REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.11249/2018

[Arising out of SLP (CIVIL) No. 23139 of 2016]

South Delhi Municipal Corporation ...Appellant

Versus

SMS AAMW Tollways Private Ltd. …Respondent

J U D G M E N T

S.A. BOBDE, J.

Leave granted.

2.The Appellant-South Delhi Municipal Corporation (hereinafter

referred to as ‘SDMC’) has challenged the impugned order dated

17.06.2016 passed by the learned Single Judge of the Hon’ble High

Court of Delhi, New Delhi in Arbitration Petition No. 475/2015. By

that order, the learned Single Judge allowed the Petition filed by the

Respondent-SMS AAMW Tollway Private Ltd. (hereinafter referred to

as ‘SMS AAMW’) under Section 11(6) of the Arbitration and

Conciliation Act, 1996 (hereinafter referred to as ‘the Act’).

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Brief Facts

3.The National Highways Authority of India (hereinafter referred

to as ‘NHAI’) entered into a State Support Agreement (hereinafter

referred to as ‘the SSA’) dated 27.5.2004/22.2.2005 with M/s

Jaypee-DSC Ventures Limited (hereinafter referred to as

‘Concessionaire’) for the design, engineering, financing,

procurement, construction, completion, operation, maintenance

and the toll collection of certain sections of the NH-8 highway.

4.The arrangement under the SSA was that the Concessionaire

of the NHAI shall not only collect the toll under the concession

agreement executed between NHAI and its Concessionaire, but also

the entry toll (toll tax) levied by the Appellant-SDMC on entry of

specified commercial vehicles into the territory of NCT of Delhi. The

Appellant-SDMC is a ‘designated agency’ of the Government of NCT

of Delhi under the SSA.

5.The Appellant-SDMC, for the purpose of collection of toll tax

from all border entry points within the NCT of Delhi, decided to

engage a contractor and accordingly floated a tender, inviting bids

from interested parties. The Respondent-SMS AAMW being the

successful bidder was awarded the work for collection of toll tax for

a period of 3 years and a Bilateral Agreement dated 14.05.2011

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(hereinafter referred to as ‘the Agreement’) was entered into

between the Appellant-SDMC and the Respondent-SMS AAMW.

6.As per the Agreement, the Respondent-SMS AAMW was

obliged to pay an amount of Rs.26 crores every month to the

Appellant-SDMC in lieu of the tax collected from all entry points

within the NCT of Delhi. However, the said toll tax for Rajokri

integrated toll plaza was said to be collected vide the mechanism

set out under the SSA i.e. it will be collected by the NHAI’s

Concessionaire and passed on to the Respondent-SMS AAMW.

7.Thereafter, on 19

th

February 2014, the Rajokri integrated toll

plaza was dismantled, apparently, as a result of an understanding

between the parties to the SSA. It is the case of Respondent-SMS

AAMW that due to this situation, it was forced to incur the expenses

to arrange for the collection of the Appellant-SDMC’s toll tax from

the Rajokri Integrated toll plaza. As a result, the Respondent-SMS

AAMW suffered a huge loss amounting to approximately Rs.80

crore.

8.Thereafter, a notice of Arbitration dated 09.03.2015 was sent

by the Respondent-SMS AAMW to the Appellant-SDMC, and to the

other parties under the SSA, detailing the issues and disputes that

had arisen under Clause 9 of the SSA. The Appellant-SDMC vide

letter dated 7.5.2015 raised a demand of Rs.97,08,76,449/- against

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the Respondent-SMS AAMW. To this Respondent-SMS AAMW

responded vide letter dated 11.05.2015, clarifying the mistakes in

computation, by the Appellant-SDMC. Thereafter, Appellant-SDMC

reconciled the accounts and reduced the demand to

Rs.80,46,31,504/- vide letter dated 13.05.2015.

9.The Respondent-SMS AAMW being dissatisfied with the

decision contained in the letter dated 13.05.2015, preferred an

appeal under Clause 16.3 of the Agreement vide letter dated

26.05.2015. Subsequently, the Appellant-SDMC vide letter dated

17.06.2015, intimated to the Respondent-SMS AAMW that since

there is no arbitration clause in existence between the parties, the

arbitration is not acceptable.

10.However, the Respondent-SMS AAMW filed the Arbitration

Petition No.475/2015 under Section 11(6) of the Act before the High

Court of Delhi for appointment of an Arbitrator relying on Clause 9

of the SSA and Clause 16 of the Agreement dated 14.05.2011.

