UNION OF INDIA versus PRADEEP VINOD CONSTRUCTION COMPANY

[2019] 17 S.C.R. 64

[2019] 17 S.C.R.

UNION OF INDIA

PRADEEP VINOD CONSTRUCTION COMPANY

(Civil Appeal No. 6400 of 2016)

NOVEMBER 14, 2019

[R. BANUMATHI, A. S. BOPANNA ANDHRISHIKESH ROY, JJ.]

Arbitration and Conciliation Act, 1996 – s.11 – NorthernCRailways awarded two contracts for misc. civil engineering worksto the respondent – According to appellant, the respondent receivedfull and final payments and acknowledged the same – However,respondent raised claims in both the contracts and invokedarbitration clause contained in the agreements and requestedDappointment of arbitrator – Appellant rejected the claim –Thereafter, respondent filed petition u/s.11 of the Act and soughtappointment of the arbitrator – High Court appointed anindependent arbitrator for adjudication of disputes between theparties, instead of directing appointment as per Cl.64 of theagreement – On appeal, held: In the instant case, considering theEvarious matters of railway contracts and setting aside of theappointment of independent arbitrators, after referring to M.P.Gupta, V.S. Engineering, Parmar Construction Company and otherJudgments, the appointment of the independent arbitrator was setaside – When the agreement specifically provides for appointmentFof named arbitrators, the appointment should be in terms of theagreement – The High Court was not right in appointing anindependent arbitrator ignoring Cl.64 of the General conditionsof contract – Therefore, the appellant directed to appoint arbitratorin terms of Cl.64(3) of the agreement.

GAllowing the appeals, the Court

HELD: 1. In Union of India and another v. M.P. Gupta(2004) 10 SCC 504, Union of India and another v. V.S. Engineering(P) Ltd. (2006) 13 SCC 240, Union of India v. Singh BuildersSyndicate (2009) 4 SCC 523 and in catena of judgments, theHcourt held that whenever the agreement specifically provides for

appointment of named arbitrators, the appointment of arbitratorshould be in terms of the contract. [Para 14] [72-D]

2. The court, in V.S. Engineering observed that in the caseof public institutions which are slow in responding to the requestmade by the contractor for appointment of an arbitrator, thepower of the High Court to appoint an arbitrator under Section11 is not taken away. The failure of the authorities in appointingan arbitrator and when the contractor approached the court forappointment of an arbitrator under Section 11 of the Act, it willthen be in the discretion of the Chief Justice/designated Judgeto appoint railway officer as per the contract or High CourtJudge. [Para 14] [73-D-E]

3. Considering the various matters of railway contractsand setting aside the appointment of independent arbitrators,after referring to M.P. Gupta and V.S. Engineering and otherjudgments, in Parmar Construction Company, this Court set asidethe appointment of the independent arbitrator and directed theGeneral Manager of the Railways to appoint arbitrator in termsof Clause 64(3) of the agreement. The ratio of the ParmarConstruction Company squarely applies to the case in hand.When the agreement specifically provides for appointment ofnamed arbitrators, the appointment should be in terms of theagreement. The High Court was not right in appointing anindependent arbitrator ignoring Clause 64 of the GeneralConditions of Contract. [Para 15] [73-F-G; 74-C-D]

SP Singla Pvt. Ltd. v. State of Himachal Pradesh andanother (2019) 2 SCC 488 – referred to.

Union of India v. Parmar Construction Company(2019) 5 SCALE 453 ; Union of India and another v.M.P. Gupta (2004) 10 SCC 504 ; Union of India andanother v. V.S. Engineering (P) Ltd. (2006) 13 SCC240 : [2006] 9 Suppl. SCR 125 ; Union of India v.Singh Builders Syndicate (2009) 4 SCC523 : [2009] 3 SCR 563 – relied on.

Case Law Reference

(2019) 2 SCC 488(2019) 5 SCALE 453

referred torelied on

Para 11Para 11

[2019] 17 S.C.R.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6400Bof 2016.

From the Judgment and Order dated 15.05.2015 of the HighCourt of Delhi at New Delhi in Arbitration Petition bearing ARB.P. No.168 of 2015.

WithC

Civil Appeal No. 6420 of 2016.

Bharat Singh, Raj Bahadur, Advs. for the Appellant.

