LAW FOR ALL : appointment of an arbitrator = first resort to the mechanism in appointment of an arbitrator as per the terms of contract as agreed by the parties and the default procedure was opened to be resorted to if the arbitrator appointed in terms of the agreement failed to discharge its obligations or to arbitrate the dispute which was not the case set up by either of the parties.

Friday, March 29, 2019

appointment of an arbitrator = first resort to the mechanism in appointment of an arbitrator as per the terms of contract as agreed by the parties and the default procedure was opened to be resorted to if the arbitrator appointed in terms of the agreement failed to discharge its obligations or to arbitrate the dispute which was not the case set up by either of the parties.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(s). 3303 OF 2019
(Arising out of SLP(C ) No(s). 6312 of 2018)
UNION OF INDIA ……Appellants(s)
VERSUS
PARMAR CONSTRUCTION COMPANY ……Respondent(s)
WITH
CIVIL APPEAL NO(s).3306 OF 2019
(Arising out of SLP(C ) No(s). 6034 of 2018)
CIVIL APPEAL NO(s). 3304 OF 2019
(Arising out of SLP(C ) No(s). 2166 of 2018)
CIVIL APPEAL NO(s). 3307 OF 2019
(Arising out of SLP(C ) No(s). 6316 of 2018)
CIVIL APPEAL NO(s). 3312 OF 2019
(Arising out of SLP(C ) No(s). 7720 of 2018)
CIVIL APPEAL NO(s). 3310 OF 2019
(Arising out of SLP(C ) No(s). 8019 of 2018)
CIVIL APPEAL NO(s). 3311 OF 2019
(Arising out of SLP(C ) No(s). 8021 of 2018)
1
CIVIL APPEAL NO(s). 3305 OF 2019
(Arising out of SLP(C ) No(s). 7937 of 2018)
CIVIL APPEAL NO(s). 3308 OF 2019
(Arising out of SLP(C ) No(s). 8597 of 2018)
CIVIL APPEAL NO(s). 3319 OF 2019
(Arising out of SLP(C ) No(s).8256 OF 2019)
(Arising out of Diary No.8885/2018)
CIVIL APPEAL NO(s). 3309 OF 2019
(Arising out of SLP(C ) No(s). 8596 of 2018)
CIVIL APPEAL NO(s). 3314 OF 2019
(Arising out of SLP(C ) No(s). 9514 of 2018)
CIVIL APPEAL NO(s). 3313 OF 2019
(Arising out of SLP(C ) No(s). 8598 of 2018)
CIVIL APPEAL NO(s). 3315 OF 2019
(Arising out of SLP(C ) No(s). 9559 of 2018)
CIVIL APPEAL NO(s). 3317 OF 2019
(Arising out of SLP(C ) No(s). 11417 of 2018)
CIVIL APPEAL NO(s). 3318 OF 2019
(Arising out of SLP(C ) No(s). 11862 of 2018)
CIVIL APPEAL NO(s). 3316 OF 2019
(Arising out of SLP(C ) No(s). 22263 of 2018)
J U D G M E N T
Rastogi, J.
Leave granted.
2
2. The question that arises for consideration in the batch of
appeals by special leave is as to whether (1) the High Court was
justified in invoking amended provision which has been
introduced by Arbitration and Conciliation(Amendment Act),
2015 with effect from 23rd October, 2015(hereinafter being
referred to as “Amendment Act, 2015”); (2) whether the
arbitration agreement stands discharged on acceptance of the
amount and signing no claim/discharge certificate and (3)
whether it was permissible for the High Court under Section
11(6) of the Arbitration and Conciliation Act, 1996(prior to the
Amendment Act, 2015) to appoint third party or an independent
Arbitrator when the parties have mutually agreed for the
procedure visàvis the authority to appoint the designated
arbitrator. The High Court has passed separate orders in
exercise of its powers under Section 11(6) of the Act, 1996 in
appointing an independent arbitrator without adhering to the
mutually agreed procedure under the agreement executed
between the parties. Since the batch of appeals involve common
questions of law and facts with the consent of parties, are
disposed off by the present judgment.
3
3. The facts have been noticed from civil appeal arising out of
SLP(Civil) no. 2166 of 2018.
4. The work for construction of office accommodation for
officer and rest house was allotted to the respondent contractor,
at Dungarpur in the State of Rajasthan on 21st December, 2011.
As alleged, the extension was granted by the appellants to
complete the work by 31st March, 2013. The measurement was
accepted by the respondent under protest and when appellants
officials failed to clear 7th final bill until the respondent put a line
over “under protest” and signed no claim certificate. The total
value of the work executed was of Rs. 58.60 lakhs against which
Rs. 55.54 lakhs was paid and escalation cost was not added with
interest @ 18% over delay payment. Demand notice was sent to
the appellants to appoint an arbitrator invoking Clause 64(3) of
the GCC to resolve the disputes/differences on 23rd December,
2013. When the appellants failed to appoint the arbitrator in
terms of Clause 64(3), application came to be filed under Section
11(6) of the Act, 1996 before the Chief Justice/his Designate for
appointment of an independent arbitrator who after hearing the
parties under the impugned judgment allowed the application of
4
the respondent and appointed a retired judge of the High Court
as an independent arbitrator to arbitrate the proceedings.
5. In the instant batch of appeals, one fact is common that the
orders were placed for various nature of construction works for
its execution and the agreement executed between the parties
includes a separate chapter for settlement of disputes leaving any
dispute or difference between the parties to be resolved through
the process of arbitration by appointing an arbitrator invoking
clause 64(3) of the contract. As per terms of the agreement, date
of completion of the project was delayed as alleged due to breach
of obligations by the appellants and the scheduled date of
completion had to be extended. Meanwhile, due to rise in the
prices of raw material, the project was impossible to be completed
by the respondent contractors and hence correspondence was
made to either pay the escalated price or in the absence, the
respondents would not be in a position to conclude the contract.
It was alleged that the appellants accepted the terms and
conditions for escalated prices and asked the respondents to
complete the work and handover the project.
5
6. But when the respondents raised the final bills in the predetermined format (which also included the no dues certificate)
on the newly agreed prices, dispute has arisen in context of
payment of escalated prices or withholding of security deposits,
taking note of the existence of arbitration clause in the agreement
the respondents sent a notice to appoint an arbitrator as per
clause 64(3) of GCC to resolve the dispute of payment of
outstanding dues which was declined by the appellants by
sending the reply that “No Due Certificate” was signed and that
entails no dispute to be sent to arbitration. Since the appellants
failed to appoint the arbitrator in accordance with the arbitration
clause in the agreement, each of the respondent filed application
under Section 11(6) of the Act before the High Court for
appointment of an independent arbitrator and the primary
objection of the appellants before the High Court was that on
furnishing the no claim certificate by the contractor, no dispute
subsists which is to be sent to the arbitrator and further the
claims which has been submitted were beyond time as prescribed
in the agreement and thus falls under the ‘excepted matter’ in the
agreement.
6
7. After the matter being heard, the application for
appointment of arbitrator under Section 11(6) of the Act, 1996
came to be decided by the High Court of Rajasthan by separate
order(s) keeping in view the independence and neutrality of
arbitrator as envisaged under Section 12(5) of the Amendment
Act, 2015. The High Court further observed that the amended
provisions of Act, 2015 shall apply to the pending proceedings
and mere furnishing of no claim certificate would not take away
the right of the parties and it is open for adjudication before the
arbitrator and appointed a retired Judge of the High Court as an
independent sole arbitrator under the impugned judgment in
exercise of power under Section 11(6) of the Act, 1996.
