1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 2nd DAY OF SEPTEMBER, 2014 BEFORE THE HON'BLE MR.JUSTICE S.ABDUL NAZEER CIVIL MISCELLANEOUS PETITION No.149 OF 2013 BETWEEN: SRI MOHAN BABU, S/O BHASKARA RAO, AGED ABOUT 48 YEARS, OCC:ENGINEER AND CONTRACTOR, R/O AT 1/P, OILMOND RAMANATH COLONY, SAO JOSE AREAL (VP) SALCETE, GOA. PETITIONER (BY SRI PRASAD RAO VEMULLAPALLI, ADV. FOR SRI SAMPAT BAPAT, ADV.) AND UNION OF INDIA, REP. BY 1 THE CHIEF ADMINISTRATIVE OFFICER (CONST) SOUTH WESTERN RAILWAY. 2 THE CHIEF ENGINEER (CONST./WEST) SOUTH WESTERN RAILWAY. 3 THE DEPUTY CHIEF ENGINEER (CONST./HQ) SOUTH WESTERN RAILWAY. ALL AT [SECTION], MILLERS ROAD, BENGALURU - 560 046. 4 THE GENERAL MANAGER, SOUTH WESTERN RAILWAY, CLUB ROAD, HUBLI - 580 031. RESPONDENTS (BY SRI N.S.SANJAY GOWDA, ADV. FOR R1 TO R4) 2 THIS CMP IS FILED UNDER SECTION 11(6) OF THE ARBITRATION AND CONCILIATION ACT, 1996, PRAYING TO APPOINT ANY RETIRED JUDGE OF THIS HON'BLE COURT AS SOLE ARBITRATOR TO RESOLVE THE DISPUTES THAT HAS ARISEN UNDER THE AGREEMENT BEARING NO.CAO/CN/BNC/73482/A/50/VI/2012 DATED 11.06.2012. THIS CMP COMING ON FOR ADMISSION THIS DAY, THE COURT PASSED THE FOLLOWING: ORDER
The petitioner in this Civil Miscellaneous Petition filed under [SECTION] of the [ACT], (for short 'the Act') sought for appointment of an Arbitrator for resolution/ adjudication of the dispute, which has arisen in relation to the agreement at Annexure-B dated 11.6.2012.
2. The petitioner is a contractor engaged in doing project work mainly to Indian Railways. It is contended that the 1st respondent had called for tenders for Ramanagaram-Mysore Section doubling project- earth work in platforms, construction of S&T accommodation, construction of passenger platform, platform pavings, yard drainage, dismantling of existing platforms, passenger amenities & IRS type platform shelter/FOB and dismantling of the existing FOB and other connected works at Chennapatna, Settihalli, Maddur, [ENTITY] and [ENTITY] railway stations on 17.11.2011 through tender notice. In response to the said notice, the petitioner had submitted his tender on 23.12.2011 and the same was accepted by the 2nd respondent after negotiations.
2. It is the case of the petitioner that respondents did not plan the work properly and failed to provide necessary orders/instructions in time to execute the project. It is further contended that the respondents called for tender without adequate allocation of funds and did not furnish the necessary drawings due to which the works could not be completed within the agreed period. It is further contended that due to administrative reasons no progress could be achieved during the original period and the respondents orally instructed the petitioner that instructions for execution of work will be issued in due course. There was no communication regarding the execution during the original period.
3. Since the period had expired on 30.08.2012, the petitioner through letter dated 14.02.2013 while seeking extension upto 30.05.2013, brought to the notice of the respondents the progress of the work as per instructions and directions of the 4th respondent. All of a sudden, on 25.02.2013 the 3rd respondent issued letter to state that the Section is targeted for CRS inspection by 31.03.2013 and instructed to speed up the work. In response to the said letter, petitioner wrote a letter on 10.03.2013 stating that petitioner had executed the works in Shettihalli and Chennapatna section and the section was opened for traffic with a speed limit of 80 KMPH. In [ENTITY] and [ENTITY] section, the administration failed to get caution orders in time and did not provide item-wise scope of work and did not furnish drawings.
5. The respondents wrote a letter on 12.3.2013 asking the petitioner to sign the attached blank raider agreement as a precondition for extension of currency. The petitioner by his reply dated 25.03.2013 refused to sign unless the blanks are filled in. After receipt of the petitioner's above letter and without referring to the contents of the said letter, the respondents have extended the currency of the agreement up to 30.05.2013. It is the contended that in view of the curt refusal to sign empty subsidiary agreement, the respondents have adopted a hostile attitude of non- cooperation making false and frivolous objections and raising issues long after same had been finalized. That is how the letters dated 5.4.2013 and 15.04.2013 came to be issued attributing slow progress and delay to the contractor.
