SOUTH DELHI MUNICIPAL CORPORATION versus SMS AAMW TOLLWAYS PRIVATE LTD.

[2018] 13 S.C.R.

ASOUTH DELHI MUNICIPAL CORPORATION

SMS AAMW TOLLWAYS PRIVATE LTD.

(Civil Appeal No. 11249 of 2018)

NOVEMBER 22, 2018

[S. A. BOBDE AND L. NAGESWARA RAO, JJ.]

Arbitration:

Appointment of Arbitrator – By High Court – Relying on clauseC16.3 of the Agreement in question – Propriety of – Held: Clause16.3 of the Agreement in question was not an arbitration clause – Itprovided for departmental appeal – Purpose of the clause was tovest the Competent Officer and Commissioner with supervisorycontrol – The intention was not to provide for forum for resolvingdisputes – Right of appeal is creature of statute and can only beDexercised in the manner provided by the statute – Court should notadopt different approach while construing clause in contractexecuted by statutory body, providing for an appeal, therefore, itwas not proper for the High Court to appoint arbitrator u/s. 11(6)of Arbitration and Conciliation Act, 1996 – Interpretation of StatutesE– Rules of Interpretation.

Nature of arbitration – Held: Arbitration should be an enquiryin the nature of judicial enquiry.

Allowing the appeal, the Court

FHELD: 1. The Agreement dated 14.05.2011 between theappellant and the respondent provides for various mutual rights,liabilities and obligations of the two parties for the collection oftoll tax from specified commercial vehicles at all border entrypoints within the NCT of Delhi. Clause 16 of the agreementprovides for the resolution of disputes at two stages. First, byGthe Competent Officer of the SDMC vide Clause 16.2 followedby the Commissioner of the Municipal Corporation vide Clause16.3. [Paras 12 and 14][1125-F; 1126-G-H]

2. Clause 16.3 of the agreement under which an applicationto appoint an Arbitrator under Section 11(6) of the ArbitrationHand Conciliation Act, 1996 was made, is described as an appeal1120

in the said Clause. It is settled principle of interpretation thatunless the word raises an ambiguity it is not necessary to consideranother meaning. Indeed, it is an appeal since the Contractor isentitled to take recourse to appeal, if the Contractor is dissatisfiedwith the decision of the Competent Officer including possiblefailure to decide within the prescribed period i.e. within 30 days.The appellate provision can be invoked only by the Contractordissatisfied by the decision of the Competent Officer. The otherside, i.e. Competent Officer who has raised demand whichthe Contractor has not complied with cannot file such an appeal.The right of appeal is restricted to dissatisfied Contractor only.And that too upon failure to obtain redressal under Clause 16.2.This mechanism is clearly an appeal in the nature of adepartmental appeal commonly provided in several departmentrules including service rules. Such departmental appeals areinvariably decided by designated officer and can only be invokedby dissatisfied party such as contractor or an employee. Suchappellate powers obviously cannot be invoked by parties unlessthe language of the provision setting up the appeal provides forit, expressly or by necessary implication. right of appeal is acreature of statute and can only be exercised in the mannerprovided by the statute. [Paras 17 and 18][1128-A-F]

Corporation of the City of Nagpur v. Employees AIR1960 SC 675 : [1960] SCR 942; Nelson Motis v. Unionof India (1992) 4 SCC 711 : [1992] 1 Suppl. SCR 325; Nathi Devi v. Radha Devi Gupta (2005) 2 SCC271 : [2004] 6 Suppl. SCR 1141 ; Ganga Bai v. VijayKumar (1974) 2 SCC 393 : [1974] 3 SCR 882; State ofHaryana v. Maruti Udyog Ltd. (2000) 7 SCC 348 :[2000] 3 Suppl. SCR 185; Raj Kumar Shivhare v.Directorate of Enforcement (2010) 4 SCC 772 : [2010]4 SCR 608 – relied on.

