Union Of India V. Parmar Construction Company

The question that arises for consideration in the batch of 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”) whether the arbitration agreement stands discharged on acceptance of the amount and signing no claim discharge certificate and of the Arbitration and Conciliation Act 1996(prior to the Arbitrator when the parties have mutually agreed for the procedure vis­à­vis 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 questions of law and facts with the consent of parties are The work for construction of office accommodation for As alleged the extension was granted by the appellants to complete the work by 31st March 2013. The measurement was the GCC to resolve the disputes differences on 23rd December 2013. When the appellants failed to appoint the arbitrator in its execution and the agreement executed between the parties the process of arbitration by appointing an arbitrator invoking of obligations by the appellants and the scheduled date of completion had to be extended. Meanwhile due to rise in the by the respondent contractors and hence correspondence was made to either pay the escalated price or in the absence the It was alleged that the appellants accepted the terms and conditions for escalated prices and asked the respondents to on the newly agreed prices dispute has arisen in context of 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 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 subsists which is to be sent to the arbitrator and further the After the matter being heard the application for appointment of arbitrator under Section 11(6) of the Act 1996 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 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 appellants much before the Amendment Act 2015 came into 8. Mr. K.M. Natarajan learned Additional Solicitor General come into force by the Amendment Act 2015 w.e.f. 23rd October 2015 and indisputedly in the instant batch of appeals request to to the Amendment Act 2015. In view of Section 21 read with 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 independent arbitrator without resorting to the clause 64(3) of GCC as agreed by the parties and in support of submission in the case of M s. Aravali Power Company Private Limited Vs. Era Infrastructure Engineering Limited 2017(15) SCC 32 and S.P. Singla Constructions Pvt. Ltd. Vs. State of Learned counsel further submits that once the no claim settlement of the final bills no arbitral dispute subsists and the facie evidence has been placed on record. In the given the High Court under Section 11(6) of the Act 1996 is not and Others Vs. Master Construction Company 2011(12) SCC 349 New India Assurance Company Limited Vs. Genus Petrochemicals Limited Vs. ANS Constructions Limited and 10. Learned counsel further submits that none of the respondents had made any allegation of bias to the arbitrator appointment of arbitrator was made by the railways. It was 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 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 64(7) of the GCC all statutory modifications thereof will be the Arbitration and ConciliationAct 2015 clause 64(7) stood amended to fulfil the mandate of Amendment Act 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 12. Per contra Mr. Sameer Jain learned counsel for the respondents submits that respondents are the registered without a no claim certificate being furnished in advance by them. In all the cases unilateral deductions have been made authorities and is open for the arbitrator to adjudicate by certificate has been examined by this Court in National Insurance Company Limited Vs. Boghara Polyfab Private Court where no claim certificate in itself has never been considered to be the basis to non­suit the request made in appointing an arbitrator to independently examine the dispute 14. Learned counsel further submits that once the appellants and it is for the Chief Justice his designate to appoint an Vs. Petronet MHB Ltd. 2006(2) SCC 638 and later in Union of India Vs. Bharat Battery Manufacturing Co.Ltd. 2007(7 filing of an application under Section 11(6) of the Act the 15. Learned counsel further submits that while dealing with the qualification of the arbitrator under the agreement but the application was filed Section 11(6) empowers the Court to deviate from the agreed terms if required by appointing an of the Amendment Act 2015 the employee of the railway Justice or his designate to appoint an independent arbitrator 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 speedy and inexpensive trial by the Arbitral Tribunal 12(5) of the Act 1996 which came into force on 23rd October the High Court after the amendment has come into force the 17. We have heard learned counsel for the parties and with extended. In the interregnum period there was a rise in the be completed by the respondent contractors. Hence a request price otherwise the respondent contractors would not be in a position to conclude the contract and on the acceptance for 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 that was the reason due to which each of the respondent contractor had approached the High Court by filing an the Amendment Act 2015 which came into force w.e.f. 23rd 19. To proceed with the matter further it will be apposite to “CLAIMS 43.(1) Monthly Statement Of Claims : The and of all extra or additional works ordered by the month and no claim for payment for and such work 43.(2) Signing Of "No Claim" Certificate : The Contractor shall not be entitled to make any claim arising out of this contract nor shall the Railway 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 No Claim" Certificate or demanding a clearance to 64.