REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 974 OF 2012

(Arising out of SLP(C) No.907/2011)

M.P.Rural Road Development Authority & Anr. ...Appellant(s)

- Versus -

M/s. L.G. Chaudhary Engineers & Cont. ...Respondent(s)

J U D G M E N T

GANGULY, J.

1.Leave granted.

2.The question which falls for consideration in this

appeal is whether the provision of Madhya Pradesh

Madhyasthan Adhikaran Adhiniyam, 1983 (hereinafter,

‘M.P. Act’) which statutorily provides for the

parties to the Works Contract to refer all disputes

1

to the Arbitration Tribunal constituted under

Section 7 of the Act will continue to operate in

view of the provisions of Arbitration and

Conciliation Act, 1996 (hereinafter ‘A.C. Act 1996’)

which is a Central Act, subsequently enacted.

3.The facts leading to the aforesaid controversy be

noted first.

4.The appellant-Madhya Pradesh Rural Road Development

Authority and Anr., impugning the judgment of the

High Court dated 8.9.2010 in this appeal, entered

into a ‘Works Contract’ with the respondent for

construction and maintenance of Rural Road Package

No.1958, District Jhabua.

5.Clause 24 of the Contract contains the ‘Dispute

Redress Mechanism’ and Clause 24.1 of the same

provides as under:

2

“24.1 If any dispute or difference of any

kind what-so-ever shall arise in connection

with or arising out of this Contract or the

execution of work of maintenance of the Works

thereunder, whether before its commencement

or during the progress of Works or after the

termination, abandonment or breach of the

Contract, it shall, in the first instance, be

referred for settlement to competent

authority, described along with their powers

in the Contract Data, above the rank of the

Engineer. The competent authority shall,

within a period of forty five days after

being requested in writing by the Contractor

to do so, convey his decision to the

Contractor. Such decision in respect of every

matter so referred shall, subject to review

as hereinafter provided, be final and binding

upon the Contract. In case the Works is

already in progress, the Contractor shall

proceed with the execution of the Works,

including maintenance thereof, pending

receipt of the decision of the competent

authority as aforesaid, with all due

diligence.”

6.Under the ‘M.P. Act’ “dispute” has statutorily been

defined under Section 2(d):

“2(d) “dispute” means claim of ascertained

money valued at Rupees 50,000 or more

relating to any difference arising out of

the execution or non-execution of a works

contract or part thereof”

3

7.“Works Contract” has also been defined under Section

2(i) of the M.P. Act:

“2(i) works contract” means an agreement in

writing for the execution of any work

relating to construction, repair or

maintenance of any building or

superstructure, dam, weir, canal, reservoir,

tank, lake, road, well, bridge, culvert,

factory, workshop, powerhouse, transformers

or such other works of the State Government

or Public Undertaking as the State

Government may, by notification, specify in

this behalf at any of its stages, entered

into by the State Government or by an

official of the State Government or Public

Undertaking or its official for and on

behalf of such Public Undertaking and

includes an agreement for the supply of

goods or material and all other matters

relating to the execution of any of the said

works”

8.“Reference to Tribunal” is statutorily provided

under Section 7 of the M.P. Act:

“7. Reference to Tribunal – (1) either party

to a works contract shall irrespective of

the fact whether the agreement contains an

arbitration clause or not, refer in writing

the dispute to the Tribunal.

(2) Such reference shall be drawn up in

such form as may be prescribed and shall be

supported by an affidavit verifying the

averments.

(3) The reference shall be accompanied

by such fee as may be prescribed.

4

(4) Every reference shall be accompanied

by such documents or other evidence and by

such other fees for service or execution of

processes as may be prescribed.

(5) On receipt of the reference under

sub-section (1), if the Tribunal is

satisfied that the reference is a fit case

for adjudication, it may admit the reference

but where the Tribunal is not so satisfied

it may summarily reject the reference after

recording reasons therefor.”

9.From a perusal of Section 7, it is clear that the

nature of the dispute between the parties in the

instant case is covered by the definition under

Section 2(d) read with Section 2(1). As such under

Section 7 such a dispute has to be statutorily

referred to Tribunal set up under the M.P. Act.

10. The case of the appellant is that in view of

several breaches in Works Contract by the

respondent, the appellant terminated the Works

Contract and encashed the bank guarantee furnished

by the respondent on 25.6.2008.

