AI Structured Summary
Not yet generated for this judgment
Judgment
P.S. Mishra, J.—This appeal has been preferred against a judgment in C.S. No. 392 of 1978 (AA) in which an application for a reference
of the dispute to the arbitration in accordance with the contract agreement No. CER.1/71-72 dated 21-4-1971 entered into between the
Government of Tamil Nadu and M/s. Chandrie and Company Private Limited (respondent), has been rejected, but it has been ordered that the
application would be converted into a suit. The dispute relates to a dead scheme (expression used by the learned single judge). Many private
contractors were involved in the execution of the said scheme. They were asked to execute the work under the terms and conditions of respective
and separate contracts. Applicant/respondent was one such contractor who was required to supply materials and install pumps and motors etc.
The scheme which was originally under the direct control of the State Government was transferred to the Tamil Nadu Water Supply and Drainage
Board. The respondent/applicant continued the execution of work until some defects were pointed out in the materials supplied by him. After a
good deal of correspondence, there were negotiations, inspection etc. It transpired however that the respondent/applicant was either required to
replace the materials supplied by him or rectify the defects. According to the respondent/applicant, the defects were minor and casual, the
materials bad been supplied according to the specifications, and the Superintending Engineer and the Executive Engineer concerned of the Tamil
Nadu Water Supply and Drainage Board were raising unnecessary objections, insisting upon conditions which were nowhere to be found in the
agreement and thus deliberately creating obstructions in his executing the work. According to the respondent/appellant herein, however, defects
were such that they could not have been allowed and a conscious decision was taken to cancel supply of such materials which were found
defective.
The applicant/respondent herein moved the court seeking a direction to the respondent/appellant to file the arbitration agreement dated 21-4-
1971 to the court. The learned Single Judge proceeded to consider the case saying ""the only point that falls for determination is whether the
rejection of 12 motor pump sets by the Engineer of the defendant falls within the arbitration clause No. 25 in S.2 relating to general conditions of
contract for electrical works in the Public Works Department, Madras..."" After taking notice of the various clauses of the agreement, particularly
Cl.25 which read:
If at any time whether during the progress of the works or after their completion any question, dispute or difference whatsoever for the decision of
which express provision is not made in any other clause of these conditions, shall arise between the parties hereto upon or in relation to or in
connection with the contract or any matter whatsoever arising there out, the same shall unless the parties shall agree upon a single arbitrator be
referred to the arbitration of three persons, one of whom shall be nominated by the contractor, the second by the Governor and the third shall be
an independent person selected by the other two persons so nominated and this provision shall be deemed to be a submission or arbitration within
the meaning of the Indian Arbitration Act, 1940, and the provisions of such Act shall be deemed to apply accordingly whether or not it would be
of its own force and but this provision is applied having regard to the locality in which the contract falls to be performed or the question may have
arisen or otherwise, provided always that no such reference to arbitration shall except so far as may be absolutely necessarily prejudice or affect
any of the rights or obligations of the parties to the contract respectively
And another in Cl.6 which provided:
The work shall be carried out in all respects with workmanship and materials of the best and most substantial and approved qualities to the entire
satisfaction of the Engineer, who may reject any plant, apparatus, materials or workmanship which shall in his opinion be defective in quality, any
such rejection to be final and conclusive.
The learned single judge has concluded that the rejection of the motor pump sets by the engineer is within his exclusive jurisdiction and therefore
Cl.25 of the agreement aforementioned was not attracted Having so concluded, however, the learned single Judge has proceeded to consider
whether there was any remedy to the applicant/respondent herein or not and concluded that it was a case in which it could be said that the engineer
who rejected the motor pump set was oblivious of his duty that was imposed upon him and in that event, the rejection could not be upheld. He has
thus ordered the application to be converted into a suit. Two judgments, one of a division bench of this court in South India Railway Co. Ltd. v.
S.M. Bhashyam AIR 1935 Mad. 356, and Heavy Elec. (India) Ltd. v. Pannalal 1973 Madhya Pradesh, 7, it appears gave to the learned single
judge the idea to consider whether the Engineer while rejecting the pumps was conscious of his duty or not. In South India Railway Co. Ltd. a
bench of this court has said : --
Our attention has been drawn to several cases dealing with the position of architects or engineers whose decision is made final, in respect of
contracts whose execution is put under their supervision. It is not necessary to refer to them in detail. There has no doubt been a consensus of
opinion that they are not ''arbitrators'' in the sense in which that term is used in the Arbitration Act, but all the cases recognize that whether called
arbitrators or quasi arbitrators or by any other label, they are, when exercising that kind of power discharging ''judicial'' functions. Decisions of the
Privy Council and of the House of Lords particularly emphasize that engineers placed in that situation, especially when they happen to be the
employees of one of the contracting parties, are in a very delicate and embarrassing situation, and while on the one hand it is true that the other
party is bound by a contract into which he has entered with his eyes open knowing that finality is attached to the decision of an employee of the
other side, that party is entitled to insist that that person should have acted judicially with a full realisation of the responsibilities of his position in
dealing with a matter of that kind.
