Allowed

M/S Bharat Spun Pipes Construction Co. v. North Western Railway through G M and Ors.

Rajasthan HC14 Jul 2017ARBAP/72/2016

Case brief

AI extract

What is this about?

Disputes over railway construction price variation and labour cess were referred to an independent sole arbitrator. The court allowed the appointment application despite the no-claim certificate and excepted-matter objections, held serving and retired Railway officers ineligible, and rejected unilateral contractual amendments requiring Railway nominees.

What did the court decide?

Sunil Kumar Garg (Retired) appointed as independent sole arbitrator to resolve the disputes between the parties.

M/S Bharat Spun Pipes Construction Co. Vs North Western… — Arbitration | Rajasthan HC (2017)

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HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR

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S.B. Arbitration Application No. 72/2016

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M/s Bharat Spun Pipes & Construction Company having its registered office at 43, Industrial Area, Jhotwara, Jaipur, through its partner Dinesh Chandra Gupta S/o Late Shri R.K. Gupta

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----Applicant

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Versus

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North Western Railway, through its General Manager, NWR Head Quarter, Jawahar Circle, Jaipur – 302017

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Chief Engineer (Construction)-I, North Western Railways, Jawahar Circle, Jaipur

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Dy. Chief Engineer (Construction)-II, North Western Railways, Jawahar Circle, Jaipur

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----Respondents

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_____________________________________________________ For Petitioner(s) : Mr. Jatin Agarwal For Respondent(s) : Mr. Shailesh Prakash Sharma

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HON'BLE MR. JUSTICE MOHAMMAD RAFIQ

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Order

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14/07/2017

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This application under Section 11(6) of the Arbitration and Conciliation Act, 1996, has been filed by petitioner M/s Bharat Spun Pipes and Construction Company, Jaipur, praying for appointment of an independent Arbitrator for settlement of the disputes/differences between the petitioner and the respondents.

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Mr. Jatin Agarwal, learned counsel for the petitioner submitted that the petitioner is a partnership firm engaged in the business of construction of roads, laying of railway lines, platforms, construction of bridges, elevated roads and other civil works. The respondents floated a tender for execution of the work of construction of Road Over Bridges across Railway track at Km.181/5-6 in between Dausa-Bhandana of Dausa-Jaipur Section (Deposit work). The petitioner participated in the tender process by submitting bid. The bid of the petitioner was accepted

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by the respondents vide letter of acceptance dated 11.09.2008. The value of the contract was Rs.5,47,26,451.47. The petitioner deposited the amount of Rs.4,80,000/- as earnest money and the respondents retained the same as initial security. The work was to be completed within six months from the date of letter of acceptance. The petitioner commenced the work. The petitioner, as per the terms and conditions of the contract, also submitted a bank guarantee equivalent to 5% of the contract value. The petitioner completed the work on 08.05.2012 up to the satisfaction of the respondents. After completion of work, there arose a dispute in the payment of price variation for the NS Items relating to steel. It is submitted that though Clause 68 of the tender document provides for price variation for these items but the petitioner was not being paid for the same. The petitioner also raised the bills for price variation in other items but same were never honoured. The petitioner approximately claimed Rs.21,17,019.56 for payment of price variation in other items under NS/1 and NS/2 under Schedule-E but the same were rejected and now the petitioner claims the same. That apart, it is submitted that in the final bills, which were paid to the petitioner, labour cess at the rate of 1% was also wrongly deducted, as at the time of tender, no cess was applicable. The petitioner repeatedly requested the respondents to resolve the dispute, but the respondents have not paid any heed thereto.

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Learned counsel referred to Clause 85 of the tender document, which contains Clause 64 of the General Conditions of Contract, which provides for settlement of disputes through arbitration. Section 64(1)(i) of the GCC provides that in the event of any dispute or difference between the parties hereto as to the construction or operation of the contract, or the respective rights and liabilities of the parties on any

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matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contract may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and any such case, but except in any of the “excepted matters” referred to in Clause 63 of the GCC, the contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters shall demand in writing that the dispute or difference be referred to arbitration.

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Learned counsel submitted that the petitioner requested the respondents to refer the dispute for arbitration. He also served a notice dated 08.09.2015 on the respondents for appointment of the arbitrator for settlement of the disputes. But the respondents vide letter dated 31.12.2015 rejected the request of the petitioner for appointment of arbitrator on the premise that the petitioner had signed the ‘No Claim Certificate’. It is submitted that the claim of the petitioner related to price variation and imposition of cess, which does not fall under the ‘No Claim Certificate’. The ‘No Claim Certificate’ is only applicable on the measurements done and recorded in the final bill, as has been stated under Clause 43(2) of the GCC. The payment of price variation is made after signing of ‘No Claim Certificate’ and same cannot be included in the ‘No Claim Certificate’.