3. The Court should not adopt different approach whileconstruing clause in contract executed by statutory bodyand providing for an appeal. The language of Clause 16.3 doesnot lend itself to any other construction other than that it providesfor an appeal against the decision of Competent Officer renderedunder Clause 16.2. [Para 19][1128-F-G]

A4. An arbitration should be an enquiry in the nature of ajudicial enquiry i.e. an enquiry which involves hearing both theparties. The appeal involved in the present case clearly does notinvolve hearing both the parties. On the contrary, the authoritywhich decides the appeal is in sense the other party. TheCommissioner is higher officer than the Competent Officer inBthe same organization. It is, therefore, clear that the appeal tothe Commissioner is not intended to provide forum for decisionby an impartial adjudicator but is only intended to ascertain somematter for the purpose of preventing differences from arising andnot for settling them after they have arisen. It is thus clear thatCthe Commissioner is not intended to be an arbitrator, as hisjurisdiction cannot be invoked by both the parties. [Para 21][1129-D-F]

5. Arbitration has always been understood to mean theprocess by which dispute is resolved by an arbitrator chosen orDacceptable to both sides under an arbitration agreement betweenthe two parties. In the present case, under Clause 16 of theAgreement, only the party dissatisfied by the order of theCompetent Officer can approach the Commissioner. It is,therefore, not possible to hold that the proceedings before theCommissioner constitutes as an arbitration. [Para 22][1129-G]E

K.K. Modi v. K.N. Modi (1998) 3 SCC 573 : [1998] 1SCR 601; State of Orissa v. Damodar Das (1996) 2SCC 216 : [1995] 6 Suppl. SCR 800; State of U.P. v.Tipper Chand (1980) 2 SCC 341 – relied on.

Russell on Arbitration – referred to.F

6. In the present case, Clause 16 and in particular Clause16.3 does not provide for the reference of any dispute that mayarise between the parties to an Arbitrator. The purpose of thisClause is to vest the Competent Officer and the CommissionerGwith supervisory control over the execution of work andadministrative control over it from time to time and thus toprevent disputes. The intention is not to provide for forum forresolving disputes. Thus, in the present circumstances, noArbitrator could have been appointed by the High Court underSection 11(6) of the Arbitration and Conciliation Act, 1996.H[Para 24][1132-C-D]

SOUTH DELHI MUNICIPAL CORPORATION v. SMS AAMWTOLLWAYS PRIVATE LTD.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11249of 2018

From the Judgment and Order dated 17.06.2016 of the High Courtof Delhi at New Delhi in Arbitration Petition No. 475 of 2015.

Gourab Banerji, Sr. Adv., Ms. Harsha Peechara, Praveen Swarup,Ashish Tiwari, Subhro Mukherji, Ms. Raka Chaterji, Sahil Tagotra, Advs,for the Appellant.

Sachin Datta, Sr. Adv., Ms. Gayatri Verma, Ms. Prity Sharma,Ms. Purnima Raj, Vasanth, Vikas Mehta, Advs. for the Respondent.

The Judgment of the Court was delivered by

S. A. BOBDE, J. 1. Leave granted.

2. The Appellant-South Delhi Municipal Corporation (hereinafterreferred to as ‘SDMC’)has challenged the impugned order dated17.06.2016 passed by the learned Single Judge of the Hon’ble HighCourt of Delhi, New Delhi in Arbitration Petition No. 475/2015. By thatorder,the learned Single Judge allowed the Petition filed by theRespondent-SMS AAMW Tollway Private Ltd. (hereinafter referred toas ‘SMS AAMW’)under Section 11(6) of the Arbitration and ConciliationAct, 1996 (hereinafter referred to as ‘the Act’).

