Holding

The arbitration clause in the contract remains enforceable because the 1988 Government Order applies only to Public Works Department contracts and the Panchayat did not delete clause 73.

Summary

The appellant, H. Lathakumari, entered into a contract with Vamanapuram Block Panchayat on 15 March 1999 that incorporated clause 73 of the Madras Detailed Standard Specifications, mandating arbitration of disputes. When a dispute arose, the appellant invoked Section 11 of the Arbitration and Conciliation Act, 1996 to seek appointment of an arbitrator, but the respondent denied the existence of an arbitration agreement, relying on a Government Order dated 19 November 1988 that purportedly deleted arbitration clauses in public works contracts. The High Court dismissed the application, holding that the order rendered the arbitration clause ineffective. On appeal, the Supreme Court examined whether the 1988 order applied to the Panchayat contract and concluded that it was limited to Public Works Department contracts and did not automatically delete the arbitration clause in this agreement. Since the Panchayat had not expressly removed clause 73, the arbitration agreement remained valid. Consequently, the Court allowed the appeal and directed the respondent to refer the dispute to the Superintending Engineer for arbitration.

Issues considered

Whether the Government Order dated 19 November 1988 deleting arbitration clauses in PWD contracts applies to the contract between the appellant and Vamanapuram Block Panchayat.
Whether an arbitration agreement exists under clause 73 of the Madras Detailed Standard Specifications in the said contract.
Whether the appellant is entitled to appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11

Subjects

ArbitrationArbitration clauseSection 11Arbitration and Conciliation ActGovernment Order 19-11-1988Public Works DepartmentContractual disputeSupreme Court appeal

Judgment

"
[2009] 9 S.C.R. 10

A H. LATHAt<UMAR!
"
v. -·
VAMANAPURAM BkOCK PANCHAYAT ANP ORS,
(Civil Appeal No, 4152 of 2009)
JU~Y 7, 2009
B cl,
[R.V. RAVEENDRAN AND J.M. PANCHAL, JJ.]

Arbitration and Conciliation Act, 1996: s. 11 - Pan9,h~y§ti
Raj Departmentdid not decide to delete the arbitrntiqn c.l~use
c in its contracts in terms of Gov~mm~nt Qr(l~r dat~d 19.11, 1988
which was applicable to PWD contracts - The agreement
between appellant and Respondent- Panchayat contained
..,,
arbitration clau$e - Hence, dispute referable to arbitration - ,...
Madras Detailed Standard Specifications - Clause 73.
D
The parties entered into a contract agreement d~t~~
15.3.1999 containing arbitration clause. Di~p~t~ ar9se in
respect of said contract. The appellant filed an applici!tion
under Section 11 of the Arbitration and Conciliation Act,
1996 seeking appointment of an Arbitrator. The first
E respondent denied the claims and also contended that
there was no arbitration agreement. The contention of the ~
respondents was that the government had decided to
scrap arbitration by Government Order dated 19.11.19~8~
High Court dismissed the application. Hence ttle appeal,
-·
F
Allowing the appeal, the Court

HELD: A reading of the order dated 19.11,1988 clearly
shows that the deletion of the ~rbitration clause wa&
direeted only in re9~rd tQ the Publio Work Department
G ~
contracts. In fact, it specifieally pr9vided that the question
of adopting such delet!Qn by other departments of the
Government or by s~tutory bodies would be examined ~-
by the concerned department/statutory body. Admittedly, .....
H 10
H. LATHAKUMARI v. VAMANAPURAM BLOCK 11
PANCHAYAT AND ORS.
~

n~j~her the first respondent nor the Panchayat Raj A
Oepartment, de.cided. to delete the ~rbitration clause. On
the other hand, the first r~sP.011dent entered into an
agreement with the appellant long after the said
Government Order dated 19.11.1988, that Is, on 15.3.1999
and did not choose to delete clause 73 from the MOSS B
~
made part of the agreement. If the first respondent
wanted to delete the arbitration agreement, it ought to
Ju~ye scored out clause 73 from the MOSS which
\nGh~ded ~ !Jr~!~ration clause in the agreement. That was
not done. lo fact, in PWO contra~ts, to which the bar on c
arbitration was applied, the printed form of Articles of