6. In response to the said letter, the petitioner wrote a letter on 26.4.2013 and reminded the respondent to issue instructions and drawings to achieve progress of work and also pointed out the idling of establishment to the tune of Rs.8.5 lakhs per month. But the problems remained unresolved and payment of running bill was also delayed for no apparent reason except the obvious intention of driving the petitioner into financial difficulty. Petitioner has made several other allegations in the petition against the respondents holding that the respondents are solely responsible for non compliance of the terms of the agreement in full.
7. According to the petitioner the default is on account of non performance of the obligations on the part of the respondents. Therefore, petitioner has sent a letter at Annexure-P dated 26.5.2013 to the Deputy Chief Engineer under clause [SECTION] of the [ACT] for clarification as to the specification and quality, since this has to be resolved by the Engineer under the said contract as it is excepted matter. The Deputy Chief Engineer sent his reply as per Annexure-Q dated 27.5.2013 without taking decision in the matter. The petitioner filed an appeal as per Annexure-R dated 29.5.2013 to the Chief Engineer who is an appellate authority under clause [SECTION] of the [ACT]. The Chief Engineer did not consider the appeal.
8. Thereafter, petitioner sent a notice as per Annexure-T dated 17.6.2013 calling upon the respondents to appoint an arbitrator for resolution of the dispute which has arisen in relation to the aforesaid agreement. Further respondents sent a notice under Annexure-Z4 dated 22.08.2013 informing the petitioner the termination of the contract within 48 hours. The petitioner has sent his reply to the said notice under Annexure-Z5 dated 29.08.2013. This was followed yet another letter at Annexure-Z6 dated 29.8.2013. During the pendency of this civil miscellaneous petition, the respondents have sent a termination notice dated 30.8.2013, a copy of which has been produced along with the memo. Therefore, petitioner has filed this civil miscellaneous petition for appointment of an arbitrator for resolution of the dispute.
9. The respondents have filed their objections to the petition. The sum and substance of the petition is that the dispute raised by the petitioner is an 'excepted matter' coming within clause [SECTION] of the [ACT]. Therefore, question of resolution of the dispute under Clause 63 & 64 of the [ACT] does not arise. They have sought for dismissal of the civil miscellaneous petition.
10. I have heard the learned counsel for the parties and perused the materials placed on record.
11. As has been stated above, there is no dispute as to the execution of the agreement in relation to the aforesaid contract by the petitioner with the respondents. It is also clear that the said agreement contains an arbitration clause, which is as under:
SETTLEMENT OF DISPUTES:
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 General Manager and the General Manager shall within 120 days after receipt of the Contractor's representation make and notify decisions on all 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]-
A(5), [SECTION], [SECTION], [SECTION], [SECTION] and 62(1) to
(xiii)(B) of the [ACT] or in any clause of the special conditions of contract shall be deemed as "excepted matters" (matters not arbitrate) and decisions 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.
64(1) Demand for Arbitration
(i) In the event of any dispute or different 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.
(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.
(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.
64(3) Appointment of Arbitration Tribunal
(a)(i) In cases where the total value of all claims in question added together does not exceed Rs.10,00,000/- (Rupees Ten 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 in that behalf. The sole arbitrator shall be appointed within 60 days from the day when a written and valid demand for arbitration is received by the General Manager.
(ii) In cases not covered by Clause64(3)(a)(i), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway officers not below JA grade or two 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 Gaxzetted 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 General Manager. Contractor will be asked to the General Manager upto 2 names out of the panel for appointment as the Contractor's nominee within 30 days from the date of dispatch of the request by Railway. The General Manager shall appoint atleast 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. General Manager shall complete the 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 Railways for the purpose of appointment of arbitrators."