Brief Facts

3. The National Highways Authority of India (hereinafter referredto as ‘NHAI’) entered into State Support Agreement (hereinafter

Areferred to as ‘the SSA’) dated 27.5.2004/22.2.2005with M/s Jaypee-DSC Ventures Limited (hereinafter referred to as ‘Concessionaire’) forthe design, engineering, financing, procurement, construction, completion,operation, maintenance and the toll collection of certain sections of theNH-8 highway.

B4. The arrangement under the SSA was that the Concessionaireof the NHAI shall not only collect the toll under the concession agreementexecuted between NHAI and its Concessionaire, but also the entry toll(toll tax) levied by the Appellant-SDMC on entry of specified commercialvehicles into the territory of NCT of Delhi. The Appellant-SDMC is a‘designated agency’ of the Government of NCT of Delhi under the SSA.C

5. The Appellant-SDMC, for the purpose of collection of toll taxfrom all border entry points within the NCT of Delhi, decided to engagea contractor and accordingly floated tender, inviting bidsfrom interestedparties. The Respondent-SMS AAMWbeing the successful bidder wasawarded the work for collection of toll tax for period of 3 years and aDBilateral Agreement dated 14.05.2011 (hereinafter referred to as ‘theAgreement’) was entered into between the Appellant-SDMC and theRespondent-SMSAAMW.

6. As per the Agreement, the Respondent-SMS AAMWwasobliged to pay an amount of Rs.26 crores every month to the Appellant-ESDMCin lieu of the tax collected fromall entry points within the NCT ofDelhi. However, the said toll tax for Rajokri integrated toll plaza wassaid to be collected vide the mechanism set out under the SSA i.e. it willbe collected by the NHAI’s Concessionaire and passed on to theRespondent-SMS AAMW.

7. Thereafter, on 19[th]February 2014, the Rajokri integrated tollplaza was dismantled, apparently, as result of an understanding betweenthe parties to the SSA. It is the case of Respondent-SMS AAMW thatdue to this situation, it was forced to incur the expenses to arrange forthe collection of the Appellant-SDMC’s toll tax from the RajokriGIntegrated toll plaza. As result,the Respondent-SMS AAMW suffereda huge loss amountingto approximately Rs.80 crore.

8. Thereafter, notice of Arbitration dated 09.03.2015 was sentby the Respondent-SMS AAMW to the Appellant-SDMC, and to theother parties under the SSA, detailing the issues and disputes that had

arisen under Clause 9 of the SSA. The Appellant-SDMC vide letterdated 7.5.2015 raised demand of Rs.97,08,76,449/-against theRespondent-SMS AAMW.To thisRespondent-SMS AAMWrespondedvide letter dated 11.05.2015, clarifying the mistakes in computation,bythe Appellant-SDMC. Thereafter, Appellant-SDMC reconciled theaccountsand reduced the demand to Rs.80,46,31,504/- vide letter dated13.05.2015.

9. TheRespondent-SMS AAMW being dissatisfied with thedecision contained in the letter dated 13.05.2015, preferred an appealunder Clause 16.3 of the Agreement vide letter dated26.05.2015.Subsequently, the Appellant-SDMC vide letterdated17.06.2015, intimated to the Respondent-SMS AAMW that since thereis no arbitration clause inexistence between the parties, the arbitration isnot acceptable.

10. However, the Respondent-SMS AAMW filed the ArbitrationPetition No.475/2015 under Section 11(6) of the Act before the HighCourt of Delhi for appointment of an Arbitrator relying on Clause 9 ofthe SSA and Clause 16 of the Agreement dated 14.05.2011. The learnedSingle Judge of Delhi High Court allowed the petition filed by thepresentRespondent-SMS AAMWunder Section 11(6) of the Act, andappointed Justice Deepak Verma, Former Judge of this Court as thesole Arbitrator.

11. The decision of this case turns on the answer to the questionwhether Clause 16.3 ofthe Agreement dated 14.05.2011 between theAppellant-SDMC on the one hand and the Respondent-SMS AAMWon the other hand contains an agreement for arbitration.

