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M/S. SMS Infrastructure Limited v/s Gujarat State Road Development Corporation

    R. Petn. Under Arbitration Act No. 42 of 2020
    Decided On, 23 April 2021
    At, High Court of Gujarat At Ahmedabad
    By, THE HONOURABLE MS. JUSTICE BELA M. TRIVEDI
    For the Petitioner: K.G. Sukhwani, Paras K. Sukhwani (8284), Advocates. For the Respondent: Siraj R. Gori (2298), Advocate.


Judgment Text
Cav Judgment:

1. The Arbitration Petition has been filed by the petitioner M/s. SMS Infrastructure Limited, a Company incorporated under the Companies Act, through its Power of Attorney Holder, seeking to appoint an Arbitrator to resolve the disputes between the parties as per the provisions contained under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the said Act").

2. The short facts giving rise to the present petition are that the respondent Gujarat State Road Development Corporation, Gandhinagar had invited the tenders by issuing a public notice for the work of widening and strengthening the Sarkhej Dholka - Vataman - Pipli - Dholera Bhavnagar Road. The offer of the petitioner being the lowest one was accepted by the respondent on 29.12.2010 and an Agreement No.B2/12 of 2011 12 was executed between the parties. Clause 30 of the terms and conditions of the contract annexed to the said agreement, pertained to referring the disputes to the Arbitration Tribunal, which reads as under:

"CLAUSE 30 : (1) Disputes to be referred to Tribunal: The disputes relating to this contract, so far as they relate to any of the following matters, Whether such disputes arise during the progress of the work or after the completion or abandonment thereof, shall be referred to the Arbitration Tribunal, Gujarat State.

(i) The rates of payment under clause 5 for any tools, materials and stores, in or upon the works of the site thereof or belonging to the contractor or procured by him an intended to be used for execution of the work or any part thereof possession of which may have been taken by the Engineer in charge under the said clause S.

(ii) The Reduction in rates made by the Engineer in Charge under clause 9 from the items of works not accepted as completed fully in accordance with the sanctioned specifications.

(iii) The rate of payment for any class of work which is included in the additional or altered work carried out by the contractor in accordance with the instructions of the Engineer in Charge under clause 14 and the rates for which is to be determined under the said clause 14.

(iv) The rates of payment for materials already purchased or agreed to be purchased by the contractor before receipt of notice given by the Engineer in Charge under clause 15, and/or the amount of compensation payable to the contractor under the said clause for loss in respect of such materials.

(v) The amount of compensation which the contractor shall be liable to pay under clause 17 in the event of his failure to rectify, remove or reconstruct the work within the period specified in the written intimation or the amount of expenses incurred by the Engineer in Charge under the said clause 17 in rectifying, removing or re executing the work or in removing and replacing the materials or articles complained of.

(vi) The reduction of rates as may be fixed by the Engineer in Charge under clause 17 for the inferior work or materials as accepted or made use of.

(vii) The amount of compensation payable by the contractor for damages as estimated and assessed under clause 23.

(viii)The amount payable to the contractor for the work carried out under clause 33 in accordance with the instructions and the requirements of the Engineer in Charge in a case where there are no specifications. (2) The provision of Section 21 of the GPWD dispute Arbi. Tribunal Act 92 & order issued by the Govt. in connection with this Act will now apply for Arbitration (As per Government in N, & W.R.D. letter No.SUT/1090/2679/K2 dtd. 9/2/94.

(3) The provision of Arbitration Act, shall in so far as they are inconsistent with the provision of this act cease of to apply to any dispute arising from a works contract and all arbitration proceedings in relation to such dispute before an arbitrator, court of authority shall stand transferred to the Tribunal.

(4) The awards declared by the arbitrator should be speaking award, giving reasons and calculations for every item of claims. The decision will have to be implemented by all the departments of the State Government and Public Sector Enterprises of Gujarat.

(Resolution F. D. No.PB/1088/735/KT/Sachivalaya/Gandhinagar 5th October 1988.)

(5) In case of dispute leading to the contractor or Government of Gujarat approaching to Court of Law, it shall be within the jurisdiction where the site of work is situated.