(1) In the event of any dispute or difference between the parties hereto as to the construction or liabilities of the parties on any matter in question dispute or difference on any account or as to the the contractor may claim to be entitled to or if the 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 matters shall demand in writing that the dispute or matters which are in question or subject of the which the demand has been made together with counter claims or set off given by the Railway shall be 64.(1) (a) The Arbitration proceedings shall be and valid demand for arbitration is received by the Railway. The claimant shall submit his claim stating the facts supporting the claims alongwith all the relevant documents and the relief or remedy 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. Place of Arbitration : The place of any other place with the written consent of both the 64.(1) 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 64.(1) If the contractor(s) does do not prefer 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 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 such proceedings provided however it shall be open not such work should continue during arbitration in question added together does not exceed Rs 25 00 000the Arbitral a Gazetted Officer of Railway not below JA Grade i) the Arbitral Tribunal shall consist of a Panel of 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 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 out of the panel for appointment as contractor’s 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 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 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 of the Railway for the purpose of appointment of 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 20. As per clause 43(2) the contractor signs a “No claim” 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 to be furnished in advance before the final bills are being has been seriously disputed by the appellants but that is the the final bills being raised it came to be questioned by the 21. Under clause 64(1) if there is any dispute or difference of the contract or the respective rights and liabilities of the arising from the terms of the contract or if the railway such disputes differences between the parties the General under clause 64(3)(a)(i) and a(ii) respectively with further 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 It is to be noticed that the cost of escalation which was appended with the no claim certificate in the prescribed pre­ determined format and each of the claim of the respondent disputes differences arising from the terms of the contract as 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 have come into force on 23rd October 2015 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 self­explicit leaves no room for interpretation Section 21 & 26 of the Act 1996 Amendment Act 2015 relevant “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 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 25. The conjoint reading of Section 21 read with Section 26 Act 2015 shall not apply to such of the arbitral proceedings 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 of Section 11 of the 1996 Act arises there is no question of the Chief Justice or his designate 22.1.3. The Chief Justice or his designate while exercising power under sub­section of Section 11 shall endeavour to give effect to the appointment 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 arbitrator by ignoring the procedure prescribed the 22.2. In cases governed by 1996 Act after the clause finds foul with the amended provisions the appointment of the arbitrator even if apparently in conformity with the arbitration clause in the be within its powers to appoint such arbitrator(s) as “16. Considering the facts and circumstances of the of this contention of the appellant nor examine the suffice it to note that as per Section 26 of the Arbitration and Conciliation 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 the Principal Act before the commencement of the the facts and circumstances of the present case the the parties so as to apply the provisions of the amended Act. As per Section 26 of the Act the the date of commencement of the Amendment Act 2015(w.e.f. 23.10.2015). In the present case much prior to coming into force of the amended Act and therefore provisions of the Amended Act cannot 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 the coming into force of Amendment Act 2015 unless the parties the appellants in the concerned appeal much before the Amendment Act 2015 came into force. Whether the application 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 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 is that whether after furnishing of no claim certificate and the still any arbitral dispute subsists between the parties or the 29. Before we take note of the factual aspect of the present parties and to summarise Union of India Vs Power Corpn. 1994 Supp(3) SCC 126 State of Maharashtra Limited Vs. Associated Constructions 1995 Supp(3) SCC 324Damodar 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 30. The aforesaid cases fall under two categories the one 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 condition precedent for release of the admitted dues and National Insurance Company Limited Vs. Boghara Polyfab lay down a proposition that mere execution of a full bar to arbitration even when the validity thereof is challenged by the claimant on the ground of fraud genuine or legal the claims cannot be referred to 31. Further taking note of the jurisdiction of the Chief Justice this Court culled out the legal proposition in paragraph 51 as “51. The Chief Justice his designate exercising whether there was really accord and satisfaction or designate comes to the conclusion that the full and have to hold that there was no discharge of the contract and consequently refer the dispute to designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant of deciding the issue himself refer the matter to the as to whether in a given situation where no claim discharge there is any arbitral dispute subsists to be examined by the 52 of National Insurance Company Limited Vs. Boghara “52. Some illustrations as to when claims are arbitrable and when they are not when discharge of contract by accord and satisfaction are Lok Adalat. The parties negotiate and arrive at a signed by both the parties and attested by the conciliator or the members of the Lok Adalat. After is paid and the contractor also issues a discharge voucher no­claim 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 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 signs on the dotted line either in a printed form or otherwise stating that the amount is received in full under economic duress on account of coercion employed by the employer. Obviously the discharge voucher cannot be considered to be voluntary or as iv) An insured makes a claim for loss suffered. The is informed during discussions that unless the amount the entire claim will be rejected. Being in financial difficulties the claimant agrees to the full and final settlement. Only a few days thereafter The accord and satisfaction in such a case is not The coercion is subtle but very much real. The “accord” is not by free consent. The arbitration damages. The respondent disputes the claim. The litigation voluntarily reduces the claim and requests Here even if the claimant might have agreed for settlement due to financial compulsions and compulsion by the respondent. Therefore the accord each case has to be looked into on its own facts and ground realities that where a petty small contractor has made contract and bills have been raised for the escalation cost incurred by him and the railway establishments appellants a defence of the no claim certificate being furnished which as alleged by the respondents to be furnished at the time of 34. The nature of work under contract of the respondent in brief to be adjudicated by the arbitrator is submitted as Claim of Contractor Nature of Work under Construction Strengthening and rebuilding of major bridges between Nadbhai Idgah+ Interest and Arbitration Cost Construction of Office Accomodation for officers and rest house Total Cost of Contract Rs 43 76 112 Rs 2.96 Lacs+ Rs 2.65 Lacs Escalation cost) + Rs 2.39 Lacs+ Rs 1 50 000 + Rs 1 14 099 interest on delay of Final bill payment) + Rs 12 15 000 Bank Guarantee) + Rs 12 14 290 + Rs 1 00 000 Total Rs 30 08 389 Rs 1.5 Lacs+ Rs 7.9 Lacs+ Rs 1.2Lacs delayed release of security amount & Final bill) + Rs 2Lacs+ Rs 17 78 231 PVC Final bill amount) + Rs 50 63 738 + Rs 8 36 386 + Rs 1 Lacs+ 36 Lacs+ Rs 3 19 573 + Rs 76 15 206 Incresed cost of material Total Rs 1 17 65 739 Rs 6 18 302 + Rs 10 30 081 + Rs 1 66 785 work done outside the scope of work order) + 7 98 214 + Rs 5 78 144 Interest on delayed payment) + Rs 28 085+ Rs 24 87 864 + Rs 1 81 003 Rs 60 390 + Rs 7 80 547 Final PVC Bill Total Rs 8 25 061 Rs 8.8 LacsRs 5 Lacs& some other grounds like price variation non temporary site offices addition and alteration of existing structure dismantling and rebuilding various structures between Idgah Agra Fort Total Cost of Contract Rs 1 40 43 594 Construction of road over bridges across Total cost of Contract Rs 5 47 26 451.47 payment of final bill and security deposit for 1.5 yrs interest on amount of final Total Rs 13.8 Lacs exact amount not ascertainable from documents on record Rs 4 78 780 + Rs 23 07 563 + Rs 6 23 923 + Rs 7 55 734 Extra work) + Rs 11 07 561 + 4Lacs using pressure rings) + 4 53 304 Rs 1.25Lacs deduction from bills) + Rs 3 47 880 + Rs 1.28 LacsRs 19 01 537+ Rs 60Lacsalong with Total Rs 1 93 34 667 Balaji Builders Construction of 72 Units Type II 108 Units Type III 36 Units Type IV in multi storied tower and health units shopping complex and Rs 1 32 71 424 + Rs 50LacsRs 19 46 970 + Rs 13 66 488 + Rs 3 91 534.88 + 1 32 655 Labour Cess deducted) Rs 1 30 771 + 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 + Rs 76 39 600 PVC Bill)+ Rs 60Lacs 20Lacs each for business losses mental agonies and social humiliation) along Total Rs 2 85 32 482 Rs 16 74 748 + Rs 47 66 869 Payment of Bill) + Rs 31 33 116 + Rs 10Lacs+ Rs 13.85 Lacs Idle Labour Charge) + Rs 50 000 referred to by this Court in National Insurance amount tendered in reference to the final bills furnished and has resulted in the discharge of the contract by accord and the arbitral dispute subsists and the contract has not been the contentions in this regard are open to be examined in the 36. Learned counsel for the appellants has referred to the judgments in Union of India and Others Vs Construction Company(supra) New India Assurance Company Limited Vs. Genus Power Infrastructure Limited supra) ONGC Mangalore Petrochemicals Limited Vs. ANS Constructions Limited and Anr. which is as under:­ “(6) Where under an appointment procedure agreed a) a party fails to act as required under that the parties or the two appointed arbitrators fail to reach an agreement expected of them under that c) a person including an institution fails to perform any function entrusted to him or it under that institution designated by him to take the necessary measure unless the agreement on the appointment procedure provides other means for securing the to perform any function entrusted to a person including an institution and also failure to act under the procedure agreed be given its due effect as agreed by the parties to the extent an arbitrator in terms of sub­section of Section 11 of Act 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 the agreement in appointment of two gazetted railway officers the High Court was not justified in appointment of a retired 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 involved are of a complicated will be referred to an umpire to be appointed