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Learned counsel submitted that the respondents vide letter dated 11.11.2016 amended the provisions of Clause 64.(3) of the GCC, according to which there is a penal of three gazetted officers not below the grade of Junior Administrator Officer, who can be appointed to decide the claim and name of retired Railway Officers can also be offered therein. It is submitted that the aforesaid amended clause is not applicable in the present case because that came into effect much later

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whereas the agreement of the petitioner was executed in the year 2007-08. It is argued that despite insistence of the respondentRailways, in view of the bar contained in Section 12(5) of the Act of 1996, neither serving nor retired Railway officers can be appointed as arbitrators.

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Mr. Shailesh Prakash Sharma, learned counsel for the respondents opposed the application and submitted that the petitioner is wrongly trying to get the benefit of price variation two times on cement and steel, and that the claim submitted by the petitioner comes under ‘excepted matter’. As per Item No.1.2 of tender form (second sheet) of contract agreement, the General Conditions of Contract are the part of the contract agreement. Clause 63 of the GCC specifies that the matter shall be finally determined by the Railway and the same falls under the ambit of “excepted matters”. Learned counsel for the respondents also referred to Clause 22(5) of the GCC, which provides that if any ambiguity arises as to the meaning and intent of any portion of specifications and drawings or as to execution or quality of any work or material, or as to the measurements of the works the decision of the Engineer thereon shall be final subject to the appeal within seven days of such decision being intimated to the contractor, to the Chief Engineer, who shall have the power to correct any errors, omissions or discrepancies, whose decision in the matter or dispute shall be final and conclusive. The decision on the matter has already been taken and conveyed to the petitioner vide letter dated 05.08.2016 that his request for appointment of arbitrator has not been considered by the competent authority as per Clause 43(2) and 63 of the GCC because he has already signed ‘No Claim Certificate’ in the contract in question. The petitioner is not entitled to make any claim whatsoever against the

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respondents and the respondents shall also not entertain or consider any such claim made by the petitioner after his signing the ‘No Claim Certificate’ in favour of the respondents. The final PVC bill amounting to Rs.8,53,385/- submitted by the petitioner, has already been paid to him on 18.03.2013. Since the petitioner has already signed the ‘No Claim Certificate’ in favour of the respondents, as such, he is not entitled to make such claim. Clause 63 of the GCC also specifies that special condition of the contract shall be deemed as ‘excepted matter’ and decision of the Railway authority thereon shall be final and binding on the contractor, provided further that ‘excepted matters’ shall stand specifically excluded from the purview of the arbitration clause and shall not be referred to arbitration. Learned counsel for the respondent has relied on the decision of the Supreme Court in Union of India and Others Vs. Onkar Nath Bhalla and Sons – 2009 DNJ (SC) 482. Learned counsel for the respondents further submitted that the petitioner ha signed the full and final bill without any protest or reservation and thus his right is waived to raise further claim as per Clause 43(2) of the GCC.

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Learned counsel submitted that as per the instructions of the Railway Board, the recovery of cess charged at the rate of 1% was proposed to be recovered from the date of receipt of notice from the State Labour Commissioner of the Labour Department. The Labour Commissioner issued notice to this effect vide Circular dated 09.07.2010 and cutoff date of recovery of cess charges was kept as 27.09.2009. Accordingly, the welfare cess at the rate of 1% was recovered with effect from 27.09.2009. In this regard, learned counsel referred to Clause 23.2 of the contract agreement, according to which all taxes, such as Income Tax, Sales Tax and other taxes, as prescribed by the Central/State Government from time to time, shall be applicable

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and deduction of such taxes shall be made from contractor’s payment in accordance with the rules in force from time to time.

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Learned counsel further submitted that there has been a

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letter/notification dated 11.11.2016 issued by the Government of India in its Ministry of Railways, Railway Board, modifying Clause 64 of the GCC-2014 for implementation of Arbitration and Conciliation (Amendment) Act, 2015, and as per the aforesaid, the Board has decided to make necessary modification in Clause 64(3)(a) pertaining to appointment of arbitrator where applicability of Section 12(5) of the Act of 1996 has been waived off and Clause 64(3)(b) for appointment of arbitrator, where applicability of Section 12(5) of the Act of 1996 has not been waived of, has taken place.

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I have given my thoughtful consideration to rival submissions and perused the material on record.

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What is the scope of the Chief Justice or his Designate, while dealing with a request seeking appointment of arbitrator has been dealt with by the Supreme Court in umpteen number of judgments. Reference to some of such judgments would not be out of order at this juncture. The Supreme Court in Indowind Energy Limited Vs. Wescare (India) Limited and Another – (2010) 5 SCC 306 , while considering the question as to whether wider examination of issues by the Chief Justice or its designate, is envisaged, held that scope of examination of the agreement by the Chief Justice or his designate under Section 11 (6) is to be strictly restricted to the question whether there is an arbitration agreement between the parties. His jurisdiction cannot extend to examining the agreement to ascertain the rights and obligations regarding performance of such contract between the parties. It was held that such examination cannot extend to examining the

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agreement to ascertain the rights between the parties to the contract. The Supreme Court in Indowind Energy Limited , supra, reiterated its earlier judgments in SBP & Co. Vs. Patel Engineering Ltd. - (2005)

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8 SCC 618 and also in National Insurance Co. Ltd. Vs. Boghara Polyfab (P) Ltd. - (2009) 1 SCC 267 , wherein it was held that when an application is filed under Section 11, the Chief Justice or his designate is required to decide only two issues, i.e. whether the party making the application has approached the appropriate court and whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such agreement. Therefore, what is to be considered is only whether there is an arbitration agreement between the applicant and non-applicant. Any wider examination in such a summary proceeding will not be warranted.