5

11. Thereafter, on 29.8.2008, the respondent

submitted a representation to the appellant against

the encashment of bank guarantee. Prior to that on

5.8.2008, respondent filed a Writ Petition No.

4491/2008 challenging the encashment of bank

guarantee and the writ petition was disposed of with

a direction that the bank guarantee may not be

encashed till the disposal of the representation.

Thereafter, on 4.6.2009 the representation of the

respondent was rejected after giving the appellant a

personal hearing.

12. In the pending dispute, the respondent

submitted additional claim on 24.2.2010 and

requested the appellant to appoint an Arbitrator for

adjudicating the dispute between the parties. On

24.4.2010, the appellant replied that Clause 25 of

the Works Contract specifically provides for

adjudication of disputes by the Arbitral Tribunal

under the M.P. Act.

6

13.Then on 24.6.2010 respondent filed an application

under Section 11 of A.C. Act 1996 for appointment of

an Arbitrator before the High Court. On 8.9.2010,

High Court allowed the application of the respondent

and appointed an Arbitrator by placing reliance on a

decision of this Court in Va Tech Escher Wyass

Flovel Ltd. Vs. MPSE Board & another - Civil Appeal

No. 3746 and 3747 of 2005.

14.In the case of Va Tech (supra), this Court after

referring to both the M.P. Act and the A.C. Act

1996, held that the M.P. Act applies only where

there is no arbitration clause and this Court

further held that the M.P. Act stands impliedly

repealed by the A.C. Act 1996 where there is an

arbitration clause.

15.Facts in connection with the Va Tech (supra) were

that Va Tech was awarded a works contract by the

M.P. State Electricity Board and there was an

arbitration clause in the agreement.

7

16. Va Tech filed an application under Section 9

of the A.C. Act 1996 which was rejected by the

learned Additional District Judge and that order was

also upheld by the High Court.

17. Then Va Tech filed a special leave petition

before this Court. This Court noting the provision

of Section 7 of the M.P. Act came to the aforesaid

finding and ultimately held that the judgment of the

High Court in Va Tech cannot be sustained and opined

that application under Section 9 of A.C. Act 1996 is

maintainable. The exact reasoning recorded by this

Court in Va Tech is as follows:

“In our opinion, the 1983 Act and the 1996

Act can be harmonised by holding that the

1983 Act only applies where there is no

arbitration clause but it stands impliedly

repealed by the 1996 Act where there is an

arbitration clause. We hold accordingly.

Hence, the impugned judgment cannot be

sustained and we hold that the application

under Section 9 of the 1996 Act was

maintainable.”

8

18. Mr. K.K. Venugopal, learned senior counsel

appearing for the appellant submitted that the

Division Bench of this Court, while coming to the

aforesaid finding, has not noticed the relevant

provision of the M.P. Act as well as the relevant

provisions of A.C. Act 1996 and as such the same

judgment was rendered ‘per incuriam’.

19.Learned senior counsel further submitted that

another Division Bench of this Court in a case in

which the Presiding Judge was common with the Bench

which rendered the Va Tech (supra) ruling almost in

a situation identical with Va Tech issued notice and

stayed the arbitration proceedings.

20. In another case a Division Bench of this Court

presided over by the same learned Judge who gave the

Va Tech ruling passed the following order:

“This petition has been filed against the

judgment and order dated 11

th

March, 2011

9

passed by the High Court of Madhya Pradesh at

Gwalior Bench in Arbitration Case No.4 of

2010.

Learned counsel for the petitioner has

relied on a decision of this Court in Civil

Appeal No. 3746 of 2005 decided on 14

th

January, 2010.

We are of the opinion that the aforesaid

decision is distinguishable because in the

present case the arbitration clause itself

mentions that the arbitration will be by the

Madhya Pradesh Arbitration Tribunal. Hence,

in this case arbitration has to be done by

the Tribunal.

The Special leave petition is dismissed.”

21.Relying on these two subsequent orders in the

instant case and in Ravikant Bansal vs. M.P. Rural

Road Development Authority and Anr . – SLP(C)

No.18867 of 2011, Mr. Venugopal, the learned senior

counsel submitted that subsequent Division Bench

presided over by the same learned Judge who gave the

Va Tech ruling has not followed the ratio in the

case of Va Tech.

10

22.The learned counsel said so to justify his

contention that the decision in Va Tech (supra) was

rendered per incuriam.

