Supreme Court clarifies “ascertained money” and arbitrator appointment in Madhya Pradesh arbitration: Gangotri Enterprises Ltd. vs. Madhya Pradesh Road Development Corporation (2018)

Date of the Judgment: April 18, 2018
Citation: Civil Appeal No. 4017 of 2018 (Arising out of S.L.P. (C) NO. 6513 OF 2018)
Judges: Adarsh Kumar Goel, J., Rohinton Fali Nariman, J.

Can a claim for an unascertained amount be considered a “dispute” under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983? The Supreme Court addressed this question, along with the issue of who can be appointed as an arbitrator under the same law, in a case involving a works contract. This judgment clarifies the definition of “dispute” and sets guidelines for arbitrator appointments, ensuring fairness and adherence to legal principles.

Case Background

The case involves a dispute arising from a works contract. The specific details of the contract and the exact nature of the dispute are not elaborated upon in the source document. However, the core issue revolves around the interpretation of “dispute” under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (the “1983 Act”) and the eligibility of individuals to be appointed as arbitrators under the same Act.

Timeline

Legal Framework

The Supreme Court considered the following provisions of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983:

• Section 2(d): Defines “dispute” as “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.”

• Section 4(3)(iii): Specifies qualifications for appointment as a member of the Tribunal, stating that a person must be or have been a Chief Engineer in the service of the State Government in Public Works, Irrigation, or Public Health Engineering Department, or a Chief Engineer in the service of the Madhya Pradesh Electricity Board, or a Senior Deputy Accountant General of the Office of the Accountant General, Madhya Pradesh, for a period of not less than five years. The provision also allows for relaxation of the five-year minimum period to three years in exceptional circumstances.

  The exact wording is: “4. Chairman and members of Tribunal and their qualifications.- (3) No person shall be qualified for appointment as a member of the Tribunal, unless- (iii) he is or has been :- (a) Chief Engineer in the service of the State Government in Public Works, Irrigation or Public Health Engineering Department; or (b) a Chief Engineer in the service of the Madhya Pradesh Electricity Board; or (c) a Senior Deputy Accountant General of the Office of the Accountant General, Madhya Pradesh, for a period of not less than five years: Provided that in the case of clause (iii), in exceptional circumstances, the State Government may relax the prescribed minimum period of five years to three years.”

Arguments

The arguments presented before the Supreme Court revolved around the interpretation of “ascertained money” in Section 2(d) of the 1983 Act and the eligibility criteria for arbitrators under Section 4(3)(iii).

• One of the arguments was that “ascertained money” should be interpreted strictly to mean only the amount that is already determined and not the amount which may be ascertained during the proceedings.

• Another argument was that an employee of a party to the dispute should not be appointed as an arbitrator.

Issues Framed by the Supreme Court

The Supreme Court addressed the following issues:

1. What is the correct interpretation of the expression “ascertained money” as used in Section 2(d) of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983?
2. Whether an employee of a party to the dispute can be appointed as a member of the Tribunal under Section 4(3)(iii) of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

The Supreme Court also considered the following legal provisions:

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure a fair and impartial arbitration process. The Court emphasized that the term “ascertained money” should be interpreted broadly to include amounts that may be determined during the proceedings, thus allowing for a comprehensive resolution of disputes. Additionally, the Court stressed the importance of arbitrator impartiality, ruling that employees of the concerned department should not be appointed as arbitrators to avoid any potential bias.

The Court’s reasoning was based on a broad interpretation of the term “ascertained money” to ensure that all aspects of a dispute are considered, including claims and counterclaims that may arise during the proceedings. The Court also relied on the principle of impartiality in arbitration, citing Indian Oil Corporation Ltd. and Ors. vs. Raja Transport Private Ltd., (2009) 8 SCC 520* to support the view that an employee of a party to the dispute cannot be an arbitrator.

The Supreme Court clarified that “the expression “ascertained money” as used in Section 2(d) of the 1983 Act will include not only the amount already ascertained but the amount which may be ascertained during the proceedings on the basis of claims/ counter claims of the parties.” This interpretation ensures that all aspects of the dispute are considered.

The Court also clarified that “the State of Madhya Pradesh will not appoint as member of the Tribunal, its employee of the concerned department to which the dispute relates.” This clarification ensures the impartiality of the arbitration process.

The court observed that “consistent with the policy of law and the judgment of this Court in Indian Oil Corporation Ltd. and Ors. vs. Raja Transport Private Ltd., (2009) 8 SCC 520, an employee of a party to the dispute cannot be an arbitrator.”

Key Takeaways

• The term “ascertained money” in Section 2(d) of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983, includes not only the amount already determined but also the amount that may be determined during the arbitration proceedings.

• An employee of the concerned department of the State of Madhya Pradesh should not be appointed as a member of the Tribunal to ensure impartiality.

• This judgment clarifies the scope of disputes that can be addressed by the Madhya Pradesh Arbitration Tribunal and ensures that the arbitration process remains fair and unbiased.

Directions

The appeal was disposed of in terms of the clarifications provided by the Supreme Court.

Development of Law

The ratio decidendi of this case is that the term “ascertained money” under Section 2(d) of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983, includes not only the amount already ascertained but also the amount that may be ascertained during the proceedings. It also clarified that employees of the concerned department should not be appointed as arbitrators. This clarifies the scope of disputes and ensures impartiality in arbitration proceedings under the Act.

Conclusion

The Supreme Court’s judgment in Gangotri Enterprises Ltd. vs. Madhya Pradesh Road Development Corporation clarifies the definition of “dispute” under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983, by including amounts that may be ascertained during proceedings. It also ensures the impartiality of the arbitration process by prohibiting the appointment of employees of the concerned department as arbitrators. This decision promotes fairness and provides clarity for future arbitration proceedings under the Act.

Category:

Arbitration Law

Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983

Section 2(d), Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983

Section 4(3)(iii), Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983

FAQ

Q: What does “ascertained money” mean under the Madhya Pradesh arbitration law?
A: According to this Supreme Court judgment, “ascertained money” includes not only the amount that is already known but also the amount that may be determined during the arbitration process based on the claims and counterclaims of the parties.

Q: Can a government employee be an arbitrator in a dispute involving their department in Madhya Pradesh?
A: No, the Supreme Court has clarified that the State of Madhya Pradesh should not appoint an employee of the concerned department to which the dispute relates as a member of the Tribunal. This is to ensure impartiality in the arbitration process.

Q: What is the main takeaway from this judgment?
A: The main takeaway is that the definition of “dispute” under the Madhya Pradesh arbitration law is broad enough to include amounts that may be determined during the proceedings, and that arbitrators must be impartial, meaning that employees of the concerned department should not be appointed as arbitrators.