Miss Geetanjali Mohan, Shantanu Kumar, Raghav Agrawal,Advs. for the Respondents.D

The Judgment of the Court was delivered by

R. BANUMATHI, J.

1. These appeals arise out of the impugned judgments dated15.05.2015 and 02.02.2015 passed by High Court of Delhi in ArbitrationEPetition No.168 of 2015 and Arbitration Petition No.531 of 2014 in andby which the High Court appointed an independent arbitrator foradjudication of disputes between the parties, instead of directingappointment of arbitrator as per Clause 64 of General Conditions ofContract (GCC) which stipulates that Railways’ Officers should beFappointed as Arbitrator.

2. Brief facts which led to filing of these appeals are as under:-

Facts in CA No.6400/2016:-

On 14.07.2010, Northern Railways awarded the contract formisc. civil engineering works such as construction of duty huts atGL-xings, water supply arrangements, provision of station name boardsetc. in connection with Rewari-Rohtak New Line to the respondent.The total cost of the work at accepted rate came to Rs.5,30,31,369.30.The work was finally completed on 31.03.2012. According to theappellant, final payments were made by the appellant to the respondentHvide bill bearing Vr.No.00356/104/C/TKJ dated 06.05.2014. On the

same day i.e. on 06.05.2014, parties also entered into supplementaryagreement which recorded full accord and satisfaction as on 06.05.2014.In the meanwhile, on 05.05.2014, respondent sent letter to theappellant alleging that under the compulsion of circumstances, it had tosign the so-called final bill without protest as desired by theadministration, otherwise heavy financial loss would have been causedto respondent and it may not be in position to tender and executefurther works. The respondent averred that sum of over Rs.1.50crores still remains to be paid to the respondent and calling upon theappellant to make the payment within 90 days. The respondent videits letter dated 05.05.2014 invoked arbitration clause as contained underClause 64 of General Conditions of Contract.

3. The appellant issued reply dated 25.07.2014 rejecting thearbitration claim of the respondent, taking the stand that the respondenthad signed the final bill and also signed the supplementary agreementwhich clearly stipulates that it was agreed between the parties that therespondent has accepted the said sums mentioned therein in full andfinal satisfaction of all dues and claims under the principal agreement.

4. The respondent thereafter filed Arbitration Petition No.168 of2015 under Section 11 of the Arbitration and Conciliation Act, 1996before the High Court for appointment of an arbitrator. Uponconsideration of contention of the parties, the learned Single Judge heldthat the question whether the discharge certificate and supplementaryagreement were signed by the respondent under duress, would requireevidence to be led and is therefore, required to be examined by thearbitrator. So far as the appointment of arbitrator is concerned, the HighCourt held that since the Railways failed to appoint an arbitrator despiteinvocation of the arbitration clause by the respondent on 05.05.2014,the Railways forfeited its right under the arbitration clause and thelearned Judge appointed Mr. Ram Prakash(Retd.), District and SessionsJudge as the sole arbitrator instead of directing the appointment ofarbitrator as per Clause 64 of the General Conditions of Contract.

Facts in CA No.6420/2016:-

5. An agreement dated 17.01.2012 was entered into between theNorthern Railways and the respondent for construction of two lane roadover bridge in lieu of L-xing near Muradnagar Railway Station at costof Rs.4,21,69,176.25/-. The work was completed on 03.08.2013.According to the Railways, the respondent received full and final

Apayment vide final bill bearing Vr.No.280 dated 29.01.2014 and alsosigned supplementary agreement dated 01.03.2014 acknowledging fulland final settlement of all claims. It was also provided in thissupplementary agreement that the principal agreement shall stand finallydischarged and the arbitration clause contained therein shall cease toexist. The respondent vide letter dated 15.01.2014 raised two claimsBand requested for appointment of arbitrator. The Railways informed therespondent that the claims of the respondent are not referable toarbitration as the same are covered under “excepted matter”. Therespondent-contractor on 28.08.2014 also sent “No Claim” letter tothe Railway stating that it has no claim towards the Railways andCrequested for release of security deposit made by it.

6. The respondent thereafter filed Arbitration Petition No.531/2014 under Section 11 of the Arbitration and Conciliation Act, 1996seeking appointment of an arbitrator. The High Court held that thoughthe appellant claims that the disputes raised by the respondent are inDthe nature of “excepted matters” but that the issue can be examinedby the arbitrator. With those findings, the court appointed Mr. H.K.Chaturvedi, advocate as Sole Arbitrator and directed that arbitration shalltake place under the aegis of the Delhi International Arbitration Centre.