Indisputedly, the request for the dispute to be referred to
arbitration in the instant batch of appeals was received by the
appellants much before the Amendment Act, 2015 came into
force (i.e. 23rd October, 2015).
8. Mr. K.M. Natarajan, learned Additional Solicitor General
appearing for the appellants submits that Section 12 including
subsections (1) and (5) as also Fifth and Seventh Schedule, has
come into force by the Amendment Act, 2015 w.e.f. 23rd October,
7
2015 and indisputedly, in the instant batch of appeals, request to
refer to the arbitration was received by the appellants much prior
to the Amendment Act, 2015. In view of Section 21 read with
Section 26 of the Amendment Act, 2015 where the request has
been sent to refer the dispute to arbitration and received by the
other side before the amendment Act, 2015 has come into force,
the proceedings will commence in accordance with the preamended provisions of the Act, 1996 and in the given
circumstances, apparent error has been committed by invoking
Section 12(5) of the Amendment Act, 2015 for appointment of an
independent arbitrator without resorting to the clause 64(3) of
GCC as agreed by the parties and in support of submission,
learned counsel has placed reliance on the decision of this Court
in the case of M/s. Aravali Power Company Private Limited
Vs. Era Infrastructure Engineering Limited 2017(15) SCC 32
and S.P. Singla Constructions Pvt. Ltd. Vs. State of
Himachal Pradesh and Others 2018(15) Scale 421.
9. Learned counsel further submits that once the no claim
certificate has been signed by each of the respondent and after
8
settlement of the final bills, no arbitral dispute subsists and the
contract stands discharged and they cannot be permitted to urge
that they gave the no claim certificate under any kind of financial
duress/undue influence and even in support thereof, no prima
facie evidence has been placed on record. In the given
circumstances, the appointment of an independent arbitrator by
the High Court under Section 11(6) of the Act, 1996 is not
sustainable and in support of submission, learned counsel has
placed reliance on the decisions of this Court in Union of India
and Others Vs. Master Construction Company 2011(12) SCC
349; New India Assurance Company Limited Vs. Genus
Power Infrastructure Ltd. 2015(2) SCC 424; ONGC Mangalore
Petrochemicals Limited Vs. ANS Constructions Limited and
Anr. 2018(3) SCC 373.
10. Learned counsel further submits that none of the
respondents had made any allegation of bias to the arbitrator
who was likely to be appointed by the railways in terms of the
agreement. The said issue would have cropped up only when the
appointment of arbitrator was made by the railways. It was
9
required in the first instance to make every possible attempt to
respect the agreement agreed upon by the parties in appointing
an arbitrator to settle the disputes/differences and only when
there are allegations of bias or malafide, or the appointed
arbitrator has miserably failed to discharge its obligation in
submitting the award, the Court is required to examine those
aspects and to record a finding as to whether there is any
requirement in default to appoint an independent arbitrator
invoking Section 11(6) of the Act, 1996 and in support of
submission, learned counsel has placed reliance on the decision
of this Court in Union of India & Another Vs. M.P. Gupta
2004(10) SCC 504, Union of India & Another Vs. V.S.
Engineering(P) Ltd. 2006(13) SCC 240, Northern Railway
Administration, Ministry of Railway, New Delhi Vs. Patel
Engineering Co. Limited 2008(10) SCC 240, Union of India Vs.
Singh Builders Syndicate 2009(4) SCC 523.
11. Learned counsel further submits that as indicated in clause
64(7) of the GCC, all statutory modifications thereof will be
binding to the arbitration proceedings and after promulgation of
10
the Arbitration and Conciliation (Amendment) Act, 2015, clause
64(7) stood amended to fulfil the mandate of Amendment Act,
2015 and it was clarified that all statutory modifications thereof
shall apply to the appointment of arbitrator and arbitration
proceedings and the respondents being signatory to the
agreement have accepted the enforceability of aforesaid clause
64(7) and, therefore, are bound by any modification made in GCC
even subsequently and placed reliance on the judgment of this
Court in S.P. Singla Constructions Pvt. Ltd’s case(supra).
12. Per contra, Mr. Sameer Jain, learned counsel for the
respondents submits that respondents are the registered
contractors undertaking various nature of works contracts with
the railway establishment and are not in a bargaining position
and it is a ground reality that final bills are not being released
without a no claim certificate being furnished in advance by
them. In all the cases, unilateral deductions have been made
from the final bills furnished by each of the respondent and they
are very small and petty contractors and the payments are not
released unless the no claim certificate is being furnished, it is
nothing more than a financial duress and undue influence by the
11
authorities and is open for the arbitrator to adjudicate by
examining the bills which was furnished for payment.
13. Learned counsel further submits that the effect of no claim
certificate has been examined by this Court in National
Insurance Company Limited Vs. Boghara Polyfab Private
Limited 2009(1) SCC 267 and there are series of decisions of this
Court where no claim certificate in itself has never been
considered to be the basis to nonsuit the request made in
appointing an arbitrator to independently examine the dispute
arising under the terms of the agreement.
14. Learned counsel further submits that once the appellants
have failed to appoint an arbitrator under the terms of agreement
before the application under Section 11(6) being filed before the
Court, the authority forfeits its right of appointing an arbitrator
and it is for the Chief Justice/his designate to appoint an
independent arbitrator under Section 11(6) of the Act, 1996 as
held by this Court in Datar Switchgears Ltd. Vs. Tata Finance
Ltd. and Another 2000(8) SCC 151 followed in Punj Lloyd Ltd.
12
Vs. Petronet MHB Ltd. 2006(2) SCC 638 and later in Union of
India Vs. Bharat Battery Manufacturing Co. (P) Ltd. 2007(7)
SCC 684 that once the party fails to appoint an arbitrator until
filing of an application under Section 11(6) of the Act, the
opposite party would lose its right of appointment of arbitrator(s)
as per the terms of the contract.
15. Learned counsel further submits that while dealing with
Section 11(6), the Chief Justice/his designate can even overlook
the qualification of the arbitrator under the agreement but
arbitration agreement in the instant case does not contain any
specific qualification of the arbitrator under Clause 64(3) of the
GCC and since the appellants failed to appoint an arbitrator until
the application was filed, Section 11(6) empowers the Court to
deviate from the agreed terms if required by appointing an
independent arbitrator and by virtue of operation of Section 12(5)
of the Amendment Act, 2015, the employee of the railway
establishment became ineligible to be appointed as arbitrator. In
the given circumstances, the authority is vested with the Chief
Justice or his designate to appoint an independent arbitrator
under Section 11(6) of the Act and the same has been held by
13
this Court in North Eastern Railway and Others Vs. Tripple
Engineering Works 2014(9) SCC 288 and Union of India and
Others Vs. Uttar Pradesh State Bridge Corporation Limited
2015(2) SCC 52.
16. Learned counsel further submits that the primary object by
introducing the remedy to measure arbitration is to have a fair,
speedy and inexpensive trial by the Arbitral Tribunal.
Unnecessary delay or expense would frustrate the very purpose
of arbitration and it holds out that arbitrator should always be
impartial and neutrality of the arbitrator is of utmost importance
and that has been noticed by the Parliament in amending Section
12(5) of the Act, 1996 which came into force on 23rd October,
2015 and when the matters have been taken up for hearing by
the High Court after the amendment has come into force, the
effect of the amended provisions would certainly be taken note of
and in the given circumstances, if an independent arbitrator has
been appointed which is indisputedly an impartial and neutral
person fulfilling the mandate of the object of the proceedings of
arbitration, the amended provision has been rightly invoked by
14
the High Court in the appointment of an independent arbitrator
invoking Section 11(6) of the Act, 1996.
