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Friday, February 13, 2015

There can be no manner of doubt that before exercising the power under Section 11(6) of the Arbitration Act to make appointment of an arbitrator the Court will have to decide on the existence of an arbitrable dispute/enforceable claim by and between the parties to the contract. The existence of a claim and denial thereof giving rise to a dispute is required to be determined on the basis of what the parties had agreed upon as embodied in the terms of the contract and only for the purpose of a decision on the question of arbitrability and nothing beyond. It is from the aforesaid standpoint that the issues raised in the present proceedings will have to be considered.

                                                              NON-REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                         CIVIL ORIGINAL JURISDICTION

                   ARBITRATION CASE (CIVIL) NO.36 OF 2014

M/S KSS KSSIIPL CONSORTIUM
THRO. ITS CONSTITUTED ATTORNEY
MR. DEVENDRA KUMAR                             ...PETITIONER
                            VERSUS

M/S GAIL (INDIA) LTD.                          ...RESPONDENT

                                    WITH

                   ARBITRATION CASE (CIVIL) NO.38 OF 2014

M/S KSS KSSIIPL CONSORTIUM
THRO. ITS CONSTITUTED ATTORNEY
MR. DEVENDRA KUMAR                             ...PETITIONER
                            VERSUS

M/S GAIL (INDIA) LTD.                          ...RESPONDENT


                                  JUDGMENT

1.          Both these applications under Section 11(6) of  the  Arbitration
and Conciliation Act, 1996 (hereinafter  referred  to  as  "the  Arbitration
Act") have been filed seeking appointment of a sole arbitrator  to  go  into
the disputes and differences that the petitioner claims to have  arisen  out
of two  separate  contract  agreements  entered  into  by  and  between  the
parties.

2.          The facts in brief may be noted at the outset.

3.          The petitioner is a consortium of two  companies  i.e.  M/s  JSC
OGCC KazStoryService, a company incorporated under the laws of the  Republic
of Kazakhstan  and  KazStoryService  Infrastructure  India  Private  Limited
incorporated under the Companies Act, 1956.  The said  consortium  has  been
formed by an agreement dated 1st July, 2010 for the purposes of executing  a
contract that was to be awarded by the respondent for  Pipeline  Laying  and
Terminal Works for Dabhol - Bangalore Pipeline Project.

4.          According to  the  petitioner,  the  respondent  had  floated  a
Tender for the said project in  the  year  2010  and  the  entire  work  was
divided in 10 Spreads  (A,B,C,D,E,F,G,H,I,J).   While  Arbitration  Petition
(Civil) No.36 of  2014  pertain  to  the  award  of  work  for  Spread  'J',
Arbitration Petition (Civil) No.38 of 2014 relates to the work  awarded  for
Spread 'D'.

5.           Pursuant  to  the  bid(s)  made  by  the  petitioner,  detailed
letter(s) of acceptance was issued  by  the  respondent  on  13th  December,
2010.  According to the petitioner though in terms of the contracts  it  had
mobilized its men and machinery, the work got jeopardized/frustrated as  the
respondent did not make available to the petitioner the  Construction  Right
of use and permits in terms of  Clause  28  of  the  Special  Conditions  of
Contract  (hereinafter  referred  to  as  "the  SCC").  According   to   the
petitioner, the respondent did not  have  the  necessary  work  fronts  with
respect to SV station work.  Furthermore, the petitioner  has  alleged  that
the respondent failed to provide  necessary  engineering  inputs.   Besides,
there were frequent modifications with respect to drawings, extra  work  and
delays in providing free issue  materials.  All  these  led  to  substantial
delays in the execution of the works, such delay being attributable   solely
to the respondent.

6.          According to the petitioner, on account of  the  delays  due  to
the aforesaid reasons, the petitioner  became  entitled  for  extended  stay
compensation in terms of clause 42 of the SCC read with  clause  12  of  the
detailed letter of acceptance.  Apart from extended stay  compensation,  the
petitioner  claims  to  be  entitled  for  payment  for   additional   works
undertaken during  the  course  of  execution  of  the  contracts.   On  4th
January, 2013 and 5th July, 2013, the petitioner submitted its claim to  the
respondent for Rs.34,70,11,907/- (Rupees  Thirty  Four  Crore  Seventy  Lacs
Eleven thousand  Nine  hundered  and  seven  only)[In  Arbitration  Petition
(Civil) No.36 of 2014] and for Rs.1,79,23,83,208/- (Rupees One Arab  Seventy
Nine Crore Twenty Three Lacs Eighty Three thousand  Two  hundred  and  Eight
only) [In Arbitration Petition (Civil) No.38  of  2014)  respectively.   The
petitioner alleges that the respondent rejected the said  claims  which  was
not acceptable to  the  petitioner.   The  petitioner,  thereafter,  invoked
clause 40.2 of the  General  Conditions  of  Contract   which  provides  for
conciliation.  As the petitioner's proposal for  conciliation  was  rejected
by  the  respondent,  the  petitioner  had  no  option  but  to  invoke  the
Arbitration Clause (Clause 59) and seek appointment of a sole arbitrator  in
respect of the disputes arising from each of the two agreements.   The  said
demand was repeated in several communications which were not  responded  to.
The  petitioner,  therefore,  has  lodged  the  present  applications  under
Section 11(6) of the Arbitration Act for the reliefs earlier noticed.