in the 3)(a)(iii) It is a term of this contract that no person arbitrator umpire and if for any reason that is not 4. In view of the express provision contained therein to the extent it appoints Justice P.K. Bahri as sole appellants herein shall appoint two gazetted railway officers as arbitrators. The two newly appointed “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. Gupta10 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 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:of Section 11. Clause relates to failure to perform function entrusted to a person the procedure agreed upon by the parties. In other words clause refers to parties to the agreement the appointment procedure provided other means for securing the appointment. It is therefore submitted that before the alternative is resorted to agreed closely as possible. Corrective measures have to be 6. It is also pointed out that while appointing an Court has to give due regard to any qualification required for the arbitrator by the agreement of the the appointment of an independent and impartial not directly make an appointment. It has to ensure first that the provided remedy is exhausted and the that the emphasis is on the terms of the agreement being adhered to and or given effect as closely as the Chief Justice or any person or institution given to the qualifications required by the agreement and further in Union of India Vs Singh Builders retired Judge of the High Court as sole arbitrator should be set aside and an Arbitral Tribunal should Arbitration Act 1940) this Court in Union of India v. M.P. Gupta10 SCC 504] held that appointment of a retired Judge as sole arbitrator different as explained by this Court in Northern 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 agreement being adhered to and or given effect as 14. It was further held in Northern Railway designate should first ensure that the remedies provided under the arbitration agreement are twin requirements of sub­section of Section 11 of the Act are kept in view. This would mean that 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 provided in the arbitration agreement has not functioned and it becomes necessary to make fresh to make appropriate alternative arrangements to give effect to the provision for 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 42. The judgments in Datar Switchgears Ltd. case(supra) been placed by learned counsel what will be its legal consequence and it was held in the cases(supra) that if one party demands the opposite party to 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 In the present batch of appeals independence and the impartiality of the arbitrator in terms of the arbitration terms of the arbitration agreement has not functioned or has appointment Chief Justice or his designate in the given circumstances after assigning cogent reasons in appropriate the Act. In North Eastern Railway and Others Vs. Tripple Engineering Works though the panel of arbitrators as 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 Court in exercise of Section 11(6) of the Act 1996. Almost the supra) and after placing reliance on North Eastern Railway and Others Vs. Tripple Engineering works(supra) held that power under Section 11(6) of the Act 1996. In the given of contract as agreed by the parties and the default procedure the dispute which was not the case set up by either of the 44. To conclude in our considered view the High Court was not justified in appointing an independent arbitrator without 45. Consequently the orders passed by the High Court are 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 decide the claim after affording opportunity of hearing to the parties expeditiously without being influenced inhibited by the 46. The batch of appeals are accordingly disposed of on the 47. Pending application(s) if any stand disposed of

Summary: “It is the duty of the Courts to first resort to the mechanism in appointment of an arbitrator as per the terms of contract as agreed by the parties” 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 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.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.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 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 agreementAfter 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). ISSUE BEFORE THE COURT:Whether the High Court was justified in invoking amended provision which has been introduced by Arbitration and Conciliation (Amendment Act), 2015 with effect from 23 rd October, 2015?Whether the arbitration agreement stands discharged on acceptance of the amount and signing no claim/discharge certificate?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? RATIO OF THE COURTAccording  to the appellants, error had 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 that 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.As submitted by respondents, 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.This court noted 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.This court held that the conjoint reading of Section 21 of the Arbitration Act 2015 read with Section 26 of the Act 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 court further held that 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.The court 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.The court further added that 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.To conclude, the court held that, 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. DECISION HELD BY COURT:The High Court decision was set aside. The appellants were directed to appoint the arbitrator in terms of clause 64(3) of the agreement within a period of one month from date of judgement under intimation to each of the respondents/contractors and 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.