17. We have heard learned counsel for the parties and with
their assistance perused the material on record.
18. The facts which manifest from the batch of appeals are that
the respondents are the registered contractors with the railway
establishment and undertaking work contracts (construction) of
various kinds. They raised a demand for escalation cost and the
interest accrued thereon because the date of the completion of
the project was delayed as alleged due to breach of obligations by
the appellants and the scheduled date of completion had to be
extended. In the interregnum period, there was a rise in the
prices of the raw material and the project became impossible to
be completed by the respondent contractors. Hence, a request
was made to the appellants to either pay the enhanced escalation
price otherwise the respondent contractors would not be in a
position to conclude the contract and on the acceptance for
payment of the escalation costs, respondent contractor completed
the work and delivered the project and raised final bills in the
15
prescribed predetermined format (which also included no dues
certificate). Since the dispute has arisen in the context of the
payment of the escalated cost, as demanded by respondent
contractors, and their being a clause of arbitration in the
agreement, each of the respondent contractors sent a notice for
arbitration invoking clause 64(3) of GCC, which in majority of the
cases declined by the appellants stating that no dues certificate
has been furnished and that entailed no subsisting dispute and
that was the reason due to which each of the respondent
contractor had approached the High Court by filing an
application under Section 11(6) of the Act, 1996. It is also not in
dispute that the request for referring the dispute to arbitration
was received by the appellants much prior to the enforcement of
the Amendment Act, 2015 which came into force, w.e.f. 23rd
October, 2015.
19. To proceed with the matter further, it will be apposite to
take note of the relevant clauses of the agreement with which we
are presently concerned:
“CLAIMS 43.(1) Monthly Statement Of Claims : The
Contractor shall prepare and furnish to the Engineer
once in every month an account giving full and detailed
16
particulars of all claims for any additional expenses to
which the Contractor may consider himself entitled to
and of all extra or additional works ordered by the
Engineer which he has executed during the preceding
month and no claim for payment for and such work
will be considered which has not been included in such
particulars.
43.(2) Signing Of "No Claim" Certificate : The
Contractor shall not be entitled to make any claim
whatsoever against the Railway under or by virtue of or
arising out of this contract, nor shall the Railway
entertain or consider any such claim, if made by the
Contractor, after he shall have signed a "No Claim"
Certificate in favour of the Railway in such form as
shall be required by the Railway after the works are
finally measured up. The Contactor shall be debarred
from disputing the correctness of the items covered by
"No Claim" Certificate or demanding a clearance to
arbitration in respect thereof.
64.(1) Demand for Arbitration:
64.(1) (i) In the event of any dispute or difference
between the parties hereto as to the construction or
operation of this contract, or the respective rights and
liabilities of the parties on any matter in question,
dispute or difference on any account or as to the
withholding by the Railway of any certificate to which
the contractor may claim to be entitled to, or if the
Railway fails to make a decision within 120 days, then
and in any such case, but except in any of the
“excepted matters” referred to in Clause 63 of these
Conditions, 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.
64.(1) (ii) The demand for arbitration shall specify the
matters which are in question, or subject of the
dispute or difference as also the amount of claim itemwise. Only such dispute(s)or difference(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 be
included in the reference.
17
64.(1) (iii) (a) The Arbitration proceedings shall be
assumed to have commenced from the day, a written
and valid demand for arbitration is received by the
Railway. (b) The claimant shall submit his claim
stating the facts supporting the claims alongwith all
the relevant documents and the relief or remedy
sought against each claim within a period of 30 days
from the date of appointment of the Arbitral Tribunal.
(c) The Railway shall submit its defence statement and
counter claim(s), if any, within a period of 60 days of
receipt of copy of claims from Tribunal thereafter,
unless otherwise extension has been granted by
Tribunal. (d) Place of Arbitration : The place of
arbitration would be within the geographical limits of
the Division of the Railway where the cause of action
arose or the Headquarters of the concerned Railway or
any other place with the written consent of both the
parties.
64.(1) (iv) No new claim shall be added during
proceedings by either party. However, a party may
amend or supplement the original claim or defence
thereof during the course of arbitration proceedings
subject to acceptance by Tribunal having due regard to
the delay in making it.
64.(1) (v) If the contractor(s) does/do not prefer
his/their specific and final claims in writing, within a
period of 90 days of receiving the intimation from the
Railways that the final bill is ready for payment,
he/they will be deemed to have waived his/their
claim(s) and the Railway shall be discharged and
released of all liabilities under the contract in respect
of these claims.
64.(2) Obligation During Pendency Of Arbitration :
Work under the contract shall, unless otherwise
directed by the Engineer, continue during the
arbitration proceedings, and no payment due or
payable by the Railway shall be withheld on account of
such proceedings, provided, however, it shall be open
for Arbitral Tribunal to consider and decide whether or
not such work should continue during arbitration
proceedings.
64.(3) Appointment of Arbitrator :
18
64.(3) (a)(i) In cases where the total value of all claims
in question added together does not exceed Rs.
25,00,000 (Rupees twenty five lakh only), the Arbitral
Tribunal shall consist of a Sole Arbitrator who shall be
a Gazetted Officer of Railway not below JA Grade,
nominated by the General Manager. The sole arbitrator
shall be appointed within 60 days from the day when a
written and valid demand for arbitration is received by
GM. {Authority : Railway Board’s letter no. 2012/CEI/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 a Panel of
three Gazetted Railway Officers not below JA Grade or
2 Railway Gazetted Officers not below JA Grade and a
retired Railway Officer, retired not below the rank of
SAG Officer, as the arbitrators. For this purpose, the
Railway will send a panel of more than 3 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 the GM. Contractor will be
asked to suggest to General Manager at least 2 names
out of the panel for appointment as contractor’s
nominee within 30 days from the date of dispatch of
the request by Railway. The General Manager shall
appoint at least 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 3 arbitrators so
appointed. GM shall complete this exercise of
appointing the Arbitral Tribunal within 30 days from
the receipt of the names of contractor’s nominees.
While nominating the arbitrators, it will be necessary
to ensure that one of them is from the Accounts
Department. An officer of Selection Grade of the
Accounts Department shall be considered of equal
status to the officers in SA grade of other departments
of the Railway for the purpose of appointment of
arbitrator.
64.(7) Subject to the provisions of the aforesaid
Arbitration and Conciliation Act, 1996 and the rules
thereunder and any statutory modifications thereof
19
shall apply to the arbitration proceedings under this
Clause.
20. As per clause 43(2), the contractor signs a “No claim”
certificate in favour of the railway in the prescribed format after
the work is finally measured up and the contractor shall be
debarred from disputing the correctness of the items covered
under the “No Claim” certificate or demanding a clearance to
arbitration in respect thereof. Each of the respondent has to
attach no claim certificate with final bills in the prescribed format
to be furnished in advance before the final bills are being
examined and measured by the railway authorities. Although it
has been seriously disputed by the appellants but that is the
reason for which even after furnishing no claim certificate with
the final bills being raised, it came to be questioned by the
respondent(contractor) by filing an application to refer the matter
to arbitration invoking clause 64(3) of the conditions of contract
as agreed by the parties.
21. Under clause 64(1), if there is any dispute or difference
between the parties hitherto as to the construction or operation
20
of the contract, or the respective rights and liabilities of the
parties on any matter in question or any other ancillary disputes
arising from the terms of the contract or if the railway
establishment fails to take a decision within the stipulated period
and the dispute could not be amicably settled, such dispute or
difference is to be referred to arbitration and who shall arbitrate
such disputes/differences between the parties, the General
Manager may nominate the officer by designation as referred to
under clause 64(3)(a)(i) and a(ii) respectively with further
procedure being prescribed for the sole arbitrator or the Arbitral
Tribunal to adjudicate the disputes/differences arising under the
terms of contract between the parties.
