KPP 1 ARBAP 63/14 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION APPLICATION NO. 63 OF 2014 M/s. [ENTITY] Applicant v/s [ENTITY] and another Respondents Mr. [ENTITY], instructed by M/s. [ENTITY], for the Applicant. Mr. [ENTITY] for the Respondent. CORAM: [ENTITY], J. DATE: 12 November, 2014 th ORAL JUDGMENT:
1. The above Application is filed by the Applicant under [SECTION] of the [ACT]"the Act") for the following relief:
"That this Hon'ble Court be pleased to appoint any retired judge of the Hon'ble High Court or such other persons, as this Hon'ble Court deems fit, as an Arbitrator to adjudicate the disputes pending between the parties herein."
2. According to the Applicant, tenders were invited by the Respondents -
[ENTITY] through the General Manager, Central Railway, pertaining to Deep Screening and through Ballast Renewal using BCM and Manual Method including cess formation and miscellaneous work in the Pune-Lonavla Section ("the works").The Applicant submitted its bid and was declared as the successful bidder and an acceptance letter dated 24 th April, 2009 was issued to the Applicant. The total cost of the works awarded to the Applicant under the tender is Rs.
1,43,49,245.79. A formal contract being [CASE NUMBER]/PA dated October 10, 2009 (" the Contract") was entered into between the Applicant and Respondent No. 2- [ENTITY].
According to the Applicant, the Contract is also governed by the General Conditions of Contract, Central Railways ("[ACT]").
3. According to the Applicant, [SECTION] and [SECTION] of [ACT] pertain to the arbitration agreement entered into between the Parties. The said clauses are reproduced hereunder:
" Clause 63:
Matters finally determined by the Railway - All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after its completion and whether before or after the determination of the contract shall be referred by the contractor to the GM and GM shall within 120 days after receipt of the Contractor's representation make and notify decisions on all the matters referred to by the contractor in writing provided that matters for which provision has been made in [SECTION], [SECTION], [SECTION], [SECTION], [SECTION], [SECTION], [SECTION], [SECTION], 57, 57(A), 61(1), 61(2) and 62(1) to (xiii)(B) of General Condition of Contract or in any clause of the Special Conditions of the contract Shall be deemed as 'excepted matters' (matters not arbitrable) and decision of the Railway authority, thereon shall be final and binding on the contractor provided further that 'excepted matters' shall stand specifically excluded from the purview of the arbitration clause. [SECTION] (1) (i) Demand for Arbitration - 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 [SECTION]0 days of his presenting his final claim on disputed matters, shall demand in writing that the dispute or difference be referred to arbitration. [SECTION] (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 item wise. Only such dispute or difference, 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.
[SECTION] (1) (ii)(a)
(a) The arbitration proceeding 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 claim along with all 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 claim from Tribunal thereafter unless otherwise extension has been granted by Tribunal.
(d) 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.
4. According to the Applicant, certain disputes arose between the parties.
The Applicant therefore vide its letter dated 22 nd July, 2009, invoked the arbitration clause. After certain correspondence, the Respondent No.2 vide letter dated 8 th July, 2011, addressed to the Applicant terminated the Contract with effect from 30 th June, 2011. In view thereof, the Applicant through its Advocate's letter dated 17 th April, 2013, addressed to the Respondent No. 1 invoked the arbitration [SECTION] and [SECTION] of the [ACT]. According to the Applicant, as the Respondent No. 1 failed and neglected to appoint an Arbitrator as per the arbitration agreement entered into between the Parties, the Applicant has filed the above Application seeking the aforestated relief.
5. The Respondents have filed their Affidavit-in-Reply dated 22 nd September, 2014, wherein it is contended that the above Application filed by the Applicant is not maintainable as the Applicant has deliberately suppressed clause 31.1 of the tender document. It is submitted that the said Clause 31.1 restricts the operation of [SECTION] and [SECTION] of the [ACT]. The said clause 31.1 of the tender conditions is reproduced hereunder:
"31.1 The provision of [SECTION] and [SECTION] of General Conditions of contract will be applicable only for settlement of claims of disputes between the parties for value less than or equal to 20% of the value of the contract and when the claims or disputes are of value more than 20% of the value of contract, provision of [SECTION] and [SECTION] and other relevant clauses of the General Conditions of Contract will not be applicable and arbitration will not be a remedy for settlement of such disputes."