23. If this Court looks at Section 2(4) of A.C.

Act 1996, it will appear that Part-I of A.C. Act

1996, which is from Section 2 to Section 43, shall,

except sub-section 1 of Sections 40, 41 and 43,

apply to every arbitration under any other enactment

for the time being in force where the arbitration

was pursuant to an arbitration agreement except

insofar as the provisions of this Part i.e. Part-I

are inconsistent with the other enactment or with

any other rule made thereunder.

24. Similar provision relating to statutory

arbitration was also there in Section 46 of

Arbitration Act, 1940. Section 46 is set out below:

“46. Application of Act to statutory

arbitration – The provisions of this Act,

except sub-section (1) of Sec. 6 and Secs.

7, 12, 36 and 37, shall apply to every

11

arbitration under any other enactment for

the time being in force, as if the

arbitration were pursuant to an arbitration

agreement and as if that other enactment

were an arbitration agreement, except in so

far as this Act is inconsistent with that

other enactment or with any rules made

thereunder.

25. If this Court compares the provisions of the

M.P. Act with A.C. Act 1996 then the Court finds

that the provisions of M.P. Act are inconsistent

with the provisions of A.C. Act 1996. The M.P. Act

is a special law providing for statutory arbitration

in the State of Madhya Pradesh even in the absence

of arbitration agreement. Under the provisions of

A.C. Act 1996 in the absence of an arbitration

agreement, arbitration is not possible. There is

also difference in the formation of arbitration

tribunal as is clear from Section 2(1)(d) of A.C.

Act 1996. Again under A.C. Act 1996, arbitral

tribunal is defined under Section 2(1)(d) as a sole

arbitrator or a panel of arbitrators. But under M.P.

Act such a tribunal is created under Sections 3 and

4 of the Act. And under the M.P. Act dispute has a

special meaning as defined under Section 2(1)(d) of

12

the Act whereas dispute has not been defined under

the A.C. Act 1996.

26. It is clear from its long title that the M.P.

Act provides for the establishment of a tribunal to

arbitrate in disputes to which the State Government

or a public undertaking [wholly or substantially

owned or controlled by the State Government], is a

party, and for matters incidental thereto or

connected therewith. The structure of the tribunal

under the M.P. Act is also different from the

structure of a tribunal under the A.C. Act 1996. It

is clear from Section 4 of the M.P. Act that the

composition of tribunal and their qualification is

statutorily provided which is set out below:

“4.Chairman and Members of Tribunal and

their qualifications.- (1) Subject to sub-

section (2) and (3), the State Government

may appoint a chairman and as many members

to the Tribunal as it may consider

necessary.

(1-a) The State Government may, in

consultation with the Chairman,

designate one of the Judicial Members as the

Vice-Chairman who in the event of occurrence

of any vacancy in the office of the Chairman

13

by reason of his death, resignation, leave

or otherwise, shall during such vacancy,

discharge the functions of the Chairman.

(2)No person shall be appointed as

Chairman of the Tribunal, unless he is or

has been a Judge of a High Court.

(3)No person shall be qualified for

appointment as a member of the Tribunal,

unless-

(i)he is or has been a District Judge of

not less than seven years standing: or

(ii)he is or has been a Revenue Commissioner

or has held a post equivalent to the rank of

Revenue Commissioner for a total period of

not less than five years, or

(iii)he is or has been:-

(a)Chief Engineer in the service of the

State Government in Public Works,

Irrigation or Public Health Engineering

Department; or

(b)a Chief Engineer in the service of the

Madhya Pradesh Electricity Board; or

(c)a Senior Deputy Accountant General of

the Office of the Accountant General,

Madhya Pradesh,

for a period of not less than five years.

Provided that in the case of clause

(iii), in exceptional circumstances, the

State Government may, relax the prescribed

minimum period of five years to three

years.”

14

27. The term of office and salaries and allowances

are also statutorily provided under Sections 5 and 6

of the M.P. Act. Section 8 provides for the

procedure to be followed by the tribunal on receipt

of reference and Section 9 provides for the

Constitution of Benches and Chairman’s power of

distribution of business. Under Section 16(2) of the

M.P. Act there is a time limit for giving the Award

which is absent in A.C. Act 1996. Section 17-A of

the M.P. Act confers inherent power on the Arbitral

tribunal to make orders as may be necessary for the

ends of justice or to prevent abuse of the process

of the tribunal. Section 17-B also provides for

power conferred on the tribunal for correction of

clerical or arithmetical mistakes. No such power is

given to an arbitral tribunal under A.C. Act 1996.