22. It is also not disputed that when the request of the
respondent contractors was rejected by the appellants on the
premise of the no claim certificate being furnished, arbitral
dispute does not survive which is to be sent to arbitration, each
of the respondent contractor approached the High Court by filing
an application under Section 11(6) of the Act for appointment of
an arbitrator for settling their disputes/differences arising from
the terms of contract as agreed between the parties.
21
23. It is to be noticed that the cost of escalation which was
raised by each of the respondent contractor with final bills were
appended with the no claim certificate in the prescribed predetermined format and each of the claim of the respondent
contractor for making a reference to the Arbitrator for settling the
disputes/differences arising from the terms of the contract, as
agreed between the parties was turned down by the appellants
because of furnishing no claim certificate.
24. As on 1st January, 2016, the Amendment Act, 2015 was
gazetted and according to Section 1(2) of the Amendment Act,
2015, it deemed to have come into force on 23rd October 2015.
Section 21 of the Act, 1996 clearly envisage that unless otherwise
agreed by the parties, the arbitral proceedings in respect of a
dispute shall commence from the date on which a request for
that dispute to be referred to arbitration is received by the
respondent and the plain reading of Section 26 of Amendment
Act, 2015 is selfexplicit, leaves no room for interpretation.
Section 21 & 26 of the Act, 1996/Amendment Act, 2015 relevant
for the purpose is extracted hereunder:
22
“21. Commencement of arbitral proceedings. —
Unless otherwise agreed by the parties, the arbitral
proceedings in respect of a particular dispute
commence on the date on which a request for that
dispute to be referred to arbitration is received by the
respondent.
26. Act not to apply to pending arbitral
proceedings – 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 but this Act shall
apply in relation to arbitral proceedings commenced on
or after the date of commencement of this Act.”
25. The conjoint reading of Section 21 read with Section 26
leaves no manner of doubt that the provisions of the Amendment
Act, 2015 shall not apply to such of the arbitral proceedings
which has commenced in terms of the provisions of Section 21 of
the Principal Act unless the parties otherwise agree. The effect of
Section 21 read with Section 26 of Amendment Act, 2015 has
been examined by this Court in Aravali Power Company
Private Limited Vs. Era Infra Engineering Limited (supra)
and taking note of Section 26 of the Amendment Act, 2015 laid
down the broad principles as under:
“22. The principles which emerge from the decisions
referred to above are:
22.1. In cases governed by 1996 Act as it stood before
the Amendment Act came into force:
23
22.1.1. The fact that the named arbitrator is an
employee of one of the parties is not ipso facto a
ground to raise a presumption of bias or partiality or
lack of independence on his part. There can however
be a justifiable apprehension about the independence
or impartiality of an employee arbitrator, if such
person was the controlling or dealing authority in
regard to the subject contract or if he is a direct
subordinate to the officer whose decision is the
subjectmatter of the dispute.
22.1.2. Unless the cause of action for invoking
jurisdiction under Clauses (a), (b) or (c) of subsection
(6) of Section 11 of the 1996 Act arises, there is no
question of the Chief Justice or his designate
exercising power under subsection (6) of Section 11.
22.1.3. The Chief Justice or his designate while
exercising power under subsection (6) of Section 11
shall endeavour to give effect to the appointment
procedure prescribed in the arbitration clause.
22.1.4. While exercising such power under subsection
(6) of Section 11, if circumstances exist, giving rise to
justifiable doubts as to the independence and
impartiality of the person nominated, or if other
circumstances warrant appointment of an independent
arbitrator by ignoring the procedure prescribed, the
Chief Justice or his designate may, for reasons to be
recorded ignore the designated arbitrator and appoint
someone else.
22.2. In cases governed by 1996 Act after the
Amendment Act has come into force: If the arbitration
clause finds foul with the amended provisions, the
appointment of the arbitrator even if apparently in
conformity with the arbitration clause in the
agreement, would be illegal and thus the court would
be within its powers to appoint such arbitrator(s) as
may be permissible.”
which has been further considered in S.P. Singla Constructions
Pvt. Ltd. case(supra).
24
“16. Considering the facts and circumstances of the
present case, we are not inclined to go into the merits
of this contention of the appellant nor examine the
correctness or otherwise of the above view taken by the
Delhi High Court in Ratna Infrastructure Projects case;
suffice it to note that as per Section 26 of the
Arbitration and Conciliation (Amendment) Act, 2015
the provisions of the Amended Act, 2015 shall not
apply to the arbitral proceedings commenced in
accordance with the provisions of Section 21 of the
Principal Act before the commencement of the
Amendment Act unless the parties otherwise agree. In
the facts and circumstances of the present case, the
proviso in clause (65) of the general conditions of the
contract cannot be taken to be the agreement between
the parties so as to apply the provisions of the
amended Act. As per Section 26 of the Act, the
provisions of the Amendment Act, 2015 shall apply in
relation to arbitral proceedings commenced on or after
the date of commencement of the Amendment Act,
2015(w.e.f. 23.10.2015). In the present case,
arbitration proceedings commenced way back in 2013,
much prior to coming into force of the amended Act
and, therefore, provisions of the Amended Act cannot
be invoked.”
26. We are also of the view that the Amendment Act, 2015
which came into force, i.e. on 23rd October, 2015, shall not apply
to the arbitral proceedings which has commenced in accordance
with the provisions of Section 21 of the Principal Act, 1996 before
the coming into force of Amendment Act, 2015, unless the parties
otherwise agree.
27. In the instant case, the request was made and received by
the appellants in the concerned appeal much before the
25
Amendment Act, 2015 came into force. Whether the application
was pending for appointment of an arbitrator or in the case of
rejection because of no claim as in the instant case for
appointment of an arbitrator including change/substitution of
arbitrator, would not be of any legal effect for invoking the
provisions of Amendment Act, 2015, in terms of Section 21 of the
principal Act, 1996. In our considered view, the
applications/requests made by the respondent contractors
deserves to be examined in accordance with the principal Act,
1996 without taking resort to the Amendment Act, 2015 which
came into force from 23rd October, 2015.
28. The thrust of the learned counsel for the appellants that
submission of a no claim certificate furnished by each of the
respondent/contractor takes away the right for settlement of
dispute/difference arising in terms of the agreement to be
examined by the arbitrator invoking Clause 64(3) of the
conditions of the contract. The controversy presented before us
is that whether after furnishing of no claim certificate and the
receipt of payment of final bills as submitted by the contractor,
26
still any arbitral dispute subsists between the parties or the
contract stands discharged.
29. Before we take note of the factual aspect of the present
matters, it will be appropriate to carefully consider the plenitude
of decisions of this Court referred to by learned counsel for the
parties and to summarise (first category) Union of India Vs.
Kishorilal Gupta & Bros. AIR 1959 SC 1362; P.K. Ramaiah &
Co. Vs. Chairman and Managing Director, National Thermal
Power Corpn. 1994 Supp(3) SCC 126; State of Maharashtra
Vs. Nav Bharat Builders 1994 Supp(3) SCC 83; Nathani Steels
Limited Vs. Associated Constructions 1995 Supp(3) SCC
324……(second category) Damodar Valley Corporation Vs. KK
Kar 1974(1) SCC 141; Bharat Heavy Electricals Limited
Ranipur Vs. Amarnath Bhan Prakash 1982(1) SCC 625;
Union of India and Anr. Vs. L.K. Ahuja and Co. 1988(3) SCC
76; Jayesh Engineering Works Vs. New India Assurance Co.