12. The Agreement dated 14.05.2011provides for the variousmutual rights, liabilities and obligations of the two parties for the collectionof toll tax from specified commercial vehicles atall border entry pointswithin the NCT of Delhi.

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

“16. DISPUTE RESOLUTION

16.1 Except where otherwise provided in the Agreement,all questions and disputes in any way arising out of orrelating to the Agreement shall be dealt with as mentionedbelow.

A16.2 In the event the Contractor considers any workdemanded of it as being outside the requirements of theAgreement, or disputes any record or decision given inwriting by the Competent Officer in any matter inconnection with or arising out of the Agreement, to beunacceptable, it shall promptly within [15] days requestBthe Competent Officer in writing to give his instructions ordecision in respect of the same. Thereupon, the CompetentOfficer shall give his written instructions or decision withina period of [30] days from the receipt of the Contractor’sletter.

16.3 If the Competent Officer fails to give his instructionsor decision in writing within the aforesaid period or if theContractor is dissatisfied with the instructions or decisionof the Competent Officer, the Contractor may, within [15]days of receipt of the Competent Officer’s instructions orDdecision, appeal to the Commissioner who shall afford anopportunity to the Contractor to be heard, if the latter sodesires, and to offer evidence in support of its appeal. TheCommissioner shall give his decision in writing within [30]days of receipt of Contractor’s appeal which shall beacceptable to the Contractor.”E13. Furthermore, Clause 20 which makes reference to disputesarising out of the agreement reads as follows:

“20.MISCELLANEOUS PROVISIONS

20.1 Governing Laws and Jurisdiction

(b) All disputes arising out of this Agreement shall besubject to sole and exclusive jurisdiction of the courts ofDelhi only.”

G14. Thus, from plain reading of Clause 16one can see that itprovides for the resolution of disputes at two stages. First, by theCompetent Officerof the SDMCvide Clause 16.2 followed by theCommissioner of the Municipal Corporation vide Clause 16.3.

-The First Stage:

If case arises wherein Contractor finds that if the workdemanded is outside the scope of the agreement or feels the need todispute any decision of the Competent Officeror if any record createdby him is unacceptable, he may request the Competent Officerto decideits representation or give instructions. The Competent Officeris obligedto decide within 30 days from the receipt of such letter from theContractor.

-The Second Stage:

If the Competent Officerfails to decide within 30 days or if theContractor is dissatisfied with his decision, the Contractor may, within15 days from receipt of the decision by the Competent Officer, file anappeal to the Commissioner, SDMC. The Commissioner is obliged toafford an opportunity to the Contractor to be heard and the Contractor isentitled to produce evidence in support of this case.At this stage, theCommissionermay give his decision in writing within 30 days. The clausemakes the decision compulsorily ‘acceptable’ to the Contractorpresumably meaning that it shall be binding on him.

15. In the present case as stated earlier, the notice of arbitrationwas sent by the Contractor on 09.03.2015 under the SSA. By letterdated 26.05.2015, the Contractor i.e. SMS AAMW filed an appeal underClause 16.3 of the Agreement. This appeal was preferred against thedecision contained in the letter of the Competent Officer, SDMCdated13.05.2015. The Appellant-SDMC sought to produce additional evidenceand further sought that the decision should be taken under Clause 16.3.There is no doubt that the Respondent-SMS AAMW resorted to theprovision of appeal against the decision of the Appellant-SDMC in itsletter dated 13.05.2015. In that letter, they did not seek the appointmentof an arbitrator but merely sought decision by an officer higher in rankthan the members of high level committee,akin to invoking an appellateprovision.

16. The question before us is whether Clause 16.3 which providesfor an appeal really provides for an arbitration and therefore whetherthe High Court was entitled to appoint an Arbitrator under Section 11(6)of the Act.