Section 19 of the M.P. Act gives High Court the suo

motu power of revision. The High Court has also been

given the power of revision to be exercised on an

application made by an aggrieved party within three

months of the award. While doing so, the High Court

15

is to act like a revisional court under Section 115

of the CPC.

28. It is clear from the aforesaid enumeration of

the statutory provision that under the M.P. Act the

parties’ autonomy in the choice of arbitral tribunal

is not there.

29.In State of Madhya Pradesh and another vs. Anshuman

Shukla – (2008) 7 SCC 487, this Court while

referring to the M.P. Act and dealing with the

nature of the arbitral tribunal constituted under

the said Act held that the said Act is a special Act

and provides for compulsory arbitration. It provides

for a reference and the tribunal has been given the

power of rejecting the reference at the threshold.

It also held that the M.P. Act provides for a

special limitation and fixes a time limit for

passing an award. It has also been held that Section

14 of the M.P. Act provides that the award can be

challenged under special circumstances and Section

16

17 provides for finality of the award,

notwithstanding anything to the contrary contained

in any other law relating to arbitration. All these

features of the Act were pointed by this Court in

Anshuman Shukla (supra) to show that there is

inconsistency between the provisions of A.C. Act

1996 and those of the M.P. Act. In para 28 of the

judgment, this Court while referring to the

provisions of M.P. Act held:

“The provisions of the Act referred to

hereinbefore clearly postulate that the State

of Madhya Pradesh has created a separate

forum for the purpose of determination of

disputes arising inter alia out of the works

contract. The Tribunal is not one which can

be said to be a domestic tribunal. The

Members of the Tribunal are not nominated by

the parties. The disputants do not have any

control over their appointment. The Tribunal

may reject a reference at the threshold. It

has the power to summon records. It has the

power to record evidence. Its functions are

not limited to one Bench. The Chairman of the

Tribunal can refer the disputes to another

Bench. Its decision is final. It can award

costs. It can award interests. The finality

of the decision is fortified by a legal

fiction created by making an award a decree

of a civil court. It is executable as a

decree of a civil court. The award of the

Arbitral Tribunal is not subject to the

provisions of the Arbitration Act, 1940 and

the Arbitration and Conciliation Act, 1996.

17

The provisions of the said Acts have no

application.”

(para 28, page 497 of the report)

30.It is clear, therefore, that in view of the

aforesaid finding of a co-ordinate Bench of this

Court on the distinct feature of an arbitral

tribunal under the said M.P. Act the provisions of

M.P. Act are saved under Section 2(4) of A.C. Act

1996. This Court while rendering the decision in Va

Tech (supra) has not either noticed the previous

decision of a co-ordinate Bench of this Court in

Anshuman Shukla (supra) or the provisions of Section

2(4) of A.C. Act 1996. Therefore, we are constrained

to hold that the decision of this Court in Va Tech

(supra) was rendered per incuriam.

31. This was the only point argued before us by

the learned counsel for the appellant.

32.The principle of per incuriam has been very

succinctly formulated by the Court of Appeal in

18

Young vs. Bristol Aeroplane Company, Limited

reported in 1944 (1) K.B. 718.

33. Lord Greene, Master of Rolls formulated the

principles on the basis of which a decision can be

said to have been rendered ‘per incuriam’. The

principles are:

“Where the court has construed a statute or a

rule having the force of a statute its

decision stands on the same footing as any

other decision on a question of law, but

where the court is satisfied that an earlier

decision was given in ignorance of the terms

of a statute or a rule having the force of a

statute the position is very different. It

cannot, in our opinion, be right to say that

in such a case the court is entitled to

disregard the statutory provision and is

bound to follow a decision of its own given

when that provision was not present to its

mind. Cases of this description are examples

of decisions given per incuriam.”

(Page 729)

34.The decision in Young (supra) was subsequently

approved by the House of Lords in Young vs. Bristol

Aeroplane Company, Limited reported in 1946 Appeal

Cases 163 at page 169 of the report.