(6) The reference to arbitration proceeding under this clause shall not

(i) affect the right of the Engineer in charge under clause 5 to take possession of all or any tools plants materials and stores in or upon the works of site thereof belonging to the contractor or procured by him and intended to be used for the execution of the work or any part thereof.

(ii) Preclude the Engineer in charge from utilising the materials purchased by the contractor in any work or from removing such materials to other places, during the period the work is stopped or suspended in pursuance of notice given to the contractor under clause 15.

(iii) Entitle the contractor to stop the progress of the work or the carrying out the additional or altered work in accordance with the provisions of clause 14 or as the case may be or clause 33."

3. It appears that in connection with the said contract, the disputes arose between the parties, and therefore, the petitioner called upon the respondent Corporation by giving a Notice on 22.2.2020 to make payment of the dues of the petitioner or to appoint the Arbitrator within a period of 30 days from the date of the receipt of the notice. The said notice, though was received by the respondent Corporation, the same was neither replied, nor any payment was made. The petitioner, therefore, has filed the present petition. It is stated by the petitioner in the petition that as the respondent Corporation is not notified under the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 (hereinafter referred to as the "Arbitration Tribunal Act"), the Arbitration Tribunal constituted under the Arbitration Tribunal Act would not have jurisdiction to adjudicate the disputes between the parties.

4. The petition has been resisted by the respondent Corporation by filing an affidavit in reply contending inter alia that the petition was thoroughly misconceived in law and in facts, and not maintainable in the eye of law. It has been further contended that pursuant to the Road Policy of the State Government, the Government of Gujarat has enacted the Gujarat Infrastructure Development Act, 1999 (hereinafter referred to as the "GID Act") for the purpose of providing regulatory frame work for the participation of the private sector in the financing, construction, maintenance and operation of the structures and other development projects in the State of Gujarat. With a view to promote the objects of the GID Act, the Government Infrastructural Development Board has been constituted for discharging the functions as envisaged in the GID Act. The respondent has further contended that with a view to promote the aims and objects of the said Road Policy, the Government of Gujarat has constituted the respondent Corporation, a Company incorporated under the provisions of the Companies Act with the main object of inviting private section participation for infrastructural development projects in the sector of roads, bridges, and bypasses within the State of Gujarat. It is stated that the respondent Corporation is wholly owned Government of Gujarat undertaking, incorporated with the main object of undertaking roads and bridges projects with the private sector participation and also undertaking the work on item rate contract basis and all other works entrusted by the Roads and Buildings Department of Government of Gujarat. As regards he maintainability of the petition, it has been contended that the petition filed under the provisions contained in Section 11 of the said Act is not maintainable in view of the specific provisions contained in the Arbitration Tribunal Act and in view of the specific stipulation contained in Clause 30 of the agreement executed between the parties. The respondent Company being wholly owned Government Company duly constituted under the provisions of the Companies Act, the same is a public undertaking as per the definition of "Public Undertaking" contained in Clause (i) of Section 2(1)(i) of the said Act, and therefore, the only remedy available to the petitioner would be to invoke Clause 30 of the agreement, subject to the provisions of the Arbitration Tribunal Act.

5. The petitioner has filed an affidavit in rejoinder mainly contending inter alia that the respondent Corporation could not be said to be a "public undertaking" as per the definition contained in Section 2(1)(i) as the respondent Corporation is not specified by Notification in the Official Gazette as required by the said provision, more particularly in view of the decision of the Supreme Court in case of Om Construction Company Vs. Ahmedabad Municipal Corporation and Anr., reported in (2009) 2 SCC 486. It has also been contended that the contract entered into between the parties also could not be termed as 'works contract' as defined in Section 2(1)(k) of the Arbitration Tribunal Act.