The learned Single Judge of Delhi High Court allowed the petition

filed by the present Respondent-SMS AAMW under Section 11(6) of

the Act, and appointed Justice Deepak Verma, Former Judge of this

Court as the sole Arbitrator.

11.The decision of this case turns on the answer to the question

whether Clause 16.3 of the Agreement dated 14.05.2011 between

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the Appellant-SDMC on the one hand and the Respondent-SMS

AAMW on the other hand contains an agreement for arbitration.

12.The Agreement dated 14.05.2011 provides for the various

mutual rights, liabilities and obligations of the two parties for the

collection of toll tax from specified commercial vehicles at all

border entry points within the NCT of Delhi.

Clause 16 of the Agreement in its entirety reads as follows: -

“16.DISPUTE RESOLUTION

16.1Except where otherwise provided

in the Agreement, all questions and

disputes in any way arising out of or

relating to the Agreement shall be dealt

with as mentioned below.

16.2In the event the Contractor

considers any work demanded of it as being

outside the requirements of the Agreement,

or disputes any record or decision given in

writing by the Competent Officer in any

matter in connection with or arising out of

the Agreement, to be unacceptable, it shall

promptly within [15] days request the

Competent Officer in writing to give his

instructions or decision in respect of the

same. Thereupon, the Competent Officer

shall give his written instructions or

decision within a period of [30] days from

the receipt of the Contractor’s letter.

16.3If the Competent Officer fails to

give his instructions or decision in writing

within the aforesaid period or if the

Contractor is dissatisfied with the

instructions or decision of the Competent

Officer, the Contractor may, within [15]

days of receipt of the Competent Officer’s

instructions or decision, appeal to the

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Commissioner who shall afford an

opportunity to the Contractor to be heard, if

the latter so desires, and to offer evidence

in support of its appeal. The Commissioner

shall give his decision in writing within [30]

days of receipt of Contractor’s appeal which

shall be acceptable to the Contractor.”

13.Furthermore, Clause 20 which makes reference to disputes

arising out of the agreement reads as follows:

“20.MISCELLANEOUS PROVISIONS

20.1 Governing Laws and Jurisdiction

(a)……

(b) All disputes arising out of this

Agreement shall be subject to sole and

exclusive jurisdiction of the courts of Delhi

only.”

14.Thus, from a plain reading of Clause 16 one can see that it

provides for the resolution of disputes at two stages. First, by the

Competent Officer of the SDMC vide Clause 16.2 followed by the

Commissioner of the Municipal Corporation vide Clause 16.3.

The First Stage: -

If a case arises wherein a Contractor finds that if the work

demanded is outside the scope of the agreement or feels the need

to dispute any decision of the Competent Officer or if any record

created by him is unacceptable, he may request the Competent

Officer to decide its representation or give instructions. The

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Competent Officer is obliged to decide within 30 days from the

receipt of such a letter from the Contractor.

The Second Stage: -

If the Competent Officer fails to decide within 30 days or if the

Contractor is dissatisfied with his decision, the Contractor may,

within 15 days from receipt of the decision by the Competent

Officer, file an appeal to the Commissioner, SDMC. The

Commissioner is obliged to afford an opportunity to the Contractor

to be heard and the Contractor is entitled to produce evidence in

support of this case. At this stage, the Commissioner may give his

decision in writing within 30 days. The clause makes the decision

compulsorily ‘acceptable’ to the Contractor presumably meaning

that it shall be binding on him.

15.In the present case as stated earlier, the notice of arbitration

was sent by the Contractor on 09.03.2015 under the SSA. By letter

dated 26.05.2015, the Contractor i.e. SMS AAMW filed an appeal

under Clause 16.3 of the Agreement. This appeal was preferred

against the decision contained in the letter of the Competent

Officer, SDMC dated 13.05.2015. The Appellant-SDMC sought to

produce additional evidence and further sought that the decision

should be taken under Clause 16.3. There is no doubt that the

Respondent-SMS AAMW resorted to the provision of appeal against

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the decision of the Appellant-SDMC in its letter dated 13.05.2015.

In that letter, they did not seek the appointment of an arbitrator

but merely sought decision by an officer higher in rank than the

members of high level committee, akin to invoking an appellate

provision.

16.The question before us is whether Clause 16.3 which provides

for an appeal really provides for an arbitration and therefore

whether the High Court was entitled to appoint an Arbitrator under

Section 11(6) of the Act.

