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Rajasthan High Court · body

2016 DIGILAW 1318 (RAJ)

Rajendra Prasad Bansal v. Union of India through the General Manager, North Western Railway

2016-09-09

MOHAMMAD RAFIQ

body2016
ORDER : 1. This application under Sections 10 and 11 of the Arbitration and Conciliation Act, 1996 has been filed by applicant M/s Rajendra Prasad Bansal, New Delhi, a proprietorship firm, praying for appointment of arbitral tribunal for resolution of its dispute with non-applicants Union of India and its functionary. 2. Facts, as averred in the application, are that applicant firm is an Engineering and Contractor firm. It has been awarded various contracts for engineering/construction etc., work in the public as well as private sector. According to the applicant, it has been sending the labour and machinery for the purpose of accomplishing the contractual work. It has been working for North Western Railway, for installation and completion of the projects in its area of jurisdiction. A tender was floated by the non- applicant no.1 for the purpose of accomplishing the gauge conversion project instituted between the Bandikui-Agra Fort Stations. The non-applicant no.2, namely, the Deputy Chief Engineer (Construction), III, North Western Railway, Jaipur, accepted the offer dated 30.06.2004 of the applicant amounting to Rs.68,21,649.36 in response to the tender No.AF- BKI/GC/JP/66. In the course of time, the non-applicant no.2 further found it expedient to enter additional contract agreement titled as 1st supplementary contract agreement No.Dy.CE(C)CA/130/1 dated 02.12.2004. By means of that agreement, the non-applicant no.2 assigned the applicant works amounting to Rs.35,93,001.12 and accordingly, the applicant started working upon the newly assigned works. Subsequently, non-applicant no.2 further assigned second and final supplementary contract agreement to the applicant for a sum of Rs.7,61,057.43 on 16.05.2006 and the applicant immediately started working. It was thereafter that a further third supplementary agreement was executed between the parties whereby additional work of the value of Rs.6,51,802.22 was awarded to the applicant on 18.10.2006. 3. Mr. J.P. Gargey, learned counsel for applicant, argued that the parties had expressed agreement for resorting to the agency of arbitration for settlement of the disputes, if any, which arise between them regarding work execution under the agreements. The regulations and the conditions, which governed the execution of the contract and performance of the work thereunder, have been laid down by the non-applicant no.1, in conditions no.63 and 64 of the agreement. The applicant had to complete the work as per the schedule. The regulations and the conditions, which governed the execution of the contract and performance of the work thereunder, have been laid down by the non-applicant no.1, in conditions no.63 and 64 of the agreement. The applicant had to complete the work as per the schedule. The applicant has been continuously personally looking into the various works in connection with the gauge conversion projects launched between the Bandikui and Agra Fort stations, however, the extensive work was not solely under control and power of the applicant and therefore, the applicant was time and again required to contact the non-applicants for the purpose of seeking not only payments but also for seeking their directions, advises, desires, conveniences and so on. The applicant ensured the quality and shape of the work meets all the expectations of the non-applicants and the public at large using the rail transport in the segment, and completed the work. Thereafter, the applicant approached the non-applicant no.2 for settlement of its account and passing the final bills. It is highly regrettable that the non-applicants have adopted adamant attitude and have been reluctant to consider the claims lodged by the applicant. The applicant repeatedly contacted the non-applicants for immediately clearing the outstanding balance in the account. The applicant also pointed out negligent approach of the non-applicant no.2 to the non-applicant no.1, but both have been grossly careless in releasing the outstanding balance in favour of the applicant. Therefore, the applicant sent a notice to the non- applicants on 03.04.2007 specifically mentioning to resort to the arbitration. Neither any reply was given to the said notice nor the non-applicants expressed any basic curtsy to acknowledge the receipt of the notice. When the non-applicants did not send any written communication to the applicant in response to the said notice, the applicant repeatedly visited their officers and sought to offer cooperation for resolution of the dispute. The applicant then send four reminders to the non-applicants and personally approached them but it is unfortunate that they did not feel the necessity of resolving the dispute. 4. Mr. The applicant then send four reminders to the non-applicants and personally approached them but it is unfortunate that they did not feel the necessity of resolving the dispute. 