12. It is also not in dispute that petitioner has issued a notice at Annexure-T dated 17.6.2013 calling upon the respondents for appointment of an arbitrator for resolution of the dispute. It is not the case of the respondents that they have appointed an arbitrator for resolution of the dispute in terms of the said notice. But the objection of the respondents is that it is an 'excepted matter;, which comes under clause [SECTION] of the [ACT]. Therefore, arbitration clause is not applicable to the facts of the present case. Clause [SECTION] of the [ACT] is as under:
"(5) Meaning and interest of specifications and drawings If any ambiguity arises as to the meaning and intent of any portion of the specifications and drawings or as to execution or quality of any work or material or as to the measurements of the works, the decision of the Engineer thereon shall be final subject to the appeal (within 7 days of such decision being intimated to the Contractor) to Chief Engineer who shall have the power to correct any errors, omissions, or discrepancies in the specifications, drawings, classifications of work or materials and whose decision in the matter in dispute or doubt shall be final and conclusive."
13. This clause makes it clear that if there is any ambiguity as to the meaning and intent of any portion of the specifications and drawings or as to execution or quality of any work or material or as to the measurements of the works, the decision of the Engineer thereon shall be final subject to the appeal to the Chief Engineer, whose decision is final and conclusive. The appeal has to be filed within 7 days of such decision being intimated to the contractor by the Engineer. The petitioner has raised a dispute before the Deputy Chief Engineer by letter at Annexure-P dated 26.5.2013. However, the Deputy Chief Engineer has not decided the issue. He has sent a reply at Annexure-Q without deciding the issue. Therefore, petitioner filed an appeal before the Appellate Authority in accordance with clause 22 of the [ACT] at Annexure-R dated 29.5.2013. The Chief Engineer/Appellate Authority has not decided the appeal. It is thus clear that petitioner has followed the procedure contained in the agreement for the resolution of the dispute under clause [SECTION] of the [ACT]. In such a situation it is permissible for this Court to appoint an arbitrator for resolution of the dispute.
14. The Apex Court in the case of [PRECEDENT] has held that in order to deny the claims of the contractor as covered under excepted matters, the procedure prescribed for bringing those claims under excepted matters must be scrupulously followed. Failure to follow the prescribed procedure and in case the procedure not scrupulously followed, the arbitration clause is attracted. It has been held thus:
"It goes without saying that in order to deny the claims of the contractor as covered under excepted matters, the procedure prescribed for bringing those claims under excepted matters must be scrupulously followed. The clear finding of the arbitrator is that it has not been followed and the High Court has not expressed any disagreement on that. Therefore, the finding of the High Court that those items are non-arbitrable cannot be sustained."
15. In the instant case, the petitioner has followed the procedure under clause [SECTION] of the [ACT] for resolution of the dispute. The Competent Authority did not decide the issue. Therefore, petitioner filed an appeal before the Chief Engineer/Appellate Authority and the Appellate Authority has also not decided the issue. Therefore, the dispute is arbitral in clause 64(3)(a)(ii) of the General Conditions of the Contract.
16. It is also relevant to note here that in [PRECEDENT], the Hon'ble Supreme Court has pointed out which are the issues to be decided by the Chief Justice/his designate under [SECTION] of the Act or which are the issues which the Chief Justice/his designate may choose to decide or leave them to the decision of the Arbitral Tribunal and which are the issues which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal. It has been held thus:
"22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under [SECTION], the duty if the Chief Justice or his designate is defined in SBP & Co. 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 that 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 the Chief Justice/his designate will have to decide are:
(a) Whether the party making the application has approached the appropriate High Court.
(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."
17. In the instant case, the contention of the petitioner is that the question in controversy is not an 'excepted matter' falling under [SECTION] of the [ACT]. On the other hand, learned counsel for the respondents submits that since it is an 'excepted matter', it is not arbitral under Clause 63 of the [ACT]. This question has also to be decided by the Arbitral Tribunal.
[SECTION]. As noticed above, the petitioner has issued a notice calling upon the respondents to appoint an arbitrator for resolution of the dispute by his notice at Annexure-T dated 17.6.2013. The respondents have failed to appoint an arbitrator in response to the said notice till the filing of this civil miscellaneous petition and even till this day. Thus, it is clear that the respondents have forfeited their right to appoint and arbitrator (see [PRECEDENT]). Therefore, it is just and proper to appoint an arbitrator to resolve the dispute between the parties.
19. In the result, Civil Miscellaneous Petition is allowed-in-part. Hon'ble Sri. Justice [ENTITY], a former Judge of this Court, is requested to enter upon the reference and arbitrate over the dispute and conduct arbitration proceedings at Arbitration Centre in terms of the [ACT].
20. Registry is directed to send a copy of this order to the Arbitration Centre, Bangalore, forthwith. No costs.
JUDGE KLY/