UNION OF INDIA versus PARMAR CONSTRUCTION COMPANY
[2019] 5 S.C.R. 1009, Supreme Court of India, 2019
Outcome: Disposed off
Segment: Facts
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UNION OF INDIA
v.
PARMAR CONSTRUCTION COMPANY
(Civil Appeal No. 3303 of 2019)
MARCH 29, 2019
[A. M. KHANWILKAR AND AJAY RASTOGI, JJ.]
Arbitration and Conciliation Act, 1996: s. 11(6) – Work
contract – Dispute between the parties – In view of arbitration clause
in the agreement, notice sent by respondent contractor to appellant
to appoint an arbitrator invoking clause of the contract to resolve
the dispute of payment of outstanding dues – Rejected by the
appellants submitting that “No Due Certificate” was signed and
that entails no dispute to be sent to arbitration – Subsequently,
application u/s. 11(6) by the respondent before the High Court for
appointment of independent arbitrator – High Court appointed a
retired judge of the High Court as an independent Arbitrator – On
appeal, held: Emphasis should be on the agreed terms and to first
resort to the procedure as prescribed and open for the parties to
the agreement to settle differences/disputes arising under the terms
of the contract through appointment of a designated arbitrator –
Independence and impartiality of the arbitrator has never been
doubted but where it is in doubt or where the arbitral tribunal
appointed in terms of the arbitration agreement has not functioned,
or has failed to conclude the proceedings or to pass an award
without assigning any reason, it becomes necessary to make a fresh
appointment – On facts, notice sent by respondent much prior to
enforcement of the Amendment Act, 2015,
thus, the provisions of
the Act of 2015 not applicable – High Court was not justified in
appointing an independent arbitrator without resorting to the
procedure for appointment of an arbitrator prescribed under the
clause of the contract under the inbuilt mechanism as agreed by the
parties – Orders passed by the High Court quashed and set aside –
Appellants directed to appoint the arbitrator in terms of the
agreement – Arbitration and Conciliation(Amendment Act), 2015.
[2019] 5 S.C.R. 1009
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Disposing of the appeals, the Court
HELD: 1.1 As per clause 43(2) of the Contract, the
contractor signs a “No claim” certificate in favour of the railway
in the prescribed format after the work is finally measured up
and the contractor shall be debarred from disputing the
correctness of the items covered under the “No Claim” certificate
or demanding a clearance to arbitration in respect thereof. Each
of the respondent has to attach no claim certificate with final bills
in the prescribed format to be furnished in advance before the
final bills are being examined and measured by the railway
authorities. Although it has been seriously disputed by the
appellants but that is the reason for which even after furnishing
no claim certificate with the final bills being raised, it came to be
questioned by the respondent(contractor) by filing an application
to refer the matter to arbitration invoking clause 64(3) of the
conditions of contract as agreed by the parties. Under clause 64(1),
if there is any dispute or difference between the parties hitherto
as to the construction or operation of the contract, or the
respective rights and liabilities of the parties on any matter in
question or any other ancillary disputes arising from the terms of
the contract or if the railway establishment fails to take a decision
within the stipulated period and the dispute could not be amicably
settled, such dispute or difference is to be
referred to arbitration
and who shall arbitrate such disputes/differences between the
parties, the General Manager may nominate the officer by
designation as referred to under clause 64(3)(a)(i) and a(ii)
respectively with further procedure being prescribed for the sole
arbitrator or the Arbitral Tribunal to adjudicate the disputes/
differences arising under the terms of contract between the
parties. [Paras 20, 21][1025-G-H; 1026-A-E]
1.2 The conjoint reading of Section 21 read with Section 26
leaves no manner of doubt that the provisions of the Amendment
Act, 2015 shall not apply to such of the arbitral proceedings which
has commenced in terms of the provisions of Section 21 of the
Principal Act unless the parties otherwise agree. The Amendment
Act, 2015 which came into force, i.e. on 23.10.2015, shall not
apply to the arbitral proceedings which has commenced in
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accordance with the provisions of Section 21 of the Principal Act,
1996 before the coming into force of Amendment Act, 2015,
unless the parties otherwise agree. [Paras 25, 26][1027-E;
1029-C-D]
1.3 In the instant case, the request was made and received
by the appellants in the concerned appeal much before the
Amendment Act, 2015 came into force. Whether the application
was pending for appointment of an arbitrator or in the case of
rejection because of no claim as in the instant case for
appointment of an arbitrator including change/substitution of
arbitrator, would not be of any legal effect for invoking the
provisions of Amendment Act, 2015, in terms of Section 21 of
the principal Act, 1996. The applications/requests made by the
respondent contractors deserves to be examined in accordance
with the principal Act, 1996 without taking resort to the
Amendment Act, 2015 which came into force from 23rd October,
2015. [Para 27][1029-D-F]
1.4 There cannot be a rule of absolute kind and each case
has to be looked into on its own facts and circumstances. At the
same time, this Court cannot be oblivious of the ground realities
that where a petty/small contractor has made investments from
his available resources in executing the works contract and bills
have been raised for the escalation cost incurred by him and the
railway establishments/appellants without any justification reduces
the claim unilaterally and take a defence of the no claim certificate
being
furnished which as alleged by the respondents to be
furnished at the time of furnishing the final bills in the prescribed
format. [Para 33][1033-C-E]
1.5 The respondents are the contractors and attached with
the railway establishment in the instant batch of appeals are
claiming either refund of security deposits/bank guarantee, which
has been forfeited or the escalation cost has been reduced from
final invoices unilaterally without tendering any justification. It is
manifest from the pleadings on record that the respondent
contractors who entered into contract for construction works with
the railway establishment cannot afford to take any displeasure
from the employer, the amount under the bills for various reasons
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which may include discharge of his liability towards the bank,
financial institutions and other persons, indeed the railway
establishment has a upper hand. A rebutable presumption could
be drawn that when a no claim has been furnished in the prescribed
format at the time of final bills being raised with unilateral
deductions made even that acceptable amount will not be released,
unless no claim certificate is being attached to the final bills. The
arbitral dispute subsists and the contract has not been discharged
as being claimed by the appellants employer(s) and all the
contentions in this regard are open to be examined in the arbitral
proceedings.[Para 35][1037-D-G; 1038-A-B]
1.6 Clause (c) of sub-section (6) of Section 11 relates to
failure to perform any function entrusted to a person including an
institution and also failure to act under the procedure agreed
upon by the parties. In other words, clause(a) refers to the party
failing to act as required under that procedure; clause(b) refers
to the agreement where the parties fails to reach to an agreement
expected of them under that procedure and clause (c ) relates to
a person which may not be a party to the agreement but has given
his consent to the agreement and what further transpires is that
before any other alternative is resorted to, agreed procedure
has to be given its precedence and the terms of the agreement
has to be given its due effect as agreed by
the parties to the
extent possible. The corrective measures have to be taken first
and the Court is the last resort. By appointing an arbitrator in
terms of sub-section (8) of Section 11 of Act, 1996, due regard
has to be given to the qualification required for the arbitrator by
the agreement of the parties and also the other considerations
such as to secure an independent and impartial arbitrator. To
fulfil the object with terms and conditions which are cumulative
in nature, it is advisable for the Court to ensure that the remedy
provided as agreed between the parties in terms of the contract
is first exhausted. [Para 38][1039-A-E]
1.7 It is the duty of the Court to act on the agreed terms
and to first resort to the procedure as prescribed and open for
the parties to the agreement to settle differences/disputes arising
under the terms of the contract through appointment of a
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designated arbitrator although the name in the arbitration
agreement is not mandatory or must but emphasis should always
be on the terms of the arbitration agreement to be adhered to or
given effect as closely as possible. [Para 41][1043-D-E]
1.8 Independence and impartiality of the arbitrator has never
been doubted but where the impartiality of the arbitrator in terms
of the arbitration agreement is in doubt or where the Arbitral
Tribunal appointed in terms of the arbitration agreement has not
functioned, or has failed to conclude the proceedings or to pass
an award without assigning any reason and it became necessary
to make a fresh appointment, Chief Justice or his designate in
the given circumstances after assigning cogent reasons in
appropriate cases may resort to an alternative arrangement to
give effect to the appointment of independent arbitrator under
Section 11(6) of the Act. [Para 43][1044-B-D]
1.9 The High Court was not justified in appointing an
independent arbitrator without resorting to the procedure for
appointment of an arbitrator which has been prescribed under
clause 64(3) of the contract under the inbuilt mechanism as agreed
by the parties. The orders passed by the High Court are quashed
and set aside. The appellants are directed to appoint the arbitrator
in terms of clause 64(3) of the agreement within the stipulated
period. [Paras 44, 45][1045-B-C]
M/s. Aravali Power Company Private Limited Vs. Era
Infrastructure Engineering Limited
(2017) 15 SCC 32;
S.P. Singla Constructions Pvt. Ltd. v. State of Himachal
Pradesh and Others 2018(15) SCALE 421; Union of
India and Others v. Master Construction Company
(2011) 12 SCC 349 : [2011] 5 SCR 853; New India
Assurance Company Limited v. Genus Power
Infrastructure Ltd. (2015) 2 SCC 424 : [2014] 12 SCR
360 ; ONGC Mangalore Petrochemicals Limited v. ANS
Constructions Limited and Anr.