- '(
Agreement'was amended to includQ a clause which
confirmed that the "contractor has also signed the copy
of the Madras petailed Standard Specifications excluding
&l!JY§@ 7~ and other clauses relating to arbitration ...... "
D
6ignifi~irnUy §Y~'1 an exclusion was not made in the
article& of Agr@@m~nt enter~E! hy tfle first respondent
Panchayat. Thu& the @rbitrnti911 cla~§ft \Vi§ intended to
form a part of the contract between the parties. Therefore,
the disputes between the parties were referable to
arbitration in terms of the said arbitration agreement. The E
first respondent is directed to refer the disputes to the
-~
§yp@rintending Engineer in terms of the arbitration
agreement ~gntained in clause 73 of MOSS. [Paras 5 and
7] [15-A-H; 16-A-B]
F
CIVIL. APPHl,,lATf; JURlf).PICTION : Civil Appeal No.
4152 pf 2009.
From the Judgment qnd Order dated 13.01.2003 in
Arbitration Request -No. 9 of 2.001 ~nd order dated 14.12.2005 G
in O.P. No. 12477 of 2003 of the High Court of Kerala at
Ernakulam.

_,->, P. Sureshan and Shakil Ahmed Syed for the Appellants.

R. Sathish for the Respondent. H
12 SUPREME COURT REPORTS [2009) 9 S.C.R.
,..
A The Judgment of the Court was delivered by

R.V. RAVEENDRAN, J. 1. Leave granted. Heard both
parties.

2. The Vamanapuram Block Panchayat, first respondent
B herein, entered into a "contract agreement" dated 15.3.1999
'),.__
with the appellant under which the work of "RIDF-111, Pangode
Sivakshetram - Thannichal Road improvements" was entrusted
to her .......
as per the articles of agreement, plans, specifications
and conditions of contract approved by the Superintending
c Engineer, Commissionerate of Rural Development, State of
Kerala. The Articles of agreement confirmed that the contractor
had also signed the copy of the Madras Detailed -standard --+
Specifications (for short 'MOSS') and addenda volume thereto
in acknowledgement of being bound by all the conditions of the )'

D clauses. The MOSS which thus became a part of the contract
· between the parties, provided for settlement of disputes by
arbitration vide clause 73 which is extracted below :

, "73. Arbitration.-ln case of any dispute or difference
between the parties to the contract either during the
E
· progress or after the completion of the works or after the
determination, abandonment, or breach of the contract as
to the interpretation of the contract, or as to .any matter or f-
thing arising thereunder except as to the matters left to the
sole discretion of the Executive Engineer under clauses
F 20, 22, 27(c), 29, 36, 37 and 40 of the Preliminary
Specification, or as to the withholding by the Executive
Engineer of payment of any bill to which the contractor may
claim to be entitled, then either party shall forthwith give to
the other notice of such dispute or difference, and such
G dispute or difference shall be and is, hereby referred to the ......
arbitration of the Superintending Engineer of the nominated
cir~le mentioned in the 'Articles of Agreement" (hereinafter
called the "arbitrator") and the award of such arbitrator shall ......___
be final and binding on the parties." .....
H
•d H. LATHAKUMARI v. VAMANAPURAM BLOCK 13
PANCHAYAT AND ORS. [R.V. RAVEENDRAN, J.]
3. Certain disputes having arisen in respect of the said A
1
contract, the appellant, by letter dated 28.12.2000, sought
reference to arbitration of its claims aggregating to
Rs.13,06,936/- in terms of the aforesaid arbitration clause
contained in the MOSS forming part of the agreement. The
Block Development Officer, Vamanapuram Panchayat, sent a B
reply dated 4.1.2001 denying the claims and informing the
,..,. contractor that if she did not resume the work, the contract
would be terminated at her risk and cost. The respondents,
however, did not deny the existence of the arbitration
agreement in the said reply. c
4. Thereafter, the appellant filed an application under
section 11 of the Arbitration & Conciliation Act, 1996 ('Act' for
short) seeking appointment of an Arbitrator. The first
respondent filed a counter denying the clair'!JS and also ,
contending that there was no arb.itration agreement. The said D
application was dismissed by the designate of the Chief _,
Justice of the High Court by order dated 13.1.2003. He·
considered the contention of the appellant that there was an
arbitration agreement in terms of clause 73 of MOSS for·
resolving the disputes. He also referred to the contention of the E
' respondents that the government had decided to scrap
arbitration by Government Order dated 19.11.1988, relevant
portions of which read as under :
+
.... "On a detailed examination of the matter, Government finds
'F
that the system of arbitration has generally gone against
the interests of the government and therefore, government
has decided to stop altogether the system of referring the
disputes for arbitration under any circumstances.