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In Indian Oil Corporation Limited Vs. SPS Engineering Limited – (2011) 3 SCC 507 , again the Supreme Court held that scope of Section 11 of the Act of 1996 does not permit examination of maintainability or tenability of a claim either on facts or on law, and should be left for decision of arbitrator. The questions of res-judicata and limitation were raised in that case and it was held that the designate Judge, while deciding the question of appointment of arbitrator, has exceeded his limited jurisdiction under Section 11, and that he was not expected to go into merits of claim or examine maintainability or tenability of claims either on facts or law in an application under Section 11, except when it was an apparently dead claim, which is evidently and patently long time-barred and where there is no need of detailed consideration of evidence.

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After revisiting number of its previous judgments on the subject, the Supreme Court in a recent judgment in Arasmeta Captive Power

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Company Private Limited and Another Vs. Lafarge India Private Limited – (2013) 15 SCC 414 , has succinctly clarified the law in this respect and held that while deciding application under Section 11 (6) of the Act, the Chief Justice or designate would not be justified in deciding whether a claim falls under excepted matter or not under the arbitration agreement. The decision as to such issues should be left to arbitrator as it is to be exclusively determined by the arbitrator. The Chief Justice or designate has to record satisfaction that there remains a live issue in between the parties and that prima facie the issue had not become dead by the lapse of time or that any party to the agreement has not slept over the issue beyond the time permitted by law to agitate those issues, but sometime it would be appropriate to leave the question regarding the live claim to be decided by the arbitrator. All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation. But it was further held that Chief Justice/designate in doing so would not embark upon an examination of the issue of arbitrability or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or amongst the parties, he would leave the issue of arbitrability for the decision of the arbitral tribunal. Even if the arbitrator wrongly held that the dispute is arbitrable, the aggrieved party will have the remedy to challenge the award under Section 34 of the Act of 1996.

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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”, thus stands covered by law laid down in Arasmeta Captive Power Company Private Limited , supra, in which the Supreme Court has

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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.

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Argument of the respondent-Railways is that in view of Section 21 of the Arbitration and Conciliation Act, 1996, unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute shall commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015, which came into force with effect from 23.10.2015, provides that nothing contained in this Act shall apply to the arbitral proceedings commenced in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree. In the present matter, the request for referring the dispute to the arbitrator was made and received prior to enforcement of the Amendment Act, 2015. The tender proceedings in the present case were commenced even prior to enforcement of the Arbitration and Conciliation (Amendment) Act, 2015. The Amendment Act, 2015, shall apply only in relation to arbitral proceedings commenced on or after the date of commencement thereof. Therefore, the provisions of Section 12 including its sub-sections (1) and (5) as also Fifth and Seventh Schedule, shall not be applicable to cases where the arbitral proceedings have commenced prior to enforcement of the Amendment Act, 2015, argued the learned counsel appearing for the Railways. Therefore, Section 12(5) of the Act of 1996 does not apply to the present case.

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I had the occasion to deal with this question in M/s. Dwarka

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Traders Private Limited Vs. Union of India and Another – 2017

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(1) WLC (Raj.) 277 . In para 22 of the report, it was held as under:-

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“Section 12(5) of the Act of 1996 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. Seventh Schedule referred to in Section 12(5) provides 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. Clause 5 of Seventh Schedule also provides for similar consequences, 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 of 1996 has thus 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 a paramount consideration for appointment of arbitrator. In the facts of the case therefore, the General Manager Railways can neither be appointed as an Arbitraor nor can he be called upon to nominate another officer of the Railways to act as the Arbitrator.”

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The Supreme Court in a recent judgment in Voestalpine

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Schienen GMBH Vs. Delhi Metro Rail Corporation Ltd. - 2017 (2)

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Vol.126 Arb.LR 1 , on consideration of amended provisions of Section 12(5), emphasized on the independence, impartiality and utility of the Arbitrator with reference to recommendation of the Law Commission

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and in para 17 of the report held as under:-

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“Keeping in mind the aforequoted recommendation of the Law Commission, with which spirit Section 12 has been amended by the Amendment Act, 2015, it is manifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, sub-section (5) of Section 12 lays down 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, he shall be ineligible to be appointed as an arbitrator. In such an eventuality, i.e. when the arbitration clause finds foul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale

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of the arbitration agreement, empowering the court to appoint such arbitrator(s) as may be permissible. That would be the effect of non obstante clause contained in sub-section (5) of Section12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement.”