4. Mr. J.P. Gargey, learned counsel, argued that question raised now before this Court that the demand of price variation is an “excepted matter” under Clause 64 of the General Conditions of Contract and therefore, it cannot be referred to arbitration, also cannot be accepted in view of the recent judgment of the Supreme Court in Arasmeta Captive Power Company Pvt. Ltd. and Another Vs. Lafarge India Pvt. Ltd. - (2013) 15 SCC, 414, wherein it has been held that the Chief Justice or his designate would not be justified to decide the claim whether a claim made falls within the arbitration clause and decision as to such issue ought to be left to the arbitrator. All these three issues have been dealt with by the judgment of this court dated 03.06.2016 in S.B. Arbitration Application No.95/2013 - M/s. Dwarka Traders Private Limited Vs. Union of India. 5. Learned counsel for the applicant, in support of the arguments, has relied on judgments of the Supreme Court in Raj Brothers Vs. Union of India – 2009 (1) R.A.J. 146 (SC), M/s. Ambica Construction Vs. Union of India – 2007 (1) R.A.J. 141 (SC), Ambica Construction Vs. Union of India – 2006(4) Arb.LR 288 (SC), Chairman & M.D., N.T.P.C. Ltd. Vs. Reshmi Constructions, Builders & Constructors – 2004 (1) R.A.J. 232 (SC), Deep Trading Co. Vs. IOCL – (2013) 4 SCC 35 , Datar Switch Gears Ltd. Vs. TATA Finance Limited – (2000) 8 SCC 151 , Suri Const Co. Vs. State of Rajasthan – 2006 (1) Arb.L.R. 553 and Northern Railway Administration Vs. Patel Engineering – 2008 (3) Arb.L.R. 349 (SC). It is therefore prayed that the an arbitrator may be appointed in the matter to resolve the disputes between the parties. 6. Mr. P.C. Sharma, learned counsel for the non- applicants, opposed the application and has raised preliminary objection that the application has been filed on false and manipulated facts, which are contrary to the terms and conditions of the contract agreement. The application has been submitted with enormous delay. The applicant completed the work assigned to it on 08.11.2005. 6. Mr. P.C. Sharma, learned counsel for the non- applicants, opposed the application and has raised preliminary objection that the application has been filed on false and manipulated facts, which are contrary to the terms and conditions of the contract agreement. The application has been submitted with enormous delay. The applicant completed the work assigned to it on 08.11.2005. As per the terms and conditions of the contract, the applicant was required to submit his claim, if any, within 90 days from the date of intimation that final bill is ready. This is mandatory in view of the condition No.64(1)(iv) of the General Conditions of the Contract. The applicant wrote a letter to the non-applicants on 09.05.2006 and submitted its claim on 03.04.2007. His claim was thus barred by limitation. Reference is made to Clause 64(1) (iv) of the General Conditions of the Contract, according to which if the contractor does/do not prefer his/their specific and final claim in writing, within a period of 90 days of receiving the intimation from the Railways that the final bill is ready for payment, he/they will be deemed to have waived his claim and the Railway shall be discharged and released all the liabilities under the contract in respect of such claims. 7. It is further argued that as per the demand of the applicant, the non-applicants have cleared each and every bill of the applicant and it is thereafter only that the applicant gave the 'no claim certificate' to the effect that he has no other claim outstanding against North-Western-Railway for work done or for labour or for materials supplied or on any other account and further that the payment of the bills shall be in final settlement of all his claims. The applicant is therefore now estopped from raising any dispute regarding the payment. 8. It is further submitted that no independent arbitrator can be appointed in the present matter as per the provisions of Clause 63(3)(a)(ii) of the General Conditions of the Contract, which specifically stipulates that there is a panel of three Gazetted Railway officers not below the grade of Junior Administrative Officer, who can be appointed as an Arbitrator to decide the claim. Reliance in this connection is placed on the judgment of the Supreme Court in Union of India and Another Vs. M.P. Gupta – (2004) 10 SCC 504 . Reliance in this connection is placed on the judgment of the Supreme Court in Union of India and Another Vs. M.P. Gupta – (2004) 10 SCC 504 . Moreover, learned counsel for non- applicants argued that the disputed claims and the demand raised by the applicant in the present matter is covered under the “Excepted Matters” as enumerated under the provisions of Special Conditions of the Contract. As per Clause 39(1), 39(2) and 45(a) of the Special Conditions, the claim regarding rates regarding extra items of works, payment to the contractor and objections to recorded measurements within seven days is “Excepted Matters”. Clause 63 of the General Conditions of the Contract, specifically provides that “Excepted Matters” will not be referred for arbitration. Learned counsel, in support of his arguments, has placed reliance on judgments of the Supreme Court in Shetty's Constructions Co. Pvt. Ltd. Vs. Konkan Railway Construction and another – (1998) 5 SCC 599 , National Aluminium Co. Ltd. Vs. Metalimpex Ltd. - (2001) 6 SCC 372 and U.P. State Sugar Corporation Ltd. Vs. Jain Construction Co. & Another – (2004) 7 SCC 332 . The application filed by the applicant is therefore liable to be dismissed. 