(2018) 3 SCC 373 :
[2018] 2 SCR 598; Union of India & Another v. M.P.
Gupta (2004) 1) SCC 504; Union of India & Another
v. V. S. Engineering(P) Ltd. (2006) 13 SCC 240 : [2006]
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9 Suppl. SCR 125; Northern Railway Administration,
Ministry of Railway, New Delhi v. Patel Engineering
Co. Limited (2008) 10 SCC 240 : [2008] 12 SCR 216;
Union of India v. Singh Builders Syndicate
(2009) 4
SCC 523: [2009] 3 SCR 563; National Insurance
Company Limited v. Boghara Polyfab Private Limited
(2009) 1 SCC 267: [2008] 13 SCR 638; Datar
Switchgears Ltd. v. Tata Finance Ltd. and Another
(2000) 8 SCC 151; Punj Lloyd Ltd. v. Petronet MHB
Ltd. (2006) 2 SCC 638; Union of India v. Bharat Battery
Manufacturing Co. (P) Ltd. (2007) 7 SCC 684 : [2007]
8 SCR 993; North Eastern Railway and Others v. Tripple
Engineering Works (2014) 9 SCC 288 : [2014] 6 SCR
1143; Union of India and Others v. Uttar Pradesh State
Bridge Corporation Limited (2015) 2 SCC 52; Union
of India v. Kishorilal Gupta & Bros. AIR 1959 SC
1362 : [1960] SCR 493; P.K. Ramaiah & Co. v.
Chairman and Managing Director, National Thermal
Power Corpn. (1994) 3 Suppl. SCC 126; State of
Maharashtra v. Nav Bharat Builders (1994) 3 Suppl.
SCC 83; Nathani Steels Limited v. Associated
Constructions (1995) 3 Suppl. SCC 324; Damodar
Valley Corporation v. KK Kar
(1974) 1 SCC 141 :
[1974] 2 SCR 240; Bharat Heavy Electricals Limited
Ranipur v. Amarnath Bhan Prakash (1982) 1 SCC 625;
Union of India and Anr. v. L.K. Ahuja and Co. (1988) 3
SCC 76 : [1988] 3 SCR 402 ; Jayesh Engineering Works
v. New India Assurance Co. Ltd. (2000) 10 SCC 178 ;
Chairman and MD, NTPC Ltd. v.
Reshmi Constructions
Builders & Contractors (2004) 2 SCC 663 : [2004] 1
SCR 62 – referred to.
Case Law Reference
(2017) 15 SCC 32             referred to
Para 8
2018 (15) SCALE 421     referred to
Para 8
[2011] 5 SCR 853
    referred to
Para 9
[2014] 12 SCR 360
    referred to
Para 9
[2018] 2 SCR 598
    referred to
Para 9
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(2004) 10 SCC 504
      referred to
Para 10
[2006] 9 Suppl. SCR 125    referred to
Para 10
[2008] 12 SCR 216
      referred to
Para 10
[2009] 3 SCR 563
      referred to
Para 10
[2008] 13 SCR 638
      referred to
Para 13
(2000)  8 SCC 151
      referred to
Para 14
(2006) 2 SCC 638
      referred to
Para 14
[2007] 8 SCR 993
      referred to
Para 14
[2014] 6 SCR 1143
      referred to
Para 15
(2015) 2 SCC 52
      referred to
Para 15
[1960] SCR 493
      referred to
Para 29
[1994] 3 Suppl. SCC 126    referred to
Para 29
[1994] 3 Suppl. SCC 83      referred to
Para 29
[1995] 3 Suppl. SCC 324    referred to
Para 29
[1974] 2 SCR 240
      referred to
Para 29
(1982) 1 SCC 625
      referred to
Para 29
[1988] 3 SCR 402
      referred to
Para 29
(2000) 10 SCC 178
      referred to
Para 29
[2004] 1 SCR 62
      referred to
Para 29
CIVIL APPELLATE JURISDICTION: Civil Appeal No.3303 of
2019
From the Judgment and Order dated 14.07.2017 of the High Court
of Rajasthan, Jaipur Bench in S.B.Civil Miscellaneous Application
(Arbitration) No. 14 of 2015
With
Civil Appeal Nos. 3304, 3305, 3306, 3307, 3308, 3309, 3310, 3311,
3312, 3313, 3319, 3314, 3315, 3316, 3317 and 3318 of 2019.
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
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K. M. Natarajan, ASG, Ashok K. Srivastava, R. Balasubramanian,
Ms. Shradha Deshmukh,  Raj Bahadur, Kisan Bhardwaz, Mrs. Anil
Katiyar, Sameer Jain, Abhinav Shrivastava, Suvigya Awasthy, Karan
Valecha, Rahul Gupta, Ms. Sana Kamra, Vishwa Pal Singh, Surjeet Singh,
Ronak, Manendra Pal Gupta, S. K. Bhattacharya, L. K. Paonam,
Mrs. Tomthinnganbi Koijam, Niraj Bobby Paonam, Nitin Kumar Thakur,
Miss Geetanjali Mohan, E. C. Vidya Sagar, Subash Chandra Sagar, Advs.
for the appearing parties.
The Judgment of the Court was delivered by
RASTOGI, J.  1. Leave granted.
2.  The question that arises for consideration in the batch of appeals
by special leave is as to whether (1) the High Court was justified in
invoking amended provision which has been introduced by Arbitration
and Conciliation(Amendment Act), 2015 with effect from 23rd October,
2015(hereinafter being referred to as “Amendment Act, 2015”); (2)
whether the arbitration agreement stands discharged on acceptance of
the amount and signing no claim/discharge certificate and (3) whether it
was permissible for the High Court under Section 11(6) of the Arbitration
and Conciliation Act, 1996(prior to the Amendment Act, 2015) to appoint
third party or an independent Arbitrator when the parties have mutually
agreed for the procedure vis-à-vis the authority to appoint the designated
arbitrator.  The High Court has passed separate orders in exercise of its
powers under Section
11(6) of the Act, 1996 in appointing an independent
arbitrator without adhering to the mutually agreed procedure under the
agreement executed between the parties.  Since the batch of appeals
involve common questions of law and facts with the consent of parties,
are disposed off by the present judgment.
3. The facts have been noticed from civil appeal arising out of
SLP(Civil) no. 2166 of 2018.
4. The work for construction of office accommodation for officer
and rest house was allotted to the respondent contractor, at Dungarpur
in the State of Rajasthan on 21st December, 2011. As alleged, the
extension was granted by the appellants to complete the work by
31st March, 2013.  The measurement was accepted by the respondent
under protest and when appellants officials failed to clear 7th final bill
until the respondent put a line over “under protest” and signed no claim
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certificate.  The total value of the work executed was of Rs. 58.60 lakhs
against which Rs. 55.54 lakhs was paid and escalation cost was not
added with interest @ 18% over delay payment.  Demand notice was
sent to the appellants to appoint an arbitrator invoking Clause 64(3) of
the GCC to resolve the disputes/differences on 23rd December, 2013.
When the appellants failed to appoint the arbitrator in terms of Clause
64(3), application came to be filed under Section 11(6) of the Act, 1996
before the Chief Justice/his Designate for appointment of an independent
arbitrator who after hearing the parties under the impugned judgment
allowed the application of the respondent and appointed a retired judge
of the High Court as an independent arbitrator to arbitrate the proceedings.
5. In the instant batch of appeals, one fact is common that the
orders were placed for various nature of construction works for its
execution and the agreement executed between the parties includes a
separate chapter for settlement of disputes leaving any dispute or
difference between the parties to be resolved through the process of
arbitration by appointing an arbitrator invoking clause 64(3) of the contract.
As per terms of the agreement, date of completion of the project was
delayed as alleged due to breach of obligations by the appellants and the
scheduled date of completion had to be extended.  Meanwhile, due to
rise in the prices of raw material, the project was impossible to be
completed by the respondent contractors and hence correspondence
was made to either pay the escalated price or in the absence, the
respondents would not be in a position to conclude the contract.  It was
alleged that the appellants accepted the terms and conditions for escalated
prices and asked the respondents to complete the work and handover
the project.
6. But when the respondents raised the final bills in the pre-
determined format (which also included the no dues certificate) on the
newly agreed prices, dispute has arisen in context of payment of escalated
prices or withholding of security deposits, taking note of the existence of
arbitration clause in the agreement the respondents sent a notice to appoint
an arbitrator as per clause 64(3) of GCC to resolve the dispute of payment
of outstanding dues which was declined by the appellants by sending the
reply that “No Due Certificate” was signed and that entails no dispute to
be sent to arbitration.  Since the appellants failed to appoint the arbitrator
in accordance with the arbitration clause in the agreement, each of the
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[AJAY RASTOGI, J.]