19

35. Lord Viscount Simon in the House of Lords

expressed His Lordship’s agreement with the views

expressed by the Lord Greene, the Master of Rolls in

the Court of Appeal on the principle of per incuriam

(see the speech of Lord Viscount Simon at page 169

of the report).

36.Those principles have been followed by the

Constitution Bench of this Court in The Bengal

Immunity Company Limited vs. The State of Bihar and

others reported in 1955 (2) SCR 603 [See the

discussion in pages 622 and 623 of the report].

37.The same principle has been reiterated by Lord

Evershed, Master of Rolls, in Morelle Ld. vs.

Wakeling & another [(1955) 2 QB 379 at page 406].

The principle has been stated as followed:

“…As a general rule the only cases in which

decisions should be held to have been given

per incuriam are those of decisions given in

ignorance or forgetfulness of some

20

inconsistent statutory provision or of some

authority binding on the court concerned; so

that in such cases some part of the decision

or some step in the reasoning on which it is

based is found, on that account, to be

demonstrably wrong…….”

(page 406)

38.In the case of State of U.P. and another vs.

Synthetics and Chemicals Ltd. and another reported

in (1991) 4 SCC 139, this Court held the doctrine of

‘per incuriam’ in practice means ‘per ignoratium’

and noted that English Courts have developed this

principle in relaxation of the rule of stare decisis

and referred to the decision in the case of Bristol

Aeroplane Co. Ltd. (supra). The learned Judges also

made it clear that the same principle has been

approved and adopted by this Court while

interpreting Article 141 of the Constitution (see

para 41).

39.In the case of Municipal Corporation of Delhi vs.

Gurnam Kaur reported in (1989) 1 SCC 101, a three-

Judge Bench of this Court explained this principle

21

of per incuriam very elaborately in paragraph 11 at

page 110 of the report and in explaining the

principle of per incuriam the learned Judges held:

“……A decision should be treated as given per

incuriam when it is given in ignorance of the

terms of a statute or of a rule having the

force of a statute…….”

40. In paragraph 12 the learned Judges observed as

follows:

“……One of the chief reasons for the doctrine

of precedent is that a matter that has once

been fully argued and decided should not be

allowed to be reopened. The weight accorded

to dicta varies with the type of dictum. Mere

casual expressions carry no weight at all.

Not every passing expression of a judge,

however eminent, can be treated as an ex

cathedra statement, having the weight of

authority.”

41.Following the aforesaid principles, this Court is

constrained to hold that the decision in Va Tech

(supra), having been rendered in per incuriam,

cannot be accepted as a precedent to decide the

controversy in this case.

22

42. In reply the learned counsel for the

respondent only submitted that the M.P. Act is

repugnant to A.C. Act 1996 since the same is a later

Act made by Parliament. The learned counsel

referred to the provisions of Article 254 of the

Constitution. The learned counsel also urged that in

view of the provision of Section 85 of A.C. Act

1996, the M.P. Act stands impliedly repealed.

43. The said argument cannot be accepted. The

provision for repeal under Section 85 of A.C. Act

1996 does not show that there is any express repeal

of the M.P. Act. Apart from that the provision of

Section 2(4) of A.C. Act clearly militates against

the aforesaid submissions.

44. The argument of repugnancy is also not

tenable. Entry 13 of the Concurrent List in the

VIIth Schedule of the Constitution runs as follows:

23

“13.Civil procedure, including all matters

included in the Code of Civil Procedure at

the commencement of this Constitution,

limitation and arbitration.”

45. In view of the aforesaid Entry, the State

Government is competent to enact laws in relation to

arbitration. The M.P. Act of 1983 was made when the

previous Arbitration Act of 1940 was in the field.

That Act of 1940 was a Central Law. Both the Acts

operated in view of Section 46 of 1940 Act.

46.The M.P. Act 1983 was reserved for the assent of the

President and admittedly received the same on

17.10.1983 which was published in the Madhya Pradesh

Gazette Extraordinary dated 12.10.1983. Therefore,

the requirement of Article 254(2) of the

Constitution was satisfied. Thus, M.P. Act of 1983

prevails in the State of Madhya Pradesh. Thereafter,

A.C. Act 1996 was enacted by Parliament repealing

the earlier laws of arbitration of 1940. It has also

been noted that A.C. Act 1996 saves the provisions

24

of M.P. Act 1983 under sub-sections 2(4) and 2(5)

thereof. Therefore, there cannot be any repugnancy.

