THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.58 of 2011 (Dated: 26-09-2011) Between: M/s. Shree Shiridi Sai Baba Constructions, Rep. by its Proprietor M.Ganesh, Hyderabad. …Applicant A n d Union of India, rep. by the General Manager, South Central Railway, Secunderabad and 3 others ..Respondents THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.58 of 2011 ORDER: This arbitration application has been taken out by M/s.Shree Shirdi Sai Baba Constructions, represented by its Managing Partner under sub-sections (5) and (6) of Section 11 of the Arbitration & Conciliation Act, 1996 read with Parts (2) & (3) of the Scheme for Appointment of Arbitrator seeking reference of claim Nos.2, 3, 4 and 5 mentioned in the letter dated 02-4-2008 to the Arbitration Committee appointed by the 1st respondent in its letter dated 23-9- 2010. 2(a). The respondents-Railway awarded the work of development of Sports Complex at Railway Recreation Club (RRC) grounds to the applicant. The value of the work was Rs.1,11,99,357.68 ps. The work was to be completed in six months. An agreement No.81/CAO/C/SC/2004, dt.04-8-2004 came to be entered by the applicant with the respondents-railway. The applicant completed part of the work, i.e., Sports Hostel by 15-3-2006 and it commissioned from 16-3-2006. Some disputes arose between the applicant and the respondents-railway with regard to the claims made by the applicant in respect of the works carried out by it, pursuant to the agreement No.81/CAO/C/SC/2004, dt.04-8-2004. The applicant submitted eight claims and requested the respondents-railway to appoint an arbitrator for adjudication, as provided under Clause 64(2) of the General Conditions of Contract under letter dated 12-02-2007. The claims submitted by the applicant are:- Sl.No. Claim Amount 1. Loss due to prolongation of the commencement and dragged execution Rs.16,79,904/- 2. Loss due to non-payment for the work done under item No.3 of new additional N.S. item for applying 2 coats of emulsion including applying putty etc., Rs.4,83,595/- 3. Loss due to unprecedented hike in prices of steel products and cement Not specified 4. Loss due to errors in reduction for the incremental value beyond (+) 25% variation in quantities made in the bills Not specified 5. Enhanced rates payable for the balance work in the second part of the scope of contract Not specified 6. Loss due to extra items of work not covered by the agreement Not specified 7. Loss due to payments made by curtailing work done quantities Not specified 8. Interest payable on all the due amounts from the dates they fall due till date of actual payment Not specified 2(b) Pursuant to the letter of the applicant, the General Manager, South Central Railway, Secunderabad-1st respondent constituted an arbitral tribunal and referred only two claims, i.e., Claim Nos. 1(a) and 2 for arbitration out of the eight claims preferred by the applicant. The other claims have not been referred to the arbitral tribunal. The text of the letter dated 27-02-2008 whereunder, the arbitral tribunal came to be constituted by the General Manager, South Central Railway, Secunderabad, reads as hereunder:- “ In pursuance of the demand made by M/s. Sree Shirdi Sai Baba Constns for appointment of Arbitral Tribunal, General Manager, S.C.Rly, hereby appoints you as Members of the Arbitral Tribunal duly nominating Sri P.K.Sangewar, CMM/M&S/SC as Presiding Arbitrator for adjudicating the following Claims/Disputes arising out of the above Agreement. The terms of reference to be arbitrated upon shall be as under: Cl.No. Description of Claims Claim Amt. (in Rs.) 1(a) L o s s due to prolongation of commencement of work and execution 16,79,904/- 2 Loss due to nonpayment for the work done item No.3 of New Additional NS item for applying two coats of emulsion including putty etc., 4,83,595/- Total 21,63,499/- Counter claims, if any of Railway will be submitted along with the Defense statement by Railways, which shall also form as a part of this “Terms of Reference” to be adjudicated. The Arbitral Tribunal is requested to enter upon the reference immediately and initiate proceedings as per the Terms of the Agreement. The Arbitral Tribunal shall give reasons for the amounts awarded if any, in respect of each Claim as per the provisions of the Arbitration & Conciliation Act, 1996. The Jurisdiction, Limitation, Maintainability and Tenability of Claims for Arbitration also to be decided by the Arbitral Tribunal”. 