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respondent filed application under Section 11(6) of the Act before the
High Court for appointment of an independent arbitrator and the primary
objection of the appellants before the High Court was that on furnishing
the no claim certificate by the contractor, no dispute subsists which is to
be sent to the arbitrator and further the claims which has been submitted
were beyond time as prescribed in the agreement and thus falls under
the ‘excepted matter’ in the agreement.
7. After the matter being heard, the application for appointment
of arbitrator under Section 11(6) of the Act, 1996 came to be decided by
the High Court of Rajasthan by separate order(s) keeping in view the
independence and neutrality of arbitrator as envisaged under Section
12(5) of the Amendment Act, 2015.  The High Court further observed
that the amended provisions of Act, 2015 shall apply to the pending
proceedings and mere furnishing of no claim certificate would not take
away the right of the parties and it is open for adjudication before the
arbitrator and appointed a retired Judge of the High Court as an
independent sole arbitrator under the impugned judgment in exercise of
power under Section 11(6) of the Act, 1996.  Indisputedly, the request
for the dispute to be referred to arbitration in the instant batch of appeals
was received by the appellants much before the Amendment Act, 2015
came into force (i.e. 23rd October, 2015).
8. Mr. K.M.
Natarajan, learned Additional Solicitor General
appearing for the appellants submits that Section 12 including sub-sections
(1) and (5) as also Fifth and Seventh Schedule, has come into force by
the Amendment Act, 2015 w.e.f. 23rd October, 2015 and indisputedly, in
the instant batch of appeals, request to refer to the arbitration was received
by the appellants much prior to the Amendment Act, 2015.  In view of
Section 21 read with Section 26 of the Amendment Act, 2015 where the
request has been sent to refer the dispute to arbitration and received by
the other side before the amendment Act, 2015 has come into force, the
proceedings will commence in accordance with the pre-amended
provisions of the Act, 1996 and in the given circumstances, apparent
error has been committed by invoking Section 12(5) of the Amendment
Act, 2015 for appointment of an independent arbitrator without resorting
to the clause 64(3) of GCC as agreed by the parties and in support of
submission, learned counsel has placed reliance on the decision of this
Court in the case of M/s. Aravali Power Company Private Limited
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Vs. Era Infrastructure Engineering Limited 2017(15) SCC 32 and
S.P. Singla Constructions Pvt. Ltd. Vs. State of Himachal Pradesh
and Others 2018(15) Scale 421.
9. Learned counsel further submits that once the no claim
certificate has been signed by each of the respondent and after settlement
of the final bills, no arbitral dispute subsists and the contract stands
discharged and they cannot be permitted to urge that they gave the no
claim certificate under any kind of financial duress/undue influence and
even in support thereof, no prima facie evidence has been placed on
record.  In the given circumstances, the appointment of an independent
arbitrator by the High Court under Section 11(6) of the Act, 1996 is not
sustainable and in support of submission, learned counsel has placed
reliance on the decisions of this Court in Union of India and Others
Vs. Master Construction Company 2011(12) SCC 349; New India
Assurance Company Limited Vs. Genus Power Infrastructure Ltd.
2015(2) SCC 424; ONGC Mangalore Petrochemicals Limited Vs.
ANS Constructions Limited and Anr. 2018(3) SCC 373.
10. Learned counsel further submits that none of the respondents
had made any allegation of bias to the arbitrator who was likely to be
appointed by the railways in terms of the agreement.  The said issue
would have cropped up only when the appointment of arbitrator was
made by the railways. It was required in the first instance to make every
possible attempt to respect the agreement
agreed upon by the parties in
appointing an arbitrator to settle the disputes/differences and only when
there are allegations of bias or malafide, or the appointed arbitrator has
miserably failed to discharge its obligation in submitting the award, the
Court is required to examine those aspects and to record a finding as to
whether there is any requirement in default to appoint an independent
arbitrator invoking Section 11(6) of the Act, 1996 and in support of
submission, learned counsel has placed reliance on the decision of this
Court in Union of India & Another Vs. M.P. Gupta 2004(10) SCC
504, Union of India & Another Vs. V.S. Engineering(P) Ltd.2006(13)
SCC 240, Northern Railway Administration, Ministry of Railway,
New Delhi Vs. Patel Engineering Co. Limited 2008(10) SCC 240,
Union of India Vs. Singh Builders Syndicate 2009(4) SCC 523.
11. Learned counsel further submits that as indicated in clause
64(7) of the GCC, all statutory modifications thereof will be binding to
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the arbitration proceedings and after promulgation of the Arbitration and
Conciliation (Amendment) Act, 2015, clause 64(7) stood amended to
fulfil the mandate of Amendment Act, 2015 and it was clarified that all
statutory modifications thereof shall apply to the appointment of arbitrator
and arbitration proceedings and the respondents being signatory to the
agreement have accepted the enforceability of aforesaid clause 64(7)
and, therefore, are bound by any modification made in GCC even
subsequently and placed reliance on the judgment of this Court in S.P.
Singla Constructions Pvt. Ltd’s case(supra).
12. Per contra, Mr. Sameer Jain, learned counsel for the
respondents submits that respondents are the registered contractors
undertaking various nature of works contracts with the railway
establishment and are not in a bargaining position and it is a ground
reality that final bills are not being released without a no claim certificate
being furnished in advance by them.  In all the cases, unilateral deductions
have been made from the final bills furnished by each of the respondent
and they are very small and petty contractors and the payments are not
released unless the no claim certificate is being furnished, it is nothing
more than a financial duress and undue influence by the authorities and
is open for the arbitrator to adjudicate by examining the bills which was
furnished for payment.
13. Learned counsel further
submits that the effect of no claim
certificate has been examined by this Court in National Insurance
Company Limited Vs. Boghara Polyfab Private Limited 2009(1) SCC
267 and there are series of decisions of this Court where no claim
certificate in itself has never been considered to be the basis to non-suit
the request made in appointing an arbitrator to independently examine
the dispute arising under the terms of the agreement.
14. Learned counsel further submits that once the appellants have
failed to appoint an arbitrator under the terms of agreement before the
application under Section 11(6) being filed before the Court, the authority
forfeits its right of appointing an arbitrator and it is for the Chief Justice/
his designate to appoint an independent arbitrator under Section 11(6) of
the Act, 1996 as held by this Court in Datar Switchgears Ltd. Vs. Tata
Finance Ltd. and Another  2000(8) SCC 151 followed in Punj Lloyd
Ltd. Vs. Petronet MHB Ltd. 2006(2) SCC 638 and later in Union of
India Vs. Bharat Battery Manufacturing Co. (P) Ltd. 2007(7) SCC
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684 that once the party fails to appoint an arbitrator until filing of an
application under Section 11(6) of the Act, the opposite party would lose
its right of appointment of arbitrator(s) as per the terms of the contract.
15. Learned counsel further submits that while dealing with Section
11(6), the Chief Justice/his designate can even overlook the qualification
of the arbitrator under the agreement but arbitration agreement in the
instant case does not contain any specific qualification of the arbitrator
under Clause 64(3) of the GCC and since the appellants failed to appoint
an arbitrator until the application was filed, Section 11(6) empowers the
Court to deviate from the agreed terms if required by appointing an
independent arbitrator and by virtue of operation of Section 12(5) of the
Amendment Act, 2015, the employee of the railway establishment became
ineligible to be appointed as arbitrator.  In the given circumstances, the
authority is vested with the Chief Justice or his designate to appoint an
independent arbitrator under Section 11(6) of the Act and the same has
been held by this Court in North Eastern Railway and Others Vs.
Tripple Engineering Works 2014(9) SCC 288 and Union of India
and Others Vs. Uttar Pradesh State Bridge Corporation Limited
2015(2) SCC 52.
16. Learned counsel further submits that the primary object by
introducing the remedy to measure arbitration is to have a fair, speedy
and inexpensive trial by the Arbitral Tribunal.
Unnecessary delay or
expense would frustrate the very purpose of arbitration and it holds out
that arbitrator should always be impartial and neutrality of the arbitrator
is of utmost importance and that has been noticed by the Parliament in
amending Section 12(5) of the Act, 1996 which came into force on 23rd
October, 2015 and when the matters have been taken up for hearing by
the High Court after the amendment has come into force, the effect of
the amended provisions would certainly be taken note of and in the given
circumstances, if an independent arbitrator has been appointed which is
indisputedly an impartial and neutral person fulfilling the mandate of the
object of the proceedings of arbitration, the amended provision has been
rightly invoked by the High Court in the appointment of an independent
arbitrator invoking Section 11(6) of the Act, 1996.
17. We have heard learned counsel for the parties and with their
assistance perused the material on record.
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[AJAY RASTOGI, J.]