17.It is necessary to advert to certain features of Clause 16 to

determine whether the clause provides for arbitration or a

departmental appeal. Firstly, Clause 16.3 under which an

application to appoint an Arbitrator under Section 11(6) of the Act

was made is described as an appeal in the said Clause. It is a

settled principle of interpretation that unless the word raises an

ambiguity it is not necessary to consider another meaning

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.

Indeed, it is an appeal since the Contractor is entitled to take

recourse to appeal, if the Contractor is dissatisfied with the

decision of the Competent Officer including a possible failure to

decide within the prescribed period i.e. within 30 days. It is

significant, that the appellate provision can be invoked only by the

1 (Ref. Corporation of the City of Nagpur v. Employees AIR 1960 SC 675, Nelson Motis v.

Union of India (1992) 4 SCC 711, Nathi Devi v. Radha Devi Gupta (2005) 2 SCC 271).

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Contractor dissatisfied by the decision of the Competent Officer.

The other side, i.e. a Competent Officer who has raised a demand

which the Contractor has not complied with cannot file such an

appeal. The right of appeal is restricted to a dissatisfied Contractor

only. And that too upon a failure to obtain redressal under Clause

16.2.

18.This mechanism is clearly an appeal in the nature of a

departmental appeal commonly provided in several department

rules including service rules. Such departmental appeals are

invariably decided by a designated officer and can only be invoked

by a dissatisfied party such as a contractor or an employee. Such

appellate powers obviously cannot be invoked by parties unless the

language of the provision setting up the appeal provides for it

expressly or by necessary implication. It is settled law that a right

of appeal is a creature of statute and can only be exercised in the

manner provided by the statute

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.

19.We see no reason, why this Court should adopt a different

approach while construing a clause in a contract executed by a

statutory body and providing for an appeal. The language of Clause

16.3 does not lend itself to any other construction other than that it

2 (Ref. Ganga Bai v. Vijay Kumar (1974) 2 SCC 393, State of Haryana v. Maruti Udyog Ltd.

(2000) 7 SCC 348, Raj Kumar Shivhare v. Directorate of Enforcement (2010) 4 SCC 772)

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provides for an appeal against the decision of a Competent Officer

rendered under Clause 16.2.

20. The Respondent-SMS AAMW placed reliance on the following

passage from Russell on Arbitration, which reads as follows: -

“If it appears from the terms of the

agreement by which a matter is submitted

to a person’s decision, that the intention of

the parties was that he should hold an

enquiry in the nature of a judicial enquiry

and hear the respective cases of the parties

and decide upon evidence laid before him,

then the case is one of an arbitration. The

intention in such case is that there shall be

a judicial inquiry worked out in a judicial

manner. On the other hand, there are

cases in which a person is appointed to

ascertain some matter for the purpose of

preventing differences from arising, not of

setting them when they have arisen.”

21.This was relied on by the Respondent-SMS AAMW to support

the submission that Clause 16.3 does not provide for an appeal to

the Commissioner but provides for arbitration by the Commissioner.

The passage above clearly contemplates that an arbitration should

be an enquiry in the nature of a judicial enquiry i.e. an enquiry

which involves hearing both the parties. The appeal involved in the

present case clearly does not involve hearing both the parties. On

the contrary, the authority which decides the appeal is in a sense

the other party. The Commissioner is a higher officer than the

Competent Officer in the same organization. It is, therefore, clear

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that the appeal to the Commissioner is not intended to provide a

forum for a decision by an impartial adjudicator but is only

intended to ascertain some matter for the purpose of preventing

differences from arising and not for settling them after they have

arisen. It is thus clear that the Commissioner is not intended to be

an arbitrator, as his jurisdiction cannot be invoked by both parties.

22.Arbitration has always been understood to mean the process

by which a dispute is resolved by an arbitrator chosen or

acceptable to both sides under an arbitration agreement between

the two parties. In the present case, under Clause 16 of the

Agreement only the party dissatisfied by the order of the

Competent Officer can approach the Commissioner. It is, therefore,

not possible to hold that the proceedings before the Commissioner

constitutes as an arbitration. In K.K. Modi v. K.N. Modi

3

, this Court

observed as follows: -

“17. Among the attributes which must be

present for an agreement to be considered

as an arbitration agreement are:

(1) The arbitration agreement must

contemplate that the decision of the

tribunal will be binding on the parties to the

agreement,

(2) that the jurisdiction of the tribunal to

decide the rights of parties must derive

either from the consent of the parties or

from an order of the court or from a statute,

3 1998 (3) SCC 573

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the terms of which make it clear that the

process is to be an arbitration,

(3) the agreement must contemplate that

substantive rights of parties will be

determined by the agreed tribunal,

(4) that the tribunal will determine the

rights of the parties in an impartial and

judicial manner with the tribunal owing an

equal obligation of fairness towards both

sides,

(5) that the agreement of the parties to

refer their disputes to the decision of the

tribunal must be intended to be enforceable

in law and lastly,

(6) 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.

