery whereof,

plaintiff filed the subject writ for recovery of Rs.103415.40 and the

interest thereon @ 6% per annum.

Defendant was proceeded ex parte.

Plaintiff led documentary and oral evidence. Agreement in

question was filed as the Ex.P/7. The trial Court vide impugned

decree dismissed the suit on three grounds:

Firstly, that as per clause 6 of agreement it was beyond the

right of the plaintiff to recovery more than ten percent of the

agreement value of work. As there is no clause which permits

recovery of the excess amount incurred for getting the work

complete. In other words, there being clause regarding risk and

cost the plaintiff could not recovery more than the amount which

find mention in clause 6 of the agreement.

Secondly, the claim for damages/compensation to the tune

of 10% of the agreement value of the work was barred by time. The

trial Court found that the work in question was to be completed

within 10 weeks from 06.02.1992 i.e. till 13.03.1992. The cause of

action then arose on 13.03.1992 and the suit was to be filed within

3 years, but was filed on 09.08.1996 i.e. after the expiry of three

years, therefore, was barred by time.

Thirdly, that the agreement contained arbitration clause i.e.

clause 9. That by taking into consideration Section 14(2) of the

Specific Relief Act, the trial Court declined to entertain the suit

being not tenable.

Taking up first the third ground on which the suit has been

dismissed, it is observed from the agreement Ex.P/7 that clause 9

stipulates "All disputes or difference whatsoever arising between

the parties out of or relating to the construction meaning and

operation or effected or this contract or breach thereof shall be

settled by a sole arbitrator appointed by CMD of Western Coalfields

Ltd. and the award of arbitrator shall be final and binding on the

parties concerned. The arbitrator may from time to time with the

consent of the parties enlarge the time for making and publishing

the award the arbitration proceeding shall be in accordance with

the Arbitration Act, 1940."

Thus, there exists an arbitration clause in the agreement

which provides for resolution of dispute arising out of said contract

by a sole Arbitrator to be appointed by CMD, Western Coalfields

Limited.

Sub-section (2) of Section 14 of Specific Relief Act envisages

that "save as provided by the Arbitration Act, 1940 (10 of 1940), no

contract to refer present or future differences to arbitration shall

be specifically enforced; but if any person who has made such a

contract (other than an arbitration agreement to which the

provisions of the said Act apply) and has refused to perform it, sues

in respect of any subject which he has contracted to refer, the

existence of such contract shall bar the suit" meaning thereby that

though a person may not contract himself out of his right to have

recourse to Courts of law; but that in the event of any party having

made a lawful agreement to refer the matter in difference to

arbitration, as a condition precedent to going to law about it, the

Courts will recognize the agreement and give effect to it by staying

proceedings in the Courts.

In the case at hand exactly this is what the trial Court has

held while adhering to the stipulations contained under sub-section

(2) of Section 14 of Specific Relief Act has declined to entertain the

civil suit as there exist an arbitration clause in the agreement

which is the basis for filing of suit for

recovery/compensation/damages.

In this context reference can be had of the decision in

P. Anand Gajapathi Raju vs. P.V.G.Raju (2000) 4 SCC 539,

wherein, it has been held :

"8. In the matter before us, the arbitration agreement covers all the disputes between the parties in the proceedings before us and even more than that. As already noted, the arbitration agreement satisfies the requirements of Section 7 of the new Act. The language of Section 8 is peremptory. It is, therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings till the arbitration proceedings conclude and the Award becomes final in terms of the provisions of the new Act. All the rights, obligations and remedies of the parties would now be governed by the new Act including the right to challenge the Award. The Court to which the party shall have recourse to challenge the Award would be the Court as defined in clause (e) of Section 2 of the new Act and not the Court to which an application under Section 8 of the new Act is made. An application before a Court under Section 8 merely brings to the Courts notice that the subject matter of the action before it is the subject matter of an arbitration agreement. This would not be such an application as contemplated under Section 42 of the Act as the Court trying the action may or may not have had jurisdiction to try the suit to start with or be the competent Court within the meaning of Section 2 (e) of the new Act."