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18. The facts which manifest from the batch of appeals are that
the respondents are the registered contractors with the railway
establishment and undertaking work contracts (construction) of various
kinds.  They raised a demand for escalation cost and the interest accrued
thereon because the date of the completion of the project was delayed
as alleged due to breach of obligations by the appellants and the scheduled
date of completion had to be extended.  In the interregnum period, there
was a rise in the prices of the raw material and the project became
impossible to be completed by the respondent contractors.  Hence, a
request was made to the appellants to either pay the enhanced escalation
price otherwise the respondent contractors would not be in a position to
conclude the contract and on the acceptance for payment of the escalation
costs, respondent contractor completed the work and delivered the project
and raised final bills in the prescribed pre-determined format (which
also included no dues certificate).  Since the dispute has arisen in the
context of the payment of the escalated cost, as demanded by respondent
contractors, and their being a clause of arbitration in the agreement,
each of the respondent contractors sent a notice for arbitration invoking
clause 64(3) of GCC, which in majority of the cases declined by the
appellants stating that no dues certificate has been furnished and that
entailed no
subsisting dispute and that was the reason due to which each
of the respondent contractor had approached the High Court by filing an
application under Section 11(6) of the Act, 1996.  It is also not in dispute
that the request for referring the dispute to arbitration was received by
the appellants much prior to the enforcement of the Amendment Act,
2015 which came into force, w.e.f. 23rd October, 2015.
19. To proceed with the matter further, it will be apposite to take
note of the relevant clauses of the agreement with which we are presently
concerned: -
“CLAIMS 43.(1) Monthly Statement Of Claims : The Contractor
shall prepare and furnish to the Engineer once in every month an
account giving full and detailed particulars of all claims for any
additional expenses to which the Contractor may consider himself
entitled to and of all extra or additional works ordered by the
Engineer which he has executed during the preceding month and
no claim for payment for and such work will be considered which
has not been included in such particulars.
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43.(2) Signing Of “No Claim” Certificate : The Contractor shall
not be entitled to make any claim whatsoever against the Railway
under or by virtue of or arising out of this contract, nor shall the
Railway entertain or consider any such claim, if made by the
Contractor, after he shall have signed a “No Claim” Certificate in
favour of the Railway in such form as shall be required by the
Railway after the works are finally measured up. The Contactor
shall be debarred from disputing the correctness of the items
covered by “No Claim” Certificate or demanding a clearance to
arbitration in respect thereof.
64.(1) Demand for Arbitration:
64.(1) (i) 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 180 days of
his presenting his final claim on disputed matters shall demand in
writing that the dispute or difference be referred to arbitration.
64.(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(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.
64.(1) (iii) (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. (b) The claimant shall submit
his claim stating the facts supporting the claims alongwith all the
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
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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statement and counter claim(s), if any, within a period of 60 days
of receipt of copy of claims from Tribunal thereafter, unless
otherwise extension has been granted by Tribunal. (d) Place of
Arbitration : 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.
64.(1) (iv) No new claim shall be added during proceedings by
either party. However, a party may amend or supplement the
original claim or defence thereof during the course of arbitration
proceedings subject to acceptance by Tribunal having due regard
to the delay in making it.
64.(1) (v) If the contractor(s) does/do not prefer his/their specific
and final claims in writing, within a period of 90 days of receiving
the intimation from the Railways that the final bill is ready for
payment, he/they will be deemed to have waived his/their claim(s)
and the Railway shall be discharged and released of all liabilities
under the contract in respect of these claims.
64.(2) Obligation During Pendency Of Arbitration : Work under
the contract shall, unless otherwise directed by the Engineer,
continue during the arbitration proceedings, and no payment due
or payable by the Railway shall be withheld on account of such
proceedings, provided, however, it shall be open for Arbitral
Tribunal to
consider and decide whether or not such work should
continue during arbitration proceedings.
64.(3) Appointment of Arbitrator :
64.(3) (a)(i) In cases where the total value of all claims in question
added together does not exceed Rs. 25,00,000 (Rupees twenty
five 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. The sole arbitrator shall be
appointed within 60 days from the day when a written and valid
demand for arbitration is received by GM. {Authority : Railway
Board’s letter no. 2012/CE-I/CT/ARB./24, Dated 22.10./
05.11.2013}
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64.(3) (a)(ii) In cases not covered by the Clause 64(3)(a)(i), the
Arbitral Tribunal shall consist of a Panel of three Gazetted Railway
Officers not below JA Grade or 2 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 Gazetted
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 GM. Contractor will be asked to
suggest to General Manager at least 2 names out of the panel for
appointment as contractor’s nominee within 30 days from the date
of dispatch of the request by Railway. The General Manager shall
appoint at least 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.
GM shall complete this 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 Railway for the purpose of appointment of
arbitrator.
64.(7) Subject to the provisions of the aforesaid Arbitration and
Conciliation Act, 1996 and the rules thereunder and any statutory
modifications thereof shall apply to the arbitration proceedings
under this Clause.
20. As per clause 43(2), the contractor signs a “No claim”
certificate in favour of the railway in the prescribed format after the
work is finally measured up and the contractor shall be debarred from
disputing the correctness of the items covered under the “No Claim”
certificate or demanding a clearance to arbitration in respect thereof.
Each of the respondent has to attach no claim certificate with final bills
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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in the prescribed format to be furnished in advance before the final bills
are being examined and measured by the railway authorities.  Although
it has been seriously disputed by the appellants but that is the reason for
which even after furnishing no claim certificate with the final bills being
raised, it came to be questioned by the respondent(contractor) by filing
an application to refer the matter to arbitration invoking clause 64(3) of
the conditions of contract as agreed by the parties.
21. Under clause 64(1), if there is any dispute or difference
between the parties hitherto as to the construction or operation of the
contract, or the respective rights and liabilities of the parties on any
matter in question or any other ancillary disputes arising from the terms
of the contract or if the railway establishment fails to take a decision
within the stipulated period and the dispute could not be amicably settled,
such dispute or difference is to be referred to arbitration and who shall
arbitrate such disputes/differences between the parties, the General
Manager may nominate the officer by designation as referred to under
clause 64(3)(a)(i) and a(ii) respectively with further procedure being
prescribed for the sole arbitrator or the Arbitral Tribunal to adjudicate
the disputes/differences arising under the terms of contract between the
parties.
22. It is also not disputed that when the request of the respondent
contractors was rejected by the appellants on the premise of the no
claim certificate being furnished, arbitral dispute does not survive which
is to be sent to arbitration, each of the respondent contractor approached
the High Court by filing an application under Section 11(6) of the Act for
appointment of an arbitrator for settling their disputes/differences arising
from the terms of contract as agreed between the parties.
23. It is to be noticed that the cost of escalation which was raised
by each of the respondent contractor with final bills were appended with
the no claim certificate in the prescribed pre-determined format and
each of the claim of the respondent contractor for making a reference
to the Arbitrator for settling the disputes/differences arising from the
terms of the contract, as agreed between the parties was turned down
by the appellants because of furnishing no claim certificate.
24. As on 1st January, 2016, the Amendment Act, 2015 was gazetted
and according to Section 1(2) of the Amendment Act, 2015, it deemed to
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have come into force on 23rd October 2015.  Section 21 of the Act, 1996
clearly envisage that unless otherwise agreed by the parties, the arbitral
proceedings in respect of a dispute shall commence from the date on
which a request for that dispute to be referred to arbitration is received
by the respondent and the plain reading of Section 26 of Amendment
Act, 2015 is self-explicit, leaves no room for interpretation.  Section 21
& 26 of the Act, 1996/Amendment Act, 2015 relevant for the purpose is
extracted hereunder: -
“21. Commencement of arbitral proceedings. —Unless
otherwise agreed by the parties, the arbitral proceedings in respect
of a particular dispute commence on the date on which a request
for that dispute to be referred to arbitration is received by the
respondent.
26.  Act not to apply to pending arbitral proceedings –
Nothing contained in this Act shall apply to the arbitral proceedings
commenced, in accordance with the provisions of Section 21 of
the principal Act, before the commencement of this Act unless
the parties otherwise agree but this Act shall apply in relation to
arbitral proceedings commenced on or after the date of
commencement of this Act.”
25. The conjoint reading of Section 21 read with Section 26 leaves
no manner of doubt that the provisions of the Amendment Act, 2015
shall not apply to such of the arbitral proceedings which has commenced
in terms of the provisions of Section 21 of the Principal Act unless the
parties
otherwise agree.  The effect of Section 21 read with Section 26
of Amendment Act, 2015 has been examined by this Court in Aravali
Power Company Private Limited Vs. Era Infra Engineering Limited
(supra) and taking note of Section 26 of the Amendment Act, 2015 laid
down the broad principles as under:-
“22. The principles which emerge from the decisions referred to
above are:
22.1. In cases governed by 1996 Act as it stood before the
Amendment Act came into force:
22.1.1. The fact that the named arbitrator is an employee of one
of the parties is not ipso facto a ground to raise a presumption of
bias or partiality or lack of independence on his part. There can
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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however be a justifiable apprehension about the independence or
impartiality of an employee arbitrator, if such person was the
controlling or dealing authority in regard to the subject contract or
if he is a direct subordinate to the officer whose decision is the
subject-matter of the dispute.
