R.L Khurana, J.:— This is petition under Section 20, Arbitration Act 1940, hereinafter referred to as the Act, for the appointment of an arbitrator for adjudicating upon the disputes between the parties.
2. Briefly stated, the facts of the present case are these. The plaintiff Messrs S.A Builders Ltd., is a Company registered under the Indian Companies Act, 1956 and is engaged in the work of construction of various projects of various organisations of the Government of India and other State Governments. On and with effect from 15.9.1995 the name of the company was changed to S.A Builders and Financiers Ltd. Pursuant to an order dated 28.12.1995 of BIFR, this Company was merged with Messrs. Steel Strips Alloy Ltd. renamed as SAB Industries Ltd. In response to the notice issued by the defendants inviting tenders for the construction of Gaj Hydel Project (10.5 MW), the plaintiff submitted its tender for the said work. The tender submitted by the plaintiff was accepted and the work was allotted to it at a total cost of Rs. 4,83,41,977. The necessary agreement in respect thereto came to be executed between the parties on 13.2.1989 As per the terms of the agreement, the work was to be completed within a period of three years. The date stipulated for the start of the work was within thirty days after the issuance of Letter of Intent, that is, 7.3.1989 The stipulated date of completion of the work was thus 6.3.1992 The work was actually by the plaintiff on 26.5.1989 after mobilising their labour, machinery etc. worth rupees one crore.
3. The agreement entered into between the parties provided for certain essential requirements as to supply of materials, designs, maps and instructions from time to time by the defendants. The supply of material, plans, instruction etc. were considerably delayed by the defendants. At times even the payments were unreasonably withheld by the defendants. As a result, delay was caused in the execution of the work.
4. During the initial completion period, that is, upto 6.3.1992 work to the extent of Rs. 2.16 crores was executed by the plaintiff. Since the plaintiff could not complete the work for the reasons beyond its control, extension in time for completion of the work and price escalation variations were granted to the plaintiff by the defendants from time-to-time. Till the date of making of the present petition, work worth Rs. 8.2 crores had been executed by the plaintiff. This included the work(s) which was either not mentioned in the contract or was beyond the scope of deviations mentioned therein. The payments for such work were withheld by the defendants on firmly and baseless grounds Resultantly, the plaintiff had to take resort to arbitral proceedings. The arbitrator so appointed allowed the claim of the plaintiff to the tune of Rs. 23.5 lakhs, keeping in view the escalation clause in the agreement. The arbitrator allowed rates ranging from 60% to 90% over and above the rate allowed by the defendants. Another such dispute also stands referred to arbitrator for adjudication involving claims to the tune of Rs. 86 lakhs.
5. It has been averred by the plaintiff and its contractual obligation had come to an end since as against the tendered work worth Rs. 4.84 crores, it has executed the work to the extent of Rs. 8.2 crores. The plaintiff addressed a letter dated 27.9.1994 to defendant No. 1 in this regard stating that since the tender was accept to the extent of Rs. 4.48 crores, the work more than that had been accomplished and that since the rates of various inputes had gone up much beyond the scope of escalation clause in the agreement, the defendants were called upon to work out a fresh agreement for the work exceeding the tendered amount.
6. During the extended period for completion of the work till 31.3.1995, the plaintiff was served with two notices dated 30.3.1995 from the defendants calling upon it to show cause within seven days as to why:
(a) penalty should not be imposed; and
(b) action under Clause 3 of the agreement be not taken against the plaintiff for having failed to complete the work within time.
7. Cause was shown by the plaintiff. It was averred that since the time for completion of the work stood extended till June, 1995 in the meeting held on 9.3.1995, the proposed actions were not called for.
8. A sever crisis arose with regard to supply of diesel in the northern part of the country during April-May, 1995. As a result, the entire work came to a standstill. Intimations in this regard were duly sent to the defendants telegraphically on 28.11.1995, 5.5.1995 and 6.5.1995 Pursuant to such telegrams, Chairman of defendant No. 1 issued “top priority” letter dated 6.5.1995 to the Director of Food and supplies requesting him ensure regular and proper supply of diesel so that the work of Gaj and Baner Project was not adversely affected. Apart from shortage in the supply of diesel, there has been frequent powers failures/shutdown at the Project.
9. The case of the plaintiff is that instead of giving extension in the time for completion of the work, the defendants vide order dated 12.7.1995, purporting to be acting under Clause 3 of the agreement took over some of the remaining works, namely:
(i) Balance work of spill channel of pipe aqueduct inlet chamber.
(ii) Balance work of RCC Box from outlet of pipe Aqueduct to HRT inlet; and
(iii) Balance work of HRT lining form Adit-I D/S.
10. The plaintiff has disputed the taking over of such works by the defendants and lias thus prayed that such dispute be referred to arbitrator for adjudication in terms of Clause 25 of the agreement. It is averred that the act of taking over of some works by the defendant is illegal and against the terms of the agreement.
11. The defendants while resisting the petition averred that the dispute with regard to the taking over of the works was not arbitrable, since the decision of th Chief Engineer under Clause 3 of the agreement was final and conclusive. The action taken was legal and valid in terms of the agreement arrived at between the parties. It was further contended that the works taken over by the defendants have since been got completed and carried out departmentally by the defendants.
