IN THE HIGH COURT OF KERALA AT ERNAKULAM AR.No. 27 of 2010()
1. HYDRO-TECH,ENGINEERS & CONTRACTORS, ... Petitioner
1. THE GOVERNMENT OF THE STATE OF
2. THE PROJECT DIRECTOR, KERALA SUSTAINABLE For Petitioner :SRI.RAJIV ABRAHAM GEORGE For Respondent :GOVERNMENT PLEADER
The Hon'ble MR. Justice K.T.SANKARAN
O R D E R
A.R.No.27 of 2010
Dated this the 19th day of January, 2011 O R D E R
The question involved in this Arbitration Request is whether the dispute is arbitrable 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 of Thiruvananthapuram City" as per Tender Notice dated 27.10.2003. The applicant submitted tender as a joint venture along with M/s.Kirloskar Brothers Ltd., Pune and M/s.Godavari Polymers Pvt. Ltd., Hyderabad. The tenders AR No.27/2010 2
were considered and the tender submitted by the petitioner was accepted by the first respondent. On 25.3.2004, a 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 AR No.27/2010 3
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 has not been resolved mutually by the parties, the same shall be referred for arbitration as under. 24.2 Arbitration
In the event that the parties are unable to resolve any dispute, controversy or claim relating to or arising out of this agreement, such dispute, controversy or claim shall be finally settled by a AR No.27/2010 4
panel of arbitrators (the "Arbitration Panel"), in accordance with the Arbitration & Conciliation Act, 1996.
The Arbitration Panel consists of three arbitrators. The employer shall appoint one arbitrator and the contractor shall appoint one arbitrator. The two arbitrators so appointed shall appoint a third arbitrator, who will be the Presiding Arbitrator and the arbitration proceedings shall be conducted in accordance with the Arbitration & Conciliation Act, 1996. Any award by the Arbitration Panel shall be binding on the parties. The venue of arbitration shall be Thiruvananthapuram."
5. In the counter affidavit filed on behalf of the first respondent, it is contended that going by clause 25.1 of the Conditions of Contract, the contract is to be governed by and construed in accordance with the Indian Laws. As per Section 3 of the Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998 (Act 12 of 1998), the arbitration clause in every agreement in which Government is a party stands cancelled. The Awards Act applies to the AR No.27/2010 5
various works of the Government of Kerala and the work in question being one of that nature, the arbitration clause cannot be invoked by the applicant. It is also contended that the arbitration clause is void ab initio. The learned Government Pleader also relied on the decision in Kerala Water Authority, Thiruvananthapuram vs. P.T.Chacko (2008 (1) KLT 639).
6. The Awards Act extends to the whole of the State of Kerala. The Act shall be deemed to have come into force on 14th November, 1997. Section 3 of the Awards Act provides for cancellation of arbitration clauses and revocation of authority of arbitrator. Section 3 is extracted below for convenience. "3. Cancellation of arbitration clauses and revocation of authority of arbitrator :- (1) Notwithstanding anything contained in the Indian Contract Act, 1872 (Central Act 9 of 1872) or in the Arbitration Act, 1940 (Central Act 10 of 1940) or in the Arbitration and Conciliation Act, 1996 (Central Act 26 of 1996) or in any other AR No.27/2010 6
law for the time being in force or in any judgment, decree or order of any court or other authority or in any agreement or other instrument,
(i) the arbitration clauses in every agreement shall stand cancelled ;
(ii) the authority of an arbitrator appointed under an agreement referred to in clause (i) shall stand revoked ; and
(iii) any agreement referred to in clause (i) shall cease to have effect in so far as it relates to the matters in dispute or difference referred, with effect on and from the date of commencement of this Act.
(2) Nothing in sub-section (1) shall be a bar for any party to an agreement to file a suit in the court having jurisdiction in the matter to which the agreement relates and all questions regarding the validity or effect of the agreement between the parties to the agreement or persons claiming under them and all matters in dispute or difference between the parties to the agreement shall be decided by the court, as if the arbitration clauses had never been included in the agreement."