22.1.2. Unless the cause of action for invoking jurisdiction under
Clauses (a), (b) or (c) of sub-section (6) of Section 11 of the 1996
Act arises, there is no question of the Chief Justice or his designate
exercising power under sub-section (6) of Section 11.
22.1.3. The Chief Justice or his designate while exercising power
under sub-section (6) of Section 11 shall endeavour to give effect
to the appointment procedure prescribed in the arbitration clause.
22.1.4. While exercising such power under sub-section (6) of
Section 11, if circumstances exist, giving rise to justifiable doubts
as to the independence and impartiality of the person nominated,
or if other circumstances warrant appointment of an independent
arbitrator by ignoring the procedure prescribed, the Chief Justice
or his designate may, for reasons to be recorded ignore the
designated arbitrator and appoint someone else.
22.2. In cases governed by 1996 Act after the Amendment Act
has come into force: If the arbitration clause finds foul with the
amended provisions, the appointment of the arbitrator even if
apparently in conformity with the arbitration clause in the
agreement, would be illegal and thus the court would be within its
powers to appoint such arbitrator(s) as may be permissible.”
which has been further considered in S.P. Singla Constructions
Pvt. Ltd. case(supra).
“16.  Considering the facts and circumstances of the present case,
we are not inclined to go into the merits of this contention of the
appellant nor examine the correctness or otherwise of the above
view taken by the Delhi High Court in Ratna Infrastructure Projects
case; suffice it to note that as per Section 26 of the Arbitration
and Conciliation (Amendment) Act, 2015 the provisions of the
Amended Act, 2015 shall not apply to the arbitral proceedings
commenced in accordance with the provisions of Section 21 of
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the Principal Act before the commencement of the Amendment
Act unless the parties otherwise agree.  In the facts and
circumstances of the present case, the proviso in clause (65) of
the general conditions of the contract cannot be taken to be the
agreement between the parties so as to apply the provisions of
the amended Act.  As per Section 26 of the Act, the provisions of
the Amendment Act, 2015 shall apply in relation to arbitral
proceedings commenced on or after the date of commencement
of the Amendment Act, 2015(w.e.f. 23.10.2015).  In the present
case, arbitration proceedings commenced way back in 2013, much
prior to coming into force of the amended Act and, therefore,
provisions of the Amended Act cannot be invoked.”
26. We are also of the view that the Amendment Act, 2015 which
came into force, i.e. on 23rd October, 2015, shall not apply to the arbitral
proceedings which has commenced in accordance with the provisions
of Section 21 of the Principal Act, 1996 before the coming into force of
Amendment Act, 2015, unless the parties otherwise agree.
27. In the instant case, the request was made and received by the
appellants in the concerned appeal much before the Amendment Act,
2015 came into force.  Whether the application was pending for
appointment of an arbitrator or in the case of rejection because of no
claim as in the instant case for appointment of an arbitrator including
change/substitution of arbitrator, would not be of any legal effect for
invoking the provisions of Amendment Act, 2015, in terms of Section 21
of the principal Act, 1996.  In our considered view, the applications/
requests made by the respondent contractors deserves to be examined
in accordance with the principal Act, 1996 without taking resort to the
Amendment Act, 2015 which came into force from 23rd October, 2015.
28. The thrust of the learned counsel for the appellants that
submission of a no claim certificate furnished by each of the respondent/
contractor takes away the right for settlement of dispute/difference arising
in terms of the agreement to be examined by the arbitrator invoking
Clause 64(3) of the conditions of the contract.  The controversy presented
before us is that whether after furnishing of no claim certificate and the
receipt of payment of final bills as submitted by the contractor, still any
arbitral dispute subsists between the parties or the contract stands
discharged.
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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29. Before we take note of the factual aspect of the present matters,
it will be appropriate to carefully consider the plenitude of decisions of
this Court referred to by learned counsel for the parties and to summarise
(first category) Union of India Vs. Kishorilal Gupta & Bros. AIR
1959 SC 1362; P.K. Ramaiah & Co. Vs. Chairman and Managing
Director, National Thermal Power Corpn. 1994 Supp(3) SCC
126;State of Maharashtra Vs. Nav Bharat Builders 1994 Supp(3)
SCC 83; Nathani Steels Limited Vs. Associated Constructions 1995
Supp(3) SCC 324……(second category) Damodar Valley Corporation
Vs. KK Kar 1974(1) SCC 141; Bharat Heavy Electricals Limited
Ranipur Vs. Amarnath Bhan Prakash 1982(1) SCC 625;Union of
India and Anr. Vs. L.K. Ahuja and Co. 1988(3) SCC 76; Jayesh
Engineering Works Vs. New India Assurance Co. Ltd. 2000(10) SCC
178; Chairman and MD, NTPC Ltd. Vs. Reshmi Constructions
Builders & Contractors 2004(2) SCC 663.
30. The aforesaid cases fall under two categories, the one category
where the Court after considering the facts found that there was full
and final settlement resulting in accord and satisfaction and there was
no substance in the allegations of coercion/undue influence.  In the second
category of cases, the Court found some substance in the contention of
the claimants that “no-dues/no claims certificate or discharge vouchers”
were insisted and taken (either on a printed format or otherwise) as a
condition precedent for release of the admitted dues and consequently
this Court held that the disputes are arbitrable.  It took note of the principles
earlier examined and summarised in National Insurance Company
Limited Vs. Boghara Polyfab Private Limited case (supra) as
under: -
“44. None of the three cases relied on by the appellant lay down
a proposition that mere execution of a full and final settlement
receipt or a discharge voucher is a bar to arbitration, even when
the validity thereof is challenged by the claimant on the ground of
fraud, coercion or undue influence. Nor do they lay down a
proposition that even if the discharge of contract is not genuine or
legal, the claims cannot be referred to arbitration. In all the three
cases, the Court examined the facts and satisfied itself that there
was accord and satisfaction or complete discharge of the contract
and that there was no evidence to support the allegation of coercion/
undue influence.”
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31. Further, taking note of the jurisdiction of the Chief Justice/ his
Designate in the proceedings under Section 11(6) of Act 1996, this Court
culled out the legal proposition in paragraph 51 as follows:-
“51. The Chief Justice/his designate exercising jurisdiction under
Section 11 of the Act will consider whether there was really accord
and satisfaction or discharge of contract by performance. If the
answer is in the affirmative, he will refuse to refer the dispute to
arbitration. On the other hand, if the Chief Justice/his designate
comes to the conclusion that the full and final settlement receipt
or discharge voucher was the result of any fraud/coercion/undue
influence, he will have to hold that there was no discharge of the
contract and consequently, refer the dispute to arbitration.
Alternatively, where the Chief Justice/his designate is satisfied
prima facie that the discharge voucher was not issued voluntarily
and the claimant was under some compulsion or coercion, and
that the matter deserved detailed consideration, he may instead
of deciding the issue himself, refer the matter to the Arbitral
Tribunal with a specific direction that the said question should be
decided in the first instance.”
32. It further laid down the illustrations as to when claims are
arbitrable and when they are not.  This may be illustrative (not exhaustive)
but beneficial for the authorities in taking a decision as to whether in a
given situation where no claim/discharge
voucher has been furnished
what will be its legal effect and still there is any arbitral dispute subsists
to be examined by the arbitrator in the given facts and circumstances
and held in para 52 of National Insurance Company Limited Vs.
Boghara Polyfab Private Limited(supra) as follows:-
“52. Some illustrations (not exhaustive) as to when claims are
arbitrable and when they are not, when discharge of contract by
accord and satisfaction are disputed, to round up the discussion
on this subject are:
(i) A claim is referred to a conciliation or a pre-litigation Lok Adalat.
The parties negotiate and arrive at a settlement. The terms of
settlement are drawn up and signed by both the parties and at-
tested by the conciliator or the members of the Lok Adalat. After
settlement by way of accord and satisfaction, there can be no
reference to arbitration.
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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(ii) A claimant makes several claims. The admitted or undisputed
claims are paid. Thereafter negotiations are held for settlement
of the disputed claims resulting in an agreement in writing settling
all the pending claims and disputes. On such settlement, the amount
agreed is paid and the contractor also issues a discharge voucher/
no-claim certificate/full and final receipt. After the contract is
discharged by such accord and satisfaction, neither the contract
nor any dispute survives for consideration. There cannot be any
reference of any dispute to arbitration thereafter.
(iii) A contractor executes the work and claims payment of say
rupees ten lakhs as due in terms of the contract. The employer
admits the claim only for rupees six lakhs and informs the
contractor either in writing or orally that unless the contractor
gives a discharge voucher in the prescribed format
acknowledging receipt of rupees six lakhs in full and final
satisfaction of the contract, payment of the admitted amount will
not be released. The contractor who is hard-pressed for funds
and keen to get the admitted amount released, signs on the dotted
line either in a printed form or otherwise, stating that the amount
is received in full and final settlement. In such a case, the
discharge is under economic duress on account of coercion
employed by the employer. Obviously, the discharge voucher cannot
be   considered to be   voluntary or as having
resulted in discharge
of the contract by accord and satisfaction. It will not be a bar to
arbitration.
