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.

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
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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
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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.
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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
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