"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.

Monday, January 30, 2012

Implied Repeal of the MPMAA 1983 by the Arbitration and Conciliation Act, 1996: Part I

This series of posts looks that the recent decision of the Supreme Court in MP Rural Road Development Authority v. LG Chaudhary Engineers, where the two judges constituting the Bench differed on whether the disputes pertaining to the contracts in the case were capable of being referred to arbitration under Madhya Pradesh Madhyasthan Adhikaran Adhiniyam, 1983 (1983 Law). The first part of this two part series briefly discusses the facts and the two judgements. In the second part of the series, we critique the two judgements.

Facts:
MP Rural Road Development Authority (MPRRDA) and LG Chaudhary Engineers (Contractor) entered into a “works contract” (Contract) for the construction and maintenance of a rural road. Clause 24.1 of the Contract provided:
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.” (emphasis added)
On the ground that the Contractor committed several breaches, MPRRDA terminated the Contract and encashed the bank guarantee submitted by the Contractor.

The Contractor submitted a set of claims to MPRRDA and asked it to appoint the arbitrator. MPRRDA stated that the arbitration was to be under the MPRRDA. Consequently, the Contractor approached the High Court under Section 11 of the Arbitration and Conciliation Act, 1996 (Act or 1996 Act). Relying on the Supreme Court’s decision in Va Tech Escher Wyass Flovel Ltd. v. MPSEB,MANU/SC/0569/2010, the High Court appointed allowed the application and appointed the arbitrator.

MPRRDA appealed to the Supreme Court.

Since the Two Judge Bench (consisting of AK Ganguly and Gyan Sudha Mishra, JJ.) differed on whether the claims in the case could be referred to arbitration under the 1983 Law, the Bench referred the matter to the Chief Justice of India for constituting a larger Bench to decide the question.

Decision of AK Ganguly, J

Ganguly, J’s decision that the disputes were to be decided by the arbitral tribunal constituted under the 1983 Law was based on the following reasons:
  • The 1983 Law is a special law that is applicable for disputes in which the Madhya Pradesh Government or a Madhya Pradesh Public Sector Undertaking is a party. There are several special features of the arbitral tribunal constituted under the 1983 Law, such as the absence of arbitration agreement, special qualifications of the Judicial Members of the tribunal, specific definition of “dispute”, special terms of office, salaries and allowances of the members of the tribunal, power of the Chairman of the tribunal to constitute benches, inherent powers of the tribunal, the power of the High Court of revision, absence of choice of parties in appointing the arbitrators, non-applicability of the Arbitration Act, 1940, etc. Even the Supreme Court has held in State of MP v. Anshuman Shukla [(2008) 7 SCC 487] that the 1983 Law was a “special Act” and that the 1996 Act did not apply to an arbitration under the 1983 Law. The 1983 Law, being a special enactment, is saved by Section 2(4), which reads:
(4) This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every 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 the provision of this Part are inconsistent with that other enactment or with any rules made thereunder;” (A similar provision was contained in Section 46 of the Arbitration Act, 1940)
  • Va Tech Escher Wyass Flovel Ltd. v. MPSEB, MANU/SC/0569/2010, was probably decided without noticing Section 2(4) or the decision of a co-ordinate Bench of the Supreme Court in State of MP v. Anshuman Shukla [(2008) 7 SCC 487]. Therefore, Va Tech Escher Wyass Flovel Ltd. v. MPSEB, MANU/SC/0569/2010, was rendered per incurium.
  • It was the contention of the Contractor that the 1983 Law was repealed by the 1996 Act. Such a contention is liable to be rejected as Section 85 of the 1996 Act (“Repeal and Saving”) did not expressly repeal the 1983 Law.
  • It was further contended by the Contractor that the 1983 Law is repugnant to the 1996 Act. This contention is also liable to be rejected as Entry 13 of the Concurrent Listin Schedule VII of the Constitution (“Civil procedure, including all matters included in the Code of Civil Procedure at the commencement of this constitution, limitation and arbitration;”). Both the 1983 Law and the 1940 Act operated in view of Section 46 of the 1940 Act. Further, the 1983 Law received Presidential assent on 17.10.1983 and was published in the MP Gazette Extraordinary on 12.10.1983, thereby satisfying the requirements of Section 254(2). Consequently, the 1983 Law prevailed in the State of MP.
Hence, the arbitration would lie under the 1983 Law and not the 1996 Act.

Decision of Gyan Sudha Mishra, J:
Gyan Sudha 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 but disagreed with the conclusion on a different reasoning. According to her:

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...

A summary of her reasoning and decision is as below:
  • Section 7 of the 1983 Law provides for reference by either party of a works contract of a dispute to the tribunal irrespective of the existence or the non-existence of an arbitration agreement. “Works Contract” has a special meaning under the 1983 Law. Section 2(i) provides:
“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.’
  •  Since the definition of works contract only covers matters relating to execution of the works and “does not include the dispute pertaining to termination, cancellation or repudiation of works contract” and since “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’, such disputes would be referred to arbitration under the 1996 Act. This view is fortified by the ratio of the Supreme Court in Maharishi Dayanand University v. Anand Co-operative Society [(2007) 5 SCC 295] and also in view of the persuasive reasoning in Heyman v. Darwins 1942 (1) All ER 337. Where the works contract is terminated, it becomes non-existent and the matter is to be referred to an arbitrator under the 1996 Act.
  • However, questions pertaining to the execution of works, including those pertaining to execution of works etc would come within the scope of the tribunal under the 1983 Law.
  • Therefore, the appointment of arbitrator by the High Court in the Section 11 application is correct. 
In the next Part in this series, We will critically analyse the two judgements.

Access the Business Standard article on the case from here.

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