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Gauhati High Court · body

2000 DIGILAW 305 (GAU)

S. K. Agarwala v. Union of India and others

2000-09-26

BRIJESH KUMAR

body2000
Judgement This is an application under S. 11 of the Arbitration and Conciliation Act, 1996, with a prayer for appointment of Arbitrator. 2. Heard Shri R. Hussain learned counsel for the petitioner and Shri B. K. Sarma learned counsel appearing for the Railways. 3. According to the petitioner the respondent Railways accepted the tender of the petitioner for construction of sub structure of major bridges and road under bridge near Dudhoni. The approximate value of the work was Rs. 1,15,45,600/-. The work was to be completed in 14 months. The acceptance of the tender of the petitioner was conveyed through letter dated 6-2-1996. Agreement between the parties was executed on March 20, 1996. A copy of the agreement has also been annexed as Annexure-II to the petitioner. The agreement was also to be governed by general conditions of contract and specifications of the Railways which contains an arbitration clause as well for settlement of disputes. According to the petitioner on acceptance of the tender, he started mobilisation of resources to start and complete the work within the stipulated time. For the said purpose he purchased machinery, materials, mobilised men and also purchased TMV trucks. Since the site was not being made available to the petitioner, they had been writing to the respondents as the time for execution of the contract was passing. The petitioner had also been making preparations for starting the work including by constructing labour sheds, store rooms etc. Extension was also granted by the respondents up to 31-5-1998 by letter dated 20-5-1997. 4. According to the petitioner Ultimately on 1-6-1998 the respondents informed the petitioner that due to problems relating to land it was decided to close the contract without liabilities on either side and for that purpose the consent of the petitioner was sought. A copy of the said letter has been filed as Annexure-VI. By means of Annexure-VII dated 31-8-1998 the petitioner was again required to give his consent for closing the contract due to land problem. It was further indicated that if the petitioner failed to give consent within 7 days of receipt of the letter, it would be deemed that consent has been given. By means of Annexure-VII dated 31-8-1998 the petitioner was again required to give his consent for closing the contract due to land problem. It was further indicated that if the petitioner failed to give consent within 7 days of receipt of the letter, it would be deemed that consent has been given. The petitioner felt aggrieved by sudden closure of the contract by the respondents and made claim of certain amount which the petitioner claims to have suffered for making preparation to start the contract work, execution of which was delayed since the site was not being handed over to the petitioner by the respondents. In response the respondents sent a letter dated 23-11-1998, a copy of which has been filed as Annexure-VIII to the petition, according to which the petitioner was already informed that the contract work was expected to be taken up and consent was also asked for to close the contract without liability and in case the petitioner felt that there were certain claims then the matter might be referred to the office of the General Manager/CON/Maligaon for sorting out the issue. Accordingly the petitioner sent a claim amounting to Rs. 45,81,168/- vide letter dated 15-12-1998. A copy of the letter dated 15-12-1998 has been filed as Annexure IX to the petition. But no payment of claim amount has been made. The petitioner ultimately sent a notice dated 2-6-1999, a copy of which has been filed as Annexure-X to the petition. Demand for appointment of Arbitrator was made in the said notice, but the respondents failed to appoint an arbitrator for referring the dispute regarding the claim of the petitioner. Hence this petition. 5. Shri B. K. Sarma learned counsel for the respondents that nature of dispute as raised is not referable to Arbitration as it falls under an excepted item. In that connection, he referred to clause 61 of the General conditions of contract which reads as under: "61 (1) The Railway shall be entitled to determine and terminate the contract at any time should, in the Railways opinion the cessation of work became necessary owing to paucity of funds or from any other cause whatever. In that connection, he referred to clause 61 of the General conditions of contract which reads as under: "61 (1) The Railway shall be entitled to determine and terminate the contract at any time should, in the Railways opinion the cessation of work became necessary owing to paucity of funds or from any other cause whatever. In which case the value of approved materials at site and of work done to date by the contractor will be paid for in full at the rates, specified in the contract.Notice in writing from the railway of such determination and the reason therefore shall be conclusive evidence thereof. right of