Shyam Construction v. Union Of India And Another, Rajasthan High Court, Judgment, Law, casemine.com

Factual and Procedural Background

The Applicant-claimant filed an arbitration application seeking a direction to refer the dispute to the General Manager, North-Western Railway for appointment of an Arbitrator as per Clause 64.1 of the contract. The Non-applicants had invited a tender for certain railway works at Ajmer Madar Station, following which an agreement was signed on 17.3.2006 awarding the work to the Applicant for Rs.1,68,207.39. Subsequently, a supplementary work order amounting to Rs.41,663.22 was issued, bringing the total contract value to Rs.2,09,870.61. After preparation of the final bill, payment was not made, leading to disputes. The Applicant issued a notice on 22.2.2009. The Non-applicants replied on 8.10.2009, contending that arbitration could not be invoked before completion of the work under the contract as per Special Condition 1.2 and also raised an objection based on Clause 1.1 that the claim amount exceeded 20% of the contract value, making the dispute non-arbitrable.

Legal Issues Presented

Whether the claim of Rs.40,000/- is more than 20% of the total contract value when including the supplementary work order, thereby affecting the arbitrability of the dispute under Clause 1.1 of the special conditions.

Whether the Contractor is entitled to seek arbitration before the completion of the work assigned under the contract as per Clause 1.2 of the special conditions.

The interpretation and applicability of Clauses 1.1 and 1.2 of the special conditions of contract in relation to the arbitration claim.

Arguments of the Parties

Applicant's Arguments

The total contract value should include both the initial work order and the supplementary work order, totaling Rs.2,09,870.61.

The claim of Rs.40,000/- is less than 20% of the total contract value, making the dispute arbitrable under Clause 1.1.

Clauses 1.1 and 1.2 are independent; Clause 1.1 does not depend on the completion of the contract, and Clause 1.2 is a separate provision.

Relied on the Supreme Court judgment in Deepak Kumar Bansal v. Union of India and others (Civil Appeal No.1089 of 2009) to support the inclusion of supplementary costs and the interpretation of the 20% threshold.

Non-applicants' Arguments

The 20% threshold under Clause 1.1 should be calculated only on the initial work order value, and the claim of Rs.40,000/- exceeds this limit, rendering the dispute non-arbitrable.

Under Clause 1.2, arbitration cannot be invoked before the completion of the contracted work, and since the Applicant left the work incomplete, arbitration is not permissible.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Deepak Kumar Bansal v. Union of India and others (Civil Appeal No.1089 of 2009)	Clarification on calculating total contract value including supplementary work for determining the 20% threshold for arbitration eligibility under special contract conditions.	The court applied the principle that supplementary work costs must be included in the total contract value, making the Applicant's claim less than 20%, thus arbitrable under Clause 1.1.

Precedent

Rule or Principle Cited For

Application by the Court

Deepak Kumar Bansal v. Union of India and others (Civil Appeal No.1089 of 2009)

Clarification on calculating total contract value including supplementary work for determining the 20% threshold for arbitration eligibility under special contract conditions.

The court applied the principle that supplementary work costs must be included in the total contract value, making the Applicant's claim less than 20%, thus arbitrable under Clause 1.1.

Court's Reasoning and Analysis

The court examined the contract terms, particularly Clauses 1.1 and 1.2 of the special conditions, and the Supreme Court's judgment in Deepak Kumar Bansal. It held that the total contract value must include both the initial and supplementary work orders, amounting to Rs.2,09,870.61. Since the Applicant's claim of Rs.40,000/- is less than 20% of this total, Clause 1.1’s restriction on arbitration does not apply. Furthermore, the court interpreted Clauses 1.1 and 1.2 as independent provisions, allowing the contractor to seek arbitration once under either clause. Consequently, the Applicant is entitled to arbitration despite the work not being completed, as Clause 1.2 does not preclude arbitration if Clause 1.1 conditions are met. The court thus allowed the arbitration application and directed the dispute to be referred to the General Manager, North Western Railway for appointment of a Sole Arbitrator as per Clause 64(3)(a)(i) of the General Conditions of Contract. The non-applicants retain the right to raise objections before the Sole Arbitrator.

Holding and Implications

The arbitration application is allowed and the dispute is referred to the General Manager, North Western Railway, Jaipur for appointment of the Sole Arbitrator as per Clause 64(3)(a)(i) of the General Conditions of Contract.

This decision permits the Applicant to proceed with arbitration despite the work being incomplete and clarifies that supplementary work costs are to be included in calculating the contract value for arbitration eligibility. The non-applicants may still raise objections before the arbitrator. No new precedent was established beyond the application of the existing Supreme Court ruling.

Shyam Construction v. Union Of India And Another

(1) Heard learned counsel for the parties.

(2) By this arbitration application, the Applicant-claimant is seeking direction for referring the dispute to the General Manager, North-Western Railway for appointment of the Arbitrator as per Clause 64.1.

