w w w . L a w y e r S e r v i c e s . i n



Jaybharat Rubber Industries v/s G.I.D.C. & Others

    First Appeal No. 1986 of 1999

    Decided On, 27 August 2014

    At, High Court of Gujarat At Ahmedabad

    By, THE HONOURABLE MR. JUSTICE N.V. ANJARIA

    For the Appellant: B.H. Chhatrapati, Advocate. For the Respondents: M.B. Gandhi, Trusha M. Gandhi, Advocates.



Judgment Text

1. The present First Appeal arises out of and is directed against judgment and order dated 12th November, 1998 passed by the City Civil Court, Court No. 19, Ahmedabad passed in Misc. Civil Application No. 246 of 1995 being an Application filed under Sec. 30 read with Sec. 31 read with Arbitration Act, 1940 for setting aside the Arbitration Award. The lower appellate Court allowed the said Application and set aside the Arbitration Award dated 9th January, 1995, holding inter alia that Clause No. 4 of the agreement between the parties under which the appellant herein had referred the dispute to the Arbitrator was not an arbitration Clause and further that the Arbitrator had no jurisdiction to enter into Reference and make Award.

2. The facts of the case are outlined for the purpose of having a comprehensive picture of the controversy. The appellant-Jay Bharat Rubber Industries (J.B.R.I.), Partnership Firm, applied for plot/shed at Vatva Industrial Estate at respondent-Gujarat Industrial Development Corporation (G.I.D.C). G.I.D.C. allotted Shed No. Al-1-407 (Phase II) admeasuring 3,141 sq.metres and allotment letter dated 19th June, 1981 was issued, followed by execution of sale agreement dated 14th November, 1981. Clause No. 4 in the said agreement, as is the case of the appellant, provided for deciding the dispute between the parties and that the same was an arbitration Clause.

2.1. Having allotted the plot as above, the appellant applied on 20th April, 1991 for transfer of the said Plot/Shed in favour of one M/s. Ortem Chemicals Private Limited. G.I.D.C. permitted the transfer on 13th September, 1991 and on compliance of the conditions of transfer by transferor and transferee, the final order in that regard was passed on 22nd November, 1991. The issues regarding payment of various charges, recoveries in relation to the said Plot/Shed, including transfer charges, interest, etc., gave rise to disputes between the parties. The correspondence ensued between both the sides in the subject, and ultimately, the appellant made a claim of Rs. 2,49,000/- from the Corporation invoking Clause No. 4 of the agreement dated 14th November, 1981 asking the Chief Executive of the Corporation to resolve the dispute.

2.2. It is the case of the appellant that since the Corporation did not respond, it directly referred the matter to the said Authority. It is the further case of the appellant that since the Corporation did not agree despite intimation to its Managing Director, the appellant firm by its letter dated 19th October, 1994 ex-parte appointed the Arbitrator. Mr. Justice B.J. Diwan (Retd.), having address at 20, New Brahmkshatriya Society, Pritamnagar Marg, Ellisbridge, Ahmedabad was appointed Sole Arbitrator. As per the say of the appellant it was in pursuance to the exercise of power to supply the vacancy in fulfillment of conditions laid down in Sec. 8(1)(b) of the Arbitration Act. The said Arbitrator acting in pursuance, gave his Award dated 9th January, 1995 by which the Arbitrator awarded Rs. 2,46,613/- plus Rs. 1,92,044/- towards interest and Rs. 37,500/- by way of cost. The Award was sent to the parties. The respondent did not remain present at hearing before the Arbitrator and the award came to be finalized ex-parte by the Arbitrator.

2.3 It may be noted that after the aforesaid Award was made, Misc. Civil Application No. 143 of 1995 was filed for making the Award, rule of the Court and passing decree in terms of the Award. Thereafter, the afore-mentioned Misc. Civil Application No. 246 of 1995 came to be filed under Sec. 30 read with Sec. 33 of the Act for setting aside the order, culminating into the impugned judgment and decree of the lower appellate Court. As far as aforementioned Application No. 143 of 1995 was concerned, no further directions were given except that its outcome was to depend upon the decision which may be rendered in Application No. 246 of 1995. By the impugned judgment and order, as already noted, the Court below allowed the Application No. 246 of 1995 setting aside the award.

2.4. Following issues were framed by the Court below - (i) Whether opponent No. 1 can be said to have waived or given up its rights on the suit shed in question on the date of the appointment of the Arbitrator? (ii) Whether the Clause 4 of the agreement dated 14-11-1981 can be construed to be an arbitration clause? (iii) Whether opponent No. 1 was entitled to appoint its arbitrator? (iv) Whether the learned Arbitrator appointed by opponent No. 1 had jurisdiction to enter into the reference and make the award? (v) Whether the award made by the learned arbitrator is vitiated by misconduct of the proceedings or by his own misconduct? (vi) Whether the award required to be made rule of the Court or requires to be set aside? and (vii) What order? Issue Nos. 1 and 5 were answered in affirmative whereas rest of the issues in negative.