12. Clause 25 of the agreement, which deals with the settlement of disputes by arbitration, reads:
Clause 25—Settlement of Disputes by Arbitration.
Except where otherwise provided in the contract, all questions and disputes relating to the meaning and interpretation of the terms of contract, specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or material used in the work or as to any other question, claim, right matter, or thing whatsoever in any way arising out of, or relating to the contract, design, drawings, specification, estimates, instructions, orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment there of or relating to termination or rescission, or delay in the execution and all consequences there of of the contract shall be referred to a sole arbitrator which will be appointed by the HPSEB.
It will be not objection to any such appointment that the arbitrator, so appointed, is Governments/Board servant that he had to deal with matters to which the contract relates to and that in the course of his duties as Government/Board servant, he had expressed views on all or any of the matters in dispute or difference. In case, the arbitrator to whom dispute/difference, so referred is unable to function as such at any stage for any reason whatsoever or his award being set aside by the Court for any other reason, another arbitrator, shall be appointed in the same manner as indicated above. Such person shall be entitled to proceed with the reference from the stage at which it had been left by his predecessor or to conduct the proceedings afresh as he may deem fit or as the case may be.
It is also a term of this contract that the party invoking arbitration shall specify the dispute(s) to be referred to the arbitration under this clause together with the ainount(s) claimed in respect of each dispute. If work under the contract has not been completed when a dispute on any matter whatsoever is referred to arbitration, the contractor shall not be entitled to suspend such work to which the dispute relates and payment to the contractor shall be continued to be made in terms of the contract.
It is also a term of the contract that if the contractor(s) does/do not prefer any claim, in writing within 90 (ninety) days of the date on which the dispute first arises or date of intimation of the preparation of the bill, therefore, whichever is earlier, the claim(s) of the contractor will be deemed to have been waived and absolutely barred and the HPSEB shall be discharged and released of all the liabilities under the contract in respect of such claims. Likewise, all disputes referred to above shall be preferred as provided above within 90 (ninety) days of the final bill otherwise all claims shall stand extinguished. Provided, in the event of rejection of contract's claims by the HPSEB the contractor shall within 80 days after receiving intimation in writing of such decision shall give notice in writing to the Chief Engineer, requesting him that the matter may be referred to the Arbitration.
In all cases referred for arbitration, the Arbitrator/Umpire shall assign reasons under all circumstances on which his decision is based. The arbitrator/Umpire, from time-to-time with the consent of the parties enlarge time for making and publishing the award. The decision of the Arbitrator or the Umpire, as the case may be, shall be conclusive final and binding on the parties.
Subject to the provisions of the contract to the contrary as aforesaid, the provisions of the Indian Arbitration Act, 1940, or any statutory modification or re-enactment there of and the rules made thereunder and for the time being in force shall apply to all arbitration proceedings under this clause. All disputes regarding contract shall be subject to the jurisdiction of Shimla Courts alone irrespective of place, execution and performance of contract and delivery and payment whatsoever etc. etc.”
13. There is no denying that while taking over the above referred to remaining works, vide order dated 12.7.1995, the defendants are alleged to have acted under Clause 3 of the agreement, which reads:
Clause 3—Determination of contract
Chief Engineer may without prejudice to Board's right in respect of any delay or inferior workmanship or otherwise or to any claim for damage in respect of any breach of the contract and without prejudice to any rights or remedies under this contract or otherwise and irrespective of the fact whether the date for completion has or has not elapsed, by notice in writing, absolutely-determine the contract in any of the following cases:
(i) If the contractor, having been given by the Engineer-in-charge a notice in writing to rectify, reconstruct or replace any defective work or that the work/or part of work is being performed in an inefficient manner or otherwise improper or unworkman-like manner, fails to comply with the requirements of such notice for a period of seven days thereafter or if the contractor shall delay or suspend the execution of the work or part of the work so that either in the judgment of the Chief Engineer (which shall be final and binding) the contractor will be unable to secure completion of the work by the date for completion or the contractor has already failed to complete the work by that date.
(ii) If the contractor being a Company shall pass, a resolution or the Court shall make an order that the Company shall be wound up or if a Receiver or a Manager on behalf of a creditor shall be appointed or if circumstances shall arise which entitle the Court or creditor to appoint a Receiver or a Manager or which entitle the Court to make a winding-up order.
(iii). If the contractor commits breach of any of the terms and conditions of this contract.
(iv) If the contractor commits any acts mentioned in Clause 21 hereof.
When the contractor has made himself liable for action under any of the cases aforesaid, the Chief Engineer on behalf of the Board shall have powers:
(a) To determine or rescind the contract as aforesaid (of which termination or rescission notice in writing to the contractor under the hand of Chief Engineer shall be conclusive evidence). Upon such determination or rescission, the security deposit of the contractor shall be liable to be forfeited and shall be absolutely at the disposal of HPSEB.