(iv) An insured makes a claim for loss suffered. The claim is
neither admitted nor rejected. But the insured is informed during
discussions that unless the claimant gives a full and final voucher
for a specified amount (far lesser than the amount claimed by the
insured), the entire claim will be rejected. Being in financial
difficulties, the claimant agrees to the demand and issues an
undated discharge voucher in full and final settlement. Only a
few days thereafter, the admitted amount mentioned in the voucher
is paid. The accord and satisfaction in such a case is not
voluntary but under duress, compulsion and coercion. The
coercion is subtle, but very much real. The “accord” is not by
free consent. The arbitration agreement can thus be invoked to
refer the disputes to arbitration.
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(v) A claimant makes a claim for a huge sum, by way of
damages. The respondent disputes the claim. The claimant who
is keen to have a settlement and avoid litigation, voluntarily
reduces the claim and requests for settlement. The respondent
agrees and settles the claim and obtains a full and final discharge
voucher. Here even if the claimant might have agreed for
settlement due to financial compulsions and commercial pressure
or economic duress, the decision was his free choice. There was
no threat, coercion or compulsion by the respondent. Therefore,
the accord and satisfaction is binding and valid and there cannot
be any subsequent claim or reference to arbitration.”
33. It is true that there cannot be a rule of absolute kind and each
case has to be looked into on its own facts and circumstances.  At the
same time, we cannot be oblivious of the ground realities that where a
petty/small contractor has made investments from his available resources
in executing the works contract and bills have been raised for the
escalation cost incurred by him and the railway establishments/appellants
without any justification reduces the claim unilaterally and take a defence
of the no claim certificate being furnished which as alleged by the
respondents to be furnished at the time of furnishing the final bills in the
prescribed format.
34. The nature of work under contract of the respondent
contractors and the claim of the contractors which is the dispute in brief
to
be adjudicated by the arbitrator is submitted as follows:-
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
S.No
SLP No
Name of Contractor
Nature of Work under 
Contract 
Claim of Contractor
1. 
6312/2018 
Parmar Construction 
Company 
Construction, 
Strengthening 
and 
rebuilding 
of 
major 
bridges 
between 
Nadbhai-Idgah (Agra) 
Total Cost of Contract Rs 
3,30,71,724/- 
Rs 1,07,98,765/- (Final Bill) + 
Interest and Arbitration Cost. 
2. 
2166/2018 
S.K. Construction 
Construction of Office 
Accomodation 
for 
officers and rest house at 
Dungarpur. 
Total Cost of Contract Rs 
43,76,112/-. 
Total value of Work done 
was Rs 58.50 Lacs.
Rs 55.54Lacs were paid. 
Rs 2.96 Lacs (Deficit amount) 
+ Rs 2.65 Lacs (Escalation 
cost) 
+ 
Rs 
2.39 
Lacs 
(Commercial Interest @ 18% 
p.a.) 
Total Rs 8 Lacs
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3.
7937/2018
Anil Trading 
Company 
Augmentation of the 
capacity of Diesel Shed, 
Bhagat-ki-kothi, Jodhpur. 
Contract Price Rs 
2,42,85,808.84/- 
Rs. 2,15,000/-(Non 
availability of Drawing) + Rs 
1,50,000/- (Non availability of 
clear site) + Rs 1,14,099 
(interest on delay of Final bill 
payment) + Rs 12,15,000/- 
(Bank Guarantee) + Rs 
12,14,290/- (Security Deposit 
with interest) + Rs 1,00,000/- 
(Arbitration Cost) 
Total Rs 30,08,389/- 
4. 
6034/2018 
Rajendra Prasad 
Bansal 
Construction addition 
and alteration and raising 
of existing platform 
surfacing RRI Building, 
S&T Structures and 
dismantling of various 
structures at Bharatpur-
Agra Fort Station Yard. 
Total Cost of Contract Rs 
87,85,292/- 
3 Supplementary 
contracts of the value of 
rs 24,62,511.52/-, Rs 3.5 
Lacs & Rs 
26,12,977,14/- 
Rs 1.5 Lacs (deducted along 
with interest of 18% p.a.) + Rs 
7.9 Lacs (expenses incurred on 
office staff and labour office) 
+ Rs 1.2Lacs (delayed release 
of security amount & Final 
bill) + Rs 2Lacs (Loss of 
Profit) 
Total Rs 12,60,000/-
5. 
6316/2018 
Maya Construction 
Pvt Ltd 
Construction of 
Ratangarh Bye Pass. 
Total Cost of Contract Rs 
8,29,25,822.68/- 
Rs 38,27,196/- (Final bill 
amount) + Rs 17,78,231/- 
(PVC Final bill amount) + Rs 
50,63,738/- (Security deposit 
& EMD) 
Total Rs 1,06,69,165/- 
6. 
8597/2018 
Bharat Spun Pipes 
& Construction 
Company 
Construction of Road 
Over Bridges across
Railway track in Dausa 
Yard. 
Total Cost of Contract Rs 
3,81,90,423.68/- 
Rs 1,88,709/- (charged under 
head Cess) + Rs 8,36,386/- 
(Final PVC Bill) 
Total Rs 10,25,095/-
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7. 
8596/2018 
Harsha Constructions 
Construction of new Major 
Bridge no 178              (on 
Banas River) 
Total Cost of Contract     Rs 
10,51,42,109/- 
Rs 1,30,960/- (Payment withheld for 
expansion joints) + Rs 1 Lacs 
(Refund of penalty from bill no 
XXV) + 36 Lacs (refund of cost of 
PSC box girder) + Rs 3,19,573/- 
(Loss due to delay in making final 
payment) + Rs 76,15,206/- (Incresed 
cost of material) 
Total Rs 1,17,65,739/- 
8. 
8019/2018 
Bharat Spun Pipes & 
Construction Company 
Construction of road over 
bridges across railway track 
Total cost of Contract   Rs 
6,31,07,472.50/- 
Rs 6,18,302/- (charged under head 
Cess) + Rs 10,30,081/- (Final PVC 
Bill) 
Total Rs 16,48,383/- 
9. 
8021/2018 
SB-SHC-MCDPL (JV) 
Construction of Major Bridges 
including earth work. 
Total Cost of Contract  Rs 
15,92,08,761.97/- 
Rs 27,93,752/- (amount deducted 
which was previously paid on 
account of overlapping under 10th
running bill) + Rs 1,66,785/- (work 
done outside the scope of work order) 
+ 7,98,214/- (deduction of 1% Cess) 
+ Rs 5,78,144/- (Interest on delayed 
payment) + Rs 28,085 (Cost of 
computer stolen) + Rs 24,87,864/- 
(Cost of expansion joint) + Rs 
1,81,003/- (Price variation) + Rs 
60,390/- (Welding and bolting) 
Total Rs 70,94,237/- 
10. 
7720/2018 
Bharat Spun Pipes & 
Construction Company 
Construction of road over 
bridges across railway track 
Total cost of Contract       Rs 
2,98,59,531/- 
Rs 44,514/- (charged under head 
Cess) +
Rs 7,80,547 (Final PVC Bill) 
Total Rs 8,25,061/- 
11.
8598/2018
Rajendra Prasad Bansal
Construction of misc., AEN 
Office, Signalling structure, 
platform surfacing, temporary 
site offices, addition and 
alteration of existing structure, 
dismantling and rebuilding 
various structures between 
Idgah-Agra Fort Station Yard. 
Total Cost of Contract Rs 
1,40,43,594/- 
Rs 8.8 Lacs (loss of Profit) + Rs 5 
Lacs (loss due to bad debts) & some 
other grounds like price variation, 
non payment of final bill and security 
deposit for 1.5 yrs & interest on 
amount of final bill 
Total Rs 13.8 Lacs/- 
[exact amount not ascertainable from 
documents on record] 
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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12. 
Diary No 
8885/2018 
Bharat Spun Pipes & 
Construction Company 
Construction of road over 
bridges across railway track 
Total cost of Contract            
Rs 5,47,26,451.47/- 
Rs 4,78,780/- (charged under head 
Cess) + Rs 23,07,563/- (Final PVC 
Bill) along with price variation and 
interest 
Total Rs 27,86,343/- 
13. 
9514/2018 
B.M. Construction 
Company 
Construction of major bridge 
between Kanauta- Jaipur 
stations. 
Total Cost of Contract    
Rs 8,46,08,660/- 
Rs 7,21,733/- (for adding 10% more 
cement) + Rs 6,23,923/- + Rs 
7,55,734/- (Extra work) + Rs 
11,07,561/ -(Price variation of Steel 
purchased) + 4Lacs (using pressure 
rings) + 4,53,304/- (Labour Cess 
deducted), Rs 1.25Lacs (deduction 
from bills) +    Rs 3,47,880/- (interest 
on delayed paymet) +                    
Rs 1.28 Lacs (Deducted as penalty) + 
Rs 19,01,537 (on a/c of PVC) + 
Rs 60 Lacs (20 Lacs each for 
business losses, mental agonies and 
social humiliation) along with 
interest 
Total Rs 1,93,34,667/-
14. 