9. I have given my anxious consideration to rival submissions and perused the material on record. 10. Besides the fact that most of the issues raised in this application with regard to appointment of independent arbitrator from amongst those named in Clause 64 of the General Conditions of Contract and “excepted matter” as per Clause 63 of the General Conditions of Contract, are covered by the detailed judgment of this court in M/s. Dwarka Traders Private Limited, supra, objection of the non-applicant with regard to full and final payment having been made by them, can also not be a reason not to refer the dispute to the arbitrator in view of judgments relied on behalf of the applicant. 11. Question whether non-applicants Railways would be justified in refusing to refer the dispute to Arbitrator on the premise that such dispute falls in the category of “excepted matter”, stands covered by law laid down by the Supreme Court in number of judgments referred to above, the latest one being in Arasmeta Captive Power Company, supra. 11. Question whether non-applicants Railways would be justified in refusing to refer the dispute to Arbitrator on the premise that such dispute falls in the category of “excepted matter”, stands covered by law laid down by the Supreme Court in number of judgments referred to above, the latest one being in Arasmeta Captive Power Company, supra. The Supreme Court, while dealing with application under Section 11(6) of the Act of 1996, on survey of entire previous case law on the subject, has authoritatively held that the Chief Justice or his Designate would not be justified in deciding whether a claim falls under “excepted matter” or not, under arbitration agreement, and such decision ought to be left to arbitrator. 12. The Apex Court in North Eastern Railway and Others Vs. Tripple Engineering Works – 2014 (3) Arb.LR 327 (SC), while dealing with the same Arbitration Clause 64 (3) of the General Conditions of Contract, relied upon by the non-applicant in the present case, held as under:- “6. The "classical notion" that the High Court while exercising its power Under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter for short 'the Act') must appoint the arbitrator as per the contract between the parties saw a significant erosion in Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corporation Ltd. wherein this Court had taken the view that though the contract between the parties must be adhered to, deviations therefrom in exceptional circumstances would be permissible. A more significant development had come in a decision that followed soon thereafter in Union of India v. Bharat Battery Manufacturing Co. (P) Ltd. wherein following a three-Judge Bench decision in Punj Lloyd Ltd. v. Petronet MHB Ltd. it was held that once an aggrieved party files an application Under Section 11(6) of the Act to the High Court, the opposite party would lose its right of appointment of the arbitrator(s) as per the terms of the contract. The implication that the Court would be free to deviate from the terms of the contract is obvious. 7. The apparent dichotomy in ACE Pipeline and Bharat Battery Mfg. Co. (P) Ltd. was reconciled by a three-Judge Bench of this Court in Northern Railway Admn. v. Patel Engg. Co. The implication that the Court would be free to deviate from the terms of the contract is obvious. 7. The apparent dichotomy in ACE Pipeline and Bharat Battery Mfg. Co. (P) Ltd. was reconciled by a three-Judge Bench of this Court in Northern Railway Admn. v. Patel Engg. Co. Ltd. wherein the jurisdiction of the High Court Under Section 11(6) of the Act was sought to be emphasized by taking into account the expression "to take the necessary measure" appearing in sub-section (6) of Section 11 and by further laying down that the said expression has to be read alongwith the requirement of sub-section (8) of Section 11 of the Act. The position was further clarified in Indian Oil Corporation Limited and Ors. V .Raja Transport Pvt. Ltd. Para 48 of the Report wherein the scope of Section 11 of the Act was summarised may be quoted by reproducing sub-paras (vi) and (vii) herein below. “48. (vi) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause (vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else.” 8. The above discussion will not be complete without reference to the view of this Court expressed in Union of India v. Singh Builders Syndicate wherein the appointment of a retired Judge contrary to the agreement requiring appointment of specified officers was held to be valid on the ground that the arbitration proceedings had not been concluded for over a decade, making a mockery of the process. In fact, in para 25 of the Report in Singh Builders Syndicate this Court had suggested that the Government, statutory authorities and government companies should consider phasing out arbitration clauses providing for appointment of serving officers and encourage professionalism in arbitration. 