Ltd. 2000(10) SCC 178; Chairman and MD, NTPC Ltd. Vs.
27
Reshmi Constructions Builders & Contractors 2004(2) SCC
663.
30. The aforesaid cases fall under two categories, the one
category where the Court after considering the facts found that
there was full and final settlement resulting in accord and
satisfaction and there was no substance in the allegations of
coercion/undue influence. In the second category of cases, the
Court found some substance in the contention of the claimants
that “nodues/no claims certificate or discharge vouchers” were
insisted and taken (either on a printed format or otherwise) as a
condition precedent for release of the admitted dues and
consequently this Court held that the disputes are arbitrable. It
took note of the principles earlier examined and summarised in
National Insurance Company Limited Vs. Boghara Polyfab
Private Limited case (supra) as under:
“44. None of the three cases relied on by the appellant
lay down a proposition that mere execution of a full
and final settlement receipt or a discharge voucher is a
bar to arbitration, even when the validity thereof is
challenged by the claimant on the ground of fraud,
coercion or undue influence. Nor do they lay down a
proposition that even if the discharge of contract is not
genuine or legal, the claims cannot be referred to
arbitration. In all the three cases, the Court examined
28
the facts and satisfied itself that there was accord and
satisfaction or complete discharge of the contract and
that there was no evidence to support the allegation of
coercion/undue influence.”
31. Further, taking note of the jurisdiction of the Chief Justice/
his Designate in the proceedings under Section 11(6) of Act 1996,
this Court culled out the legal proposition in paragraph 51 as
follows:
“51. 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.”
32. It further laid down the illustrations as to when claims are
arbitrable and when they are not. This may be illustrative (not
exhaustive) but beneficial for the authorities in taking a decision
as to whether in a given situation where no claim/discharge
voucher has been furnished what will be its legal effect and still
29
there is any arbitral dispute subsists to be examined by the
arbitrator in the given facts and circumstances and held in para
52 of National Insurance Company Limited Vs. Boghara
Polyfab Private Limited(supra) as follows:
“52. Some illustrations (not exhaustive) as to when
claims are arbitrable and when they are not, when
discharge of contract by accord and satisfaction are
disputed, to round up the discussion on this subject
are:
(i) A claim is referred to a conciliation or a prelitigation
Lok Adalat. The parties negotiate and arrive at a
settlement. The terms of settlement are drawn up and
signed by both the parties and attested by the
conciliator or the members of the Lok Adalat. After
settlement by way of accord and satisfaction, there can
be no reference to arbitration.
(ii) A claimant makes several claims. The admitted or
undisputed claims are paid. Thereafter negotiations are
held for settlement of the disputed claims resulting in
an agreement in writing settling all the pending claims
and disputes. On such settlement, the amount agreed
is paid and the contractor also issues a discharge
voucher/noclaim certificate/full and final receipt.
After the contract is discharged by such accord and
satisfaction, neither the contract nor any dispute
survives for consideration. There cannot be any
reference of any dispute to arbitration thereafter.
(iii) A contractor executes the work and claims payment
of say rupees ten lakhs as due in terms of the contract.
The employer admits the claim only for rupees six
lakhs and informs the contractor either in writing or
orally that unless the contractor gives a discharge
voucher in the prescribed format acknowledging
receipt of rupees six lakhs in full and final satisfaction
of the contract, payment of the admitted amount will
not be released. The contractor who is hardpressed for
funds and keen to get the admitted amount released,
30
signs on the dotted line either in a printed form or
otherwise, stating that the amount is received in full
and final settlement. In such a case, the discharge is
under economic duress on account of coercion
employed by the employer. Obviously, the discharge
voucher cannot be considered to be voluntary or as
having resulted in discharge of the contract by accord
and satisfaction. It will not be a bar to arbitration.
(iv) An insured makes a claim for loss suffered. The
claim is neither admitted nor rejected. But the insured
is informed during discussions that unless the
claimant gives a full and final voucher for a specified
amount (far lesser than the amount claimed by the
insured), the entire claim will be rejected. Being in
financial difficulties, the claimant agrees to the
demand and issues an undated discharge voucher in
full and final settlement. Only a few days thereafter,
the admitted amount mentioned in the voucher is paid.
The accord and satisfaction in such a case is not
voluntary but under duress, compulsion and coercion.
The coercion is subtle, but very much real. The
“accord” is not by free consent. The arbitration
agreement can thus be invoked to refer the disputes to
arbitration.
(v) A claimant makes a claim for a huge sum, by way of
damages. The respondent disputes the claim. The
claimant who is keen to have a settlement and avoid
litigation, voluntarily reduces the claim and requests
for settlement. The respondent agrees and settles the
claim and obtains a full and final discharge voucher.
Here even if the claimant might have agreed for
settlement due to financial compulsions and
commercial pressure or economic duress, the decision
was his free choice. There was no threat, coercion or
compulsion by the respondent. Therefore, the accord
and satisfaction is binding and valid and there cannot
be any subsequent claim or reference to arbitration.”
33. It is true that there cannot be a rule of absolute kind and
each case has to be looked into on its own facts and
circumstances. At the same time, we cannot be oblivious of the
31
ground realities that where a petty/small contractor has made
investments from his available resources in executing the works
contract and bills have been raised for the escalation cost
incurred by him and the railway establishments/appellants
without any justification reduces the claim unilaterally and take
a defence of the no claim certificate being furnished which as
alleged by the respondents to be furnished at the time of
furnishing the final bills in the prescribed format.
34. The nature of work under contract of the respondent
contractors and the claim of the contractors which is the dispute
in brief to be adjudicated by the arbitrator is submitted as
follows:
S.N
o
SLP No Name of
Contractor
Nature of Work under
Contract
Claim of Contractor
1. 6312/2018 Parmar
Construction
Company
Construction,
Strengthening and
rebuilding of major
bridges between
Nadbhai-Idgah (Agra)
Total Cost of Contract
Rs 3,30,71,724/-
Rs 1,07,98,765/-
(Final Bill) + Interest
and Arbitration Cost.
2. 2166/2018 S.K.
Construction
Construction of Office
Accomodation for
officers and rest house
at Dungarpur.
Total Cost of Contract
Rs 43,76,112/-.
Rs 2.96 Lacs (Deficit
amount) + Rs 2.65 Lacs
(Escalation cost) + Rs 2.39
Lacs (Commercial Interest @
18% p.a.)
32
Total value of Work
done was Rs 58.50
Lacs.
Rs 55.54 Lacs were
paid.
Total Rs 8 Lacs
3. 7937/2018 Anil Trading
Company
Augmentation of the
capacity of Diesel Shed,
Bhagat-ki-kothi,
Jodhpur.
Contract Price Rs
2,42,85,808.84/-
Rs. 2,15,000/- (Non
availability of Drawing) + Rs
1,50,000/- (Non availability
of clear site) + Rs 1,14,099
(interest on delay of Final bill
payment) + Rs 12,15,000/-
(Bank Guarantee) + Rs
12,14,290/- (Security Deposit
with interest) + Rs 1,00,000/-
(Arbitration Cost)
Total Rs 30,08,389/-
4. 6034/201
8
Rajendra
Prasad Bansal
Construction addition
and alteration and
raising of existing
platform surfacing
RRI Building, S&T
Structures and
dismantling of various
structures at
Bharatpur-Agra Fort
Station Yard.