9559/2018 
Balaji Builders & 
Developers 
Construction of 72 Units Type-
II, 108 Units Type-III, 36 
Units Type-IV in multi-storied 
tower and health units, 
shopping complex and other 
ancillary works near Getore 
Jagatpur Railway Station. 
Total Cost of Contract 
Rs 28,28,20,028/- 
Rs 1,32,71,424/- (Final PVC Bill) + 
Rs 50Lacs (Price variation of steel 
bars) 
Total Rs 1,82,71,424/-
15. 
22263/2018 
B.M. Construction 
Company
Construction of major bridge 
between Jatwara- Kanauta 
stations. 
Total Cost of Contract 
Rs 10,4484,441/- 
Rs 39,05,010/- (for vacant labour 
charges of 9 months) + Rs 
19,46,970/- (delay in providing 
drawing) + Rs 13,66,488/-(Price 
variation of Steel purchased) + 
Rs 3,91,534.88/- (using pressure 
rings) + 1,32,655/- (Labour Cess 
deducted), Rs 1,30,771/- (deduction 
from bills) + Rs 50,000/- (Deducted 
from 21 running bills) + 
Rs 11,91,127/- (interest on delayed 
payment) + Rs 56,40,327/- (Security 
Amount) + Rs 1,38,000/- (deducted 
as penalty) +   Rs 76,39,600/- 
(PVC Bill) +  Rs 60 Lacs (20 Lacs 
each for business losses, mental 
agonies and social humiliation) along 
with interest 
Total Rs 2,85,32,482/-
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35. The respondents are the contractors and attached with the
railway establishment in the instant batch of appeals are claiming either
refund of security deposits/bank guarantee, which has been forfeited or
the escalation cost has been reduced from final invoices unilaterally
without tendering any justification.  It is manifest from the pleadings on
record that the respondent contractors who entered into contract for
construction works with the railway establishment cannot afford to take
any displeasure from the employer, the amount under the bills for various
reasons which may include discharge of his liability towards the bank,
financial institutions and other persons, indeed the railway establishment
has a upper hand.  A rebutable presumption could be drawn that when a
no claim has been furnished in the prescribed format at the time of final
bills being raised with unilateral deductions made even that acceptable
amount will not be released, unless no claim certificate is being attached
to the final bills.  On the stated facts, para 52(iii) referred to by this
Court in National Insurance Company Limited Vs. Boghara Polyfab
Private Limited(supra) indeed covers the cases of the present
contractors with whom no option has been left and being in financial
duress to accept the amount tendered in reference to the final bills
furnished and from the discharge voucher which has been taken to be a
defence by the appellants prima facie cannot be said to be
voluntary and
16.
11417/2018
Kewai Constructions 
Co (JV) 
Construction of Minor 
Bridge between Dausa – 
Lalsot 
Total Cost of Contract 
Rs 5,98,22,476/- 
Rs 16,74,748/- (security 
Deposit) + Rs 47,66,869/- 
(Payment of Bill) + 
Rs 31,33,116/- (Cost of 
material left at site) + 
Rs 10 Lacs (PSC Slab 
Advances) + Rs 13.85 Lacs 
(Idle Labour Charge) + 
Rs 50,000/- (Cost of 
Arbitration) 
Total Rs. 1,20,09,733/- 
17. 
11862/2018 
Harinarayan 
Khandelwal 
Construction of Staircase 
for fire exit, drilling tube 
well, underground water 
tank, and other 
miscellaneous works 
Total Cost of Contract 
Rs 1,56,63,006.87/- 
Rs 4,82,283.26/- (Final PVC 
Bill) 
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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has resulted in the discharge of the contract by accord and satisfaction
as claimed by the appellants.  In our considered view, the arbitral dispute
subsists and the contract has not been discharged as being claimed by
the appellants employer(s) and all the contentions in this regard are open
to be examined in the arbitral proceedings.
36. Learned counsel for the appellants has referred to the judgments
in Union of India and Others Vs. Master Construction
Company(supra);New India Assurance Company Limited Vs. Genus
Power Infrastructure Limited (supra); ONGC Mangalore
Petrochemicals Limited Vs. ANS Constructions Limited and
Anr.(supra).  In all the cases referred, this Court has taken note of the
judgment in National Insurance Company Limited Vs. Boghara
Polyfab Private Limited (supra) on which a detailed discussion has
been made and taking note of the pleadings of the case on hand, this
Court arrived at a conclusion that prima facie there is an evidence on
record to justify that no claim certificate or letter of subrogation was
voluntary and free from coercion/undue influence and accordingly held
that there is no live claim subsists, which is arbitrable after the discharge
of the contract by accord and satisfaction.
37. The further submission made by the appellants that the High
Court has committed error in appointing an independent arbitrator without
resorting to the arbitrator which has been assigned to arbitrate
the dispute
as referred to under clause 64(3) of the contract.  To examine the issue
any further, it may be relevant to take note of three clauses in sub-
section 6 of Section 11 of Act, 1996(pre-amended Act, 2015) which is as
under:-
“(6) Where, under an appointment procedure agreed upon by the
parties,—
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an
agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function
entrusted to him or it under that procedure,
a party may request the Chief Justice or any person or institution
designated by him to take the necessary measure, unless the
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agreement on the appointment procedure provides other means
for securing the appointment.
38. Clause (c) of sub-section (6) of Section 11 relates to failure to
perform any function entrusted to a person including an institution and
also failure to act under the procedure agreed upon by the parties.  In
other words, clause(a) refers to the party failing to act as required under
that procedure; clause(b) refers to the agreement where the parties
fails to reach to an agreement expected of them under that procedure
and clause (c ) relates to a person which may not be a party to the
agreement but has given his consent to the agreement and what further
transpires is that before any other alternative is resorted to, agreed
procedure has to be given its precedence and the terms of the agreement
has to be given its due effect as agreed by the parties to the extent
possible.  The corrective measures have to be taken first and the Court
is the last resort.  It is also to be noticed that by appointing an arbitrator
in terms of sub-section (8) of Section 11 of Act, 1996, due regard has to
be given to the qualification required for the arbitrator by the agreement
of the parties and also the other considerations such as to secure an
independent and impartial arbitrator.  To fulfil the object with terms and
conditions which are cumulative in nature, it is advisable for the Court to
ensure that the remedy provided as agreed between the parties in terms
of the contract is
first exhausted.
39. It has been considered by a three Judges’ Bench of this Court
in Union of India & Another Vs. M.P. Gupta(supra).  Taking note of
clause 64 of the agreement for arbitration, the Court held that in view of
express provision contained in terms of the agreement in appointment of
two gazetted railway officers, the High Court was not justified in
appointment of a retired Judge as the sole arbitrator.  It held as under:-
“3. The relevant part of clause 64 runs as under:
“64. Demand for arbitration.—***
(3)(a)(ii) Two arbitrators who shall be gazetted railway officers
of equal status to be appointed in the manner laid in clause 64(3)(b)
for all claims of Rs 5,00,000 (Rupees five lakhs) and above, and
for all claims irrespective of the amount or value of such claims if
the issues involved are of a complicated nature. The General
Manager shall be the sole judge to decide whether the issues
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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involved are of a complicated nature or not. In the event of the
two arbitrators being undecided in their opinions, the matter under
dispute will be referred to an umpire to be appointed in the manner
laid down in sub-clause (3)(b) for his decision.
(3)(a)(iii) It is a term of this contract that no person other than a
gazetted railway officer should act as an arbitrator/umpire and if
for any reason, that is not possible, the matter is not to be referred
to arbitration at all.”
4. In view of the express provision contained therein that two
gazetted railway officers shall be appointed as arbitrators, Justice
P.K. Bahri could not be appointed by the High Court as the sole
arbitrator. On this short ground alone, the judgment and order
under challenge to the extent it appoints Justice P.K. Bahri as
sole arbitrator is set aside. Within 30 days from today, the appellants
herein shall appoint two gazetted railway officers as arbitrators.
The two newly appointed arbitrators shall enter into reference
within a period of another one month and thereafter the arbitrators
shall make their award within a period of three months.”
40. It was further considered by this Court in Union of India
and Another Vs. V.S. Engineering(P) Ltd. (supra) as under:-
“3. The learned Additional Solicitor General appearing for the
appellants Union of India has pointed out that as per clauses 63
and 64 of the General Conditions of Contract, this Court
in no
uncertain terms has held that the Arbitral Tribunal has to be
constituted as per the General Conditions of Contract, the High
Court should not interfere under Section 11 of the Act and the
High Court should accept the Arbitral Tribunal appointed by the
General Manager, Railways. In this connection, the learned ASG
invited our attention to a decision of this Court directly bearing on
the subject in Union of India v. M.P. Gupta [(2004) 10 SCC
504] wherein a similar question with regard to appointment of the
Arbitral Tribunal for the Railways with reference to clause 64 of
the General Conditions of Contract came up before this Court
and this Court held that where two gazetted railway officers are
appointed as the Arbitral Tribunal, the High Court should not
appoint a retired Judge of the High Court as a sole arbitrator and
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the appointment of sole arbitrator was set aside. The conditions
of clauses 63 and 64 of the General Conditions of Contract are
almost analogous to the one we have in our hand. In that case
also relying on clause 64 of the contract a three-Judge Bench
presided over by the Chief Justice of India observed as follows:
(SCC p. 505, para 4)
“4. In view of the express provision contained therein that two
gazetted railway officers shall be appointed as arbitrators,
Justice P.K. Bahri could not be appointed by the High Court as
the sole arbitrator. On this short ground alone, the judgment
and order under challenge to the extent it appoints Justice P.K.