(See the judgment of this Court in T. Barai vs.

Henry Ah Hoe and another reported in AIR 1983 SC

150). In this connection the observations made by

the Constitution Bench of this Court in the case of

M. Karunanidhi vs. Union of India and another

reported in (1979) 3 SCC 431 are very pertinent and

the following observations are excerpted:

“……It is, therefore, clear that in view of

this clear intention of the legislature

there can be no room for any argument that

the State Act was in any way repugnant to

the Central Acts. We have already pointed

out from the decisions of the Federal Court

and this Court that one of the important

tests to find out as to whether or not there

is repugnancy is to ascertain the intention

of the legislature regarding the fact that

the dominant legislature allowed the

subordinate legislature to operate in the

same field pari passu the State Act.”

(para 37, page 450)

47. It is clear from the aforesaid observation

that in instant case the latter Act made by the

Parliament i.e. A.C. Act 1996 clearly showed an

25

intention to the effect that the State Law of

Arbitration i.e. the M.P. Act should operate in the

State of Madhya Pradesh in respect of certain

specified types of arbitrations which are under the

M.P. Act 1983. This is clear from Sections 2(4) and

2(5) of A.C. Act 1996. Therefore, there is no

substance in the argument of repugnancy and is

accordingly rejected.

48.Therefore, appeal is allowed and the judgment of the

High Court which is based on the reasoning of Va

Tech (supra) is set aside. This Court holds the

decision in Va Tech (supra) has been rendered in per

incuriam. In that view of the matter the arbitration

proceeding may proceed under M.P. Act of 1983 and

not under A.C. Act 1996.

49.There will be no order as to costs.

.......................J.

(ASOK KUMAR GANGULY)

New Delhi

26

January 24, 2012

27

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.974 OF 2012

(Arising out of SLP(C) No.907/2011)

M.P.Rural Road Development

Authority & Anr. ...Appellant(s)

- Versus -

M/s. L.G. Chaudhary Engineers & Cont. ...Respondent(s)

J U D G E M E N T

Gyan Sudha Misra, J.

Leave granted.

2. While concurring and endorsing the reasonings assigned in

the judgement of learned Justice Ganguly, I propose to add and thus

partly dissent on certain aspects involved in the instant appeal which

would have a bearing on the relief granted to the respondent by the High

Court which appointed an arbitrator under the Arbitration and Conciliation

Act, 1996 for adjudication of the dispute in regard to cancellation of the

works contract between the contesting parties therein.

28

3. In this context, Section 7 of the Madhya Pradesh

Madhyasthan Adhikaran Adhiniyam, 1983 (hereinafter referred to as the

‘M.P. Arbitration Tribunal Act, 1983’) needs to be reiterated which itself

lays down as follows:

“Reference to Tribunal” - (1) either party to a works contract

shall irrespective of the fact whether the agreement contains an

arbitration clause or not, refer in writing the dispute to the

Tribunal.”

4. On perusal of the aforesaid provision enumerated under

Section 7, it is explicitly clear that the matter in the event of existence of a

dispute between the parties in certain categories of cases where the State

of Madhya Pradesh is a contracting party, the dispute shall be referred in

writing to the tribunal irrespective of the fact whether the agreement

contains an arbitration clause or not. From this provision it is clearly

apparent that reference of any dispute to the tribunal postulates an

existence of a works contract and the definition of ‘works contract’ under

Section 2 (i) of the M.P. Arbitration Tribunal Act, 1983, it has clearly and

unequivocally been specified as to what is a ‘works contract’ in relation to

which the dispute is required to be referred in writing to the tribunal. We

may therefore meticulously recollect the definition of ‘works contract’

which lays down as follows:-

“works contract” means an agreement in writing for the

execution of any work relating to construction, repair or

29

maintenance of any building or superstructure, dam, weir, canal,

reservoir, tank, lake, road, well, bridge, culvert, factory workshop,

powerhouse, transformers or such other works of the State

Government or Public Undertaking as the State Government

may, by notification, specify in this behalf at any of its stages,

entered into by the State Government or by an official of the

State Government or Public Undertaking or its official for and on

behalf of such Public Undertaking and includes an agreement for

the supply of goods or material and all other matters relating to

the execution of any of the said works.”