Total Cost of Contract
Rs 87,85,292/-
3 Supplementary
contracts of the value
of rs 24,62,511.52/-,
Rs 3.5 Lacs & Rs
26,12,977,14/-
Rs 1.5 Lacs (deducted along
with interest of 18% p.a.) +
Rs 7.9 Lacs (expenses
incurred on office staff and
labour office) + Rs 1.2Lacs
(delayed release of security
amount & Final bill) + Rs
2Lacs (Loss of Profit)
Total Rs 12,60,000/-
5. 6316/201
8
Maya
Construction
Pvt Ltd
Construction of
Ratangarh Bye Pass.
Total Cost of Contract
Rs 8,29,25,822.68/-
Rs 38,27,196/- (Final bill
amount) + Rs 17,78,231/-
(PVC Final bill amount) +
Rs 50,63,738/- (Security
deposit & EMD)
Total Rs 1,06,69,165/-
6. 8597/201
8
Bharat Spun
Pipes &
Construction
Company
Construction of Road
Over Bridges across
Railway track in
Dausa Yard.
Total Cost of Contract
Rs 3,81,90,423.68/-
Rs 1,88,709/- (charged
under head Cess) + Rs
8,36,386/- (Final PVC Bill)
Total Rs 10,25,095/-
33
7. 8596/201
8
Harsha
Constructions
Construction of new
Major Bridge no 178
(on Banas River)
Total Cost of Contract
Rs 10,51,42,109/-
Rs 1,30,960/- (Payment
withheld for expansion
joints) + Rs 1 Lacs (Refund
of penalty from bill no
XXV) + 36 Lacs (refund of
cost of PSC box girder) + Rs
3,19,573/- (Loss due to
delay in making final
payment) + Rs 76,15,206/-
(Incresed cost of material)
Total Rs 1,17,65,739/-
8. 8019/2018 Bharat Spun
Pipes &
Construction
Company
Construction of road
over bridges across
railway track
Total cost of
Contract Rs
6,31,07,472.50/-
Rs 6,18,302/- (charged
under head Cess) + Rs
10,30,081/- (Final PVC Bill)
Total Rs 16,48,383/-
9. 8021/2018 SB-SHC-MCDPL
(JV)
Construction of Major
Bridges including
earth work.
Total Cost of
Contract Rs
15,92,08,761.97/-
Rs 27,93,752/- (amount
deducted which was
previously paid on account
of overlapping under 10th
running bill) + Rs 1,66,785/-
(work done outside the
scope of work order) +
7,98,214/- (deduction of 1%
Cess) + Rs 5,78,144/-
(Interest on delayed
payment) + Rs 28,085 (Cost
of computer stolen) + Rs
24,87,864/- (Cost of
expansion joint) + Rs
1,81,003/- (Price variation)
+ Rs 60,390/- (Welding and
bolting)
Total Rs 70,94,237/-
10. 7720/2018 Bharat Spun
Pipes &
Construction
Company
Construction of road
over bridges across
railway track
Total cost of
Contract Rs
2,98,59,531/-
Rs 44,514/- (charged under
head Cess) + Rs 7,80,547
(Final PVC Bill)
Total Rs 8,25,061/-
11. 8598/2018 Rajendra
Prasad Bansal
Construction of misc.,
AEN Office,
Signalling structure,
platform surfacing,
Rs 8.8 Lacs (loss of Profit) +
Rs 5 Lacs (loss due to bad
debts) & some other grounds
like price variation, non
34
temporary site offices,
addition and alteration
of existing structure,
dismantling and
rebuilding various
structures between
Idgah-Agra Fort
Station Yard.
Total Cost of Contract
Rs 1,40,43,594/-
payment of final bill and
security deposit for 1.5 yrs
& interest on amount of final
bill
Total Rs 13.8 Lacs/-
[exact amount not
ascertainable from
documents on record]
12. Diary No
8885/2018
Bharat Spun
Pipes &
Construction
Company
Construction of road
over bridges across
railway track
Total cost of
Contract Rs
5,47,26,451.47/-
Rs 4,78,780/- (charged
under head Cess) + Rs
23,07,563/- (Final PVC Bill)
along with price variation
and interest
Total Rs 27,86,343/-
13. 9514/201
8
B.M.
Construction
Company
Construction of major
bridge between
Kanauta- Jaipur
stations.
Total Cost of
Contract Rs
8,46,08,660/-
Rs 7,21,733/- (for adding
10% more cement) + Rs
6,23,923/- + Rs 7,55,734/-
(Extra work) + Rs
11,07,561/ -(Price variation
of Steel purchased) + 4Lacs
(using pressure rings) +
4,53,304/- (Labour Cess
deducted), Rs 1.25Lacs
(deduction from bills) + Rs
3,47,880/- (interest on
delayed paymet) + Rs 1.28
Lacs (Deducted as penalty)
+ Rs 19,01,537 (on a/c of
PVC) + Rs 60Lacs (20Lacs
each for business losses,
mental agonies and social
humiliation) along with
interest
Total Rs 1,93,34,667/-
14. 9559/201
8
Balaji Builders
& Developers
Construction of 72
Units Type-II, 108
Units Type-III, 36
Units Type-IV in
multi-storied tower
and health units,
shopping complex and
Rs 1,32,71,424/- (Final PVC
Bill) + Rs 50Lacs (Price
variation of steel bars)
Total Rs
1,82,71,424/-
35
other ancillary works
near Getore Jagatpur
Railway Station.
Total Cost of Contract
Rs 28,28,20,028/-
15. 22263/20
18
B.M.
Construction
Company
Construction of major
bridge between
Jatwara- Kanauta
stations.
Total Cost of
Contract Rs
10,4484,441/-
Rs 39,05,010/- (for vacant
labour charges of 9 months)
+ Rs 19,46,970/- (delay in
providing drawing) + Rs
13,66,488/-(Price variation
of Steel purchased) + Rs
3,91,534.88/- (using
pressure rings) + 1,32,655/-
(Labour Cess deducted), Rs
1,30,771/- (deduction from
bills) + Rs 50,000/-
(Deducted from 21 running
bills) + Rs 11,91,127/-
(interest on delayed
payment) + Rs 56,40,327/-
(Security Amount) + Rs
1,38,000/- (deducted as
penalty) + Rs 76,39,600/-
(PVC Bill)+ Rs 60Lacs
(20Lacs each for business
losses, mental agonies and
social humiliation) along
with interest
Total Rs 2,85,32,482/-
16. 11417/20
18
Kewai
Constructions
Co (JV)
Construction of Minor
Bridge between Dausa
– Lalsot
Total Cost of Contract
Rs 5,98,22,476/-
Rs 16,74,748/- (security
Deposit) + Rs 47,66,869/-
(Payment of Bill) + Rs
31,33,116/- (Cost of
material left at site) + Rs
10Lacs (PSC Slab
Advances) + Rs 13.85 Lacs
(Idle Labour Charge) + Rs
50,000/- (Cost of
Arbitration)
Total Rs. 1,20,09,733/-
17. 11862/20
18
Harinarayan
Khandelwal
Construction of
Staircase for fire exit,
drilling tube well,
underground water
tank, and other
Rs 4,82,283.26/- (Final PVC
Bill)
36
miscellaneous works
Total Cost of Contract
Rs 1,56,63,006.87/-
35. The respondents are the contractors and attached with the
railway establishment in the instant batch of appeals are
claiming either refund of security deposits/bank guarantee,
which has been forfeited or the escalation cost has been reduced
from final invoices unilaterally without tendering any
justification. It is manifest from the pleadings on record that the
respondent contractors who entered into contract for
construction works with the railway establishment cannot afford
to take any displeasure from the employer, the amount under the
bills for various reasons which may include discharge of his
liability towards the bank, financial institutions and other
persons, indeed the railway establishment has a upper hand. A
rebutable presumption could be drawn that when a no claim has
been furnished in the prescribed format at the time of final bills
being raised with unilateral deductions made even that
acceptable amount will not be released, unless no claim
certificate is being attached to the final bills. On the stated facts,
para 52(iii) referred to by this Court in National Insurance
37
Company Limited Vs. Boghara Polyfab Private Limited(supra)
indeed covers the cases of the present contractors with whom no
option has been left and being in financial duress to accept the
amount tendered in reference to the final bills furnished and
from the discharge voucher which has been taken to be a defence
by the appellants prima facie cannot be said to be voluntary and
has resulted in the discharge of the contract by accord and
satisfaction as claimed by the appellants. In our considered view,
the arbitral dispute subsists and the contract has not been
discharged as being claimed by the appellants employer(s) and all
the contentions in this regard are open to be examined in the
arbitral proceedings.
