"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, January 31, 2012

Arbitration under the MPMAA 1983 and the Arbitration and Conciliation Act, 1996: Part II


In the previous post, we had provided a descriptive comment of the decision of the Supreme Court in MP Rural Road Development Authority v. LG Chaudhary Engineers where the two judges constituting the Bench did not agree with each other on whether disputes pertaining to cancellation of the Works Contract were to be referred to the arbitral tribunal constituted under the Madhya Pradesh Madhyasthan Adhikaran Adhiniyam, 1983 (1983 Law). In this post, critique the decision:

The Disagreement between Ganguly, J and GyanSudha Mishra, J:
It appears that the Question that was referred to by the Two judge Bench is not whether the 1996 Act impliedly overrules the 1983 Law or whether the latter is repugnant to the former. As pointed out in the previous post, GyanSudha Mishra, J agreed with Ganguly, J. on the discussion that the 1983 Law was a special enactment and that it was neither repealed nor was repugnant to the 1996 Act. The issue in which both the judges differed is rather a simple one- whether the claims pertaining to wrongful termination of the Works Contract in the case were to be brought before the Tribunal under the 1983 Law or not. Gyan Sudha Mishra, J.(JGSM) did not think so because, according to her, when the Works Contract was terminated, it ceased to exist and since the definition of Works Contract in the 1983 Law does not cover aspects pertaining to termination, issues connected to wrongful termination were to be referred to arbitration under the 1996 Act and not under the 1983 Law. Ganguly, J. (JAKG) did not afford such a restricted construction to the 1983 Law. He stated (at para 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) [sic 2(1)(d)] read with Section 2(1) [sic 2(1)(i)]. As such under Section 7 such a dispute has to be statutorily referred to Tribunal set up under the [1983 Law].
Therefore, the question referred to the larger bench was whether a dispute pertaining to cancellation of works contract can be brought before the Tribunal under 1983 Law or not.

It appears that there is a lot of (needless?) uncertainty in the law pertaining to the reference of disputes under Works Contracts (as defined in and as applicable per the 1983 Law) to arbitration under the 1996 Act. The next post on this issue will deal with those uncertainties. This post will deal with the specific question as to whether the dispute involved in the case could be referred to the tribunal under the 1983 Law.

Whether a dispute pertaining to cancellation of works contract can be brought before the Tribunal under 1983 Law or not:

Section 2(1)(i) defines "works-contract" to mean a written agreement for the execution of any work relating to works of the State Government or State Government PSU (“MP PSU”) 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. It provides:
"(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, work-shop, 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."
The purpose of the above definition is to define what kind of contracts would come within the purview of "works contracts". A contract for supply of goods simpliciter is not a Works Contract. Similarly, an agreement pertaining to legal consultancy entered into with the MP Government or an MP PSU is not a works contract. That being so, JGSM’s complaint that the definition of “works contract” does not encompass a dispute pertaining to termination is not convincing because the purpose of the definition is to delineate the kinds of contracts to which the 1983 Law would be applicable. JGKM argues (at para 5):
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’.
Why should it? Such a definition is not supposed to contain references to cancellation, repudiation or termination of the works contract. JGKM’s argument would have been correct if there was exclusion, implied or express, of disputes pertaining to termination, repudiation or cancellation in the definition of “Dispute”. There is no express exclusion of termination in the definition of “dispute” under Section 2(1)(d), which provides:
(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;
The above definition provides for two aspects:
  • The claims to come within the purview of “dispute” should be Rs. 50,000 or above.
  • The claims must arise out of the execution or non-execution of a works contract or part thereof. 
There is nothing which impliedly suggests that disputes pertaining to cancellation of works contract should be out of the purview of the 1983 Law. In fact, there are indications in the Law that questions pertaining to termination would come within the meaning of “Dispute”:

  • The Long Title of the Act read with Section 2(d) conveys the intent of the legislature that disputes pertaining to Works Contract should be brought before the Tribunal.
  • There appears no reason for the 1983 Law to exclude only questions pertaining to cancellation from the purview of the tribunal.
JGSM provides a different reasoning for her decision. According to the Judge, the 1983 Law comes into operation only if there exists a Works Contract;the 1983 Law is not applicable if there is no Works Contract in existence on account of termination. This reasoning is faulty. Section 7B(2-A) of the 1983 Law provides:
Notwithstanding anything contained in sub-section (1), the Tribunal shall not admit a reference petition unless it is made within three years from the date on which the works contract is terminated, foreclosed, abandoned or comes to an end in any other manner or when a dispute arises during the pendency of the works contract:
Provided that if a reference petition is filed by the State Government, such period shall be thirty years.
The above provision states that the Tribunal under the 1983 Law shall admit petition for reference of disputes only if such petition is made within three years from the date of termination, foreclosure or abandonment or other means in which the contract comes to an end. This is in complete contradiction to the stance of JGSM that if the Works 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’…”  Section 7B(2A) impliedly empowers the Claimant to make a reference to the Tribunal even after termination, foreclosure or abandonment of the Works Contract but within three years from the termination of the contract.

JGSM tries to raise an artificial wall separating claims that in relation to a terminated contract and those claims which arise from a contract which is not terminated. Such a separation is unwarranted, at least for the reasons disclosed by the judge.

More in another post.

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