3. A note appended to the above letter indicates that the Department has not referred the claims under clause 1(b), i.e., escalation of price since it would come under an `excepted matter’ and whereas the amount claimed under Claim Nos.3,4,5,6,7 & 8 are not referred as the amount has not been indicated, which is essential, as per clause 64(i)(ii)(b) of the General Conditions of Contract. 4. The applicant addressed letter dated 02-4-2008 to the General Manager, South Central Railway, Secunderabad, consolidating the claims and the consolidated claims are as under:- Sl.No. Claim Amount (in Rs.) 1. Loss due to change of site and delayed supply of altered drawings etc. 16,80,000/- 2. Work done but not paid (i) Chiseling of sheet rocks 3,17,899/- (ii) Applying 2 coats of emulsion etc. (adl NS Item 3) 4,83,595/- (iii)Providing groove of 1 cm width in cement mortar in between column beam and brickwork joints etc. 64,518/- (iv ) Payment not made for full quantity executed 21,820/- (v ) Drilling 40 mm dia and 600 mm deep holes in rock including manufacturing and fixing mild steel dowel bars etc., payment not made for full quty. 93,671/- (vi) Making half round edges for granite steps and platform 60,000/- 3. Loss due to increase in steel and cement due to prolongation of the work 38,87,650/- 4. Loss due to non acceptance of our offer during negotiations and forcing counter offer for quantities beyond 50% and NS items 19,84,341/- 5. Enhanced rates for the balance works executed beyond the original currency period Rs.37,50,000/- 6. Interest @ 18% p.a on the above payments from the dates due till date of actual payments … 5. Since the respondents-railway has not referred Claim Nos.2 (i), 2(iii) to 2(vi) and claim Nos. 3, 4 and 5, the applicant moved the present application seeking the prayer stated supra. For better understanding of the grievance of the applicant, I deem it appropriate to refer paras (4) to (6) of the application and they read thus:- “4) The petitioner humbly submits that finally he requested the Respondents No.1 and 2 vide his letter dtd.12-02-2007 to appoint an Arbitrator for adjudicating of the said 8 (eight) claims submitted by him in the said letter dtd.12-02-2007. However, the Respondent No.1 responded for the said letter and appointed an Arbitration Committee on 27-02-2008 by referring only 2 claims out of the said 8 (eight) claims. But, the Respondent refused to refer the claims to the Arbitration Committee on the ground that the petitioner has not specified the claim amounts in his letter dtd.12-02-2007. As per the Agreement condition the pecuniary jurisdiction for appointment of Arbitration Committee has been specified under Clause 64(3)(a)(ii) as such the Respondent will appoint the Arbitration Committee consisting of 3 (three) Arbitrators where the claim value exceeds Rs.10,00,000/-. In the present case the Claim No.1 has already exceeded Rs.10,00,000/- and therefore a 3 member Arbitration Committee was appointed by Respondent No.1. Therefore, the plea of the Respondent No.1 for not referring the remaining claims for want of claim amounts is not maintainable because there will be no change in the procedure for appointing the Arbitration Committee even though the claim amounts were not furnished by the petitioner on the face of the claim letter. Moreover, the Respondent No.1 has failed to note that the claims were preferred by the Petitioner during execution of the work. Therefore insisting for Claim amounts during execution of work nothing but technical ground only to evade the responsibility conferred to him to justify the claims raised by the Petitioner. 5) However, the Petitioner submitted 6 (six) claims vide his letter dtd.02-04-2008 by consolidating his claims from 8 to 6 and has given claim amounts. But, the Respondent has not referred all the claims and referred only Claim No.6 through his letter dtd.05-08- 2008. No reason was specified by the Respondent for not referring the balance 5 claims. Infact the Respondent No.1 has no right to choose some of the claims out of the 6 (six) claims raised by the petitioner. The Respondent Railways being a party to the Agreement and who committed the breach of contract has no right to select some of the Claims and are not supposed to throw the claims of the petitioner without proper adjudication of the matter. 