36. Learned counsel for the appellants has referred to the
judgments in Union of India and Others Vs. Master
Construction Company(supra); New India Assurance
Company Limited Vs. Genus Power Infrastructure Limited
(supra); ONGC Mangalore Petrochemicals Limited Vs. ANS
Constructions Limited and Anr. (supra). In all the cases
referred, this Court has taken note of the judgment in National
38
Insurance Company Limited Vs. Boghara Polyfab Private
Limited (supra) on which a detailed discussion has been made
and taking note of the pleadings of the case on hand, this Court
arrived at a conclusion that prima facie there is an evidence on
record to justify that no claim certificate or letter of subrogation
was voluntary and free from coercion/undue influence and
accordingly held that there is no live claim subsists, which is
arbitrable after the discharge of the contract by accord and
satisfaction.
37. The further submission made by the appellants that the
High Court has committed error in appointing an independent
arbitrator without resorting to the arbitrator which has been
assigned to arbitrate the dispute as referred to under clause 64(3)
of the contract. To examine the issue any further, it may be
relevant to take note of three clauses in subsection 6 of Section
11 of Act, 1996(preamended Act, 2015) which is as under:
“(6) Where, under an appointment procedure agreed
upon by the parties,—
(a) a party fails to act as required under that
procedure; or
39
(b) the parties, or the two appointed arbitrators, fail to
reach an agreement expected of them under that
procedure; or
(c) a person, including an institution, fails to perform
any function entrusted to him or it under that
procedure,
a party may request the Chief Justice or any person or
institution designated by him to take the necessary
measure, unless the agreement on the appointment
procedure provides other means for securing the
appointment.
38. Clause (c) of subsection (6) of Section 11 relates to failure
to perform any function entrusted to a person including an
institution and also failure to act under the procedure agreed
upon by the parties. In other words, clause(a) refers to the party
failing to act as required under that procedure; clause(b) refers to
the agreement where the parties fails to reach to an agreement
expected of them under that procedure and clause (c ) relates to a
person which may not be a party to the agreement but has given
his consent to the agreement and what further transpires is that
before any other alternative is resorted to, agreed procedure has
to be given its precedence and the terms of the agreement has to
be given its due effect as agreed by the parties to the extent
possible. The corrective measures have to be taken first and the
Court is the last resort. It is also to be noticed that by appointing
40
an arbitrator in terms of subsection (8) of Section 11 of Act,
1996, due regard has to be given to the qualification required for
the arbitrator by the agreement of the parties and also the other
considerations such as to secure an independent and impartial
arbitrator. To fulfil the object with terms and conditions which
are cumulative in nature, it is advisable for the Court to ensure
that the remedy provided as agreed between the parties in terms
of the contract is first exhausted.
39. It has been considered by a three Judges’ Bench of this
Court in Union of India & Another Vs. M.P. Gupta(supra).
Taking note of clause 64 of the agreement for arbitration, the
Court held that in view of express provision contained in terms of
the agreement in appointment of two gazetted railway officers,
the High Court was not justified in appointment of a retired
Judge as the sole arbitrator. It held as under:
“3. The relevant part of clause 64 runs as under:
“64. Demand for arbitration.—***
(3)(a)(ii) Two arbitrators who shall be gazetted railway
officers of equal status to be appointed in the manner
laid in clause 64(3)(b) for all claims of Rs 5,00,000
(Rupees five lakhs) and above, and for all claims
irrespective of the amount or value of such claims if
41
the issues involved are of a complicated nature. The
General Manager shall be the sole judge to decide
whether the issues involved are of a complicated
nature or not. In the event of the two arbitrators being
undecided in their opinions, the matter under dispute
will be referred to an umpire to be appointed in the
manner laid down in subclause (3)(b) for his decision.
(3)(a)(iii) It is a term of this contract that no person
other than a gazetted railway officer should act as an
arbitrator/umpire and if for any reason, that is not
possible, the matter is not to be referred to arbitration
at all.”
4. In view of the express provision contained therein
that two gazetted railway officers shall be appointed as
arbitrators, Justice P.K. Bahri could not be appointed
by the High Court as the sole arbitrator. On this short
ground alone, the judgment and order under challenge
to the extent it appoints Justice P.K. Bahri as sole
arbitrator is set aside. Within 30 days from today, the
appellants herein shall appoint two gazetted railway
officers as arbitrators. The two newly appointed
arbitrators shall enter into reference within a period of
another one month and thereafter the arbitrators shall
make their award within a period of three months.”
40. It was further considered by this Court in Union of India
and Another Vs. V.S. Engineering(P) Ltd. (supra) as under:
“3. The learned Additional Solicitor General appearing for the
appellants Union of India has pointed out that as per clauses
63 and 64 of the General Conditions of Contract, this Court in
no uncertain terms has held that the Arbitral Tribunal has to
be constituted as per the General Conditions of Contract, the
High Court should not interfere under Section 11 of the Act
and the High Court should accept the Arbitral Tribunal
appointed by the General Manager, Railways. In this
connection, the learned ASG invited our attention to a
decision of this Court directly bearing on the subject in Union
of India v. M.P. Gupta [(2004) 10 SCC 504] wherein a similar
question with regard to appointment of the Arbitral Tribunal
for the Railways with reference to clause 64 of the General
Conditions of Contract came up before this Court and this
42
Court held that where two gazetted railway officers are
appointed as the Arbitral Tribunal, the High Court should not
appoint a retired Judge of the High Court as a sole arbitrator
and the appointment of sole arbitrator was set aside. The
conditions of clauses 63 and 64 of the General Conditions of
Contract are almost analogous to the one we have in our
hand. In that case also relying on clause 64 of the contract a
three-Judge Bench presided over by the Chief Justice of
India observed as follows: (SCC p. 505, para 4)
“4. In view of the express provision
contained therein that two gazetted railway
officers shall be appointed as arbitrators,
Justice P.K. Bahri could not be appointed by
the High Court as the sole arbitrator. On this
short ground alone, the judgment and order
under challenge to the extent it appoints
Justice P.K. Bahri as sole arbitrator is set
aside. Within 30 days from today, the
appellants herein shall appoint two gazetted
railway officers as arbitrators. The two newly
appointed arbitrators shall enter into
reference within a period of another one
month and thereafter the arbitrators shall
make their award within a period of three
months.”
and further reiterated by this Court in Northern Railway
Administration, Ministry of Railway, New Delhi Vs. Patel
Engineering Company Limited(supra) as follows:
“5. It is pointed out that there are three clauses in
subsection (6) of Section 11. Clause (c) relates to
failure to perform function entrusted to a person
including an institution and also failure to act under
the procedure agreed upon by the parties. In other
words, clause (a) refers to parties to the agreement.
Clause (c) relates to a person who may not be party to
the agreement but has given consent to the agreement.
