HON'BLE SRI JUSTICE B. SESHASAYANA REDDY ARBITRATION APPLICATION No.178 of 2010 25th April, 2011 Between :- M/s.Jahnavi Engineering Works, Rep. by its Managing Partner T.Goverdhana Rao .. Petitioner And The General Manager, South Central Railway, Rail Nilayam, 3rd Floor, Secunderabad and others .. Respondents HON'BLE SRI JUSTICE B. SESHASAYANA REDDY ARBITRATION APPLICATION No.178 of 2010 ORDER:- This is an application by M/s.Jahnavi Engineering Works rep.by its Managing Partner under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of sole arbitrator to resolve disputes in relation to and arising out of agreement dated 26-2- 2007 between the applicant-firm and the respondents. The applicant- firm is a contractor, inter alia, undertaking various works with Railways. Repairs to cess @ KM 172/8 to 175/0 for improving embankment between ADB-Pimpalkutty Station came to be awarded to the applicant-firm vide Acceptance Letter No.NW/148/W-III/T-40/06, dated 13-11-2006. The total value of the work entrusted to the applicant-firm was Rs.24,54,038.78 P.S. The period of completion of work was seven months. Accordingly, an agreement came to be executed between the parties on 26-2-2007. The applicant-firm completed the work by 12-6-2007. During the course of execution of work by the applicant-firm, certain extra works came to be carried out. According to the applicant-firm, the value of the work executed is Rs.53,54,000/- against the original agreement work value of Rs.24,54,038.78 P.S. The applicant-firm received an amount of Rs.26,30,959/-. The applicant-firm has been pursuing with the respondents for payment of the balance amount of Rs.27,54,340/-. It enclosed No Claim Certificate to the final bill prepared by the respondents authorities. As per the circular No.148/P of 1994, the respondents department have to finalize the bill within 61 days from the date of completion of the work. Since the respondents authorities failed to finalize the final bill, No Claim Certificate issued by the applicant-firm ceased to have any significance. As per clause 63 of the General Conditions of the Contract, all disputes between the parties are required to be resolved by taking recourse to arbitration. In view of the existence of the arbitration clause, the applicant-firm issued legal notice dated 9-8-2010 calling upon the respondents to refer the claims made under 12 heads to the Arbitrator for adjudication. Respondents No.1 to 3 having received the notice failed to refer the claims to the Arbitrator for adjudication. Hence, this application by the applicant-firm seeking the relief stated supra. Notice to the respondents came to be ordered on 23-11- 2010. Subsequently, the applicant-firm filed an application under Order I Rule 10 C.P.C., seeking impleadment of Union of India represented by its President. The said application came to be allowed on 20-4-2011. The respondents filed counter affidavit. The sum and substance of the counter affidavit is:- entrustment of the work to the applicant-firm is not disputed. The applicant-firm has given a No Claim Certificate for final measurements without any protest or objection. The applicant-firm has been awarded the work vide agreement No.23/DEN/NED, dated 26-2-2007 for a value of Rs.24,54,039/- for ADB-PIMP Section. After issuance of letter of acceptance, the applicant-firm has not commenced the work and not submitted Performance Guarantee within 15 days. The final bill dated 4-3-2009 came to be returned since the applicant-firm failed to deposit Rs.6,97,980/- towards Seniorage charges. Thereupon the respondents have taken a decision to withhold the amounts payable to the applicant in different agreements and informed the same to the applicant-firm by letter dated 20-10-2009. Since the value of claims/disputes made by the applicant-firm has exceeded 20% of the agreement value, the arbitration clause mentioned in the General Conditions of the Contract is not applicable, in which case, referring the claims/disputes raised by the applicant-firm to the arbitrator does not arise. The applicant-firm placed on record the Reply Affidavit. The averments in the Reply Affidavit are almost replica of the averments made in the Counter Affidavit. Paras 13 and 14 of the Reply Affidavit need to be noted and they are thus:- “13) In reply to para 8 and 9 of the counter affidavit of the respondent, it is submitted the applicant-firm making the said pathway in between the Bridge No.221 to 222 to increase the speed at LC No.93 which was cut and cause inconvenience to the villages. Hence, the said circumstances compelled the applicant-firm to made the said pathway for ingress and aggress of villagers and bullock carts and tractors to their respective fields. It was done on oral instructions of DEN (Sunil Mehatha) Villagers and President of Gram Panchayat, GIMMA Village. The applicant-firm has signed in the Final Measurements Book under protest as stated above and the No Claim Certificate given by the applicant-firm is not valid as the Final Bill is not prepared and paid within time. Hence such No Claim Certificate is barred by time and not valid under law and does not bar the applicant-firm to ask damages u/s.73 of Contract Act and there is no special conditions as mentioned in Annexure-A i.e., no arbitration if the value of claims are more than 20% of the original value of the agreement in applicant agreement, the letter, dated 10-5- 2010 is not sustained in eye of law. The applicant already gave letter dated 11-11-2009 wherein he stated that the respondent department manipulated and the documents as stated above. 