Railway to determine contract (2) Should the contract be determind under sub clause (1) of this clause, and the contractor claims payment for expenditure incurred by him in the expectation of completing the whole of the works, the Railway shall admit and consider such claims as are deemed reasonable and are supported by vouchers to the satisfaction of the Engineer. The contractor shall have no claim to any payment of compensation or otherwise, howsoever on account of any profit or advantage which he might have derived from the execution of the work in full but which he did not derive in consequence of determination of the contract. The Railways decision on the necessity and propriety of such expenditure shall be final and conclusive". payment in determination of contract. Clause 63 of the General conditions of contract relates to settlement of disputes which read as under : "Excepted Matters. Settlement of Disputes. 63. The Railways decision on the necessity and propriety of such expenditure shall be final and conclusive". payment in determination of contract. Clause 63 of the General conditions of contract relates to settlement of disputes which read as under : "Excepted Matters. Settlement of Disputes. 63. All disputes and difference of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the works or after their completion and whether before or after the determination of the contract, shall be referred by the contractor to the Railway and the Railway shall within a reasonable time after their presentation make and rectify decisions thereon in writing except the decisions for which provisions as made in clause 18,22 (5), 39, 45 (a), 55(1), 55(2), (v), 61(2) and 82 (1) (b) of the General conditions of contract or in any clause of the special or Additional special conditions of contract shall be final and binding on the contractor, provided further that Expected Maters stand specifically Excluded from the purview of the arbitration clause and shall not be referred to arbitration." According to the above provisions matters in respect of which a decision has been taken under clause 61(2) such decision falls within the excepted matters which would be beyond the purview of settlement by arbitration. On the basis of the provisions quoted above and on reading of the provisions of clause 61 (1) and 2 and clause 63 of the General conditions of contract, the position that emerges is that Railway is entitled to terminate a contract at any time if in its opinion cession of work is necessary due to paucity of funds or for any other cause. In such an event the value of the approved materials at the site and of work done is to be paid in full to the contractor at the rates as specified in the contract. It further provides that notice in writing by the Railway and reason for determination of the contract shall be conclusive. Any expenditure claimed by the contractor as incurred by him in expectation of completing the whole work, the Railway would consider the same as supported by voucher to the Satisfaction of the Engineer. It further provides that notice in writing by the Railway and reason for determination of the contract shall be conclusive. Any expenditure claimed by the contractor as incurred by him in expectation of completing the whole work, the Railway would consider the same as supported by voucher to the Satisfaction of the Engineer. It further provides that the contractor shall have no claim of any payment of compensation on account of any profit or advantage which he might have derived from the execution of the work in full. It is submitted that under clause 63 all disputes and differences whatsoever arising out or in connection with the contract are referable to the arbitration except the decisions falling in different clauses of the General conditions of contract including clause 61 (2). Shri B. K. Sarma learned counsel for the respondents submitted that a claim for payment of compensation on account of any profit or advantage which the contractor might have derived from execution of the work in full is not liable to be paid to the contractor and this matter falls within sub clause (2) of clause 61 of the General conditions of contract. Therefore, it is an excepted matter under clause 63 of the General conditions of contract hence matter is not referable to arbitration. It is further submitted that so far excepted matters are concerned, they are also to be taken as a part of the agreement between the parties. Therefore, it amounts to an agreement that matters falling under sub-clause (2) of clause 61 of the General conditions of contract would be excepted from arbitration clause. In this connection, he has placed reliance on a decision of this Court reported in 1999 (3) GLT 190 (Subodh Sharma v. Union of India). In the said case the contractor pleaded for appointment of an arbitrator in respect of a matter in respect of which under condition No. 43(2) of the General conditions of contract contractor was debarred from demanding a reference to the arbitration. It was held that condition No. 43 (2) of the General conditions of contract which debars reference