In a recent decision by Supreme Court in the case of

A.Ayyasamy vs. A.Paramasivam (2016) 10 SCC 386, in the context

as the present one, their Lordships were pleased to observe :

"13. What would be the position in case a suit is filed by the plaintiff and in the said suit the defendant files an application under Section 8 of the Act questioning the maintainability of the suit on the ground that parties had agreed to settle the disputes through the means of arbitration having regard to the existence of an arbitration agreement between them? Obviously, in such a case, the Court is to pronounce upon arbitrability or non-arbitrability of the disputes."

In the instant case, there is no dispute inasmuch as there is

arbitration clause in the agreement dated 16.11.1991.

In A.Ayyasamy (supra), it is further held by their Lordships :

"45. The position that emerges both before and after the decision in N. Radhakrishnan is that successive decisions of this Court have given effect to the binding precept incorporated in Section 8. Once there is an arbitration agreement between the parties, a judicial authority before whom an action is brought covering the subject matter of the arbitration agreement is under a positive obligation to refer parties to arbitration by enforcing the terms of the contract. There is no element of discretion left in the court or judicial authority to obviate the legislative mandate of compelling parties to seek recourse to arbitration. ... "

The impugned judgment when is tested on the anvil of

aforesaid analysis cannot be faulted with. However, as the trial

Court was of considered opinion that there exist an arbitration

clause, the suit was not tenable, it was improper for the trial Court

to have recorded a finding in respect of scope of clause 6 of the

agreement which provides for :

"6. Date of Commencement, Rate of Progress, Delays, Forfeiture and Penalties: The contractor(s) shall submit a construction schedule showing the order in which they propose to carry at the work the date on which he/her will start the several salient features (including procurement of materials, plant and the contemplated date for completing the same). For the purpose of preparing the schedule, the work shall be deemed to have commenced within ten calendar days of the date of the work order. The work should be commenced within ten days from the date of issue of the letter of acceptance from Administration and be completed on or before the date of completion specified in the agreement. (a) The time allowed for carrying out the work, as entered into the contract Agreement shall be strictly observed by the contractor(s) and the time of completion of work shall be reckoned from ten days after the issue of the letter of the acceptance of tender. The work done throughout the stipulated period of the contract be carried on with all due on the part of the contractor(s) and the contractor (s) shall pay as compensation, an amount upto one per cent of the amount of the estimated cost of the whole work as shown by the tender for every day that the work remains uncommenced, unfinished after the proper dates. In the even of contractor(s) failing to comply with rate of progress specified in the agreement, they shall be liable to pay as compensation an amount upto one per cent of the said estimated cost of the whole work for every week that the due quantity of work remains incomplete provided always that the entire amount of compensation to be paid under the provision of this clause shall not exceed 10 percent of the agreement value of the work. If the progress of any particular portion of the work is unsatisfactory the Executive Engineer shall notwithstanding that the general progress is satisfactory in accordance with clause 6 (a) be entitled to take action under clause 6 (b) after giving contractor(s) 10 days notice in writing and the contractor(s) will have no claim for compensation for any loss sustained by them owing to such sanction. (b) To employee another agency for prosecuting the job or labour paid by the coalfields and to supply material to carry out the work or any part of the work debiting the contractor(s) with the cost involved in engaging another agency of the cost of the labour and the price of the materials (or the amount of which cost and price certificate of the Executive Engineer shall be final and conclusive against the contractor(s) as the case may be and crediting them with the value of the work done, in all respect in the same manner and at the same rates of the contract the certificate of the Executive Engineer, as to the work done shall be final and conclusive against the contractor(s)."

In view whereof, the trial Court was also not justified in

dwelling upon the aspect of limitation in context to clause 6 of the

agreement.

In the considered opinion of this Court the trial Court since

was of opinion that suit is not tenable because of availability of

forum of arbitration, it ought to have refrained itself from dwelling

upon interpretation of clause 6 and aspect of limitation.

To that extent, the impugned judgment-decree is not

tenable and is set-aside, however, the judgment to the extent that

suit was not tenable in view of existence of arbitration clause in

the agreement dated 16.11.1991 is up held.

Appeal is partly allowed to the extent above. No costs.