Bahri as sole arbitrator is set aside. Within 30 days from today,
the appellants herein shall appoint two gazetted railway officers
as arbitrators. The two newly appointed arbitrators shall enter
into reference within a period of another one month and
thereafter the arbitrators shall make their award within a period
of three months.”
and further reiterated by this Court in Northern Railway
Administration, Ministry of Railway, New Delhi Vs. Patel
Engineering Company Limited(supra) as follows:-
“5. It is pointed out that there are three clauses in sub-section (6)
of Section 11. Clause (c) relates to failure to perform function
entrusted to a person including an institution and also failure to act
under the procedure agreed upon by the parties. In other words,
clause (a) refers to parties to the agreement. Clause (c)
relates to
a person who may not be party to the agreement but has given
consent to the agreement. It is also pointed out that there is a
statutory mandate to take necessary measures, unless the
agreement on the appointment procedure provided other means
for securing the appointment. It is, therefore, submitted that before
the alternative is resorted to, agreed procedure has to be exhausted.
The agreement has to be given effect and the contract has to be
adhered to as closely as possible. Corrective measures have to
be taken first and the Court is the last resort.
6. It is also pointed out that while appointing an arbitrator in terms
of sub-section (8) of Section 11, the Court has to give due regard
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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to any qualification required for the arbitrator by the agreement
of the parties and other considerations as are likely to secure the
appointment of an independent and impartial arbitrator. It is pointed
out that both these conditions are cumulative in nature. Therefore,
the Court should not directly make an appointment. It has to ensure
first that the provided remedy is exhausted and the Court may
ask to do what has not been done.
12. A bare reading of the scheme of Section 11 shows that the
emphasis is on the terms of the agreement being adhered to and/
or given effect as closely as possible. In other words, the Court
may ask to do what has not been done. The Court must first
ensure that the remedies provided for are exhausted. It is true as
contended by Mr. Desai, that it is not mandatory for the Chief
Justice or any person or institution designated by him to appoint
the named arbitrator or arbitrators. But at the same time, due
regard has to be given to the qualifications required by the
agreement and other considerations.”
and further, in Union of India Vs. Singh Builders
Syndicate(supra) it was held as under:-
“11. The question that arises for consideration in this appeal by
special leave is whether the appointment of a retired Judge of the
High Court as sole arbitrator should be set aside and an Arbitral
Tribunal should again be constituted in the manner provided in
terms of Clause 64.
12. Dealing with a
matter arising from the old Act (the Arbitration
Act, 1940), this Court, in Union of India v. M.P. Gupta [(2004)
10 SCC 504] held that appointment of a retired Judge as sole
arbitrator contrary to Clause 64 (which requiring serving gazetted
railway officers being appointed) was impermissible.
13. The position after the new Act came into force, is different,
as explained by this Court in Northern Railway Admn., Ministry
of Railway v. Patel Engg. Co. Ltd.[(2008) 10 SCC 240]. This
Court held that the appointment of arbitrator(s) named in the
arbitration agreement is not mandatory or a must, but the emphasis
should be on the terms of the arbitration
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agreement being adhered to and/or given effect, as closely as
possible.
14. It was further held in Northern Railway case [(2008) 10
SCC 240] that the Chief Justice or his designate should first ensure
that the remedies provided under the arbitration agreement are
exhausted, but at the same time also ensure that the twin
requirements of sub-section (8) of Section 11 of the Act are kept
in view. This would mean that invariably the court should first
appoint the arbitrators in the manner provided for in the arbitration
agreement. But where the independence and impartiality of the
arbitrator(s) appointed/nominated in terms of the arbitration
agreement is in doubt, or where the Arbitral Tribunal appointed in
the manner provided in the arbitration agreement has not functioned
and it becomes necessary to make fresh appointment, the Chief
Justice or his designate is not powerless to make appropriate
alternative arrangements to give effect to the provision for
arbitration.”
41. This Court has put emphasis to act on the agreed terms and to
first resort to the procedure as prescribed and open for the parties to the
agreement to settle differences/disputes arising under the terms of the
contract through appointment of a designated arbitrator although the
name in the arbitration agreement is not mandatory or must but emphasis
should always be on the terms of the arbitration agreement to be adhered
to or given effect as closely as possible.
42. The judgments in Datar
Switchgears Ltd. case(supra); Punj
Lloyd case(supra) and Union of India Vs. Bharat Battery
Manufacturing Co. (P) Ltd. case(supra) on which reliance has been
placed by the learned counsel for the respondents/contractors may not
be of assistance for the reason that the question for consideration before
this Court was that if one party demands the opposite party to appoint an
arbitrator and the other party fails to appoint an arbitrator within 30 days
what will be its legal consequence and it was held in the cases(supra)
that if one party demands the opposite party to appoint an arbitrator and
if the opposite party has failed to make an appointment within 30 days,
the right to make appointment is not forfeited but continues, but an
appointment has to be made before the former makes an application
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
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under Section 11 seeking appointment of an arbitrator.  In the instant
cases, the question for consideration is as to whether the Chief Justice
or his Designate in exercise of power under Section 11(6) of the Act
should directly make an appointment of an independent arbitrator without,
in the first instance, resorting to ensure that the remedies provided under
the arbitration agreement are exhausted.
43. In the present batch of appeals, independence and impartiality
of the arbitrator has never been doubted but where the impartiality of
the arbitrator in terms of the arbitration agreement is in doubt or where
the Arbitral Tribunal appointed in terms of the arbitration agreement has
not functioned, or has failed to conclude the proceedings or to pass an
award without assigning any reason and it became necessary to make a
fresh appointment, Chief Justice or his designate in the given
circumstances after assigning cogent reasons in appropriate cases may
resort to an alternative arrangement to give effect to the appointment of
independent arbitrator under Section 11(6) of the Act.  In North Eastern
Railway and Others Vs. Tripple Engineering Works (supra), though
the panel of arbitrators as per clause 64(3)(a)(ii) and (iii) of the general
conditions of contract under GCC was appointed in the year 1996 but
for two decades, the arbitrator failed to pass the award and no explanation
came forward.  In the given situation,
this Court observed that general
conditions of the contract do not prescribe any specific qualification of
the arbitrators to be appointed under the agreement except that they
should be railway officers further held that even if the arbitration
agreement was to specifically provide for any particular qualification(s)
of an arbitrator the same would not denude the power of the Court
acting under Section 11(6) to depart therefrom and accordingly, confirmed
the appointment of an independent arbitrator appointed by the High Court
in exercise of Section 11(6) of the Act, 1996.  Almost the same situation
was examined by this Court in Union of India and Others Vs. Uttar
Pradesh State Bridge Corporation Ltd.(supra) and after placing
reliance on North Eastern Railway and Others Vs. Tripple
Engineering works(supra) held that since Arbitral Tribunal has failed
to perform and to conclude the proceedings, appointed an independent
arbitrator in exercise of power under Section 11(6) of the Act, 1996.  In
the given circumstances, it was the duty of the High Court to first resort
to the mechanism in appointment of an arbitrator as per the terms of
contract as agreed by the parties and the default procedure was opened
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to be resorted to if the arbitrator appointed in terms of the agreement
failed to discharge its obligations or to arbitrate the dispute which was
not the case set up by either of the parties.
44. To conclude, in our considered view, the High Court was not
justified in appointing an independent arbitrator without resorting to the
procedure for appointment of an arbitrator which has been prescribed
under clause 64(3) of the contract under the inbuilt mechanism as agreed
by the parties.
45. Consequently, the orders passed by the High Court are quashed
and set aside.  The appellants are directed to appoint the arbitrator in
terms of clause 64(3) of the agreement within a period of one month
from today under intimation to each of the respondents/contractors and
since sufficient time has been consumed, at the first stage itself, in the
appointment of an arbitrator and majority of the respondents being the
petty contractors, the statement of claim be furnished by each of the
respondents within four weeks thereafter and the arbitrator may decide
the claim after affording opportunity of hearing to the parties expeditiously
without being influenced/inhibited by the observations made independently
in accordance with law.
46. The batch of appeals are accordingly disposed of on the terms
indicated.  No costs.
47. Pending application(s), if any, stand disposed of.
Nidhi Jain
                           Appeals disposed of.
UNION OF INDIA  v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]