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In a recent judgment dated 03.07.2017 in TRF Ltd. Vs. Energo

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Engineering Projects Ltd. - Civil Appeal No.5306/2017 (S.L.P. (C) No.22912/2016) , the Supreme Court was called upon to decide the question whether the High Court, while dealing with the applications under Section 11(6) of the Act of 1996 is justified to repel the submissions of the appellants that once the person, who was required to arbitrate upon the disputes arising under the terms and conditions of the contracts, becomes ineligible by operation of law, would he still be entitled to nominate another person as an arbitrator? On consideration of large number of its earlier decisions especially in Newton Engineering and Chemicals Limited Vs. Indian Oil Corporation Limited and Others – (2013) 4 SCC 44 , the Supreme Court answered the question in negative. Clause 33(d) of the General Terms and Conditions of the Purchase Order (in brief, ‘GTCPO’) in that case stipulated that unless otherwise provided, any dispute or difference between the parties in connection with this agreement shall be referred to sole arbitration of the Managing Director of Buyer or his nominee. The appellant before the Supreme Court invoked the arbitration clause seeking reference of dispute to an Arbitrator and objecting to the aforesaid Clause 33(d) in view of Section 12(5) of the Amendment Act, 2015, and prayed for appointment of Arbitrator in view of the specific terms of the purchase order. The respondents proceeded to appoint a sole Arbitrator in terms of Clause 33(d) of the GTCPO, which was not accepted by appellant. The argument of the appellant before the High Court was that the Managing Director had become ineligible to act as an

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Arbitrator and as a natural corollary, he had no power to nominate any other arbitrator in view of Section 12(5) of the Amendment Act read with Fifth and Seventh Schedules. This argument was resisted by the respondents before the High Court contending that Fifth and Seventh Schedules merely lay down the guidelines and the arbitrator is not covered under the same and even if it is so, his power to nominate someone to act as an arbitrator is not fettered or abrogated. While rejecting the plea of the appellant, the High Court accepted the argument of the respondent. Matter was taken to the Supreme Court. The appellant argued before the Supreme Court that the relevant clause in the agreement relating to appointment of arbitrator has become void in view of Section 12(5) of the amended Act, for the Managing Director having statutorily become ineligible, cannot act as an arbitrator and that acts as a disqualification and in such a situation, to sustain the stand that his nominees would be validly appointed arbitrators, would bring in an anomalous situation which is not countenanced in law. In those facts, the Supreme Court in para 53, 56 and 57 of the judgment in TRF Ltd. , supra, held as under:-

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“53. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned senior counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned senior counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are

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two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the “named sole arbitrator” and he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction. In this regard, our attention has been drawn to a two-Judge Bench decision in State of Orissa and others v. Commissioner of Land Records & Settlement, Cuttack and rs – (1998) 7 SCC 162 . In the said case, the question arose can the Board of Revenue revise the order passed by its delegate. Dwelling upon the said proposition, the Court held:

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“25. We have to note that the Commissioner when he exercises power of the Board delegated to him under Section 33 of the Settlement Act, 1958, the order passed by him is to be treated as an order of the Board of Revenue and not as that of the Commissioner in his capacity as Commissioner. This position is clear from two rulings of this Court to which we shall presently refer. The first of the said rulings is the one decided by the Constitution Bench of this Court in Roop Chand v. State of Punjab. In that case, it was held by the majority that where the State Government had, under Section 41(1) of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, delegated its appellate powers vested in it under Section 21(4) to an “officer”, an order passed by such an officer was an order passed by the State Government itself and “not and order passed by any officer under this Act” within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise of powers of revision by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and not as a delegate of the State. The State Government was, therefore, not entitled under Section 42 to call for the records of the case which was disposed of by an officer acting as its delegate.”

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The aforesaid authorities have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. According to learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or gt it arbitrated upon by a nominee.

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In such a context, the fulcrum of the controversy would

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be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so.”

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The authoritative pronouncement of the Supreme Court in TRF Ltd. , supra, would squarely cover the controversy in the present case as herein also 64(3)(a)(i) of the GCC empowers the General Manager to act by himself as sole Arbitrator or nominate any Gazetted Officer of the Railway if value of the contract does not exceed Rs.10,00,000/-. (This amount has varied from time to time.) Clause 64(3)(a)(ii) of the GCC, as it stood at the relevant time, provides that in cases not covered by Clause 64(3)(a)(i), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers, not below J.A. Grade, as the Arbitrators. For this purpose, the Railway will send a panel of more than three names of Gazetted Railway Officers of one or more Departments of the Railway, to the Contractor, who will be asked to suggest to General Manager upto two names out of the panel for appointment as Contractor’s nominee. The General Manager shall appoint atleast one out of them as the Contractor’s nominee and will also simultaneously appoint the balance number of Arbitrators either from the panel or from outside the panel, duly indicating the presiding Arbitrator from amongst the three Arbitrators so appointed.

