IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. Arb. Case No. 51/2010 Reserved on: 20.7.2011 Decided on:29.9. 2011 ___________________________________________________ M/s K.C. Sharma. …Petitioner. Versus The State of H.P. and others. …Respondents. ________________________________________________________ Coram: Hon’ble Mr. Justice Rajiv Sharma, Judge. Whether approved for reporting?1 Yes For the Petitioner : Mr. K.D. Sood, Advocate. For the Respondents : Mr. R.P. Singh, Asstt. Advocate General. _____________________________________________________ Justice Rajiv Sharma, Judge. The present petition has been filed, under section 12 of the Arbitration and Conciliation Act, 1996, for setting aside order dated 1.1.2010 passed by the Appointing Authority, i.e. Engineer-in-Chief, H.P.W.D. Shimla by making the appointment of Superintending Engineer, Arbitration Circle, H.P.P.W.D., Solan as Arbitrator and directing the Engineer-in-Chief, H.P.P.W.D. to follow the 1 Whether reporters of the local papers may be allowed to see the judgment? Yes 2 Dispute Redressal System provided, under clause 24 of the agreement. 2. Material facts necessary for the adjudication of this petition are that the petitioner being contractor participated in the tender process. He offered his bid on 5.9.2005. The same was accepted by the respondents on 7.11.2005. The contract was for construction of Buila to Koel Sanog Road Km. 0/0 to 26/628, under package No.HP-11-05. Thereafter, the agreement was entered into between the parties. The contract was cancelled by the Executive Engineer, Arki Division, HPPWD, Arki on 23.10.2009. Petitioner made representation against the same on 27.12.2009. However, in the meantime, the Engineer-in-Chief appointed Superintending Engineer, Arbitration Circle, HPPWD, Solan as an sole Arbitrator to decide and make his award regarding the claims/disputes to be submitted by the Executive Engineer, B&R, HPPWD, Arki against the contractor and also on the counter claims of the contractor to follow subsequently, subject to their admissibility. Petitioner was informed by the Chief Engineer (South), HPPWD, Shimla about the appointment of the Arbitrator by the Engineer-in-Chief on 1.1.2010, vide communication dated 8.1.2010 (Annexure A-5). Petitioner again made a representation against the same 3 on 11.1.2010 to the Engineer-in-Chief. However, the fact of the matter is that the same was rejected by the Engineer-in-Chief; vide Annexure A-9 on 22.2.2010. Thereafter, the Arbitrator entered into reference on 23.2.2010. Petitioner filed fresh representation for reconsideration of decision on 27.2.2010. Respondents filed statements of claim on 26.3.2010. The plea of the petitioner was finally rejected on 20.6.2010, vide Annexure P-15. 3. Mr. K.D. Sood has vehemently argued that the action of the Engineer-in-Chief appointing the Superintending Engineer, Arbitration Circle, HPPWD, Solan as sole Arbitrator, vide letter dated 1.1.2010 is illegal and violative of the terms and conditions of the agreement. According to him, as per clause 24 of the agreement, there is a provision for Dispute Redressal System. According to him, the matter, at the first instance, was required to be referred for settlement to the competent authority. 4. Mr. R.P. Singh, learned Assistant Advocate General has supported the action of the Engineer-in-Chief whereby the matter has been referred to the Superintending Engineer, Arbitration Circle, HPPWD, Solan on 1.1.2010. 4 5. I have heard the learned counsel for the parties and have perused the pleadings carefully. 6. The petitioner was allotted work on 7.11.2005. The contract was cancelled on 23.10.2009. Petitioner made a representation against the same on 27.12.2009. Superintending Engineer, Arbitration Circle, HPPWD, Solan has been appointed as Sole Arbitrator on 1.1.2010. Representation made by the petitioner has been rejected on 22.2.2010. The sole Arbitrator has entered into reference on 23.2.2010. 7. It will be apt at this stage to take stock of Dispute Redressal System provided under the agreement entered into between the parties. Para 24 and 25 of the same reads thus: “24. Dispute Redressal System 24.1 If any dispute or difference of any kind what- so-ever shall arises in connection with or arising out of this Contract or the execution of Works or maintenance of the Works there under, whether before its commencement or during the progress of Works or after the termination, abandonment or breach of the Contract, it shall, in the first instance, be referred for settlement to the competent authority, described along with their powers in the Contract Data, above the rank of the Engineer. The competent authority shall, within a period of forty-five days after being requested in writing by the Contractor to do so, convey his decision to the Contractor. Such decision in respect of every matter so referred shall, subject to review as hereinafter provided, be final and binding upon the Contractor. In case the Works is already 5 in progress, the Contractor shall proceed with the execution of the Works, including maintenance thereof, pending receipt of the decision of the competent authority as aforesaid, with all due diligence. 24.2 Either party will have the right of appeal, against the decision of the competent authority, to the Standing Empowered Committee if the amount appealed against exceeds rupees one lakh. 24.3 The composition of the Empowered Standing Committee will be: I. One official member, Chairman of the Standing Empowered Committee, not below the rank of Additional Secretary to the State Government; II. One official member not below the rank of chief engineer; and III. One non-official member who will be technical expert of Chief Engineer’s level selected by the Contractor from a panel of three persons given to him by the Employer. 