(b) To execute the work departmentally and debit the cost (cost as certified by the Engineer-in-Charge shall be final and conclusive against the contractor) of such execution to the contractor and credit him with the value of the work done in all respects in the same manner and the same rates as if it had been carried out by the contractor under the terms of his contract. The certificate of the Engineer-in-Charge as to the value of the work done shall be final and conclusive against the contractor, provided always that action under the sub-clause shall only be taken after giving notice in writing to the contractor, provided also that if the expenses incurred by the department are more than the amount payable to the contractor at contracted rates, the difference should be paid by the contractor.
(c) After giving notice to the contractor to measure up the work executed by him and to take such part there of as shall be un-executed out of his hands and to give it to another contractor to complete in which case any expenses which may be incurred in excess of the sum which would have been paid to original contractor, if the whole work had been executed by him (of the amount of which excess the certificate in writing of the Engineer-in-Charge shall be final and conclusive) shall be borne and paid by the original contractor and may be deducted from any money due to him by the Board under this contract or any other account whatsoever or from his security deposit or the proceeds of sale there of or a sufficient part there of as the case may be.
(d) To take any part of the work out of contractor's hand which in the opinion of Engineer-in-Charge is not being carried out by the contractor with required diligence and efficiency and to execute it departmentally or through other agency at the risk and cost of the contractor.
In the event of any one or more of the above courses being adopted by the Engineer-in-Charge the contractor shall have no claim to compensation for any loss sustained by him by reason of his having purchased or procured any materials or entered into any engagements or made any advances on account or with a view to the execution of the work or the performance of contract. And in case, action is taken under any of the provision aforesaid, the contractor shall not be entitled to recover or be paid any sum for any work thereto or actually performed under this contract unless and until the Engineer-in-Charge has certified in writing the performance of such work and the value payable in respect there of and he shall only be entitled to be paid the value so certified.”
14. The only question for determination in the present case is whether an action taken by the defendants under any of the sub-clauses (a) to (d) of Clause 3 of the agreement is a dispute within the meaning of Clause 25 and referable to the arbitration.
15. Clause 25, quoted above, specifically provides that all questions and disputes relating to:
(a) meaning and interpretation of the terms of contract; or
(b) any question, claim, right, matter or thing whatsoever in any way arising out of or relating to contract; or
(c) works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof; or
(d) termination or rescission or delay in the execution and all consequences there of of the contract:
16. shall be referred to a sole arbitrator which will be appointed by HPSEB.
17. The works were taken over by the defendants vide order dated 12.7.1995 for the reasons that the plaintiff was carrying out the work in an inefficient manner resulting in slow progress of the work entrusted to it and work was not likely to be completed by extended date of completion.
18. The above act of the defendant falls squarely within the meaning of “questions and dispute relating to works, or the execution or failure to execute the same” as also within the meaning of “questions and disputes relating to termination or rescission or delay in the execution of work” Therefore, the dispute is referable to arbitration under Clause 25 of the agreement.
19. The question whether the order to Chief Engineer passed under Clause 3 of the agreement is final or not, also pertains to “the meaning and interpretation of the terms of the contract” within the ambit of Clause 25 and, as such, arbitrable.
20. It has been contended on behalf of the defendants that Clause 25 stipulates that the party invoking arbitration has to specify the dispute(s) to be referred to arbitration together with the amount(s) claimed in respect of each dispute. According to the learned Counsel, since the plaintiff has failed to specify the amount(s) claimed in respect of the dispute. Clause 25 would not be attracted and the dispute raised by plaintiff cannot be referred to arbitration.
21. I do not find force in the contention of the learned Counsel for the defendants. The requirement relied upon by the learned Counsel is only when the party invoking arbitration approaches the authority under the arbitration clause (Clause 25) for referring of the dispute to arbitration. It has no application when the party takes resort to the Court under Section 20 of the Act.
22. It is well-settled that the scope of enquiry under Section 20 of the Act is a limited one. All that the Court has to satisfy itself about is whether there is a written agreement between the parties which is valid and subsisting and which has been executed before the filing of any suit and that the dispute have arisen with regard to the subject-matter of the agreement and within its jurisdiction. Once the Court reaches its satisfaction, it is bound to make a reference under Section 20 of the Act unconcerned with the merits of the dispute.
23. The Apex Court in Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority . 1988 2 SCC 338 has held that for the purpose of Section 20 of the Act, the following four conditions are to be satisfied.
(i) There must be an arbitration agreement between the parties;
(ii) Such agreement with respect to subject matter of a suit was entered into before the filing of the suit;
(iii) Differences have arisen between the parties to which the agreement applies; and
(iv) The court to which the application has been made, has jurisdiction in the matter to which the agreement relates.
24. In the present case, all the above four requirements stand fully satisfied. Therefore, this Court is not concerned with the merits and/or demerits of the case. Resultantly, the present petition is allowed. The defendant No. 1. Himachal Pradesh State Electricity Board, is directed to file the agreement and to appoint an arbitrator in terms of Clause 25 of the agreement within sixty days from today and to refer the dispute(s) between the parties for adjudication to such arbitrator.
25. Petition allowed.
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