5. Thus on a perusal of the definition of ‘works contract’, it is

manifestly clear that while the ‘works contract’ means an agreement

pertaining to matters relating to the execution of any of the work

enumerated in the definition of ‘works contract’, the same does not

include the dispute pertaining to termination, cancellation or repudiation

of works contract and the entire nature of transaction laid down therein

relates to disputes which arise out of execution of the nature of work

specified in the ‘works contract’. However, the question whether the

‘works contract’ has been legally repudiated and rightly cancelled or not is

the question or dispute pertaining to termination of works contract has

not been incorporated even remotely within the definition of ‘works

contract’. In view of this, the legal and logical consequence which can be

reasonably drawn from the definition of ‘works contract’ would be, that if

there is a dispute between the contracting parties for any reason relating

to works contract which include execution of any work, relating to

construction, repair or maintenance of any building or super-structure,

30

dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory,

workshop, power house, transformers or such other works of the State

Government or Public Undertaking including an agreement for the

supply of goods or material and all other matters relating to the

execution of any of the said works, the same would fall within the ambit of

the definition of ‘works contract’ and hence all disputes pertaining or

arising out of execution of the works contract will have to be referred to

the M.P. State Arbitration Tribunal as envisaged under Section 7 of the

Act of 1983. Hence, in addition to the reasons assigned in the judgment

and order of learned Brother Justice Ganguly, disputes arising out of

execution of works contract has to be referred to the M.P. State Arbitration

Tribunal and not under the Arbitration and Conciliation Act, 1996.

6. But in so far as the instant matter is concerned, the facts

disclose that the appellant M.P. Rural Road Development Authority

cancelled the works contract itself which was executed in favour of the

respondent. In that event, the works contract between the parties was not

in existence at all which would operate as a statutory mandate for

reference of the dispute to the M.P. State Arbitration Tribunal.

7. It is no doubt true that if the matter were before an Arbitrator

appointed under the Arbitration and Conciliation Act, 1996 for adjudication

of any dispute including the question regarding the justification and

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legality as to whether the cancellation of works contract was legal or

illegal, then the said Arbitrator in view of the ratio of the judgment of the

Supreme Court in Maharshi Dayanand University & Anr. Vs. Anand

Co-op L(C) Society, 2007 (5) SCC 295, as also in view of the persuasive

reasoning assigned in the judgment and order reported in Heyman & Anr.

Vs. Darwins, Limited, 1942 (1) All E.R. 337 would have had the jurisdiction

to adjudicate the dispute regarding the justification and legality of

cancellation of works contract also. But the same cannot be allowed to

be raised under the M.P. Act of 1983 since the definition of ‘works

contract’ unambiguously lays down in explicit terms as to what is the

nature and scope of ‘works contract’ and further enumerates the specific

nature of disputes arising out of the execution of works contract which

would come within the definition of a ‘works contract’.

8. However, the same does not even vaguely include the issue

or dispute arising out of cancellation and termination of contract due to

which this question, in my considered opinion, would not fall within the

jurisdiction of M.P. State Arbitration Tribunal so as to be referred for

adjudication arising out of its termination. As already stated, fall out

certainly would be otherwise if the matter were to be adjudicated by an

Arbitrator appointed under the Arbitration and Conciliation Act, 1996 and

that would be in view of the ratio of the decisions of the Supreme Court

32

referred to hereinbefore which has held it permissible for the Arbitrator

to adjudicate even the dispute arising out of cancellation or termination of

an agreement or contract. This however, cannot be allowed to broaden

or expand the ambit and scope of the M.P. Act of 1983 where the State

Legislature has passed a specific legislation in respect of certain

specified types of arbitration determining as to what are the nature of

disputes to be referred to the M.P. State Arbitration Tribunal and that

specifically permits the reference of dispute arising out of execution of

contract but clearly leaves out any dispute arising out of termination,

cancellation or repudiation of ‘works contract’. In order to clarify the point

further, what needs to be emphasized is that if the nature of dispute

referred to the Arbitrator like the instant matter, related to a dispute

pertaining to construction, repair, maintenance of any building super-

structure, dam or for the reasons stated within the definition of ‘works

contract’, the matter may be referred to the M.P. Tribunal in view of the

fact that if there is a dispute in relation to execution of a works contract,

then irrespective of the fact whether the agreement contains an

arbitration clause or not, the dispute is required to be referred to the M.P.