24.4 The Contractor and the Employer will be entitled to present their case in writing duly supported by documents. If so requested, the Standing Empowered Committee may allow one opportunity to the Contractor and the Employer for oral arguments for a specified period. The Empowered Committee shall give its decision within a period of ninety days from the date of appeal, failing which the contractor can approach the appropriate court for the resolution of the dispute. 24.5 The decision of the Standing Empowered Committee will be binding on the Employer for payment of claims up to five percent of the Initial Contract Price. The Contractor can accept and receive payment after signing as “in full and final settlement of all claims”. If he does not accept the decision, he is not barred from approaching the courts. Similarly, if the Employer does not accept the decision of the Standing Empowered Committee above the limit of five percent of the Initial 6 Contract Price, he will be free to approach the courts applicable under the law. 25. Arbitration 25.1 If the parties are not satisfied after exhausting the dispute redressal system contained in Clause-24 then the matter may be referred to the Sole Arbitration as per Clause 25. Except where otherwise provided in the contract, all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions here-in- fore mentioned and as to the quality of workmanship of materials used on the work or as to any other question, claim, right, matter or anything whatsoever, in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the process of the works or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Engineer-in- Chief/Chief Engineer, Himachal Pradesh, Public Works Department. It will be no objection to any such appointment that the arbitrator so appointed is a Government Servant, that he had to deal with the matters to which the contract relates and that in course of his duties as Government servant he has expressed views on all or any matters in dispute of difference. The arbitrator to whom the matter is originally referred being transferred to vacating his office of being unable to act for any reason to Engineer-in-Chief/Chief Engineer, Himachal Pradesh, Public Works Department, at the time of such transfer vacation of office or inability to act shall appoint another person to act as arbitrator in accordance with the terms of contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by the Engineer-in- Chief/Chief Engineer, Himachal Pradesh, Public Works 7 Department should act as arbitrator and, if for any person, that is not possible, the matter is not to be referred to arbitrator at all, in all cases where the amount of the claim in dispute is Rs. 50,000/- (Rupees fifty thousand) and above, the arbitrator shall give reasons for the award. Subject as aforesaid the provisions of Arbitrator Act, 1940 of any statutory modification or re-enactment thereof and the rules made there under and for the time in force shall apply to the Arbitration proceedings under this clause. It is also a term of the contract the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such disputes. It is also a term of the contract that if the contractor(s) do/does not make any demand for arbitration in respect of any claim(s) in writing within 30 days of receiving the information about the decision of Empowered Committee indicated in clause 24. The claim of the contractor(s) will be deemed to have been waived and absolutely barred and the Government shall be discharged and released of all liabilities under the contract in respect of these claims. The arbitrator(s) may from time to time with consent of parties enlarge the item, for making and publishing the award.” 8. According to the plain language of clause 24.1, quoted hereinabove, at the first instance, the matter is to be referred for settlement to the competent authority. The competent authority within 45 days after being requested in writing by the Contractor to do so, has to convey his decision to the contractor. Such decision made by the 8 competent authority, subject to review, is final and binding upon the contractor. Each party thereafter has the right to file an appeal against the decision of the competent authority to the Standing Empowered Committee if the amount against appeal is above rupees one lakh. The constitution of the Standing Empowered Committee is provided under clause 24.3. According to clause 24.4, the contractor and the employer are entitled to present their case duly supported by documents. The decision of the Standing Empowered Committee has been made binding on the employer for payment of 5% of the initial contract price as per clause 24.5 and the contractor can accept and receive payment after signing as full and final settlement of claims. It is only if the parties are not satisfied after exhausting the dispute redressal system, they can refer the matter to the Sole Arbitration as per clause 25. 9. In the instant case, the contract was cancelled and the petitioner has made a representation. The Engineer-in-Chief has referred the matter on 1.1.2010 by appointing Superintending Engineer, Arbitration Circle, H.P.P.W.D., Solan, as sole Arbitrator at the request of Executive Engineer, B&R, HPPWD, Arki Division. The Court is of the considered view that as per clause 24.1, 9 the petitioner was to be given an opportunity to settle the matter by the competent authority. Thereafter, if the petitioner was not satisfied, he could file an appeal before the Standing Empowered Committee. 