to arbitration in certain circumstances has equal application as the clause which provides for appointment of arbitrator in respect of disputes of other nature. It was held that condition No. 43 (2) of the General conditions of contract which debars reference to arbitration in certain circumstances has equal application as the clause which provides for appointment of arbitrator in respect of disputes of other nature. The other case which has been relied upon is reported in (1999) 4 SCC 491 : ( AIR 1999 SC 2184 ) (Food Corporation of India v. Sreekanth Transport). In this case the party had itself approached different forum than stipulated in excepted matter clause which was treated to be abandonment of right under such a clause. The respondents may derive no help from the above noted decision. 6. On the other hand Shri R. Hussain learned counsel for the petitioner submitted that the arbitrator is entitled to decide its own jurisdiction under the provisions as provided under S. 16 of the Arbitration and conciliation Act, 1996. Hence the petitioner is entitled to grant of his prayer for appointment of an arbitrator who may also consider the question as to whether dispute which is referred for his decision falls within the excepted matters or not. In that connection he has placed reliance upon a number of decisions as reported in 1999 (2) RAJ 314 (Bombay) (Premlaxmi and Co. Andheri v. Trafalgar House Construction India Ltd. Bombay) 1999 (3) RAJ 114 (All) (M/s Raj Kumar contractors v. Bareilly Development) 1999 (1) RAJ 227 (Delhi) (Tilak Raj Katyal v. Union of India); 1999 (2) Raj 246 : (AIR 1999 Madh-Pra. 57) (Nepa Limited v. Manoj Kumar Agarwalla) 1999 (3) Raj 129 (Andh. Pra) (V. Ramana Reddy v. Union of India Rep. By G.M. S.C. Railway So far this proposition of Law is concerned, there may not be any dispute that Arbitrator is entitled to decide its own jurisdiction. If any such plea is raised that the dispute referred is beyond the purview of the Arbitration clause, the Arbitrator would obviously be entitled to examine such plea. But it is not necessary that any of the cases in which a prayer is made to appoint an Arbitrator for settlement of certain disputes, the said prayer must always and in all circumstances be granted and an Arbitrator be appointed. There may be cases where on the face of it a matter may not fall within the category of disputes referable to the arbitration and such a conclusion may not require of any kind. There may be cases where on the face of it a matter may not fall within the category of disputes referable to the arbitration and such a conclusion may not require of any kind. It may not be advisable to appoint an Arbitrator on mere asking by a party. True, where some enquiry may be needed to find out as to whether the matter falls within the four corners of arbitration clause or not, such enquiry should be left to be made by the Arbitrator himself. But cases which admit of no such doubt and it is found apparent on the face of it that the dispute is not one which can be settled through arbitration, it would not be prudent to appoint arbitrator in routine manner with closed eyes which may only cause harassment to the parties and to keep them entangled in litigation. For appointment of an arbitrator, the factors which may have to be prima facie seen before passing an order, are as to whether there is an agreement between the parties containing an arbitration clause or not. Next, whether a dispute exists and in case it exists, it is one which is covered by the arbitration clause, wherever it may be felt that it needs a detailed enquiry to find out as to whether dispute is referable within the four corners of the arbitration clause or not, as observed earlier, the matter is to be left for decision of the Arbitrator. Otherwise it would not be appropriate to appoint an Arbitrator in respect of dispute which on the face of it is not agreed to be settled through arbitration. Appointment of Arbitrator under S. 11 of the Act cannot be a matter of unconcerned routine in all circumstances. 7. In the present case what is more important to be considered is what are the excepted matters under clause 63 of the General conditions of contract. A close reading of clause 63 shows that all matters of difference have to be referred to arbitration except the decisions for which provision has been made in clauses...............61 (2) ............... of the General conditions of contract (emphasis laid ). The above expression as used in clause 63 reverts us back to clause 61(2) of the General conditions of contract to find out what are the matters for decision under clause 61 (2) of the General conditions of contract. of the General conditions of contract (emphasis laid ). The above expression as used in clause 63 reverts us back to clause 61(2) of the General conditions of contract to find out what are the matters for decision under clause 61 (2) of the General conditions of contract. Clause 61 (2) provides that in case of determination of a contract in terms of sub-clause (1) of clause 61, the expenditure incurred by the contractor in completing