Does a clause making the engineer’s decision final equal an arbitration clause?

No. A finality clause is not the same as an agreement to refer disputes to arbitration.

What limitation applies to an application seeking appointment of an arbitrator?

Article 137 of the Limitation Act applies. The period is three years from when the right to apply first arises.

When does limitation start running for arbitration-related claims?

From the date the cause of arbitration accrues—when the claimant first has the right to sue.

Does accepting payments without protest affect arbitration claims?

Continued acceptance without objection can weaken or bar later attempts to invoke arbitration.

What did the Supreme Court ultimately decide in this case?

It set aside the orders appointing an arbitrator and dismissed petitions under Sections 8 and 20, holding there was no arbitration agreement.

State of Orissa v. Damodar Das

Quick Summary

This case clarifies two simple points:

A clause saying the engineer’s decision is “final” is not an arbitration clause.
For an application to appoint an arbitrator, the 3-year limit under Article 137 applies, starting when the right to apply first arises.

Because there was no arbitration agreement, the Supreme Court set aside the orders that had appointed an arbitrator and dismissed the petitions.

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Issues

Are claims barred by limitation and by continued acceptance of payments without protest?
Does a finality clause (decision of Public Health Engineer is final) amount to an agreement to arbitrate?

Rules

The limitation period for arbitration-related applications is governed by Article 137 (3 years) from when the right to apply first accrues.
Limitation runs from the date the cause of arbitration arises—when the claimant first has the right to sue.
A finality clause on an engineer/authority’s decision does not, by itself, create an arbitration agreement.

Facts (Timeline)

Tip

1967–1977: Three contracts were given to the respondent for village water supply works in Orissa.

1976 & 1977: For two contracts, work was abandoned after partial execution. Measurements and payments of running bills were accepted without objection.

15 Sep 1980: Respondent wrote to the Chief Engineer seeking appointment of an arbitrator; request was refused, saying no arbitration clause existed.

Sept 1981: Subordinate Judge allowed applications under Sections 8 and 20, moving toward appointment of an arbitrator.

Feb 1980/1981–1996: High Court upheld the trial court’s orders; the State appealed to the Supreme Court.

Supreme Court: Held there was no arbitration agreement and that limitation under Article 137 applied; appointments were set aside.

Timeline of events in State of Orissa v. Damodar Das

Arguments

Appellant: State of Orissa

No explicit arbitration clause; a finality clause is not arbitration.
Claims are time barred; work and payments date back to 1967–1977.
Acceptance of bills without protest defeats later disputes.

Respondent: Damodar Das

Disputes exist and should go to arbitration.
Finality clause should be read as a dispute resolution mechanism.
Applications under Ss. 8 & 20 were rightly allowed.

Judgment

The Supreme Court held that the contract did not contain an arbitration clause. A clause declaring the Public Health Engineer’s decision as final does not amount to an agreement to arbitrate. Consequently, the orders appointing an arbitrator were set aside. The petitions under Sections 8 and 20 were dismissed. Further, an application under Section 20 is governed by Article 137; it must be filed within three years from when the right to apply first arises.

Gavel and court order representing the Supreme Court decision

Ratio

Finality ≠ Arbitration: A decision-making clause in favour of an engineer/authority does not create a reference-to-arbitration agreement.
Article 137 applies: The application for appointment of an arbitrator is subject to a three-year limitation from when the right accrues.
Conduct matters: Accepting payments without protest can undercut later claims.

Why It Matters

Contracts often include “final decision” clauses. Students and drafters must know that such clauses do not automatically provide for arbitration. If parties want arbitration, it must be stated clearly. Also, do not sleep on rights—limitation starts when the dispute first allows you to sue.

Key Takeaways

Finality clauses guide administrative decisions, not arbitration.
Use clear words like “disputes shall be referred to arbitration.”
Article 137’s 3-year period governs applications for appointment of an arbitrator.
Keep written protests if you dispute measurements or bills.

Mnemonic + 3-Step Hook

Mnemonic: “FiNAL ≠ ARB”

Find the clause: Is it “final decision” or “refer to arbitration”?
Note the time: When did the dispute first arise? Start 3-year clock.
Act fast: File within limitation; record protests in writing.

IRAC Outline

Issue

Does a finality clause equal arbitration, and are claims time barred under Article 137?

Rule

Finality clause ≠ arbitration agreement; Article 137 sets a 3-year limit from accrual of the right to apply.

Application

No wording referring disputes to arbitration; payments accepted without protest; claims raised long after accrual.

Conclusion

No arbitration agreement; appointments set aside; petitions dismissed as per limitation and contract terms.

Glossary

Finality Clause: A term saying an authority’s decision is final; not an arbitration clause.
Article 137: Residual 3-year limitation period for certain applications, including arbitration appointment.
Cause of Arbitration: The moment a party first has the legal right to seek remedies; starts limitation.

FAQs

No. It only makes an internal decision final. Arbitration needs clear words showing consent to refer disputes to an arbitrator.

Three years from when the right to apply first arises (Article 137).

Yes, accepting measurements and payments without protest can weaken later claims or show acquiescence.

It set aside the appointment of an arbitrator and dismissed the petitions under Sections 8 and 20.

Quick Jump

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