9. A pronouncement of late in Deep Trading Co. v. Indian Oil Corporation and Ors. In fact, in para 25 of the Report in Singh Builders Syndicate this Court had suggested that the Government, statutory authorities and government companies should consider phasing out arbitration clauses providing for appointment of serving officers and encourage professionalism in arbitration. 9. A pronouncement of late in Deep Trading Co. v. Indian Oil Corporation and Ors. followed the legal position laid down in Punj Lloyd Ltd. which in turn had followed a two- Judge Bench decision in Datar Switchgears Ltd. vs. Tata Finance Ltd. The theory of forfeiture of the rights of a party under the agreement to appoint its arbitrator once the proceedings under Section 11(6) of the Act had commenced came to be even more formally embedded in Deep Trading Co. subject, of course, to the provisions of Section 11(8), which provision in any event, had been held in Northern Railway Admn. not to be mandatory, but only embodying a requirement of keeping the same in view at the time of exercise of jurisdiction Under Section 11(6) of the Act. 10. In the present case Clauses 64(3)(a)(ii) and (iii) of the general conditions of contract do not prescribe any specific qualification of the arbitrators that are to be appointed under the agreement except that they should be Railway Officers. As already noticed, even if the arbitration agreement was to specifically provide for any particular qualification(s) of an arbitrator the same would not denude the power of the Court acting Under Section 11(6), in an appropriate case to depart therefrom.......” 13. The view expressed in the above judgment has been again followed by the Supreme Court in Union of India Vs. U.P. State Bridge Corporation Ltd, 2014 (10) Scale 561 , where under appointment of arbitrator by the High Court on its own on the prescription made in the arbitration clause was approved. In para 21 of the report, the Supreme Court held as under:- “21. The appointment of arbitrator by the Court, of its own choice, departing from the arbitration clause, is therefore not unknown and has become an acceptable proposition of law which can be termed as a legal principle which has come to be established by a series of judgments of this Court. Reasons for debating such a course of action are not far to seek and already taken note of above.” 14. The Supreme Court in Datar Switch Gears Ltd. Vs. Reasons for debating such a course of action are not far to seek and already taken note of above.” 14. The Supreme Court in Datar Switch Gears Ltd. Vs. TATA Finance Limited, supra, held that in cases arising under Section 11 (6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. Their Lordships therein therefore disagreed with the observation in earlier judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6), is forfeited. The said law was again reiterated by the Supreme Court in Punj Lloyd Limited Vs. Petronet MHB Ltd – (2006) 2 SCC 638 . 15. Necessary measures are the steps which are reasonably required to be taken, one of which is to secure appointment of an independent and impartial arbitrator, which aspect has been emphasised by the Parliament even in the newly introduced the Arbitration and Conciliation (Amendment) Act, 2015, especially in Clauses 1 and 5 of the Fifth Schedule with reference to explanation to Section 12(1)(b) and Clauses 1 and 5 of Seventh Schedule with reference to Section 12(5) of the Act. Section 12(1) of the Act provides that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances, (a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality and (b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Section 12(5) of the Act provides that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. Section 12(5) of the Act provides that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. Clauses 1 of both Schedule Fifth and Seventh are similarly worded which provide that if the arbitrator is an employee, consultant, advisor or has other past or present business relationship with a party, it would give rise to justifiable doubts as to his independence or impartiality. Clauses 5 of both Schedule Fifth and Seventh also provide that for a similar consequence, if any arbitrator happens to be manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Sub-section (5) of Section 12 of the Act has been given overriding effect over any prior agreement to the contrary. Therefore, independence and impartiality of arbitrator as mandated by Amending Act of 2015 has now been made paramount consideration for appointment of arbitrator. 