the whole work shall be considered with vouchers in support of the claim to the satisfaction of the Engineer. This is to say that the amount payable for the expenditure incurred by the contractor in expectation of completing the whole work which is liable to be paid is to be decided by the Engineer. Sub-clause (2) of clause 61 further provides that the contractor shall have no claim to any payment of compensation on account of any profit or advantage which he might have derived from the execution of work in full, but he did not derive in consequence of determination of the contract. That is to say, for this kind of claim which is in respect of the advantage which the contractor might have derived from execution of the work in full, but could not derive due to determination of the contract, no decision is to be taken about the same. The last part of sub-clause (2) of clause 61 then provides, "The Railways decision on the necessity and propriety of such expenditure shall be final and conclusive." Thus decision of the Railways is only in regard to necessity and propriety of such expenditure and nothing beyond that. Under clause 63 of general conditions of contract the decisions under clause 61(2) alone are excepted and nothing else which would not require any decision of the Railways. The decision as to whether it was necessary for the contractor to have incurred the expenditure and the propriety of the expenditure, those are the two points on which Railway is to make decision which are excepted. Those are the decisions under clause 61(2) which are included in the excepted matters and not other matters. Prima facie it also appears that clause 61 envisages a situation where work has been started, but the contract has been terminated any time before the work is completed or whole work is done by the contractor. 8. Those are the decisions under clause 61(2) which are included in the excepted matters and not other matters. Prima facie it also appears that clause 61 envisages a situation where work has been started, but the contract has been terminated any time before the work is completed or whole work is done by the contractor. 8. In the present case, it appears that the work was never started and the Railways wrote a letter that due to land problem the work was not expected to be taken up and it was decided to close the contract without liabilities on either side. Consent of the petitioner was requested for closing the contract without any liability. The consent as sought for closing the contract without liabilities on either side was never given by the petitioner. The letters of the respondents are at Annexures VI and VII to the petition. The question as to whether consent was necessity or not and the consequence of not consenting to close the contract seem to be matter to be considered by the Arbitrator. Apparently it also appears that claims made by the petitioner in respect of loss of profit due to termination of contract as well as the claim for payment of damages on account of loss suffered due to non-execution of any other work, these matters do not seem to be within the excepted matters of clause 63 of the general conditions of contract as it is confined to the decisions under clause 61(2) of the general conditions of contract which as indicated above, provides for decision of the Railways on the necessity and propriety of expenditure incurred by the contractor on which matters the decision of the Railways has been made final and conclusive. In respect of no other matter any reference of decision of Railways has been made under sub-clause (2) of clause 61 of the General conditions of contract. It has only been plainly said that the contracts shall have no claim to any payment of compensation on account of any profit or advantage which he might have derived from the execution of the work in full but which he did not derive in consequence of determination of the contract. It has only been plainly said that the contracts shall have no claim to any payment of compensation on account of any profit or advantage which he might have derived from the execution of the work in full but which he did not derive in consequence of determination of the contract. That is to say that this aspect of the matter requires no decision of the Railways and the decision of the Railways, as indicated above, is confined to two points, namely, necessity and propriety of expenditure as envisaged under sub-clause (2) of clause 61. 9. In view of the discussion held above, prima facie in my view, an arbitrator deserves to be appointed to fully scrutinise the matter or hold any enquiry, considering the question of excepted matters if raised before, it and in that event the arbitrator would be free to take his own decision being uninfluenced by any observation or finding recorded in this order. The application is, therefore, liable to be allowed. It is accordingly allowed and the respondents are directed to take steps for appointment of Arbitrator as per general conditions of contract within a period of 6(six) weeks of furnishing a certified copy of this order. Application allowed.