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What is provided in sub-section (5) of Section 12 of the Amendment Act, 2015, is that 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. Though Section 26 of the Amendment Act, 2015 has made the provisions of the Amendment Act applicable only prospectively, the unamended provisions of the Principal Act of 1996 continued to be applicable to arbitral proceedings which commenced in accordance with the provisions of Section 21 of the Act of 1996 before commencement of the Amendment Act, 2015, i.e. 23.10.2015. However, Section 12(5) itself carves out an exception to the exception created by Section 26 of the Amendment Act, 2015, since it begins with a non obstante clause and overrides any other prior agreement containing a clause contrary to what is provided for in Seventh Schedule of the Act of 1996.

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The Apex Court in North Eastern Railway and Others Vs. Tripple Engineering Works – 2014 (3) Arb.LR 327 (SC) , in which their Lordships, while dealing with the same Arbitration Clause 64 (3) of the General Conditions of Contract, considered various earlier decisions with regard to the powers of the Chief Justice/Designate under Section 11 of the said Act, and held as under:-

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“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

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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.

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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.......”

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The judgment of the Supreme Court in North Eastern Railway Vs. Tripple Engineering Works , supra, has been followed by the Apex Court recently in Union of India Vs. U.P. State Bridge Corporation Ltd - 2014 (10) Scale 561 , upholding the appointment of Arbitrator made by the High Court on its own, departing from the prescription made in the arbitration clause. It was held in para 21 as under:-

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“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.”

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The Supreme Court in Datar Switch Gears Ltd. Vs. TATA Finance Limited – (2000) 8 SCC 151 , 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

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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 earlier judgments which held that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6), is forfeited, but extended this limit upto the date of filing application under Section 11 of the Act of 1996. The said law was again reiterated by the Supreme Court in Punj Lloyd Limited Vs. Petronet MHB Ltd – (2006) 2 SCC 638 .

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The Supreme Court in Northern Railway Administration Vs. Patel Engineering Company Limited , supra, observed that Section 11(6) of the Act of 1996 provides that the Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to; (a) any qualifications required of the arbitrator by the agreement of the parties; and (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator. It was held that appointment of arbitrator or arbitrators named in the arbitration agreement is not a must, but while making appointment the twin requirements of subsection (8) of Section 11 have to be kept in view, considered and taken into account. Mandate of law contained in sub-section (6) of Section 11 of the Act has to be followed in all such cases, which provides that, “a party may request the Chief Justice or any person or institution designated by him to take the necessary measures.” The expression “necessary” as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. This expression has to be read with the requirement in Section 11(8) of

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the Act that the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have “due regard” to the two cumulative conditions contained in Sections 11(8) (a) and (b) relating to qualifications and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

¶106

In view of the precedents noted above, since the respondents failed to refer the dispute for arbitration despite the applicant invoking arbitration clause till filing of the present application, this court would be fully justified in appointing an independent Arbitrator in deviation from what has been prescribed in the agreement.

¶107

As held by the Supreme Court in Northern Railway Administration Vs. Patel Engineering Company Limited , supra, the Court must first ensure that the remedies provided for are exhausted. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations. The expression “due regard” means that proper attention to several circumstances have been focused. The expression “necessary” as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. 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 even by the Parliament 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.

¶108

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In Reliance Infrastructure Ltd. Vs. Haryana Power Generation Corporation Ltd. , - 2016 (6) Arb.L.R. 480 (P&H) , the judgment relied by the respondents, the Punjab and Haryana High Court held that the mere fact that a person was a Chief Secretary or held any other office with the State Government, does not debar him or her from being appointed as Arbitrator. The circumstance “which is likely to give rise to justifiable doubts” as to the arbitrator’s independence or impartiality, is referred to in Entry 1 of Fifth Schedule with reference to sub-section (1) of Section 12 of the Act of 1996. It was held that that the bar is against the person, who is at the time of appointment an employee, consultant or advisor of the party concerned but there is no bar against the former employee, consultant or advisor of the party. The words “or has any other past or present business relationship with a party” in Entry 1 of Fifth Schedule of the Act of 1996, do not include the former employee, consultant or advisor of a party, held the High Court.

¶111

The interpretation placed by Punjab and Haryana High Court on Section 12(1) and Entry 1 of Fifth Schedule that an employee having past or even present relationship with the party, does not include even a former Chief Secretary of the State, is not free from doubt. The Punjab and Haryana High Court in arriving at that conclusion has split Entry 1 of Fifth Schedule with reference to Section 12(1)(a) of the Act of 1996, in two parts, which enumerates the grounds giving rise to justifiable doubts as to the independence or impartiality of arbitrator. Entry 1 of Fifth Schedule with reference to Section 12(1)(a) and Entry 1 of Seventh Schedule with reference to Section 12(5) are similarly worded, both of which read as under:-

¶112

“The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.”