6. Learned Advocate Mr. K. G. Sukhwani for the petitioner, placing heavy reliance on the decision in case of Om Construction Company Vs. Ahmedabad Municipal Corporation and Anr. (supra) vehemently submitted that the respondent Corporation having not been notified in the official gazette by the State Government, it could not be said to be a "public undertaking" within the meaning contained in Section 2(1)(i) of the said Act, and therefore, the work in question also could not be said to be "works contract" within the meaning of Section 2(1)(k) of the said Act. According to Mr.Sukhwani, even if the respondent Corporation is construed as a local authority, the same having not been specified as such by the State Government by the Notification in the official gazette, it could not be said to be a "public undertaking", and therefore, the provisions of the Arbitration Tribunal Act could not be said to have been attracted. Mr.Sukhwani further submitted that even if it is assumed that the petitioner had agreed to submit the disputes to the Arbitral Tribunal as per Clause 30 of the agreement in question, it is well settled proposition of law that jurisdiction cannot be conferred by the consent of the parties to the forum which otherwise does not have the jurisdiction, to decide the disputes between the parties. Mr.Sukhwani has also relied upon various decisions of this Court on the interpretation of the "local authority" to buttress his submission that the provisions of the Arbitration Tribunal Act are not applicable to the facts of this case and the petitioner is entitled to invoke Section 11 of the Arbitration Act for the appointment of Arbitrator to resolve the disputes between the parties.

7. Per Contra, the learned Advocate Mr.Siraj Gori appearing for the respondent Corporation, pressing into service the provisions contained in the Arbitration Tribunal Act of 1992 in the light of the averments made in the affidavit in reply submitted that the respondent Corporation being a company incorporated under the Companies Act and wholly owned by the Government of Gujarat, it is a "public undertaking" as per the definition contained in Clause (i) of Section 2(1)(i) of the said Act. He also submitted that the alleged disputes having arisen between the parties to the "works contract" as defined in Section 2(1)(k) of the said Act, the only remedy available to the petitioner as per Clause 30 of the agreement would be to approach the Arbitration Tribunal constituted under the said Act of 1992, as may be legally permissible. Distinguishing the decisions relied upon by the learned Advocate Mr.Sukhwani for the petitioner, more particularly the decision in case of Om Construction Company Vs. Ahmedabad Municipal Corporation and Anr. (supra), Mr.Gori submitted that none of the decisions had any application to the facts of the present case, and therefore, the present petition filed under Section 11 of the Arbitration Act is thoroughly misconceived and liable to be dismissed.

8. Before adverting to the rival submissions made by the Advocates for the parties, it would be beneficial to refer to some of the provisions contained in the Arbitration Tribunal Act of 1992, which has been enacted to provide for the constitution of a Tribunal to arbitrate the disputes arising from the works contract to which the State Government or a public undertaking is a party and to provide for matters connected therewith. Section 8 of the said Act pertains to the reference of disputes to the Tribunal and making of the award. Sub section (1) of Section 8 being relevant for the purpose of the present case is reproduced as under: "8. (1) Where any dispute arises between the parties to the works contract, either party shall, irrespective of whether such works contract contains an arbitration clause or not, refer, within one year from the date when the dispute has raised, such dispute in writing to the Tribunal for arbitration in such form and accompanied by such documents or other evidence and by such fees, as may be prescribed."

9. The definition of the words "public undertaking" and "works contract" contained in Section 2(1)(i) and Section 2(1)(k) respectively are reproduced as under: "2. (1) In this Act, unless the context otherwise require.

(a) to (h) xxx

(i) "public undertaking" means

(i) any company as defined in Section 3 of the Companies Act, 1956 in which not less than fifty one per cent of the paid up share capital is held by the State Government or any company which is a subsidiary (within the meaning of that Act) of the first mentioned company,

(ii) any corporation (not being a company as defined in Section 3 of the Companies Act, 1956 or local authority) established by or under a Central Act or a State Act and owned or controlled by the State Government,

(iii) such class of local authorities as the State Government may, by notification in the Official Gazette, specify;"

(j) xxx

"(k) "Works contract" means a contract made by the State Government or the public undertaking with any other person for the execution of any of its works relating to construction, repairs or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory or work shop or of such other work of the State Government or, as the case may be, of the public undertaking, as the State Government may, by notification in the Official Gazette specify, and includes

(i) a contract made for the supply of goods relating to the execution of any of such works,

(ii) a contract made by the Central Stores Purchase Organisation of the State Government for purchase or sale of goods."