7.          The claims made by the petitioner  have  been  resisted  by  the
respondent by filing separate counter  affidavits  in  both  the  cases.   A
reading of the affidavits filed by the respondent indicate that  insofar  as
the claim for  extended  stay  compensation  is  concerned,  the  respondent
contend that the said claim does not  give  rise  to  any  arbitrable  issue
inasmuch as under clause 42.1.1 the bidder is  required to mention the  rate
for extended stay compensation  per  month  in  the  "Priced  Part".   Under
Clause 42.1.2 in case the bidder did not indicate such  rate  it  is  to  be
presumed that no extended stay compensation is required to  be  paid.  Under
clause 42.1.4 it was expressly mentioned that "Bidder to note that  in  case
they  don't  indicate  the  rate  for  extended  stay  compensation  as  per
proforma, provisions of clause No.42.0 will  not  be  applicable  to  them".
According  to  the  respondent  in  the  relevant   proforma   relating   to
"Compensation  for  Extended  Stay",  the  petitioner  had  mentioned/quoted
"NIL".  Thus, according to the clauses 42.1.2 and 42.1.4, no  extended  stay
compensation is required to be paid to the petitioner.  The  above  position
was also expressly stated in clause 12 of the detailed letter of  acceptance
dated 13th December, 2010, which is in the following terms:
|"12.0 |COMPENSATION FOR EXTENDED STAY      |
|      |Extended stay compensation is not   |
|      |applicable and shall not be payable |
|      |to the Contractor as per clause no. |
|      |42.0 of Special Conditions of       |
|      |Contract."                          |


8.          According to the respondent, the aforesaid  clause  was  further
amplified in Annexure  -1 to the said detailed letter  of  acceptance  which
was not placed before the Court though the  detailed  letter  of  acceptance
dated 13th December, 2010 formed a  part  of  the  petitions  filed  by  the
petitioner.

9.          Insofar as  the  claim  of  payments  for  additional  works  is
concerned, according to the respondent, clause 91.0 of the  GCC  deals  with
such claims. Clauses 91.1 and 91.2 contemplate  that  such  claims  will  be
verified by  the  Engineer-in-charge  whose  decision  will  be  final.  The
respondent further states  that  the  claims  made  by  the  petitioner  for
additional costs had been rejected by the Engineer-in-charge  and  in  terms
of clause 91.2 of the GCC such a decision(s) must be construed to  be  final
and binding between the parties and  therefore  would  stand  excluded  from
arbitration.

10.         There can be no manner  of  doubt  that  before  exercising  the
power under Section 11(6) of the Arbitration Act to make appointment  of  an
arbitrator the Court will have to decide on the existence of  an  arbitrable
dispute/enforceable claim by and between the parties to the  contract.   The
existence of a claim  and  denial  thereof  giving  rise  to  a  dispute  is
required to be determined on the basis of what the parties had  agreed  upon
as embodied in the terms of the contract and  only  for  the  purpose  of  a
decision on the question of arbitrability and nothing beyond.   It  is  from
the aforesaid standpoint that the issues raised in the  present  proceedings
will have to be considered.

11.         Clause 42.0 deals with "Compensation for extended stay".   Under
clause 42.1.1 the contractor is required to mention the  rate  for  extended
stay of compensation in the event the contract is to  be  prolonged/extended
beyond the contemplated date of completion.  Clauses 42.1.2  and  42.1.4  of
the SCC contemplate  that  in  the  event  the  contractor/bidder  does  not
indicate the rate of extended stay, it will be  presumed  that  no  extended
stay compensation is required to be paid.  In the present case,  admittedly,
the petitioner had quoted "NIL" against compensation for  extended  stay  in
its bid.  If that is so, it must  be  understood  that  the  petitioner  had
agreed to forego its claim to extended stay compensation in  the  event  the
period of performance of the contract is to be extended as had  happened  in
the present case. This position  was  conveyed  to  the  petitioner  by  the
letter of acceptance dated 13th December,  2010.   The  petitioner  did  not
raise  any  objection  on  the  aforesaid  score.   If  the  petitioner  had
voluntarily and consciously agreed  to  the  above  situation,  it  will  be
difficult to accept the contrary position that has sought to be now  adopted
by seeking to claim extended stay compensation which was earlier  agreed  to
be foregone.   It  must  therefore  be  held  that  the  claim  against  the
aforesaid 'Head' i.e. 'extended stay compensation' does not give rise to  an
arbitrable dispute so as to permit/require reference  to  arbitration  under
clause 59.

12.         The second issue i.e. claim  for  payment  of  additional  works
however  would  stand  on  a  different  footing.   Clause  91.1  and   91.2
contemplate the making/raising of claims by the  contractor  for  additional
works and consideration thereof by the Engineer-in-chief.  The  decision  of
the Engineer-in-chief is final and binding. The finality attached to such  a
decision cannot be an unilateral act beyond the pale  of  further  scrutiny.
Such  a  view  would  negate  the  arbitration  clause  in  the   agreement.
Justifiability of such a decision  though  stated  to  be  final,  must,  be
subject to a process  of  enquiry/adjudication  which  the  parties  in  the
present case have agreed would be by way  of  arbitration.   The  objections
raised by the  respondent  on  the  aforesaid  score,  therefore,  does  not
commend to the Court for acceptance and is hereby rejected.

13.         Accordingly, the claims made by the petitioner  for  payment  of
additional works under both the contracts are  referred  to  arbitration  by
Shri Justice M.M. Kumar, Chief Justice (Retd.), Jammu & Kashmir High  Court,
who  is  hereby  appointed  as  the  sole  arbitrator.   The  learned   sole
arbitrator is requested to enter upon the reference and  conclude  the  same
at an early date.  The terms of appointment of the sole arbitrator  as  well
as the venue of arbitration will be decided by the parties  in  consultation
with the learned Arbitrator.

14.         Consequently and in the light  of  the  above,  the  Arbitration
Petitions are allowed to the extent indicated above.


                                        ..................................J.
                                          (RANJAN GOGOI)

NEW DELHI
FEBRUARY 12, 2015

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