14) In reply to para 10 to 15 of counter affidavit of the respondents: The judgment cited in counter affidavit i.e., AIR 2009 S.C., 450 does not applicable to the applicant-firm as there is no such special conditions in applicant-firm’s agreement. The judgment of Apex Court cited in counter does not applicable to the present application as there is no final bill under eye of law as stated above. The applicant- firm claims are within purview of the terms of the agreement and are liable to be referred for arbitration. Once the respondents failed to appoint arbitrator, they have no right to appoint after filing the Arbitration Application before this Hon’ble Court in view of the Apex Court judgment. Heard learned Counsel appearing for the applicant-firm and the learned Standing Counsel for Railways appearing for respondents. Learned Counsel appearing for the applicant-firm submits that the applicant-firm submitted the Final Bill and enclosed the No Claim Certificate and as per the Circular No.148/P of 1994, the respondents have to finalize the Bill within 61 days and after expiry of 61 days, No Claim Certificate ceased to be in force. A further submission has been made that under Clauses 63 and 64 of the General Conditions of the Contract, the claims/disputes raised by the applicant-firm are required to be adjudicated by taking recourse to the Arbitration and Conciliation Act. The applicant-firm issued notice dated 9-8-2010 to the respondents invoking the arbitration clause seeking reference of the claims/disputes to the arbitrator for adjudication. In the given facts and circumstances, according to the learned Counsel appearing for the applicant-firm, the claims/disputes between the parties are required to be adjudicated by an arbitrator, and therefore, the application deserves to be allowed. Learned standing Counsel for Railways appearing for the respondents opposed the application on the ground that as per clause 21 of the Special Conditions of Contract, the application is not maintainable as the claims/disputes raised by the applicant-firm exceed 20% of the contract value. The applicant-firm having signed the Special Conditions of Contract cannot be permitted to contend that it is not bound by it. During the course of arguments, the learned Standing Counsel placed before me the entire file relating to award of works to the applicant-firm. I have gone through the file. The Special Conditions of Contract finds place at Annexure-A of the file and it contains the signature of the applicant. The Special Condition of Contract reads as hereunder:- 1) The provision of clause 63 and 64 of the General Conditions of Contract will be applicable only for settlement of claims/disputes, for values less than or equal to 20% of the original value (excluding cost of materials supplied free by Railway) of the contract or 20% of the actual value of work done (excluding the value of the work rejected) under the contract, whichever is less. When claims/disputes are of value more than 20% of the value of the original contract or 20% of the value of the actual value of the work done under the contract, whichever is less, the contractor will not be entitled to seek such disputes/claims for reference to arbitration and the provisions of clause No.63 and 64 of the General Conditions of Contract will not be applicable for referring the disputes to be settled through arbitration. 2) The Contractor shall furnish his monthly statement of claims as per claims as per clause 43(1) of General Conditions of Contract. But, the Contractor should seek reference to arbitration to settle the disputes only once, subject to the conditions as per Para I. 3) The special conditions shall prevail over the existing Clause 63 & 64 of General Conditions of Contract. Per contra, the learned Counsel appearing for the applicant-firm submits that the signature appearing on the Special Conditions of Contract is not that of the applicant and therefore he is not bound by the Special Conditions of Contract. I do not see any substance in his contention since the Special Conditions of Contract contains the signature of the applicant. Clause 21 of the Special Conditions of Contract fell for consideration before the Supreme Court in STATE OF ANDHRA PRADESH v. OBULU REDDY[1] and DEEPAK KUMAR BANSAL v. UNION OF INDIA[2] wherein it has been held that clause 21 of the Special Conditions of Contract prohibits arbitration if the value of dispute/claim exceeds 20% of the contract value. Indisputably, the disputes/claims made by the applicant-firm exceed 20% of the contract value and therefore they stand outside the scope of arbitration clause. In that view of the matter, the arbitration application fails and is accordingly dismissed. No order as to costs. _________________________ B.Seshasayana Reddy, J April, 2011 smr [1] (2001) 10 SCC 30) [2] (2009) 3 SCC 223 = 2009 (2) SCJ 567