AR No.27/2010 7
7. On a plain reading of Section 3, the arguments advanced by the learned Government Pleader may appear to be attractive. But Section 3 has to be read along with the definitions contained in Section 2. In Section 2(1), "agreement" and "local competitive bidding specification" are defined, thus :
"2. Definitions :-
(1) In this Act, unless the context otherwise requires, -
(a) 'agreement' means an agreement executed in terms of the local competitive bidding specification for various works of the Government of Kerala ;
(b) 'local competitive bidding specification' means the local competitive bidding specification adopted 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: WHEREAS the Kallada Irrigation Project, the largest Irrigation Project in the State of Kerala, was started in the year AR No.27/2010 8
AND WHEREAS the said project was in
receipt of financial assistance from the World Bank from June, 1982 to March, 1989 ;
AND WHEREAS a special condition, namely, the local competitive bidding specification envisaged by the World Bank Authorities was included as desired by the World Bank in the agreements relating to works connected with the said irrigation project ; AND WHEREAS clauses 51 and 52 of the
said local competitive bidding specification provide for the settlement of matters in dispute or difference through arbitration ;
AND WHEREAS inclusion of arbitration
clauses in the agreements executed in terms of the local competitive bidding specification was with a view to enable the speedy settlement of matters in dispute or difference in a just and equitable manner ;
AND WHEREAS the arbitration references did not have the desired effect as several arbitrators have wrongly and arbitrarily awarded unconscionable amounts against provisions of agreements and without materials on record in collusion with the claimant-contractors and officials of the department causing heavy loss to AR No.27/2010 9
the State ;
AND WHEREAS the Government considered
it necessary, in public interest, to cancel the arbitration clauses in the agreements executed in terms of the local competitive bidding specification, to revoke the authority of the arbitrators appointed thereunder and to enable the filing of appeals against the awards or decrees already passed in certain arbitration references in respect of which the period of limitation has expired."
9. It is one of the cardinal principles of construction of statutes that where the language of an Act is clear, the preamble must be disregarded. Where the object or meaning of an enactment is not clear, the preamble may be considered to explain it. Where very general language is used in an enactment, which, it is clear must be intended to have a limited application, the preamble may be used to indicate to what particular instances the enactment is intended to apply. A preamble is a key to open the mind of the legislature, but it cannot be used to control or qualify precise and unambiguous AR No.27/2010 10
language of the enactment. When there is a doubt as to the meaning of a provision, recourse may be had to the preamble to ascertain the reasons for the enactment and the intention of the parliament. If the language of the enactment is capable of more than one meaning, the interpretation which comes nearest to the purpose and scope of the preamble is to be preferred [See M/s.Burrakur Coal Co. Ltd. vs. The Union of India and others (AIR 1961 Supreme Court 954) and Tribhuban Parkash Nayyar vs. The Union of India (AIR 1970 Supreme Court 540)].
10. On a combined reading of Sections 2 and 3 of the Awards Act, I am of the view that in order to attract the cancellation of the arbitration agreement, revocation of authority of arbitrator and cessation of arbitration agreements, the agreement must be one as defined in Section 2(1)(a). To constitute an agreement within the meaning of Section 2(1)(a), it should be one executed in terms of the local AR No.27/2010 11
competitive bidding specification as defined in Section 2(1)(b). A local competitive bidding specification is the one adopted by the Government in G.O.(Ms) No.3/81/I & R dated 20th January 1981. In order to correctly understand the scope of the definition of local competitive bidding specification, it is also relevant to take into account G.O.(Ms) No.3/81/I & R referred to above. A copy of the Government Order was made available by the Government Pleader. The relevant part of the Government Order reads as follows :
"Kallada Irrigation Project has been posed for World Bank Assistance as Phase I of the Kerala Composite Irrigation Project as per orders issued in the G.O. read above. Adoption of Local Competitive Bidding procedure for tendering of civil works, as approved by the Central Water Commission and World Bank Officers, is a condition imposed by the World Bank for granting assistance. The Chief Engineer (Projects III) has recommended to follow the above procedure of tendering.
Government, having considered the question in detail, are pleased to order the AR No.27/2010 12
adoption of the Local Competitive Bidding procedure in respect of civil works under the Kallada Irrigation Project, with immediate effect."
11. The question to be resolved is whether the Awards Act would apply to each and every contract in which the Government is a party or whether the bar under Section 3 would apply only to those contracts as defined in Section 2(1) of the Awards Act. Had it been the intention of the legislature that Section 3 will apply to all contracts in which the Government is a party, it was not required to provide a definition clause and to define "agreement" and "local competitive bidding specification". Though the Act contains only eight Sections, on a reading of the Act, common man would not be able to easily understand the scope and ambit of the Act. It is most likely that a person may get confused as to the applicability or otherwise of the Act to a particular contract. It would have been ideal to make the Act clear and specific. But that is not a bar for the interpretive process to AR No.27/2010 13
be made by the Court in respect of the provisions of the Act. If the Awards Act applies, the Arbitration Request is not maintainable. However, if the Act does not apply, there is no dispute that the Arbitration Request is maintainable. On a reading 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 that the Awards Act applies only in respect of contracts relating to the Kallada Irrigation Project. The Act does not apply to each and every contract in which the Government is a party. I am of the view that the Awards Act does not nullify the Arbitration and Conciliation Act in so far as it relates to the contracts in which the Government is a party, except in the case of agreements within the meaning of Section 2(1)(a) read with Section 2(1)(b).
12. In Kerala Water Authority, Thiruvananthapuram vs. P.T.Chacko (2008 (1) KLT 639), the question which arose for consideration was whether in respect of an arbitration AR No.27/2010 14
agreement in a contract in which the Kerala Water Authority is 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 Act would apply. In Kerala Water Authority, Thiruvananthapuram AR No.27/2010 15
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) KLT 639) 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. Justice V.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. K.T.SANKARAN