¶113

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The Punjab and Haryana High Court has split Entry 1 of the Fifth Schedule, the first part being “The arbitrator is an employee, consultant, advisor...” and second, “..or has any other past or present business relationship with a party.” The High Court held that the latter part does not include a former employee, consultant or advisor of the party. It further held that the word “other” refers to a relationship other than that of an employee, consultant or advisor, which was meant to indicate the business relationship between them. Then, the High Court proceeded to hold that the bar applies in respect of a person, who has had a business relationship with a party, other than as an employee, consultant or advisor. I find myself unable to agree with such interpretation placed by the Court. The words “The arbitrator is an employee, consultant, advisor...” cannot be read separately from the latter part “..or has any other past or present business relationship with a party.” Latter part has to be read thus ‘The arbitrator’ ‘has any other past or present business relationship with a party.’ In other words, if the Arbitrator has had any past or present relationship with the party, Section 12(1) would be attracted. The phraseology does not exclude the employee, consultant or advisor but rather expands the scope of the Entry to include even those, who may have been in any form or manner associated, either in past or present, with the party, which one can describe as business relationship. But that does not mean that an employee even though was a former employee of a party would not fall within the purview of past business relationship. There is no warrant for placing such a narrow interpretation on the phraseology ‘business relationship’ to exclude the employees, consultants and advisors completely from its purview. If a person had been an employee, consultant or advisor of one of the parties to the dispute, may be not in

¶116

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the present but at any point of time in the past, he is not absolved of his liability from disclosing in writing such past association in terms of Section 12(1) of the Act of 1996. Therefore, this court is not in agreement with the view taken by the Punjab and Haryana High Court that it is not necessary even for a person, who is approached in connection with his possible appointment as an arbitrator, to disclose in writing a past employment or engagement as an employee, consultant or advisor, with a party, unless such employment or engagement is likely to give rise to justifiable doubts as to his independence or impartiality.

¶119

The intention of the Parliament that manifests from Section 12(1) of the Act of 1996, is that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances, 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. In order to better appreciate the point which is sought to be made herein, it would be apposite to reproduce Section 12(1)(a) of the Act of 1996, which reads thus:-

¶120

“12. Grounds for challenge.- (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances, -

¶121

(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;”

¶122

Though Entry 1 of the Fifth Schedule has used the expression

¶123

“...has any other past or present business relationship with a party.” Section 12(1)(a) has insisted that such person shall disclose in writing such as the existence either direct or indirect, of any past or present

¶124

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relationship with or interest in any of the parties or in relation to the subject-matter in dispute. Evidently in the main provision of Section 12(1), the word ‘relationship’ is not prefixed by ‘business’ and is plainly used as ‘relationship’. Any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, would by itself be sufficient to impel the person approached for appointment as arbitrator to make such disclosure in writing. Actual bias need not be proved for that purpose. Regardless of whether the circumstances actually impinge upon independence and impartiality of the Arbitrator, if the circumstances are such, which are likely to give rise to justifiable doubts as to the independence and impartiality, that by itself would be sufficient reason for him to make a disclosure in writing thereabout. On the same analogy, therefore, Section 12(5) of the Act of 1996, which has been given overriding effect over any prior agreement to the contrary, provides that 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. Entry 1 of Seventh Schedule is worded identically to the Entry 1 of Fifth Schedule. Therefore, the reasoning by which the ex-employee of a party to dispute is required to make a disclosure in terms of the format given in the Sixth Schedule, would also be attracted for his appointment as an arbitrator. He would therefore be ineligible to be appointed as an arbitrator by virtue of his past relationship with the party concerned.

¶127

But now the argument of the respondent-Railways is that the Government of India in its Ministry of Railways (Railway Board), vide Circular No.2015/CE-I/CT/ARB/18 dated 11.11.2016, which was passed in view of the promulgation of the Arbitration and Conciliation

¶128

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(Amendment) Act, 2015, has modified Clause 64 of the Indian Railways General Conditions of Contract (GCC-2014). Reliance in this connection has been placed on Clause 64.(7) of the GCC to further argue that therein it is clearly provided that “...any statutory modifications thereof shall apply to the arbitration proceedings...”. The petitioner being signatory to the agreement between the parties, has accepted the enforceability of the aforesaid Clause and therefor would be bound by any modification made in the GCC even subsequently. If therefore the Railways, by Circular dated 11.11.2016, have introduced modified Clause 64.(3) in regard to those cases where applicability of Section 12(5) of the Act of 1996 has been waived off, and if applicability of newly introduced Section 12(5) is not waived by the parties in terms of Clause 64.(1) of the GCC, even then the General Manager of the Railways would be entitled to send a panel of at least four names of Gazetted Railway Officers of one or more departments of the Railway, which may also include the name(s) of retired Railway Officer(s) empanelled to work as Railway Arbitrator to the contractor, within 60 days from the day when a written and valid demand for arbitration is received by him, asking the Contractor to suggest at least two names out of the panel for appointment as contractor’s nominee within thirty days therefrom. Such a provision would be binding on the contractor.