Following the said bench decision of this court, in Heavy Elec. (India) Ltd., a bench of Madhya Pradesh High Court has said:
There can be no doubt that Clause 54 of the agreement would be construed to be a quasi-agreement of arbitration, as laid down by
Varadachiarar, J. in the said decision and moreover, after the enactment of the Arbitration Act, 1940, such an agreement cannot escape the
jurisdiction of an arbitrator to decide the matter in the event of a dispute. Therefore, it would be futile to contend that any decision given under
Clause 54 of the agreement would not be referable to the arbitrator. It may be that it will not be to an arbitrator contemplated by Clause 62 of the
agreement, but it will certainly be referable to an arbitrator in accordance with the provisions of the Arbitration Act, 1940, if the parties have not
named an arbitrator. At any rate, it will be subject to judicial review in appropriate proceedings when they reach the Court of law.
Had the issue whether the engineer concerned had acted judicially or not been not decided by the learned single judge and after having taken
notice of the law laid down by this court as well as the Madhya Pradesh High Court, the learned single judge left the parties to get the dispute
adjudicated in accordance with law either in appropriately constituted suit or even by applying to the court for a reference to an arbitrator in
accordance with the provisions of the Arbitration Act, 1940, perhaps we would not have exercised ourselves into this. We however cannot ignore
the fact that a finding as aforesaid recorded by the learned single judge has almost concluded that the engineer had no justification to reject the
motor pump sets supplied by the applicant/respondent herein. As a consequence of this finding, there can be no escape from the conclusion that
there had been arbitrary interference in the execution of the work by the applicant/respondent herein and he thus would be entitled to damages.
The salutary law that whosoever is charged with the power to take a decision which may affect someone''s fiduciary, proprietary or even a
contractual right must act fairly and discharge his functions in such capacity with care and caution is the extension of the rule of fair play to matters
such as one in hand. To act judicially in a matter like this, no one who is required to function in his administrative capacity or even an arbitrator is
expected to abide by the rules of procedure and disciplines of law as are applied to a court of law. All that they are expected to do is to show
bona fide, decide in accordance with their best-judgment on the basis of such materials that are made available to them. In other words, all that
they are expected to do is leave no room for saying or suggesting that they acted on irrelevant or extraneous considerations or that they omitted to
take into account any relevant material in consideration. The learned single judge has not referred to many such materials which are on the record
which may lead to the one or the other conclusion. He has said however that ""Here I find no materials either in the counter affidavit filed at the
instance of the defendant, nor in the written statement any averment that the engineer was conscious of his responsibility and judicial independence
required of him before be decided to reject the 12 motor pump sets, nor is there any material to indicate that any opportunity was given to the
plaintiff to persuade the engineer to take a view different from the one he had taken which had given rise to this proceeding�. If the learned single
judge means that before a decision was taken to reject the pump sets, the engineer concerned was required to give a notice to afford opportunity
of being heard to the contractor concerned (applicant/respondent herein) with respect we express our disagreement. That one is judicially
conscious and takes a decision independent of any influence can never mean introducing in such matters attributes of a judicial proceeding or even
a quasi judicial proceeding. It will be enough, as we have observed above, if it is shown that a conscious decision is taken based on relevant
materials uninfluenced by anything extraneous or irrelevant. We also are not in a position to accept the observation of the learned single judge that
there are no materials on record for deciding whether the engineer concerned was conscious of his responsibility and judicial independence. The
learned counsel for the applicant/respondent herein has himself taken us through the various documents on record. They do show the insistence of
the applicant/respondent herein that he had been subjected to an arbitrary action. At the same time, they provide some indication to the nature of
the dispute and the basis upon which the engineer had taken the decision to reject the pump sets. They cannot all be called irrelevant straightaway.
Adjudication therefore will be necessary before any such finding is recorded.
Having however taken notice of error afore-mentioned in the approach of the learned single judge, we are of the opinion that the only conclusion
required to be recorded in the instant case is to reject the application under S.20 of the Arbitration Act. This however may cause prejudice to the
interest of the applicant-respondent herein who may suffer the loss without there being any adjudication by and before any appropriate forum. It
appears the learned single Judge was primarily concerned with this factor when he directed that the application should be converted into a suit. It
will however be incongruous and somewhat uncommon to allow an application under S.20 of the Arbitration Act to be converted into a suit. A suit
has to be filed by pleading in accordance with law with such material facts and particulars as are verified to be true on affidavits in accordance with
law. A suit is filed subject to the law of limitation and for such reliefs that are permissible under the law. In a case of this kind, no other suit except
for damages it appears will be maintainable. While we hold therefore that it is not proper to convert the application under S.20 of the Arbitration
Act into a suit, we observe that it shall be open to the applicant-respondent herein to file a suit, if so advised. We also observe that in the event of
filing suit, an applicant-respondent herein shall be entitled to computation of the period of the pendency of the instant appeal in the period of
limitation prescribed under the Limitation Act.
Learned counsel for the applicant-respondent herein has however brought to our notice that a bank guarantee had been furnished by the
applicant-respondent herein which was subject to a condition that in the event of cessation of the contract, the appellant herein can encash. He
states that the applicant/respondent herein shall file a suit within a reasonable time and counsel prays that the appellant should not be allowed to
appropriate the security deposit and to encash the guarantee. We are satisfied that on the facts and in the circumstances of this case the appellant
should be restrained from encashing the bank guarantee for a period of two months from the date of the receipt of a copy of this order. In the
result the appeal is allowed and the application under S.20 of the Arbitration Act is dismissed. There will be no order as to costs.