6) While the matter stood thus, the Respondent No.2 issued a letter dtd.23-09-2010 by changing the Arbitration Committee in the place of the 1st appointed Arbitration Committee the present Arbitration Committee has initiated the proceedings. Hence, the petitioner filed this Petition to refer the following balance Claims submitted by him vide his letter dtd.02-04-2008 and which were not referred by the Respondent No.1: Claim No.2 : Work done but not paid Rs.3,17,899/- Claim No.3 : Loss due to increase in Steel and cement due to Rs.38,87,650/- prolongation of the work Claim No.4 : Loss due to non-acceptance of the Offer during negotiations and forcing Counter offer for quantities beyond 50% and N.S.Items Rs.19,84,341/- Claim No.5 : Enhanced rates payable for the balance Works executed beyond the original Currency period Rs.37,50,000/- 6. Notice to the respondents came to be ordered on 19-7- 2011. The respondents entered appearance and filed counter affidavit. 7. G.V.V.Satyanarayana Raju, Deputy Chief Engineer/ Construction/III, South Central Railway, Secunderabad has sworn to the counter affidavit. It is stated in the counter affidavit that Claim No.1 and 2(ii) have already been referred to Arbitration (i.e., Claim Nos.1 (a) & 2 of original claims). Claim Nos.2(i) 2(iii) to 2 (vi) cannot be referred for arbitration in view of Clause 64(1)(iii) of the General Conditions of Contract, according to which, no new claims shall be added during the proceedings by either party. Claim Nos.3,4 and 5 cannot be referred as they are falling under “excepted matters”. It is also stated in the counter that the arbitral tribunal has been constituted by the General Manager, South Central Railway, Secunderabad and referred only Claim No.6, i.e., claim of interest in the modified claims. The arbitral tribunal has been conducting the proceedings with regard claim Nos.1(a) and 2 and 6 and the applicant herein participated in the proceedings and therefore, during pendency of the proceedings, the applicant cannot be permitted to make any further claim. For better appreciation, I may refer para (5) of the counter affidavit and it reads thus:- “ I submit with respect to paragraphs 6 to 13, it is submitted that an Arbitral Tribunal was already constituted by the General Manager, South Central Railway, Secunderabad and referred only Claim No.6, i.e., Claim of interest in the modified claims. Already two claims Nos.1(a) and 2 were referred for Arbitration. The Arbitral Tribunal has conducted the proceedings with regard to Claim No.1(a), 2 and 6 and the Applicant herein participated in the proceedings and the proceedings are going on. The Claimant has filed the Claim statement and the Respondents Railways have also filed the Counter statement before the Arbitral Tribunal with regard to Claim Nos.1(a), 2 and 6. It is respectfully submitted that the Application filed by the Applicant herein for referring the other claims for Arbitration at this juncture of time are not maintainable on the ground of delay as the same were time barred. I further submit that there is an enormous delay in approaching this Hon’ble Court by way of an Arbitration Application by the Applicant herein as the same were rejected by the General Manager, which were communicated by the Chief Engineer, Construction-I, South Central Railway, Secunderabad, vide letters dated 27.02.2008 and 15.8.2008 to the Applicant herein. Hence, the above said Arbitration Application is not maintainable and liable to be dismissed on the ground of delay”. 8. Heard learned counsel appearing for the applicant and learned Standing Counsel appearing for the respondents-railway. 9. Learned counsel appearing for the applicant submits that the applicant addressed a letter to the respondents-railway, more precisely, to the General Manager, South Central Railway-1st respondent, and Chief Administrative Officer, South Central Railway, Secunderabad-2nd respondent, requesting them to refer his eight claims for arbitration. A further submission has been made that the respondents without assigning any valid reason rejected to refer claim Nos. 1(b), 3, 4, 5, 6, 7, & 8 while referring only two claims, i.e., 1(a) and 2 under letter dated 27-2-2008. A further submission has been made that the applicant submitted letter dated 02-4-2008 to the Chief General Manager, South Central Railway, Secunderabad-1st respondent consolidating his claims and specifying the amount under each claim, in which case, there cannot be any impediment for the respondents-railway to refer all the claims. According to the learned counsel, referring only few of the claims while rejecting the major part of claims for arbitration amounts to arbitrary action of the respondents. 