A17. It is necessary to advert to certain features of Clause 16 todetermine whether the clause provides for arbitration or departmentalappeal. Firstly,Clause 16.3 under which an application to appoint anArbitrator under Section 11(6) of the Act was made is described as anappeal in the said Clause. It is settled principle of interpretation thatunless the word raises an ambiguity it is not necessary to consider anotherBmeaning[1].

Indeed, it is an appeal since theContractor is entitled to takerecourse to appeal, if the Contractor is dissatisfied with the decision ofthe Competent Officer including possible failure to decide within theprescribed period i.e. within 30 days. It is significant,that the appellateCprovision can be invoked only by the Contractor dissatisfied by thedecision of the Competent Officer. The other side, i.e. CompetentOfficer who has raiseda demand which the Contractor has not compliedwith cannot file such an appeal. The right of appeal is restricted to adissatisfiedContractor only. And that too upon failure to obtain redressalDunder Clause 16.2.18. This mechanism is clearly an appeal in the nature of adepartmental appeal commonly provided in several department rulesincluding service rules. Such departmental appeals are invariably decidedby designated officer and can only be invoked by dissatisfied partyEsuch as contractor or an employee. Such appellate powers obviouslycannot be invoked by partiesunless the language of the provision settingup the appeal provides forit expressly or by necessary implication. It issettled law that right of appeal isa creature of statute and can only beexercised in the manner provided by the statute[2].

F19. We see no reason, why this Court should adopt differentapproach while construing clause in contract executed by statutorybody and providing for an appeal.The language of Clause 16.3 does notlend itself to any other construction other than that it provides for anappeal against the decision of Competent Officer rendered underClause 16.2.G

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).

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) 4H SCC 772)

20. The Respondent-SMS AAMW placed reliance on the followingpassage from Russell on Arbitration, which reads as follows:-

“If it appears from the terms of the agreement by which amatter is submitted to person’s decision, that the intentionof the parties was that he should hold an enquiry in the natureof judicial enquiry and hear the respective cases of theparties and decide upon evidence laid before him, then thecase is one of an arbitration. The intention in such case isthat there shall be judicial inquiry worked out in judicialmanner. On the other hand, there are cases in which personis appointed to ascertain some matter for the purpose ofpreventing differences from arising, not of setting them whenthey have arisen.”

21. This was relied on by the Respondent-SMS AAMW to supportthe submission that Clause 16.3 does not provide for an appealto theCommissioner but provides for arbitration by the Commissioner. Thepassage above clearly contemplatesthat an arbitration should be an enquiryin the nature of judicial enquiry i.e. an enquiry which involves hearingboth the parties. The appeal involved in the present case clearly doesnot involve hearing both the parties. On the contrary,the authority whichdecides the appeal is in sense the other party. The Commissioner is ahigher officer than the Competent Officer in the same organization. It is,therefore, clear that the appeal to the Commissioner is not intended toprovide forum for decision by an impartial adjudicator but is onlyintended to ascertain some matter for the purpose of preventingdifferences 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 processby which dispute is resolved by an arbitrator chosen or acceptable toboth sides under an arbitration agreement between the two parties. Inthe present case, under Clause 16 of the Agreement only the partydissatisfied by the order of the Competent Officer can approach theCommissioner. It is, therefore, not possible to hold that the proceedingsbefore 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 anagreement to be considered as an arbitration agreementare:

(1) The arbitration agreement must contemplate that thedecision of the tribunal will be binding on the parties tothe agreement,

(2) that the jurisdiction of the tribunal to decide the rightsof parties must derive either from the consent of the partiesor from an order of the court or from statute, the terms ofwhich make it clear that the process is to be an arbitration,

(3) the agreement must contemplate that substantive rightsof parties will be determined by the agreed tribunal,

(4) that the tribunal will determine the rights of the partiesin an impartial and judicial manner with the tribunal owingan equal obligation of fairness towards both sides,

(5) that the agreement of the parties to refer their disputesto the decision of the tribunal must be intended to beenforceable in law and lastly,

(6) the agreement must contemplate that the tribunal willmake decision upon dispute which is alreadyformulated at the time when reference is made to thetribunal.