¶131

I am afraid, this argument cannot be countenanced because any unilateral amendment subsequent to execution of the contract agreement between the parties cannot bind the contractor. Even then, let us examine Clause 64.(7) of the GCC.

¶132

The unamended Clause 64.(7) of the GCC reads as under:-

¶133

“Subject to the provisions of the aforesaid Arbitration and Conciliation Act, 1996 and the rules there under and any statutory modifications thereof shall apply to the arbitration proceedings under this clause.”

¶134

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The amended Clause 64.(7) of the GCC reads thus,

¶137

“64.(7) Subject to the provisions of the aforesaid Arbitration and Conciliation Act, 1996 and the rules thereunder and relevant para of General Conditions of Contract (GCC) and any statutory modifications thereof shall apply to the appointment of arbitrators and arbitration proceedings under this Clause.”

¶138

If the unamended Clause 64.(7) is read, it would abundantly become clear that the intention manifest therein is that any statutory modifications in the Act of 1996 and the rules framed thereunder, shall apply to the arbitration proceedings in that Clause. The amended Clause 64.(7) of the GCC has not only provided that any statutory modifications of the Act of 1996 and the Rules framed thereunder, shall apply to the appointment of arbitrator and arbitration proceedings under that Clause, but has also additionally included the General Conditions of Contract therein to say that any statutory modifications thereto shall apply to the appointment of arbitrator. In the first place, modifications unilaterally brought about by the respondent Railways in Clause 64.(7) can not be described as statutory in character and secondly, such unilateral modifications made by the respondent Railways to insist on furnishing the names of retired Railway Officers empanelled to work as arbitrators amongst four names of Gazetted Railway Officers, to the contractor, would still be in direct conflict with the holistic purpose for which sub-section (5) of Section 12 has been inserted with a non obstante clause by providing 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. The only exception that is provided

¶139

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thereto is engrafted in the proviso to sub-section (5) of Section 12 is that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing, which the Railways themselves have incorporated in Clause 64.(1). But in cases where there has been no waiver by the contractor, the Railways cannot achieve what they failed to achieve by not being able to persuade the contractor to waive the applicability of Section 12(5), by insisting on him to select, if not any serving Gazetted Railways Officer as its nominee arbitrator, at least retired Railways Officer empanelled to work as Railway arbitrator to act as contractor’s nominee arbitrator. Moreover, as already held above, once the General Manager has been rendered ineligible to act as Arbitrator, he would also not be competent to nominate any other person as Arbitrator, whether serving or retired.

¶142

This takes us to the question whether the prayer of the petitioner to refer the matter to arbitration can be declined because he received the amount in full and final settlement of all his dues, by signing the ‘No Claim Certificate’?

¶143

In National Insurance Company Limited Vs. Boghara Polyfab (P) Ltd. - (2009) 1 SCC 267 , the question considered by the Supreme Court was whether contractor gave the ‘no claim certificates’ voluntarily or under any kind of financial duress or fraud/coercion/undue influence. The Supreme Court, in para 26 and 51 of the report, observed thus:-

¶144

“26. When we refer to a discharge of contract by an agreement signed by both the parties or by execution of a full and final discharge voucher/receipt by one of the parties, we refer to an agreement or discharge voucher which is validly and voluntarily executed. If the party which has executed the discharge agreement or discharge voucher,

¶145

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alleges that the execution of such discharge agreement or voucher was on account of fraud/coercion/undue influence practiced by the other party and is able to establish the same, then obviously the discharge of the contract by such agreement/voucher is rendered void and cannot be acted upon. Consequently, any dispute raised by such party would be arbitrable.

¶148

The Chief Justice/his designate exercising jurisdiction under Section 11 of the Act will consider whether there was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the Chief Justice/his designate comes to the conclusion that the full and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration. Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the Arbitral Tribunal with a specific direction that the said question should be decided in the first instance.”

¶149

The Supreme Court in Chairman & M.D., N.T.P.C. Ltd. Vs. Reshmi Constructions, Builders & Contractors – 2004 (1) R.A.J.

¶150

232 (SC) 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. The Supreme Court observed that 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

¶151

(27 of 31)

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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. 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.

¶154

In M/s. Ambica Construction Vs. Union of India – 2006 (4) Arb.LR 288 (SC) , 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. In Raj Brothers Vs. Union of India – 2009 (1) R.A.J. 146 (SC) 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

¶155

Gayatri Project Ltd. Vs. Sai Krishna Construction – (2014) 13

¶156

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 letter dated 06.06.2003 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

¶157

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arbitration. Hence reference to arbitrator was maintainable, held the Supreme Court.