10. Learned Standing Counsel appearing for the respondents- railway contends that the arbitral tribunal commenced proceedings and after commencement of the proceedings, neither the applicant nor the Department can make a fresh claim and the same is barred under clause 64 (i)(ii)(b) of the General Conditions of Contract. A further submission has been made that most of the rejected claims are relatable to the escalation of prices, which comes within “excepted matters”, as per clause 4.4 of the Special Conditions of the Contract of the agreement and therefore, the respondents-railway (General Manager, South Central Railway, 1st respondent herein) is justified in not referring the claim Nos.1(b), 2(i), 2(iii) to 2(vi), 3, 4 and 5 for arbitration. In support of his submission, reliance has been placed on the decision of this Court in Shri Patil Enterprises v. General Manager, South Central Railway[1] 11. The issue that calls for adjudication is : Whether the applicant made out valid ground to direct the respondents-railway to refer Claim Nos.2 (i), 2(iii) to 2(vi) and claim Nos. 3, 4 and 5 for arbitration? 12. POINT : The stand of the respondents-railway is Claim Nos.1, 2(i), 2(iii), 2(iv) cannot be referred for arbitration for the reason that those claims had not been adverted to in the letter dated 12-02-2007, pursuant to which, arbitral tribunal has been constituted. With regard to claims 3, 4 and 5, it is the plea of the respondents-railway that they come under “excepted matters”, as per the General Conditions of the Contract. 13. Coming to Claim Nos.3 to 5, they are relatable to escalation price. Under letter, dated 12.02.2007, the applicant requested the respondents Railway to refer its claims for arbitration. Claim No.1 comprises two heads. The first one is, loss due to prolongation of the commencement of work and execution and compensation consequent on escalation of costs at 10% on approximate value. Claim No.2 relates to non-payment for the works done. Claim Nos.3 to 7 relate to compensation due to escalation of prices of steel products, cement etc. Claim No.8 relates to payment of interest. 14. The respondents Railway considered the request of the applicant and referred the Claim Nos.1(a) and 2 for arbitration, while rejecting to refer the Claim Nos.1(b), 3, 4, 5, 6, 7 and 8. The applicant submitted letter, dated 02.04.2008, to the respondents Railway consolidating the 8 claims into 6 claims for being referred to arbitration. The respondents Railway under letter, dated 13.08.2009, informed the applicant that Claim Nos.1, 2(ii) have already been referred to arbitration and Claim Nos.2(i), 2(iii) to 2(vi) cannot be referred to arbitration, since his earlier request does not contain the said claims. It is also stated by the respondents Railway in the above referred letter that Claim Nos.3, 4 and 5 cannot be referred to arbitration as they are falling under ‘excepted matters’. However, the respondents Railway allowed the request of the applicant to include Claim No.6 i.e. interest in the list of claims to the arbitral tribunal. What all the applicant has done in the second request is that it enhanced its claim under the head non- payment for the work done. The amount claimed in its second letter comes to Rs.3,17,899/-; Rs.4,83,595/-; Rs.64,518/-; Rs.21,820/-; Rs.93,671/-; and Rs.60,000/-, totaling to Rs.10,41,503/-. Whereas, in the earliest letter, it claimed under this head an amount of Rs.4,83,595/-. The applicant having claimed Rs.4,83,595/- under the same head, cannot be permitted to split up the claim into sub-heads and inflate the amount to Rs.10,41,503/-. Once arbitral proceedings commenced, the applicant cannot be permitted to make second request with regard to the rejected claim by splitting up the amounts claimed by him earlier into various sub-heads. 15. It is no more in dispute that once the disputes between the parties comes within the purview of ‘excepted matters’ question of appointing arbitrator for adjudicating the disputes does not arise. It has been held by the Supreme Court in General Manager, Northern Railway v. Sarvesh Chopra[2] that when once the dispute is covered by excepted matter, it would be an exercise in futility to refer for adjudication by the arbitrator. 16. Clause 63 of the General Conditions of Contract deals with procedure for settlement of disputes and it reads thus:- “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 Railway and the Railway shall within 120 days after receipt of 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 Clauses 8(a), 18, 22(5), 39, 43(2), 55, 45(A), 55-A (3), 57, 57-A, 61(1), 61(2) and 62(1)(b) of General Conditions of the contract or any clause of the special conditions of the contract shall be deemed as `excepted matters’ 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 and not be referred to arbitration”. 