It is also pointed out that there is a statutory mandate
to take necessary measures, unless the agreement on
the appointment procedure provided other means for
securing the appointment. It is, therefore, submitted
that before the alternative is resorted to, agreed
procedure has to be exhausted. The agreement has to
43
be given effect and the contract has to be adhered to as
closely as possible. Corrective measures have to be
taken first and the Court is the last resort.
6. It is also pointed out that while appointing an
arbitrator in terms of subsection (8) of Section 11, the
Court has to give due regard to any qualification
required for the arbitrator by the agreement of the
parties and other considerations as are likely to secure
the appointment of an independent and impartial
arbitrator. It is pointed out that both these conditions
are cumulative in nature. Therefore, the Court should
not directly make an appointment. It has to ensure
first that the provided remedy is exhausted and the
Court may ask to do what has not been done.
12. A bare reading of the scheme of Section 11 shows
that the emphasis is on the terms of the agreement
being adhered to and/or given effect as closely as
possible. In other words, the Court may ask to do what
has not been done. The Court must first ensure that
the remedies provided for are exhausted. It is true as
contended by Mr. Desai, that it is not mandatory for
the Chief Justice or any person or institution
designated by him to appoint the named arbitrator or
arbitrators. But at the same time, due regard has to be
given to the qualifications required by the agreement
and other considerations.”
and further, in Union of India Vs. Singh Builders
Syndicate(supra) it was held as under:
“11. The question that arises for consideration in this
appeal by special leave is whether the appointment of a
retired Judge of the High Court as sole arbitrator
should be set aside and an Arbitral Tribunal should
again be constituted in the manner provided in terms
of Clause 64.
12. Dealing with a matter arising from the old Act (the
Arbitration Act, 1940), this Court, in Union of
India v. M.P. Gupta [(2004) 10 SCC 504] held that
appointment of a retired Judge as sole arbitrator
44
contrary to Clause 64 (which requiring serving gazetted
railway officers being appointed) was impermissible.
13. The position after the new Act came into force, is
different, as explained by this Court in Northern
Railway Admn., Ministry of Railway v. Patel Engg. Co.
Ltd.[(2008) 10 SCC 240]. This Court held that the
appointment of arbitrator(s) named in the arbitration
agreement is not mandatory or a must, but the
emphasis should be on the terms of the arbitration
agreement being adhered to and/or given effect, as
closely as possible.
14. It was further held in Northern Railway
case [(2008) 10 SCC 240] that the Chief Justice or his
designate should first ensure that the remedies
provided under the arbitration agreement are
exhausted, but at the same time also ensure that the
twin requirements of subsection (8) of Section 11 of
the Act are kept in view. This would mean that
invariably the court should first appoint the arbitrators
in the manner provided for in the arbitration
agreement. But where the independence and
impartiality of the arbitrator(s) appointed/nominated
in terms of the arbitration agreement is in doubt, or
where the Arbitral Tribunal appointed in the manner
provided in the arbitration agreement has not
functioned and it becomes necessary to make fresh
appointment, the Chief Justice or his designate is not
powerless to make appropriate alternative
arrangements to give effect to the provision for
arbitration.”
41. This Court has put emphasis to act on the agreed terms and
to first resort to the procedure as prescribed and open for the
parties to the agreement to settle differences/disputes arising
under the terms of the contract through appointment of a
designated arbitrator although the name in the arbitration
agreement is not mandatory or must but emphasis should always
45
be on the terms of the arbitration agreement to be adhered to or
given effect as closely as possible.
42. The judgments in Datar Switchgears Ltd. case(supra);
Punj Lloyd case(supra) and Union of India Vs. Bharat Battery
Manufacturing Co. (P) Ltd. case(supra) on which reliance has
been placed by the learned counsel for the
respondents/contractors may not be of assistance for the reason
that the question for consideration before this Court was that if
one party demands the opposite party to appoint an arbitrator
and the other party fails to appoint an arbitrator within 30 days
what will be its legal consequence and it was held in the
cases(supra) that if one party demands the opposite party to
appoint an arbitrator and if the opposite party has failed to make
an appointment within 30 days, the right to make appointment is
not forfeited but continues, but an appointment has to be made
before the former makes an application under Section 11 seeking
appointment of an arbitrator. In the instant cases, the question
for consideration is as to whether the Chief Justice or his
Designate in exercise of power under Section 11(6) of the Act
46
should directly make an appointment of an independent
arbitrator without, in the first instance, resorting to ensure that
the remedies provided under the arbitration agreement are
exhausted.
43. In the present batch of appeals, independence and
impartiality of the arbitrator has never been doubted but where
the impartiality of the arbitrator in terms of the arbitration
agreement is in doubt or where the Arbitral Tribunal appointed in
terms of the arbitration agreement has not functioned, or has
failed to conclude the proceedings or to pass an award without
assigning any reason and it became necessary to make a fresh
appointment, Chief Justice or his designate in the given
circumstances after assigning cogent reasons in appropriate
cases may resort to an alternative arrangement to give effect to
the appointment of independent arbitrator under Section 11(6) of
the Act. In North Eastern Railway and Others Vs. Tripple
Engineering Works (supra), though the panel of arbitrators as
per clause 64(3)(a)(ii) and (iii) of the general conditions of contract
under GCC was appointed in the year 1996 but for two decades,
the arbitrator failed to pass the award and no explanation came
47
forward. In the given situation, this Court observed that general
conditions of the contract do not prescribe any specific
qualification of the arbitrators to be appointed under the
agreement except that they should be railway officers further
held that 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) to depart therefrom and accordingly, confirmed the
appointment of an independent arbitrator appointed by the High
Court in exercise of Section 11(6) of the Act, 1996. Almost the
same situation was examined by this Court in Union of India
and Others Vs. Uttar Pradesh State Bridge Corporation Ltd.
(supra) and after placing reliance on North Eastern Railway
and Others Vs. Tripple Engineering works(supra) held that
since Arbitral Tribunal has failed to perform and to conclude the
proceedings, appointed an independent arbitrator in exercise of
power under Section 11(6) of the Act, 1996. In the given
circumstances, it was the duty of the High Court to first resort to
the mechanism in appointment of an arbitrator as per the terms
of contract as agreed by the parties and the default procedure
48
was opened to be resorted to if the arbitrator appointed in terms
of the agreement failed to discharge its obligations or to arbitrate
the dispute which was not the case set up by either of the
parties.
44. To conclude, in our considered view, the High Court was not
justified in appointing an independent arbitrator without
resorting to the procedure for appointment of an arbitrator which
has been prescribed under clause 64(3) of the contract under the
inbuilt mechanism as agreed by the parties.
45. Consequently, the orders passed by the High Court are
quashed and set aside. The appellants are directed to appoint
the arbitrator in terms of clause 64(3) of the agreement within a
period of one month from today under intimation to each of the
respondents/contractors and since sufficient time has been
consumed, at the first stage itself, in the appointment of an
arbitrator and majority of the respondents being the petty
contractors, the statement of claim be furnished by each of the
respondents within four weeks thereafter and the arbitrator may
decide the claim after affording opportunity of hearing to the
parties expeditiously without being influenced/inhibited by the
observations made independently in accordance with law.
49
46. The batch of appeals are accordingly disposed of on the
terms indicated. No costs.
47. Pending application(s), if any, stand disposed of.
…………………………J.
(A.M. KHANWILKAR)
…………………………J.
(AJAY RASTOGI)
NEW DELHI
March 29, 2019
50

LAW FOR ALL

LawforAll

advocatemmmohan

WELCOME TO LEGAL WORLD

Friday, March 29, 2019