18. The other factors which are relevant include, whetherthe agreement contemplates that the tribunal will receiveevidence from both sides and hear their contentions or atFleast give the parties an opportunity to put them forward;whether the wording of the agreement is consistent orinconsistent with the view that the process was intended to bean arbitration, and whether the agreement requires thetribunal to decide the dispute according to law.”

23. The scope of Clause 16 is limited. Clause 16.1 provides thatall the questions and disputes arising out of the Agreement shall be dealtwith as follows i.e. as provided in Clause 16.2 and Clause 16.3. Clause16.2 enables Contractor to request the Competent Officer to give hisinstructions or decisions in writing, in case of eitherwhen (a) the

Contractor considers any work demanded of him as being outside therequirements of the Agreement, or (b) disputes any record or decisiongiven in writing by the Competent Officer in connection to the Agreementas unacceptable. The Competent Officer is enjoined to give his writteninstructions or decisions within period of 30 days. He enjoys completediscretion in deciding the dispute.Clause 16.3 provides that in case of aninstance whereby the Competent Officer does not come to decision,the Contractor may appeal to the Commissioner who shall afford anopportunity to the Contractor to be heard and offer evidence. Neitherthe Competent Officer nor the Commissioner is enjoined to act judiciallyi.e. the decision on the basis of evidence adduced by both the parties. Infact, both the authorities, the Competent Officer and the Commissionerare required to deal with only one party i.e. the Contractor. This cannotbe characterized as an enquiry of judicial nature which necessarilyinvolves consideration of the case of both sides by an independentArbitrator.Additionally, there is no provision in Clause 16.3 of theAgreement to refer any dispute or reference to arbitration. In State ofOrissa v. Damodar Das[4], this Court approved the following observationsin State of U.P. v. Tipper Chand: -

“11. This Court was called upon to consider similarclause in State of U.P. v. Tipper Chand [(1980) 2 SCC 341].The clause was extracted therein. After considerationthereof, this Court held that after perusing the contents ofthe said clause and hearing learned counsel for the parties

“we find ourselves in complete agreement with the viewtaken by the High Court. Admittedly, the clause does notcontain any express arbitration agreement. Nor can suchan agreement be spelt out from its terms by implication,there being no mention in it of any dispute, much less of areference thereof. On the other hand, the purpose of theclause clearly appears to be to vest the SuperintendingEngineer with supervision of the execution of the workand administrative control over it from time to time.”

It would, thereby, be clear that this Court laid down as arule that the arbitration agreement must expressly or byimplication be spelt out that there is an agreement to refer

Aany dispute or difference for an arbitration and the clausein the contract must contain such an agreement. We are inrespectful agreement with the above ratio. It is obviousthat for resolution of any dispute or difference arisingbetween two parties to contract, the agreement mustprovide expressly or by necessary implication, referenceBto an arbitrator named therein or otherwise of any disputeor difference and in its absence it is difficult to spell outexistence of such an agreement for reference to anarbitration to resolve the dispute or difference contractedbetween the parties……”

24. We find that the present Clause 16 and in particular Clause16.3 does not provide for the reference of any dispute that may arisebetween the parties to an Arbitrator. The purpose of this Clause is tovest the Competent Officer and the Commissioner with supervisorycontroloverthe execution of work and administrative control over it fromDtime to time and thus to prevent disputes. The intention is not to providefor forum for resolving disputes. Thus, in the present circumstancesnoArbitrator could have been appointed by the High Court under Section11(6) of the Arbitration and Conciliation Act, 1996, therefore, the impugnedorder dated 17.06.2016 is set aside.

E25. The appeal is accordingly allowed.

Kalpana K. Tripathy

Appeal allowed.