17. A plain reading of Clause 63 of the General Conditions of Contract shows that it consists of three parts. Firstly, it is an arbitration agreement requiring all disputes and differences of any kind whatsoever arising out of or in connection with the contract to be referred for adjudication by arbitration, by the railways, on a demand being made by the Contractor through a representation in that regard. Secondly, this agreement is qualified by a proviso, which deals with `excepted matters’. `Excepted matters’ are divided into two categories: (i) matters for which provision has been made in specified clauses of the general conditions, and (ii) matters covered by any clauses of the special conditions of the contract. Thirdly, the third part of the clause is a further proviso, having an overriding effect on the earlier parts of the clause, that all `excepted matters’ shall stand specifically excluded from the purview of the arbitration clause and hence shall not be referred to arbitration. 18. “Excepted matters” are of two categories, one category is of such claims which are just not leviable or entertainable. The other category of claims is where the dispute or difference has to be determined by an authority of Railways as provided in the relevant clause. The first category is an `excepted matter’ because the claim as per terms and conditions of the contract is simply not entertainable; the second category of claims falls within `excepted matters’ because the claim is liable to be adjudicated upon by an authority of the Railways whose decision the parties have, under the contract, agreed to treat as final and binding and hence not arbitrable. The expression “and decision thereon shall be final and binding on the contractor” as occurring in Clause 63 refers to the second category of `excepted matters’. 19. Clause (39) of the General Conditions of Contract deals with rate for extra items of work. For better appreciation, I may refer clause 39 of General Conditions of Contract, which reads as hereunder:- “ 39.(1) Rates for extra items of works:- Any item of work carried out by the Contractor on the instructions of the Engineer which is not included in the accepted schedules or rates shall be executed at the rates setforth in the “schedule of Rates……………. Railway” modified by the tender percentage and such items are not contained in the latter, at the rate agreed upon between the Engineer and the Contractor before the execution of such items of work and the contracts shall be bound to notify the engineer atleast seven days before the necessity arises for the execution of such items of works that the accepted schedule of rates does not include rate or rates for the extra work involved. The rates payable for such items shall be decided at the meeting to be held between the Engineer and contractor, in as short a period as possible after the need for the special item has come to the notice. In case the contractor fails to attend the meeting after being notified to do so or in the event of no settlement being arrived at, the railway shall be entitled to execute the extra works by other means and the contractor shall have no claim for loss or damage that may result from such procedure. (2) Provided that if the Contractor commences work or incurs any expenditure in regard thereto before the rates as determined and agreed upon as lastly hereuntofore mentioned, then and in such a case the contractor shall only be entitled to be paid in respect of the work carried out or expenditure incurred by him prior to the date of determination of the rates aforesaid according to the rates as shall be fixed by the engineer.However, if the contractor is not satisfied with the decision of the Engineer in this regard he may appeal to the Chief Engineer within 30 days of getting the decision of the Engineer, supported any analysis of the rates claimed. The Chief Engineer’s decision after hearing both the parties in the matter would be final and binding on the contractor and the Railway.” 20. In case, the applicant is aggrieved by the rate, a separate mechanism has been provided under the above-referred clause. A remedy of appeal to the Chief Engineer is also provided under the above-referred clause. 21. Keeping in view of the separate mechanism provided under the clause relatable to rates for extra items of work, any disputes, relating to fixation of rate has been excluded from the purview of arbitration, as per clause 63 of the General Conditions of Contract. In that view of the matter, claim Nos.3, 4 and 5 of the applicant fall under the excepted matters. 22. Accordingly, the application fails and the same is hereby dismissed. No order as to costs. _____________________ B.SESHASAYANA REDDY, J Dt.26-09-2011 *RAR [1] 2011(5) ALT 41 [2] (2002) 4 SCC 45