10. Since heavy reliance has been placed by the learned Advocate Mr.Sukhwani for the petitioner on the decision of the Supreme Court in case of Om Construction Company Vs. Ahmedabad Municipal Corporation and Anr. (supra), it would be necessary to narrate certain facts of the said case. In the said case, the petitioner Om Construction Company and the Ahmedabad Municipal Corporation had entered into an agreement for providing and fixing Nibhada Stone for paving the footpath in Kalupur and Dariapur Wards in Central Zone within the city of Ahmedabad. In the said case, Clause 30 as contained in the agreement in the instant case, for referring the dispute to the Arbitration Tribunal was the same. In the said case, the High Court held that the Ahmedabad Municipal Corporation though a "local authority" was not specified by the State Government by Notification in the official gazette, and therefore, was not a "public undertaking" as per Clause (iii) of Section 2(1) (i) of the said Act, and therefore, the contract entered into by it with the petitioner could not be termed as a "works contract" as defined in Section 2(1)(k) of the said Act. The High Court while considering the applicability of the Arbitration and Conciliation Act, 1996 held that the Arbitration Agreement between the parties did not lay down any procedure for appointing an Arbitrator or Arbitrators, and therefore, in absence of such procedure, the designated Court could not invoke its jurisdiction under Sub section (6) of Section 11 of the said Act, which contemplates a situation where the appointment procedure as agreed to by the parties under Sub section (2) of Section 11 is not acted upon. The High Court, therefore, rejected the petition. The said decision having been challenged before the Supreme Court by the petitioner - appellant, the Supreme Court held as under: "19. We have carefully considered the submissions made on behalf of the respective parties and it appears that we are called upon to decide two questions in order to decide this appeal. The first and possibly basic question is whether in the absence of a Notification in the Official Gazette, the Municipal Corporation can at all be considered as a Public Authority for the purpose of Section 2(1)(k) of the Gujarat Tribunal Act, 1992. The other question is whether the absence of a procedure for appointment of an Arbitrator in the Arbitration Agreement itself, would constitute a bar for the appointment of an Arbitrator under Section 11(6) or any other provision of the 1996 Act, when not only the parties to these proceedings, but the High Court as well, had arrived at a conclusion that the provisions of the Gujarat Tribunal Act, 1992, would not be applicable in the instant case.

20. In this regard, we are inclined to accept the submissions of Mr. Gambhir notwithstanding the fact that the Ahmedabad Municipal Corporation had not been notified to be a "Public Undertaking" as defined in Section 2(1)(iii) of the Gujarat Tribunal Act, 1992. There is no dispute that the Ahmedabad Municipal Corporation is a local authority and it could assume the garb of a "Public Undertaking" only pursuant to a Notification published in that regard in the Official Gazette. On the other hand, even if Form B I loses its relevance as far as the present contract is concerned, since the parties have agreed to resolution of their disputes by arbitration, the provisions of Sub section (5) (sic of Section 11) of the 1996 Act can be pressed into service to enable the parties to invoke the powers of the Chief Justice to appoint an Arbitrator. The stand taken by Mr. Divan is highly technical and is not in aid of resolution of the disputes between the parties by an Arbitral Tribunal.

21. While recognizing the right of the appellant to approach the Chief Justice or the Designated Court under Section 11(6) of the 1996 Act, the stand of the respondent Corporation has been that the party should be relegated to suit, which is quite contrary to the stand taken by it in the case of other employees.

22. Section 11 of the 1996 Act deals exclusively with the appointment of Arbitrators. Sub section (2) provides that the parties are free to agree on a procedure for appointing the Arbitrator or Arbitrators but subject to Sub section (6) which provides that if an agreed procedure had not been acted upon, the parties could approach the Chief Justice or his Designate for appointment of an Arbitrator. Sub sections (3), (4) and (5) contemplate different situations in which the Chief Justice or his Designate could be requested to appoint an Arbitrator. In our view, in the facts of this case, the answer to the question thrown up in this appeal lies in Sub clause (5) of Section 11 of the 1996 Act, which reads as follows :

"11. (5) Failing any agreement referred to in sub section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him."

11. Thus, it is clear that in case of Om Construction Company (supra), the respondent Municipal Corporation being a local authority was required to be notified in the Official Gazette by the State so as to fall it into the Clause (iii) of Section 2(1)(i) of the Arbitration Tribunal Act, which was not done and therefore said Municipal Corporation was not treated as a "public undertaking". Resultantly, the contract entered into between the parties was not treated as the "works contract" within the meaning of Section 2(1)(k) of the said Act. So let us examine whether in the instant case, the respondent GSRDC could be said to be a "public undertaking" within the meaning of Section 2(1)(i) of the said Arbitration Tribunal Act or not.