7. Mr. Bharat Singh, learned counsel appearing for the appellant-Union of India-Railways submitted that the request for appointment ofEarbitrator was made before the Amendment Act, 2015 (w.e.f23.10.2015) and hence, the proceedings will have to be proceeded inaccordance with the pre-amended provision of the Act, 1996. It wassubmitted that the High Court erred in appointing an independentarbitrator instead of directing the General Manager, RailwayFadministration to appoint an arbitrator as per the terms and conditionsof Clause 64 of GCC which stipulates that “excepted matters” cannotbe referred to arbitration.

8. Per contra, Mr. Shantanu Kumar and Ms. Geetanjali Mohan,learned counsel for the respondent(s) submitted that once the appellantGhas failed to appoint an arbitrator under the terms of the agreementbefore the petition under Section 11(6) of the Arbitration Act, 1996 beingfiled before the Court, the authority forfeits its right of appointing anarbitrator and it is for the Chief Justice/Designate Judge to appoint anindependent arbitrator under Section 11(6) of the Act. It was furthersubmitted that Section 11(6) empowers the court to deviate from theHterms of the agreement, if required, by appointing an independent

arbitrator. Insofar as the contention that the respondent(s) have alreadyreceived the final bill and issued “No Claim” letter to the Railway, thelearned counsel for the respondent(s) submitted that “No Claim”certificate was issued under compulsion and it is nothing but due toundue influence by the authorities and it is open to the arbitrator toadjudicate by examining the bills which is furnished for payment and insuch circumstances, it cannot be said to be an “excepted matter”.

9. We have heard the learned counsel appearing for the parties.We have carefully considered the contentions of both the parties andperused the impugned judgment and materials on record.

10. The respondent(s) are registered contractors with theRailways and they are claiming certain payments on account of thework entrusted to them. The request of the respondent(s) forappointment of arbitrator invoking Clause 64 of the contract wasdeclined by the Railways stating that their claims have been settled andthe respondent(s) have issued “No Claim” certificate and executedsupplementary agreement recording “accord and satisfaction” and hence,the matter is not referable to arbitration. Admittedly, the request forreferring the dispute was made much prior to the Amendment Act, 2015which came into force w.e.f. 23.10.2015. Since the request forappointment of arbitrator was made much prior to the Amendment Act,2015 (w.e.f. 23.10.2015), the provision of the Amended Act, 2015 shallnot apply to the arbitral proceedings in terms of Section 21 of the Actunless the parties otherwise agree. As rightly pointed out by the learnedcounsel for the appellant, the request by the respondent(s)-contractorsis to be examined in accordance with the Principal Act, 1996 withouttaking resort to the Amendment Act, 2015.

11. Insofar as the applicability of the provisions of the PrincipalUnamended Act, 1996, after referring to SP Singla Pvt. Ltd. v. Stateof Himachal Pradesh and another (2019) 2 SCC 488, in Union ofIndia v. Parmar Construction Company 2019 (5) SCALE 453, itwas held as under:-

“26. We are also of the view that the Amendment Act, 2015which came into force, i.e. on 23rd October, 2015, shall not applyto the arbitral proceedings which has commenced in accordancewith the provisions of Section 21 of the Principal Act, 1996 beforethe coming into force of Amendment Act, 2015, unless the partiesotherwise agree.

27. In the instant case, the request was made and received bythe Appellants in the concerned appeal much before theAmendment Act, 2015 came into force. Whether the applicationwas pending for appointment of an arbitrator or in the case ofrejection because of no claim as in the instant case forappointment of an arbitrator including change/substitution ofarbitrator, would not be of any legal effect for invoking theprovisions of Amendment Act, 2015, in terms of Section 21 ofthe principal Act, 1996. In our considered view, the applications/requests made by the Respondent contractors deserves to beexamined in accordance with the principal Act, 1996 withouttaking resort to the Amendment Act, 2015 which came into forcefrom 23rd October, 2015.”

12. In order to appreciate the contention of the parties, it isnecessary to refer to Clause 64 of the General Conditions of Contract(GCC) which reads as under:-

“64. (1) Demand for Arbitration:

64. (1) (i) In the event of any dispute or difference between theparties hereto as to the construction or operation of this contract,or the respective rights and liabilities of the parties on any matterin question, dispute or difference on any account or as to thewithholding by the Railway of any certificate to which thecontractor may claim to be entitled to, or if the Railway fails tomake decision within 120 days, then and in any such case, butexcept in any of the “excepted matters” referred to in Clause63 of these Conditions, the contractor, after 120 days but within180 days of his presenting his final claim on disputed matters shalldemand in writing that the dispute or difference be referred toarbitration.