10. Mr. R.P. Singh has argued that the dispute redressal system visualized under clause 24 is only available to the contractor and is not made applicable to the State. There is no merit in this contention. Clause 24 talks of dispute redressal system. There are three stages in which the matter can be resolved by the parties. The first stage is when the contractor can make a request for settling the matter by the competent authority. Thereafter, either of the party, i.e. contractor or the State can file an appeal against the decision of the competent authority to the Standing Empowered Committee if the amount appealed against is above ` one lakh. The contractor and employer are entitled to present their case, duly supported by document before the Standing Empowered Committee. The decision of the Standing Empowered Committee has been made binding on the employer for payment of claims upto 5% of the initial contract price. 11. In the case in hand, the petitioner was required to be given an opportunity to get the matter 10 referred to the competent authority once the contract has been cancelled on 23.10.2009. Thereafter, it was open to the petitioner and respondents to approach the Standing Empowered Committee in case they were aggrieved by the orders passed by the competent authority. Clause 24.2 speaks of ‘either party’. In order to invoke clause 25, it is reiterated that the parties have to take recourse to settle the matter as per clause 24 of the agreement. In the instant case, very purpose of clause 24 has been defeated since the matter has been referred by the Engineer-in- Chief to the Arbitrator on 1.1.2010 though the representation made by the petitioner on 27.12.2009 was pending. The contract has been cancelled on 23.10.2009 and the petitioner has assailed the same on 27.12.2009. Petitioner has made several representations whereby he has assailed appointment of Superintending Engineer, Arbitration Circle, H.P.P.W.D., Solan, as sole Arbitrator. The petitioner was informed about the appointment of Superintending Engineer, Arbitration Circle, H.P.P.W.D., Solan, as Sole Arbitrator, vide Annexure A-5 dated 8.1.2010. Petitioner immediately made representation vide Annexure A-6 on 11.1.2010 seeking recourse to clause 24. He has reiterated the same vide Annexure A-7 on 16.1.2010. In the reply to the representation made by 11 the petitioner, he was apprised on 18.1.2010 that since Arbitrator has already been appointed, he should raise his plea before the Arbitrator, vide Annexure A-8. The appointment of Arbitrator has again been justified by the Executive Engineer, vide communication dated 22.2.2010. The fact of the matter is that case of the petitioner seeking recourse to clause 24 of the contract was finally rejected on 23.6.2010. Petitioner was given personal hearing by the Engineer-in-Chief. He has again reiterated that the Arbitrator could not be appointed without exhausting clause 24.1 of the contract agreement. The first ground mentioned while rejecting the case of the petitioner is that the petitioner has not executed his work with due promptitude. The other ground taken in the case of the petitioner is that the Department has to make recoveries from the petitioner. 12. What emerges from the observations and discussions made hereinabove is that the Engineer-in- Chief has appointed Superintending Engineer, Arbitration Circle, H.P.P.W.D., Solan, as sole Arbitrator on 1.1.2010 without permitting the parties to take recourse to clause 24 of the contract agreement. In the scheme, there are various steps which are required to be followed before taking final recourse to get the matter referred to the 12 Arbitrator. In case clause 24 is followed in letter and spirit, in a given case, there may not be any necessity to refer the matter to the Arbitrator. The competent authority, as per clause 24.1, has been explained and the constitution of the Standing Empowered Committee is also provided under clause 24.3. Clauses 24 and 25 are required to be construed harmoniously without doing any violence to the language employed in these clauses. In case the contention of the learned Assistant Advocate General is accepted in that eventuality, one of the clauses will be rendered otiose. It is not the intention of the maker of the agreement. The underline principle of making clauses 24 and 25 is to avoid multiplicity of litigation and delay in resolving the disputes inter se the parties. 13. Mr. R.P. Singh has argued that it was not necessary for the Engineer-in-Chief to serve a notice upon the petitioner before appointing Superintending Engineer, Arbitration Circle, H.P.P.W.D., Solan, as sole Arbitrator. It may be true that no notice is required to be issued before appointing the Arbitrator but it is equally true that the steps prescribed under clause 24 of the contract agreement have to be followed in letter and spirit before the matter is referred to the Arbitrator. In case clause 24 13 is followed in letter and spirit, it will cut short the expenses and multiplicity of litigation. 14. Consequently, the present petition is allowed. Annexures A-4, A-9 and A-15 dated 1.1.2010, 22.2.2010 and 23.6.2010, respectively are quashed and set aside. The parties are directed to take recourse to clause 24 of the contract agreement entered into between the parties. It is only after exhausting the Redressal Dispute System provided under clause 24 that the matter can be referred to the Arbitrator by the Engineer-in-Chief. Pending application(s), if any, also stands disposed of. No costs. (Justice Rajiv Sharma), Judge. 29.9. 2011 *awasthi*