(3) Briefly stated, the facts of the case, are that the Non-applicants invited tender vide NIT No.05/Track Ajmer/06 duty bunk at Railway Crossing No.43,44, 46 and 49 at Ajmer Madar Station and pursuant thereto, an agreement No.WA/350/2/667-1 was signed between the Applicant and the Non-applicants and the work was awarded to the Applicant on 17.3.2006 for Rs.1,68,207.39. Thereafter, a supplementary work order for Rs.41,663.22 was issued, thus the total cost of the work order was Rs.2,09,870.61 in respect of which, after preparation of the final bill, the amount has not been paid, therefore, disputes and differences have arisen between the parties and then notice was issued on 22.2.2009 (Anx.3). In reply to the said notice, on 8.10.2009 the Non-applicants have replied that as per the special conditions of the contract 1.2, the Contractor shall not be entitled to ask for reference by arbitration before the completion of the work assigned to him under the contract and further, the Contractor shall seek reference to arbitration to settle the dipsute only once within the ambit of condition 1.1. It was further mentioned in the said reply that since the work was not completed under this contract, case is not arbitrable as per Special Condition of this contract 1.2.

(4) Earlier in reply, the counsel for the Non-applicants has taken the objection that since the dispute was of Rs.40,000/- and the same is more than 20% of the total amount of the contract, no arbitration can be made as per Clause 1.1 of the special conditions of contract.

(5) Submission of Mr.D.D.Sharma, counsel for the Applicant is that while computing the total amount of the work, not only the initial cost of the work but the cost of the supplementary work is also to be added and in case the same is added, then the total cost would be Rs.2,09,870.61 and the claim which has been filed for Rs.40,000/- is not more than 20% of the contract value. In support of aforesaid submissions, counsel for the Applicant has placed reliance on the judgment of the Supreme Court in Deepak Kumar Bansal V. Union of India and others (Civil Appeal No.1089 of 2009) decided on 17.2.2009. Counsel also submits that Clauses 1.1 and 1.2 are independent clauses and Clause 1.1 has nothing to do with the completion of the contract and Clause 1.2 is an independent Clause.

(6) Submission of Mr.Shailesh Prakash Sharma, counsel for the Non-applicants is that the 20% value is to be counted from the initial work order and on counting the same, the claim of Rs.40,000/- is more than 20%, therefore, the dispute was not arbitrable. His second objection is that as per Clause 1.2, the Contractor is not entitled to reference by arbitration before completion of the work assigned to him under this contract and since the contractor has left the work incomplete, he is not entitled for reference.

(7) Before proceeding further, it is necessary to reproduce relevant Para 9 of the judgment of the Supreme Court in Deepak Kumar Bansal V. Union of India and another (supra) as also Clauses 1.1 and 1.2 of the special conditions of contract. The same are as under:

Para 9 of the judgment of the Supreme Court in Deepak Kumar Bansal (supra)

09.In our view, the High Court has mis-directed itself in holding that the claim was in excess of 20% of the total cost of the work. Admittedly, the work was for a sum of Rs.32,17,641.29 (original) and three additions viz.,Rs.4,99,471.36,Rs.3,25,865.02 and Rs.2,17,748.63 totalling Rs.42,60,726.30, which cannot be in excess of 20% of the total cost of the work. (emphasis supplied) Clauses 1.1 and 1.2 of the special conditions 1.1 The provision of clauses 63 to 64 of the general conditions of contract will be applicable only for settlement or claim of dispute between the parties for values less than equal to 20% of the values of the contract and when claims or disputes are of value more than 20% of the value of the contract. Provision of clauses 63 to 64 and other relevant clauses of the general condition will not be remedy for settlement of such disputes.

1.2 The contractor shall not be entitled to ask for reference by arbitration before the completion of the work assigned to him under this contract. The contractor shall seek reference to arbitration to settle the dispute only once within the ambit of condition 1.1 above.

(emphasis supplied) (8) I have gone through record of the arbitration application and further considered the rival submission of counsel for the parties.

(9) On consideration of the aforesaid submissions, I am of the view that while calculating the total cost of the work, the supplementary cost / additional cost is to be included. In this particular case, the Applicant was awarded work initially vide work order dated 17.3.2006 for Rs.1,68,207.39 and thereafter, subsequently, work order was of Rs.41,663.22, thus total cost of the work was Rs.2,09,870.61. The claim of the Applicant is of Rs.40,000/- only which is less than 20%, therefore, the restriction of applicability of Clauses 63 and 64 of the General Conditions of Contract only for settlement or claim of dispute between the parties for values less than equal to 20% of the values of the contract, will not apply.

(10) A conjoint reading of the two Clauses 1.1 and 1.2 of Special Conditions of Contract will reveal that the contractor is entitled for reference once either under Clause 1.1 or 1.2.

(11) The arbitration application is allowed and the dispute is referred to the General Manager, North Western Railway, Jaipur for appointment of the Arbitral Tribunal consisting of the Sole Arbitrator as per Clause 64(3)(a)(i) of the General Conditions of Contract.

(12) The non-applicant is at liberty to raise the objections before the Sole Arbitrator.

(13) A copy of this order be sent to the General Manager, North Western Railway, Jaipur.

(Prem Shanker Asopa) J.

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All corrections made in the judgment/order have been incorporated in the judgment/order being e-mailed.

Gopal Lal Sharma Private Secretary

Shyam Construction v. Union Of India And Another

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Applicant's Arguments

Non-applicants' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Shyam Construction v. Union Of India And Another

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