64. (1) (ii) The demand for arbitration shall specify the matterswhich are in question, or subject of the dispute or difference asalso the amount of claim item-wise. Only such dispute(s) ordifference(s) in respect of which the demand has been made,together with counter claims or set off, given by the Railway,shall be referred to arbitration and other matters shall not beincluded in the reference.

64. (3) Appointment of Arbitrator:

64. (3) (a)(i) In cases where the total value of all claims inquestion added together does not exceed Rs. 25,00,000 (Rupeestwenty five lakh only), the Arbitral Tribunal shall consist of SoleArbitrator who shall be Gazetted Officer of Railway not belowJA Grade, nominated by the General Manager. The solearbitrator shall be appointed within 60 days from the day whena written and valid demand for arbitration is received by GM.{Authority: Railway Board’s letter No. 2012/CE-I/CT/ARB./24,Dated 22.10./05.11.2013}

64. (3) (a)(ii) In cases not covered by the Clause 64(3)(a) (i),the Arbitral Tribunal shall consist of Panel of three GazettedRailway Officers not below JA Grade or 2 Railway GazettedOfficers not below JA Grade and retired Railway Officer,retired not below the rank of SAG Officer, as the arbitrators.For this purpose, the Railway will send panel of more than 3names of Gazetted Railway Officers of one or more departmentsof the Railway which may also include the name(s) of retiredRailway Officer(s) empanelled to work as Railway Arbitrator tothe contractor within 60 days from the day when written andvalid demand for arbitration is received by the GM. Contractorwill be asked to suggest to General Manager at least 2 namesout of the panel for appointment as contractor’s nominee within30 days from the date of dispatch of the request by Railway.The General Manager shall appoint at least one out of them asthe contractor’s nominee and will, also simultaneously appoint thebalance number of arbitrators either from the panel or fromoutside the panel, duly indicating the ‘presiding arbitrator’ fromamongst the 3 arbitrators so appointed. GM shall complete thisexercise of appointing the Arbitral Tribunal within 30 days fromthe receipt of the names of contractor’s nominees. Whilenominating the arbitrators, it will be necessary to ensure that oneof them is from the Accounts Department. An officer of SelectionGrade of the Accounts Department shall be considered of equalstatus to the officers in SA grade of other departments of theRailway for the purpose of appointment of arbitrator.

64. (7) Subject to the provisions of the aforesaid Arbitration andConciliation Act, 1996 and the Rules thereunder and any

CDE

Astatutory modifications thereof shall apply to the arbitrationproceedings under this Clause.”

13. It is seen from the above that under Clause 64(1) of GCC,if there is any dispute or differences between the parties or therespective rights and liabilities of the parties on any matter in questionBor any other ancillary dispute arising from the terms of the contract orif the railway administration fails to make decision within the timestipulated thereon, then in any such case, but except in any of the“excepted matters”, the General Manager may nominate the officerby designation as referred to under Clause 64(3)(a)(i) and a(ii)respectively with further procedure being prescribed for the soleCarbitrator or the Arbitral Tribunal to adjudicate the dispute/differencesarising under the terms of the contract between the parties.

14. In Union of India and another v. M.P. Gupta (2004) 10SCC 504, Union of India and another v. V.S. Engineering (P) Ltd.(2006) 13 SCC 240, Union of India v. Singh Builders SyndicateD(2009) 4 SCC 523 and in catena of judgments, the court held thatwhenever the agreement specifically provides for appointment of namedarbitrators, the appointment of arbitrator should be in terms of thecontract. After referring to M.P. Gupta, in V.S. Engineering, it washeld as under:-

“3. The learned Additional Solicitor General appearing for theappellant Union of India has pointed out that as per clauses 63and 64 of the General Conditions of Contract, this Court in nouncertain terms has held that the Arbitral Tribunal has to beconstituted as per the General Conditions of Contract, the HighCourt should not interfere under Section 11 of the Act and theHigh Court should accept the Arbitral Tribunal appointed by theGeneral Manager, Railways. In this connection, the learned ASGinvited our attention to decision of this Court directly bearingon the subject in Union of India v. M.P. Gupta (2004) 10 SCC504 wherein similar question with regard to appointment of theArbitral Tribunal for the Railways with reference to clause 64of the General Conditions of Contract came up before this Courtand this Court held that where two gazetted railway officers areappointed as the Arbitral Tribunal, the High Court should notappoint retired Judge of the High Court as sole arbitratorand the appointment of sole arbitrator was set aside. The

conditions of clauses 63 and 64 of the General Conditions ofContract are almost analogous to the one we have in our hand.In that case also relying on clause 64 of the contract three-Judge Bench presided over by the Chief Justice of India observedas follows: (SCC p. 505, para 4)