It is therefore submitted on behalf of the Respondents that the reading of [SECTION] and [SECTION] of the [ACT] along with Clause 31.1 of the tender document establishes that there is an agreement between the Parties, that the disputes between the Parties shall be referred to arbitration only if the claims of disputes between the parties are less than or equal to 20 per cent of the value of the Contract and when the claims or disputes of value are more than 20 per cent of the value of the Contract, [SECTION] and [SECTION] would not be applicable and arbitration will not be a remedy for settlement of such disputes. It is submitted that in the present case, the claim raised by the Applicant admittedly exceeds more than 20 per cent of the value of the Contract. In view thereof, there is no agreement between the Parties to refer such dispute to arbitration and therefore the above Application deserves to be dismissed. It is further submitted on behalf of the Respondents that if the Applicant agrees to restrict its claim to a value less than or equal to 20 per cent of the value of the Contract, the claims can be referred to arbitration.
6. The Learned Advocate appearing for the Applicant disputed the submissions advanced on behalf of the Respondents. He submitted that the argument advanced on behalf of the Respondents is that since the claim of the Applicant is of a value more than 20 per cent of the value of the Contract, the same falls in the category of excepted matters (not arbitrable) and therefore cannot be referred to arbitration. He submitted that whether a dispute raised falls under the category of excepted matters has to be decided by the Arbitrator/Arbitral Tribunal and cannot be decided by this Court. In support of his contention, he relied on the decisions of the Hon'ble Supreme Court in the case of [PRECEDENT] and in the case of [PRECEDENT] 2 .The Learned Advocate for the Applicant also relied on an unreported decision of a Single Judge of this Court in the case of [PRECEDENT] and submitted that the relief sought in the above Application be granted.
7. I have perused the pleadings in the matter and have also considered the submissions advanced on behalf of the parties. In the case of [ENTITY] (supra), the respondent [ENTITY] served a notice on the appellant [PRECEDENT] inter alia invoking arbitration.
The appellant - [ENTITY] contended that the respondent had unconditionally accepted the claim settlement amount fully and finally and therefore the question of invoking the provision for arbitration did not arise. In view thereof, the respondent filed an application under [SECTION] of the Act before this Court. The said petition was resisted by the appellant by reiterating that the respondent had accepted the payment of Rs. 2,33,94,9[SECTION]/- in full and final settlement and therefore could not invoke the arbitration clause. The Learned Chief Justice of this Court after considering the facts, was of the view that there was a [CASE NUMBER] Decided on 12thDecember, 2013 in [CASE NUMBER] 3 Decided on 8th April, 2013 in [CASE NUMBER] serious dispute between the parties as to whether "discharge voucher" was given voluntarily or under pressure or coercion and that was required to be settled by the Arbitral Tribunal. The Learned Chief Justice therefore exercising the power under [SECTION] of the Act allowed the petition and appointed a sole arbitrator to decide the disputes. The Learned Chief Justice also left open the question as to whether there was any coercion/undue influence in regard to issue of full and final settlement discharge voucher by the respondent and permitted the parties to lead evidence before the arbitrator on that question. The said order was challenged by the Insurer by way of Special Leave Petition before the Hon'ble Supreme Court.
Paragraphs 22,24,[SECTION] and 56 of the Judgment are relevant and reproduced hereunder:
"22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under [SECTION], the duty of the Chief Justice or his designate is defined in SBP & Co. 4 This Court identified and segregated the preliminary issues that may arise for consideration in an application under [SECTION] of the Act into three categories, that is (i) issues which the Chief Justice or his Designate is bound to decide; (ii) issues which he can also decide, that is issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.
22.1 The issues (first category) which Chief Justice/his designate will have to decide are:
(a) Whether the party making the application has approached the appropriate High Court.
4 SBP &Co. vs. PatelEngg. Ltd. (2005) 8 SCC 6[SECTION]
(b) Whether there is an arbitration agreement and whether the party who has applied under [SECTION] of the Act, is a party to such an agreement.
22.2 The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the arbitral tribunal) are:
(a) Whether the claim is a dead (long barred) claim or a live claim.
(b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.
22.3 The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal are :
(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).
(ii) Merits or any claim involved in the arbitration."
" 24. What is however clear is when a respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercion or under influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under [SECTION] of the Act or by the arbitral Tribunal as directed by the order under [SECTION] of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant".
[SECTION]. In this case the High Court examined the issue and found that prima facie there was no accord and satisfaction or discharge of the contract. It held that the appellant is still entitled to raise this issue before an arbitrator and the arbitrator has to decide it. On the facts and circumstances and the settled position of law referred by us above, we are also prima facie of the view that there is no accord and satisfaction in this case and the dispute is arbitrable. But it is still open to the appellant to lead evidence before the arbitrator, to establish that there is a valid and binding discharge of the contract by way of accord and satisfaction.
56. We therefore find no reason to interfere with the order of the High court. The appeal is accordingly dismissed. We make it clear that nothing stated by the High Court or by us shall be construed as expression of any final opinion on the issue whether there was accord and satisfaction nor as expression of any views on merits of any claim or contentions of the parties".