12. It appears that there is no dispute that the contract agreement entered into between the parties contained the Clause 30 with regard to referring the disputes, that may arise between the parties, to the Arbitration Tribunal, Ahmedabad. The said Clause further provided that the provisions of Section 21 of the GPWC Disputes Arbitration Tribunal Act, 1992 and the order issued by the Government in connection with the said Act will apply to the arbitration. It also provided that the provisions of Arbitration Act shall, in so far as they are inconsistent with the provisions of the Act of 1992, cease to apply to any dispute arising from a "works contract".

13. The bone of contention raised by the learned Advocate Mr.Sukhwani is that the respondent Corporation even if is treated as a local authority, was not notified in the official gazette as such by the State Government, as required under Clause (iii) of Section 2(1)(i) of the Act of 1992, and therefore, could not be said to be a "public undertaking" as per Section 2(1) (i) of the said Act, and the contract awarded to the petitioner also, therefore, could not be said to be a "works contract" withing the definition of Section 2(1)(k) of the said Act as interpreted by the Supreme Court in case of Om Construction Company Vs. Ahmedabad Municipal Corporation and Anr. (supra). The said submissions appear to be thoroughly misconceived on the facts and the law. The said submissions have been made overlooking the contentions raised in the affidavit in reply filed on behalf of the respondent Corporation, in which it has been categorically stated that the respondent Corporation is a Company incorporated under the Companies Act and is wholly owned Government Company. Pertinently, the said fact has not been disputed or challenged by the petitioner in the affidavit in rejoinder filed by the petitioner. The respondent Corporation, therefore, being a Company incorporated under the Companies Act and wholly owned by the Government, it would be a "public undertaking" within the meaning of Clause (i) of Section 2(1)(i) of the Act of 1992. Neither Clause (ii) nor Clause (iii) of the said Section 2(1)(i) would be attracted in case of the respondent Corporation. The question of notifying class of local authority in the official gazette by the State Government, as co

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ntemplated in Clause (iii), would arise only when the respondent is a local authority. In the instant case, the respondent Corporation being a Company wholly owned by the Government, Clause (i) of Section 2(1)(i) would be applicable, and not Clause (iii) thereof. The work in question awarded to the petitioner by the respondent Corporation as a "public undertaking" for widening and strengthening the Sarkhej Dholka - Vataman - Pipli - Dholera Bhavnagar Road, would therefore, certainly fall within the meaning of "works contract" as defined in Section 2(1)(k) of the said Act of 1992. 14. In case of Om Construction Company (supra) and other decisions relied upon by Mr.Sukhwani, the concerned respondents were the local authorities and were not notified in the official gazette by the State Government, and therefore, it was held in the said cases that such authorities could not be said to be a public undertaking under Section 2(1)(i), and that the contracts entered into by such authorities could not be said to be the "works contract" within the meaning of Section 2(1)(k) of the said Act. Such is not the position in the instant case. 15. In the instant case, as held herein above, the respondent Corporation is a "public undertaking" as contemplated in Clause (i) of Section 2(1)(i) and the contract entered into between the parties was a "works contract" as contemplated in Section 2(1)(k) of the said Act of 1992, and hence Section 8 of the said Act would come into play, which mandates the parties to refer the disputes arising between them to the Tribunal constituted under the Act for arbitration, within one year from the date when the dispute arises. Section 21 thereof also provides that the provisions of the Arbitration Act,1996, shall insofar as they are inconsistent with the provisions of the Act of 1992, cease to apply to any dispute arising from a works contract. The said provision of Section 21 has also been specifically mentioned in Clause 30 of the agreement in question and admitted by the parties. The Arbitration Tribunal Act of 1992 therefore being applicable to the facts of the case, the petitioner could not have invoked Section 11 of the Arbitration Act of 1996. 16. In that view of the matter, the present petition invoking Section 11 of the Arbitration Act is not be maintainable and is liable to be dismissed. It is clarified that the Court has not expressed any opinion on the merits of the case and it would be open for the petitioner to take recourse to any other remedy as may be permissible under the law. The petition is dismissed accordingly.
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