“4. In view of the express provision contained therein that twogazetted railway officers shall be appointed as arbitrators, JusticeP.K. Bahri could not be appointed by the High Court as the solearbitrator. On this short ground alone, the judgment and orderunder challenge to the extent it appoints Justice P.K. Bahri assole arbitrator is set aside. Within 30 days from today, theappellants herein shall appoint two gazetted railway officers asarbitrators. The two newly appointed arbitrators shall enter intoreference within period of another one month and thereafterthe arbitrators shall make their award within period of threemonths.””

The court, however observed in para (6) that in the case of publicinstitutions which are slow in responding to the request made by thecontractor for appointment of an arbitrator, the power of the High Courtto appoint an arbitrator under Section 11 is not taken away. The failureof the authorities in appointing an arbitrator and when the contractorapproached the court for appointment of an arbitrator under Section11 of the Act, it will then be in the discretion of the Chief Justice/designated Judge to appoint railway officer as per the contract or aHigh Court Judge.

15. Considering the various matters of railway contracts andsetting aside the appointment of independent arbitrators, after referringto M.P. Gupta and V.S. Engineering and other judgments, in ParmarConstruction Company, this Court set aside the appointment of theindependent arbitrator and directed the General Manager of theRailways to appoint arbitrator in terms of Clause 64(3) of the agreement.In paras (44) and (45), this Court held as under:-

“44. To conclude, in our considered view, the High Court wasnot justified in appointing an independent arbitrator withoutresorting to the procedure for appointment of an arbitrator whichhas been prescribed under Clause 64(3) of the contract underthe inbuilt mechanism as agreed by the parties.

A45. Consequently, the orders passed by the High Court arequashed and set aside. The Appellants are directed to appointthe arbitrator in terms of Clause 64(3) of the agreement withina period of one month from today under intimation to each ofthe Respondents/contractors and since sufficient time has beenconsumed, at the first stage itself, in the appointment of anBarbitrator and majority of the Respondents being the pettycontractors, the statement of claim be furnished by each of theRespondents within four weeks thereafter and the arbitrator maydecide the claim after affording opportunity of hearing to theparties expeditiously without being influenced/inhibited by theCobservations made independently in accordance with law.”

The ratio of the above decision squarely applies to the case inhand. When the agreement specifically provides for appointment ofnamed arbitrators, the appointment should be in terms of the agreement.The High Court, in our view, was not right in appointing an independentDarbitrator ignoring Clause 64 of the General Conditions of Contract.

16. Insofar as the plea of the appellant that there was settlementof final bill/issuance of “No Claim” letter, the learned counsel for theappellant has drawn our attention on Clause 43(2) – Signing of the“No Claim” Certificate and submitted that as per Clause 43(2), theEcontractor signs “No Claim” certificate in favour of the railway inthe prescribed format after the work is finally measured up and thecontractor shall be debarred from disputing the correctness of the itemscovered under the “No Claim” certificate or demanding clearance toarbitration in respect thereof. On behalf of the respondent, it has beenseriously disputed that issuance of “No Claim” certificate as to theFsupplementary agreement recording accord and satisfaction as on06.05.2014 (CA No.6400/2016) and issuance of “No Claim” certificateon 28.08.2014 (CA No.6420/2016) that they were issued undercompulsion and due to undue influence by the railway authorities. Weare not inclined to go into the merits of the contention of the parties.GIt is for the arbitrator to consider the claim of the respondent(s) andthe stand of the appellant-railways. This contention raised by the partiesare left open to be raised before the arbitrator.

17. In the result, the impugned judgments dated 15.05.2015 and02.02.2015 of the High Court of Delhi in Arbitration Petition No.168of 2015 and Arbitration Petition No.531 of 2014 are set aside and theseH

appeals are allowed. The appellant is directed to appoint the arbitratorin terms of Clause 64(3) of the agreement within period of one monthfrom today under intimation to the respondent(s)-contractors. As soonas the communication of the appointment of arbitrator is made to therespondent(s), the statement of claim be filed by the respondent(s) withinsix weeks thereafter and the reply of the appellant to be filed withinfour weeks thereafter. The arbitrator shall proceed with the matter inaccordance with law and decide the claim after affording sufficientopportunity of hearing to both parties expeditiously preferably within aperiod of four months.

Ankit Gyan

Appeals allowed.