¶160

In Union of India and Another Vs. M/s. L.K. Ahuja and Co. -

¶161

AIR 1988 SC 1172 , the contractor executed construction works and accepted payments giving ‘no claim declaration’. He however subsequently claimed certain amount as due on contracts and claimed reference to arbitrator by Government within three years, which was denied. The Supreme Court held that it is true that on completion of the work, right to get payment would normally arise and it is also true that on settlement of the final bill, the right to get further payment gets weakened but the claim subsists and whether it does subsist, is a matter which is arbitrable. In Jayesh Engineering Works Vs. New

¶162

India Assurance Co. Ltd. - 2000 (Suppl.) Arb. LR 458 (SC) , the respondents intimated the appellant to receive a Cheque in full and final settlement of the works relating to Tenders I and II, which he acknowledged by endorsing on the said letter stating that he had received the said amount as full and final settlement and he had no further claim in that regard. Thereafter, he wrote a letter stating that his statement that payment had been accepted by him in full and final settlement is not correct and still there are outstanding dues which need to be paid, otherwise the matter will have to be referred to arbitration in terms of Clause 37 of the agreement. The High Court dismissed the application. The Supreme Court, relying on its earlier decision in Union of India Vs. L.K. Ahuja and Co. , supra, held that the view taken by the High Court is not correct. Whether any amount is due to be paid and how far the claim made by the appellant is tenable are matters to be considered by the Arbitrator.

¶163

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In the light of the law propounded by the Supreme Court in number of judgments noticed above, the contrary judgments of the Supreme Court in Union of India and Others Vs. Onkar Nath Bhalla

¶166

& Sons – 2009 DNJ (SC) 482 and M/s Harsha Constructions Vs. Union of India and Others – (2014) 9 SCC 246 , which were decided on their own facts, cannot be relied to decline the reference to arbitration because the ratio of other cited judgments whether the contractor/petitioner by merely signing the receipt on proforma of the respondent Railways, which contains the stipulation of such payment being made in full and final settlement, waived his right to seek reference to arbitration, would merely have the effect of weakening its further claim but whether or not the claim subsists is itself an arbitrable dispute and the petitioner/ contractor cannot be deprived of the right to have the said dispute referred to arbitration. It would however always be open to the respondent Railways to agitate such objection before the concerned Arbitrator in view of Section 16 of the Act, who, in that scope, is very much competent to rule on his jurisdiction whether the claim is arbitrable or does not survive or whether the claimant/petitioner has waived his right, depending on the evidence adduced by the respondent.

¶167

The objection of the respondent-Railways is that that the petitioner is entitled to get the benefit of price variation only on two items, namely, cement and steel. The variation in prices of materials other than cement and steel i.e. labour, fuel explosives, has to be determined as per para 68.1 of the Special Conditions of Contract. But the price variation for steel and cement has to be calculated as per para 68.2 of the Special Conditions of Contract. While the respondents have paid to the petitioner the price variation on steel and cement as per

¶168

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para 68.2, the petitioner is claiming escalation of cement and steel by adding the costs of these into overall value as per the formula specified in para 68.1, supra. In this manner, the petitioner is claiming the PVC for steel and cement twice. The plea of the petitioner is that since the cement and steel were not supplied by the respondent Railways, hence the value of the work done by the petitioner also included the cement and steel.

¶171

Whether the price variation clause has been correctly applied and the computation has been correctly made, cannot be gone into by this Court as this by itself is an arbitrable issue. It is for the arbitrator to decide this question on the basis of the evidence as to what is legally and factually correct. The issue is therefore left open to be decided by the Arbitrator.

¶172

Having regard to the facts of the present case and considering that there exists a dispute between the parties and the parties agreed to resolve the same by way of arbitration as the agreement contains arbitration clause, such dispute is liable to be resolved through arbitration proceedings, present application deserves to succeed and same is allowed. Hon’ble Mr. Justice Sunil Kumar Garg (Retired), (cell no.9829027732 and cell no.0141-2553210), R/o 851, Ahinsa Path, Behind Ram Mandir, Mahaveer Nagar, Tonk Road, Jaipur – 18, is hereby appointed as an independent sole arbitrator to resolve the disputes between the parties. Payment of the costs of arbitration proceedings and the arbitration fees shall be made as per the Fourth Schedule of the Arbitration and Conciliation (Amendment) Act, 2015 read with Manual of Procedure for Alternative Dispute Resolution, 2009 of this Court, as amended from time to time.

¶173

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A copy of this order be sent to Hon’ble Mr. Justice Sunil Kumar Garg (Retired), (cell no.9829027732 and cell no.0141-2553210), R/o 851, Ahinsa Path, Behind Ram Mandir, Mahaveer Nagar, Tonk Road, Jaipur – 18, for needful.

¶176

(MOHAMMAD RAFIQ) J.

¶177

//Jaiman//

M/S Bharat Spun Pipes Construction Co. v. North Western Railway through G M and Ors.

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M/S Bharat Spun Pipes Construction Co. v. North Western Railway through G M and Ors.

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