2.5. The Court below held that opponent No. 1-appellant herein can be said to have given up its rights in the suit plot on the date of appointment of the Arbitrator. This finding was based with reference to the facts and on the reasoning that the appellant had transferred the plot in favour of third party and the Corporation had permitted the transfer. Since, the plot was transferred, a contractual relationship between the applicant and G.I.D.C. was no more continuing, reasoned the lower appellate Court. It further held that Clause No. 4 could not be construed as arbitration application, that appellant was not entitled to appoint Arbitrator and that the Arbitrator acted without jurisdiction. The lower Court concluded that the Award made by the Arbitrator was vitiated by misconduct of the Arbitrator and mis-conducting the proceedings as well.

3. Heard learned Advocate Mr. Bijal Chhatrapati for the appellant and learned Advocate Mr. M.B. Gandhi for the respondent-Corporation.

3.1. Learned Advocate for the appellant assailed the impugned judgment and order by submitting that it was because of non-response and inaction on part of the G.I.D.C. in the matter of appointment of Arbitrator that the Award was ex-parte given. He submitted that since the Corporation did not co-operate, the appellant was within its right to proceed to appoint Arbitrator who have his Award after examining the claim of the appellant. He submitted that Clause 4 of the Agreement was an arbitration Clause which permitted the appellant to invoke the arbitration. Learned Advocate for the appellant referred to various grounds set out in the Memorandum of Appeal. He submitted that the lower appellate Court ought not to have set aside the Award.

3.2. On the other hand, learned Advocate for the respondent submitted that Clause No. 4 in the agreement was not an arbitration clause and a serious error was committed by the lower Court in construing Clause 4 as arbitration Clause. He submitted that on bare reading of the Clause it is clear that it cannot be said to be an arbitration clause. The arbitration clause, it was submitted, is one which gives finality to the decision of the Arbitrator and such decision has to be binding to both the parties to the contract. Learned Advocate submitted that it is well-settled by judicial decisions that the Clause of this kind cannot be treated as arbitration clause. He submitted that the appellant had no right to proceed ex-parte nor the Arbitrator could have acted in that capacity to resolve the dispute as no such power or authority was available for him. Learned Advocate submitted that reasons supplied by the lower appellate Court were eminently proper.

4. Recapitulating in brief the relevant facts which are not in dispute, the appellant firm was allottee of the shed/plot in the Vatva Industrial Estate of the Corporation and in that regard, agreement dated 14th January, 1981 was entered into. The plot was subsequently transferred in favour of one M/s. Ortem Chemicals Private Limited upon Application dated 26th April, 1991 by the appellant made for that purpose, upon which the plot was permitted to be transferred provisionally by the Corporation in favour of the said party on 13th January, 1991 and by virtue of tripartite agreement dated 25th January, 1991, the transfer was finally permitted as the conditions required by the Corporation to be fulfilled were complied with by the transferor and transferee. By letter dated 19th September, 1993 the appellant addressed a letter to G.I.D.C. raising various claims. Details of the claims were these, to be noted for the sake of completion of facts:

4.1. The appellant addressed another letter dated 3rd March, 1994 to the Corporation invoking Clause No. 4 of the agreement. By yet another letter dated 19th October, 1994 the appellant stated that since their request for referring the dispute to arbitration was not responded to and the Corporation had failed and neglected in referring the dispute, they were entitled to supply vacancy as per the applicable provisions of the Arbitration Act. It appears that thereafter the appellant unilaterally addressed a communication dated 19th October, 1994 to Justice B.J. Diwan (Retired) appointing him as Sole Arbitrator in respect of the disputes sought to be raised by the appellant. He gave arbitration notice dated 27th October, 1994. The Corporation had addressed letter dated 23rd November, 1994 to the Arbitrator stating and submitting inter alia that the Corporation were never aware about the matter having placed before the Arbitrator. Arbitration proceeded ex-parte and resulted into Award dated 9th January, 1995. The Arbitrator rejected the claim for damages but allowed other claims passing the Award. Arbitrator awarded Rs. 2,46,613/- plus Rs. 1,92,044/- towards interest and Rs. 37,500/- by way of cost.