---r Accordingly, Government orders the following : G

... ) (1) xxxxxxxx t
I
I

(2) Disputes and differences arising between the
department and the contractors in the PWD
H
,..
14 [2009] 9 S.C.R.
SUPREME COURT REPORTS
''h
-~
I

'
A contracts shall not oe referred to arbitration
hereafter and all -provisions relating td atbitration in
the tender ddcuments shall be deleted or scored off
"' under the signature of the executing parties.
HawevfJr, If any wgrk is financed by an agency and
that agency insists to have provision for
atbitrationi provision f()t arbitrstion may be
provided in the agreement in respect at such work.

(3) xxxxx
c (4) The question of adopting the abbVe ptocedtJte in -
other departments and organlzatiGflS like Kerala
State Electricity Board will b~ examined by th@ -
concerned department.;'

D {emphasis suoplied]

The learned Designate pf the Chief Justice accepted the
said contention of the respondents and held as follows :

"In view of the above notification (Government Order?) the
E arbitration clause in the tender documents and in the
agreement shall stand deleted or scored off. When the
above arbitration clause from the tender documents had
been specifically deleted by the above notification; the
applicant cannot again rely on the above arbitration clause +
F and seek an order for appointing an arbitrator. As the ~
(:lbove arbitration clause has been deleted by the above
notification, the prayer for appointing an arbitrator for
resolving the disputes and differences between the parties
cannot be allowed."
G 5. The said order is challenged in this appeal by special
leave. The question therefore is whether there is an arbitration
agreement between the parties? The first respondent did not
deny the existence of an arbitration clause in terms of clause
73 of MOSS, which was admittedly a part of the agreement.
H The contention was that the said arbitration clause stood
H. LATHAKUMARI ~ VAMANAPURAM BLOCK 15
PANdHAVAt AND ORS. [RV RAVE:ENORAN, J.j
deleted from contracts in view of the G.O. dated 19.11.1988. A
-'\
The question is whether the arbitration clause has, in fact, stood
deleted. A reading of the said order dated 19.11.1988 clearly
shows that the deletion of the arbitration clause was directed
only in r~gard to the Public Work Department contracts. In fact,
it specifically provided that the question of adopting such B
deletion by other departments of the Government or by statutory
_. bodies would be examined by the concerned department/
statutory body. It is thus clear that the deletion of clause 73 of
MOSS from the contract was made applicable only in regard
to the contracts entered into by the Public Works DepartmEl!nt c
of the State of Kerala and th~ question whether other
governmental or quasi-governmental agencies should delete
such a provision, was left to the individual decision/discretion
of the respective authorities.

6. Admittedly, neitl:ler the first respondent nor the D
Panchayat Raj Department, decided to delete the arbitrati?n
clause. On the other hand, the first respondent entered into an
agreement with the appellant long after the said Government
Order dated 19.11.1988, that is, on 15.3.1999 and did not
choose to delete clause 73 from the MOSS made part of the E
agreement. If the first respondent wanted to delete the
arbitration agreement, it ought to have scored out clause 73
from the MOSS which was signed and made a part of the
+ agreement or included a clause in the agreement that clause
,./
73 of MOSS would not apply or that there shall be n'o F
arbitration. That was not done. In fact, in PWD contracts, to
which the bar on arbitration was applied, the printed form of
~ Articles of Agreement was amended to include a clause which
confirmed that the "contractor has also signed the copy of the
(
Madras Detailed Standard Specifications excluding clause 73 G
and other clauses relating to arbitration. ..... " Significantly such
.,,,. .J an exclusion is not made in the articles of Agreement entered
by the first respondent Panchayat. It is thus clear that the
arbitration clause was intended to form a part of the contract
between the parties. Therefore, the disputes between the
H
16 SUPREME COURT REPORTS [2009] 9 S.C.R.

A parties are referable to arbitration in terms of the said
arbitration agreement No other objection to the arbitration Is
raised.

7. In view of the above, the appeal is allowed and the first,,.
respondent is directed to refer the disputes to the
8
Superintending Engineer in terms of the arbitration agreement
'
,-
contained in clause 73 of MDSS within six weeks fro~ today.
Nothing stated above shall be construed as an expression of
any opinion on the merits of the claim.
?-·
C D.G. Appeal allowed.

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+