16. The Supreme Court in Chairman & M.D., NJ.T.P.C. Ltd. Vs. Reshmi Constructions, Builders & Contractors, supra, was dealing with a case where submission of final bill by the respondent contractor was not accepted by the appellant NTPC Limited. Final bill was prepared by the appellant themselves and forwarded along-with the format “No Demand Certificate”. The respondents though signed the “No Demand Certificate” but on the same day sent a letter to the appellant, informing about signature under coercion and protest, without prejudice to his right. It was held that even when rights and obligations of the parties are worked out, the contract does not come to an end inter alia for the purpose of determination of the disputes arising thereunder, and, thus, the arbitration agreement can be invoked. Although it may not be strictly in place but we cannot shut our eyes to the ground reality that in the cases where a contractor has made huge investment, he cannot afford not to take from the employer the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a 'No Demand Certificate' has been signed. Each case, therefore, is required to be considered on its own merits, held the Supreme Court. 17. In Ambica Construction Vs. Union of India, supra, the arbitrator held that 'no claim certificate' was signed by the contractor under duress and coercion and passed the award in his favour. The High Court set aside the award. When the matter was taken to the Supreme Court, it was held that the contractor was having genuine claim, which was considered in great detail by the arbitrator, and that notwithstanding submission of a no claim certificate by appellant, he was entitled to claim a reference. The appeal was allowed. 18. In Raj Brothers, supra, also final bill was signed by the contractor 'under protest'. The contractor subsequently withdrew the protest under duress, but later invoked the arbitration clause. It was held that since withdrawal of protest was made under duress, triable issue arises and therefore the matter was rightly referred to arbitrator. In a rather recent judgment in Gayatri Project Ltd. Vs. Sai Krishna Construction – (2014) 13 SCC 638 , the Supreme Court held that issuance of full and final discharge/settlement voucher/no-dues certificate, does not preclude arbitration when the said full and final settlement itself is disputed. Question whether 'no claim certificate' given by the applicant would constitute a "full and final settlement" would have to be determined on proper appreciation of the evidence led by the parties. This issue by itself was subject to arbitration. Hence reference to arbitrator was maintainable, held the Supreme Court. 19. In the facts of the case, the objection of delay raised by the non-applicants cannot be said to be justified because the delay in the present case cannot be said to be enormous. The application in the present case was filed in the year 2010. As per own showing of the non-applicants, the applicant has asserted with regard to execution of second and final supplementary contract on 16.05.2006. Apart from that, the third supplementary contract was also executed. The applicant has alleged that he personally contacted the non- applicants for several times and also submitted written representations and finally served legal notice on 03.09.2007 and thereafter it sent four reminders to the non-applicants. Apart from that, the third supplementary contract was also executed. The applicant has alleged that he personally contacted the non- applicants for several times and also submitted written representations and finally served legal notice on 03.09.2007 and thereafter it sent four reminders to the non-applicants. The non-applicants, in their reply, have also stated the applicant wrote a letter on 09.05.2006 and submitted his claim on 03.04.2007. As far as entertainment of the present application is concerned, the claim of the applicant cannot be said to be a dead claim. However, even then the question of delay and its effect on the entitlement of the applicant and also the question whether the applicant would be deemed to have waived all his claim only because in the facts of the case he failed to submit that within 90 days of the intimation, are by themselves disputed questions, which are left open to be decided by the arbitrator. In totality of the circumstances, this court deems it just and proper to refer the disputes between the parties to be adjudicated by an independent arbitrator. 20. Having regard to the facts of the present case, present application deserves to succeed and same is allowed. Hon'ble Mr. Justice P.S. Asopa, (former Judge of Rajasthan High Court), 7-DHA-6, Jawahar Nagar, Jaipur (Cell No.9414063883) is hereby appointed as an independent sole arbitrator to resolve the disputes between the parties. The costs of arbitration proceedings and the arbitration fees shall be as per the Manual of Procedure for Alternative Dispute Resolution, 2009, of this Court, as amended from time to time. 21. A copy of this order be sent to Hon'ble Mr. Justice P.S. Asopa, (former Judge of Rajasthan High Court), 7-DHA-6, Jawahar Nagar, Jaipur (Cell No.9414063883).