State Arbitration Tribunal for adjudication. But when the contract itself

has been terminated, cancelled or repudiated as it has happened in the

instant case, then the nature of dispute does not fall within the definition

of ‘works contract’ for the sole reason that it does not include any dispute

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pertaining to cancellation of a works contract implying that when the

works contract itself is not in existence by virtue of its cancellation, the

dispute cannot be referred to the M.P. State Arbitration Tribunal but may

have to be decided by an Arbitrator appointed under the Arbitration and

Conciliation Act, 1996.

9. Hence, the nature of the dispute which falls within the

definition of ‘works contract’ under Section 2(i) of the M.P. Act, 1983

and one of the contracting parties to the agreement is the State of M.P.,

then irrespective of an arbitration agreement the dispute will have to be

referred to the Tribunal in terms of Section 7 of the Act of 1983. But if

the works contract itself has been repudiated and hence not in existence

at all by virtue of its cancellation/termination, then in my considered view,

the dispute will have to be referred to an independent arbitrator to be

appointed under the Arbitration and Conciliation Act, 1996 since the M.P.

Act 1983 envisages reference of a dispute to the State Tribunal only in

respect of certain specified types of arbitration enumerated under Section

2 (i) of the M.P. Act, 1983.

10. As a consequence and fall out of the aforesaid discussion,

the impugned order of the High Court by which the dispute relating to

termination of works contract by the M.P. Rural Road Development

Authority itself was referred to an independent arbitrator appointed by the

34

High Court under the Arbitration and Conciliation Act, 1996 needs to be

sustained and there is no need for a de novo reference of the dispute to

the M.P. State Arbitration Tribunal. In the alternative, the consequence

would have been otherwise and the matter could have been referred to

the State Arbitration Tribunal if the dispute between the parties related to

any dispute emerging out of execution of works contract which could fall

within the definition of ‘works contract’ given out within the definition of

‘works contract’ under Section 2(i) of the M.P. Act of 1983. In order to

avoid any ambiguity, it is reiterated that in view of cancellation of the

works contract itself which is the position in the instant case, the

proceedings before the Arbitrator appointed by the High Court cannot be

treated as non-est so as to refer the same once again to the tribunal for

adjudication as the dispute does not emerge or pertain to execution of

works contract but relates to non-existence of works contract by virtue of

its cancellation.

11. Thus the sum and substance of what I wish to emphasize is

that the question as to whether the dispute would be referred to the M.P.

Tribunal in terms of Section 7 of the M.P. Act of 1983 or to an

independent arbitrator under the Arbitration and Conciliation Act, 1996 will

depend upon the factum whether the works contract is existing between

the parties or not out of which the dispute has arisen. In case, the works

35

contract itself has been repudiated/cancelled, then, in view of its non-

existence, Section 7 of the M.P. Act pertaining to reference of dispute to

tribunal would not come into play at all by virtue of the fact that the

dispute relating to execution of works contract alone can be referred to

the tribunal in view of the specific nature of works contract enumerated

within the definition of works contract under the Act of 1983. However,

when the works contract itself becomes non-existent as a consequence of

its cancellation, the matter will have to be referred to an independent

arbitrator under the Arbitration and Conciliation Act, 1996 and not to M.P.

State Arbitration Tribunal.

12. Thus, while holding that the M.P. Act 1983 should operate in

the State of M.P. in respect of certain specified types of arbitration, the

appointment of an independent arbitrator by the High Court under the

Arbitration and Conciliation Act, 1996 needs to be sustained since the

works contract itself is not in existence by virtue of its cancellation and

hence this part of the dispute could not have been referred to the M.P.

State Tribunal.

13. Consequently, the instant appeal stands partly allowed. There

will be no order as to costs.

36

………………………………..J.

(Gyan Sudha Misra)

New Delhi,

January 24, 2012.

37

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 974 OF 2012

(Arising out of SLP(C) No.907/2011)

M.P.Rural Road Development

Authority & Anr.

...Appellant(s)

- Versus -

M/s. L.G. Chaudhary Engineers & Cont.

...Respondent(s)

ORDER

In view of some divergence of views expressed in

the two judgments delivered today by us, the

matter may be placed before Hon'ble the Chief

Justice of India for constituting a larger Bench

to resolve the divergence.

.............................J.

(ASOK KUMAR GANGULY)

.............................J.

(GYAN SUDHA MISRA)

NEW DELHI,

24-01-2012

38