18. The other factors which are relevant

include, whether the agreement

contemplates that the tribunal will receive

evidence from both sides and hear their

contentions or at least give the parties an

opportunity to put them forward; whether

the wording of the agreement is consistent

or inconsistent with the view that the

process was intended to be an arbitration,

and whether the agreement requires the

tribunal to decide the dispute according to

law.”

23.The scope of Clause 16 is limited. Clause 16.1 provides that

all the questions and disputes arising out of the Agreement shall be

dealt with as follows i.e. as provided in Clause 16.2 and Clause

16.3. Clause 16.2 enables a Contractor to request the Competent

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Officer to give his instructions or decisions in writing, in case of

either when (a) the Contractor considers any work demanded of

him as being outside the requirements of the Agreement, or (b)

disputes any record or decision given in writing by the Competent

Officer in connection to the Agreement as unacceptable. The

Competent Officer is enjoined to give his written instructions or

decisions within a period of 30 days. He enjoys complete discretion

in deciding the dispute. Clause 16.3 provides that in case of an

instance whereby the Competent Officer does not come to a

decision, the Contractor may appeal to the Commissioner who shall

afford an opportunity to the Contractor to be heard and offer

evidence. Neither the Competent Officer nor the Commissioner is

enjoined to act judicially i.e. the decision on the basis of evidence

adduced by both the parties. In fact, both the authorities, the

Competent Officer and the Commissioner are required to deal with

only one party i.e. the Contractor. This cannot be characterized as

an enquiry of a judicial nature which necessarily involves a

consideration of the case of both sides by an independent

Arbitrator. Additionally, there is no provision in Clause 16.3 of the

Agreement to refer any dispute or reference to arbitration. In State

of Orissa v. Damodar Das

4

, this Court approved the following

observations in State of U.P. v. Tipper Chand: -

4 1996 (2) SCC 216

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“11. This Court was called upon to consider a

similar clause in State of U.P. v. Tipper

Chand [(1980) 2 SCC 341]. The clause was

extracted therein. After consideration thereof,

this Court held that after perusing the contents

of the said clause and hearing learned counsel

for the parties

“we find ourselves in complete agreement

with the view taken by the High Court.

Admittedly, the clause does not contain any

express arbitration agreement. Nor can

such an agreement be spelt out from its

terms by implication, there being no

mention in it of any dispute, much less of a

reference thereof. On the other hand, the

purpose of the clause clearly appears to be

to vest the Superintending Engineer with

supervision of the execution of the work

and administrative control over it from time

to time.”

It would, thereby, be clear that this Court

laid down as a rule that the arbitration

agreement must expressly or by implication

be spelt out that there is an agreement to

refer any dispute or difference for an

arbitration and the clause in the contract

must contain such an agreement. We are in

respectful agreement with the above ratio.

It is obvious that for resolution of any

dispute or difference arising between two

parties to a contract, the agreement must

provide expressly or by necessary

implication, a reference to an arbitrator

named therein or otherwise of any dispute

or difference and in its absence it is difficult

to spell out existence of such an agreement

for reference to an arbitration to resolve the

dispute or difference contracted between

the parties……”

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24.We find that the present Clause 16 and in particular Clause

16.3 does not provide for the reference of any dispute that may

arise between the parties to an Arbitrator. The purpose of this

Clause is to vest the Competent Officer and the Commissioner with

supervisory control over the execution of work and administrative

control over it from time to time and thus to prevent disputes. The

intention is not to provide for a forum for resolving disputes. Thus,

in the present circumstances no Arbitrator could have been

appointed by the High Court under Section 11(6) of the Arbitration

and Conciliation Act, 1996, therefore, the impugned order dated

17.06.2016 is set aside.

25.The appeal is accordingly allowed.

….………………………………..J.

[S.A. BOBDE]

….………………………………..J.

[L. NAGESWARA RAO]

NEW DELHI

NOVEMBER 22, 2018

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