5. The important and decisive issue involved is whether Clause 4 in the agreement dated 14th November, 1981 was an arbitration clause or not. The said clause reads as under:

"If any dispute arises regarding the interpretation of any provision or the Corporation of the agreements, made thereunder, it shall be decided by the Chief Executive Officer of the Corporation. The decision of the Chief Executive Officer shall be final and binding on the purchaser unless the purchaser had made an appeal to the Corporation against the decision. In the event of such appeal, the decision of the corporation in appeal shall be final and binding on the purchase. If, however, the purchaser seeks legal remedy by going to a Court of law the purchaser hereby agrees to defray all the expenses that the Corporation would incur in contesting the litigation."

5.1. In K.K. Modi Vs. K.N. Modi and Others,

, it was held that among the attributes which must be present for an agreement to be considered as an arbitration agreement are: (i) the arbitration agreement must contemplate that the decision of the Tribunal will be binding on the parties to the agreement; (ii) that the jurisdiction of the Tribunal to decide the rights of parties must be derived either from the consent of the parties or from an order of the Court or from a statute, the terms of which make it clear that the process is to be an arbitration; (iii) the agreement must contemplate that substantive rights of parties will be determined by the agreed Tribunal; (iv) that the Tribunal will determine the rights of the parties in an impartial and judicial manner with the Tribunal owning an equal obligation of fairness towards both sides; (v) that the agreement of the parties to refer their disputes to the decision of the Tribunal must be intend to be enforceable in law, and lastly; (vi) the agreement must contemplate that the Tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the Tribunal.

5.2. It could not be gainsaid that the above attributes are also the essential elements also for judging and construing whether a clause in the contract is an arbitration clause. In Vishnu (dead) by L.Rs. Vs. State of Maharashtra and Others,

, the Supreme Court with reference to Government contract expressed as to what is arbitration clause. It was held that those empowering Superintending Engineer to immediately resolve any controversy with regard to specifications, designs, etc., and providing that his decision shall be binding on the contractor is not an arbitration clause. It was held with reference to clause 30 in the contract before the Supreme Court that the same was not an arbitration Clause, observing further that the clauses by which the Superintending Engineer was given supervisory control and observed that the powers conferred on the Superintending Engineer of the Circle was in the nature of departmental disputes resolution mechanism and is meant for expeditious sorting out the problems.

5.3. Dissecting the above Clause 4, in the present case, for understanding its nature and construing whether it could be said to be an arbitration clause, the Clause provides for referring the dispute regarding the interpretation of any provision of the agreement providing that the same shall be decided by the Chief Executive Engineer of the Corporation. Firstly, it mentions dispute about interpretation. Further provided that the decision of the Chief Executive Engineer shall be final and binding on the purchaser. It did not, provide that such decision shall be binding to the Corporation as well. In order to be an arbitration clause, the Clause in a contract must provide that the decision of person to whom the dispute is provided to be referred to, has a bilateral binding effect. It could not be that such decision would bind one of the parties to the agreement only.

5.4. Furthermore, the Clause provided that the decision of the Officer mentioned would be appealable to the Corporation. It is further provided, as bare reading of the clause goes, that the decision which may be rendered in the appeal before the Corporation, shall be binding on the purchaser. In the next, it is contemplated that the purchaser would be required to defray all the expenses to the Corporation in the event the purchaser takes a legal remedy by going to the Court of law against the Corporation in respect of the decision in appeal. In other words, the purchaser is permitted to have legal recourse against the decision of the Corporation.

6. Applying the relevant tests to Clause No. 4 in the present case, the same in its language, purport, ambit and nature of provision was indeed not an arbitration clause. It lacked necessary attributes to be treated as arbitration clause. The language with which it was formulated was not consistent with the process known to the arbitration. In effect, the C

Please Login To View The Full Judgment!

lause was incongruous to the concept of arbitration. The Clause expressed itself in a way really not disclosing the intention of the parties that the same was meant to be for arbitration or that it was to be applied as arbitration clause. As already noted, Clause No. 4 did not provide for binding effect on both the sides in respect of decision of the Chief Executive Engineer, thereby not giving finality. Instead, it provided that decision would be binding to one party only and not to the Corporation, further investing other party, that is purchaser-contractor, with right to appeal and legal recourse over the decision of the Corporation. It was inconsistent for the purpose of treating it arbitration clause that one of the parties, that is Corporation, was given right to appeal over the decision of Chief Executive Engineer. 7. The Court below besides holding that on the date when the appellant referred the dispute to the Arbitrator invoking Clause No. 4, no agreement was in existence because the plot was transferred by the appellant, above all it was held and concluded that the Clause in question was not arbitration clause at all and arbitration was not permissible thereunder; the Court was correct in observing that the Arbitrator had no authority to decide the dispute referred to and he acted without jurisdiction. The judgment and order of the Court below was eminently proper and legal. Therefore, no interference in the impugned judgment and order is required. The appeal is devoid of merits. The same has to be dismissed and it stands dismissed. Registry shall send Record and Proceedings back to the Court concerned.
O R