8. The ratio laid down by the Hon'ble Supreme Court in the case of [ENTITY] (supra) is followed by the learned Single Judge of this Court in the case of M/s. [PRECEDENT] (supra). In that case the request for appointment of Arbitrator was rejected by the respondent-Railways on the ground that the applicant has submitted an "unconditional" no claim certificate before payment of final bill and release of security deposit and it is an excepted matter in terms of [SECTION] of [ACT] and that excepted matters under [SECTION] of [ACT] are excluded from the purview of Arbitration. It was argued on behalf of the applicant that the no claim certificate was not signed by the applicant. Only the signatures of the applicant were obtained on blank paper under threats by the officers of the respondent. It was alleged by the applicant that the signatures were obtained under financial duress with a knowledge that the applicant is in a financial crisis due to withholding of payment by the office of the respondent. The Learned Judge following the ratio of the Hon'ble Supreme Court in the case of National Insurance Com. Ltd. ( supra) reached a prima facie finding that the no claim certificate issued by the applicant appears to be under financial duress and therefore the said issue, though falling under excepted matters can be referred to arbitration. The learned Judge therefore referred the parties to arbitration with a clarification that the arbitrator will inter alia look into whether the parties have concluded the contract/transaction by recording satisfaction of their mutual right or obligation, or by receiving final payment without objection.
9. In the case of [PRECEDENT] (supra) the appellant had contended that as the claims pertaining to recovery of arrears had not been settled, the claims came within the ambit of sub-clause (a) of clause 9.3 of the agreement and required the matter to be dealt with by an expert and the respondent cannot take recourse to arbitration. The High Court adverted to the meaning of "billing date", "billing period", "billing year" and various terms used in the agreement to arrive at a conclusion that the disputes raised do not come within the purview of sub-clause (a) of clause 9.3 and accordingly appointed an arbitrator . It was argued on behalf of the appellants before the Hon'ble Supreme Court that the dispute raised by the respondent being a "billing dispute", which is an excepted matter, it was obligatory on the contracting parties to resolve the dispute through an expert committee by the mechanism provided in the agreement itself and the same could not have been referred to an arbitrator to be arbitrated upon. The Hon'ble Supreme Court in its Judgment, whilst confirming that the matter was required to be decided by arbitration, proceeded to set aside that part of the order where the High Court had opined that the disputes raised are not "billing disputes"
on the ground that the same should have been left to be adjudicated by the learned Arbitrator. The Hon'ble Supreme Court observed as follows:
'"(ii) The designated Judge, as perceived from the impugned order, while dealing with an application under [SECTION] of the Act, on an issue raised with regard to the excepted matters, was not justified in addressing the same on merits whether it is a dispute relating to excepted matters under the agreement in question or not.
(iii) The designated Judge has fallen into error by opining that the disputes raised are not "billing disputes", for the same should have been left to be adjudicated by the learned Arbitrator.
(iii) The part of the order impugned that reflects the expression of opinion by the designate of the Chief Justice on the merits of the disputes, being pregnable, deserves to be set aside and is hereby set aside."
10. In the present case, the Applicant has not contended that Clause No. 31.1 of the tender document is not applicable, or that the same should not be read with [SECTION] and [SECTION] of the [ACT]. The Learned Advocate for the Applicant has informed the Court that though the claim of the Applicant exceeds more than 20 per cent of the value of the Contract, the issue as to whether the same is arbitrable or not has to be decided by the learned Arbitrator. In my view, this submission cannot be accepted. The issue as to whether there exists an Arbitration Agreement between the Parties has to be decided by the Court, once the same is raised in an Application under [SECTION] of the Act by the Respondent. Reading of [SECTION] and [SECTION] along with Clause 31.1 of the tender document, leaves no doubt that the Parties have agreed to refer their disputes to arbitration only if the claim between the parties is for a value less than or equal to 20 per cent of the value of the Contract, and it is further agreed that when the claims or dispute are of a value more than 20 per cent of the value of the Contract, the provision of [SECTION] and [SECTION] and other relevant Clauses of the [ACT] will not be applicable, and arbitration will not be a remedy for settlement of such disputes. In view thereof and more so since the Applicant has admitted before this Court that the value of its claim before the Arbitrator exceeds 20 per cent of the value of the contract, there exists no Arbitration Agreement between the parties to refer their disputes to arbitration. The issue involved in the present case cannot be compared with the issues raised by the parties before the Hon'ble Supreme Court in the case of [PRECEDENT] (supra) and [PRECEDENT] (supra), and therefore the ratio of the said Judgment is not applicable to the present case. The same is the case with the decision of the learned Single Judge of this Court in the case of M/s. [PRECEDENT] (supra). In view thereof, the above Arbitration Application is dismissed.
([ENTITY], J.)