Arbitration and Conciliation Act, 1996: s. 11(6) – Work contract – Dispute between the parties – In view of arbitration clause in the agreement, notice sent by respondent contractor to appellant to appoint an arbitrator invoking clause of the contract to resolve the dispute of payment of outstanding dues – Rejected by the appellants submitting that “No Due Certificate” was signed and that entails no dispute to be sent to arbitration – Subsequently, application u/s. 11(6) by the respondent before the High Court for appointment of independent arbitrator – High Court appointed a retired judge of the High Court as an independent Arbitrator – On appeal, held: Emphasis should be 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 – Independence and impartiality of the arbitrator has never been doubted but where it 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, it becomes necessary to make a fresh appointment – On facts, notice sent by respondent much prior to enforcement of the Amendment Act, 2015, thus, the provisions of the Act of 2015 not applicable – High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator prescribed under the clause of the contract under the inbuilt mechanism as agreed by the parties – Orders passed by the High Court quashed and set aside – Appellants directed to appoint the arbitrator in terms of the agreement – Arbitration and Conciliation(Amendment Act), 2015. Disposing of the appeals, the Court
HELD: 1.1 As per clause 43(2) of the Contract, 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. Under clause 64(1), if there is any dispute or difference between the parties hitherto as to the construction or operation 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. [Paras 20, 21][1025-G-H; 1026-A-E]
1.2 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 Amendment Act, 2015 which came into force, i.e. on 23.10.2015, 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. [Paras 25, 26][1027-E; 1029-C-D]
1.3 In the instant case, the request was made and received by the appellants in the concerned appeal much before the 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. 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. [Para 27][1029-D-F]
1.4 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, this Court cannot be oblivious of the 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. [Para 33][1033-C-E]
1.5 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. 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.[Para 35][1037-D-G; 1038-A-B]
1.6 Clause (c) of sub-section (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. By appointing an arbitrator in terms of sub-section (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. [Para 38][1039-A-E]
1.7 It is the duty of the Court 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 be on the terms of the arbitration agreement to be adhered to or given effect as closely as possible. [Para 41][1043-D-E]
1.8 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. [Para 43][1044-B-D]
1.9 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. 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 the stipulated period. [Paras 44, 45][1045-B-C]
M/s. Aravali Power Company Private Limited Vs. Era Infrastructure Engineering Limited (2017) 15 SCC 32; S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh and Others 2018(15) SCALE 421; Union of India and Others v. Master Construction Company (2011) 12 SCC 349 : [2011] 5 SCR 853; New India Assurance Company Limited v. Genus Power
Infrastructure Ltd. (2015) 2 SCC 424 : [2014] 12 SCR
360 ; ONGC Mangalore Petrochemicals Limited v. ANS Constructions Limited and Anr. (2018) 3 SCC 373 : [2018] 2 SCR 598; Union of India & Another v. M.P. Gupta (2004) 1) SCC 504; Union of India & Another v. V. S. Engineering(P) Ltd. (2006) 13 SCC 240 : [2006]
9 Suppl. SCR 125; Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Co. Limited (2008) 10 SCC 240 : [2008] 12 SCR 216; Union of India v. Singh Builders Syndicate (2009) 4 SCC 523: [2009] 3 SCR 563; National Insurance Company Limited v. Boghara Polyfab Private Limited (2009) 1 SCC 267: [2008] 13 SCR 638; Datar
Switchgears Ltd. v. Tata Finance Ltd. and Another (2000) 8 SCC 151; Punj Lloyd Ltd. v. Petronet MHB Ltd. (2006) 2 SCC 638; Union of India v. Bharat Battery Manufacturing Co. (P) Ltd. (2007) 7 SCC 684 : [2007]
8 SCR 993; North Eastern Railway and Others v. Tripple Engineering Works (2014) 9 SCC 288 : [2014] 6 SCR 1143; Union of India and Others v. Uttar Pradesh State Bridge Corporation Limited (2015) 2 SCC 52; Union of India v. Kishorilal Gupta & Bros. AIR 1959 SC 1362 : [1960] SCR 493; P.K. Ramaiah & Co. v. Chairman and Managing Director, National Thermal Power Corpn. (1994) 3 Suppl. SCC 126; State of Maharashtra v. Nav Bharat Builders (1994) 3 Suppl. SCC 83; Nathani Steels Limited v. Associated Constructions (1995) 3 Suppl. SCC 324; Damodar Valley Corporation v. KK Kar (1974) 1 SCC 141 : [1974] 2 SCR 240; Bharat Heavy Electricals Limited Ranipur v. Amarnath Bhan Prakash (1982) 1 SCC 625; Union of India and Anr. v. L.K. Ahuja and Co. (1988) 3 SCC 76 : [1988] 3 SCR 402 ; Jayesh Engineering Works v. New India Assurance Co. Ltd. (2000) 10 SCC 178 ; Chairman and MD, NTPC Ltd. v. Reshmi Constructions Builders & Contractors (2004) 2 SCC 663 : [2004] 1 SCR 62 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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