B.M. Construction Company v. Union Of India

Mohammad Rafiq, J.:— This application under Sections 10 and 11 of the Arbitration and Conciliation Act, 1996 has been filed by petitioner M/s. B.M. Construction Company, a proprietorship firm, praying for appointment of arbitrator to resolve its dispute with the respondents.

2. Mr. Nawal Singh Sikarwar, learned counsel for the petitioner submitted that the petitioner participated in the Tender No. DO-JP/doubling/12rr issued by the respondent for construction work of Major Bridge No. 212 (Km 233/8-9) Span Z into 12.20M 20M PSC slab on pile foundation, Bride No. 215 (Km 237/8-238/0) span 3 × 12.20 m. PSC/pile foundation between Kanota-Jaipur station in connection with Dausa-Jaipur doubling project. The respondent-Railways, vide letter dated 28.03.2008, accepted the bid of the petitioner and accordingly an agreement was executed between the parties. The date of commencement of the work was 28.03.2008 and the date of completion was 27.03.2009. The respondent department in December, 2008 provided the first join of pile and therefore the labour staff and machinery of the petitioner remained unused. Despite repeated requests, the respondent did not provide complete design of pile. Due to non-cooperation of the respondent department, the petitioner could not complete the work in time. On 09.10.2009, the respondent accorded sanction to extend the date of completion of the contract work from 01.10.2009 to 31.10.2010 by imposing penalty. The petitioner requested the respondents to condone the penalty and grant extension of time under Clause 17-A of the General Conditions of Contract without levy of penalty. Despite request of the petitioner, the respondent department, vide letters dated 16.03.2010, 19.04.2010 and 11.06.2010, accorded sanction to extend the date of completion of work under Clause 17-B of the GCC with penalty of Rs. 18,000/- and Rs. 15,000/-. On 05.08.2010 the petitioner further requested the respondent department for extension of time because the respondent department had not made available the drawings and that there were adverse circumstances on the site, which were beyond the control of the petitioner. However, the petitioner completed the work under contract on 30.11.2010 and the respondents also issued him a performance certificate on 30.12.2011. Learned counsel for the petitioner submitted that the delay occurred in completion of the work was not on the part of the petitioner and therefore the petitioner requested that the time extended under Clause 17-B of the GCC be reconsidered and penalty be waived off.

3. It is argued that despite completion of work, the respondents did not make the payment of 42 final bill. The petitioner received the final payment on 06.02.2013 and also received the payment of security amount on 20.04.2013. The respondent made the said payment with delay of more than two years and that too after taking ‘no claim certificate’ from the petitioner. However, the respondents have not make the payment of the bill of PVC and other losses caused to him. The petitioner sent a letter to the respondent department on 17.10.2013 for appointment of sole Arbitrator to decide the dispute as per condition No. 38 of the agreement and according to Clause 64 of the GCC. The petitioner thereafter submitted the bill of price variation clause on 21.10.2013, which is decided according to RBI Index being published quarterly. The respondents on 18.12.2013 informed the petitioner that the provisions of Clauses 63 and 64 of the GCC will be applicable only for settlement of claim of dispute between the parties for the value less than or equal to 20% of the value, whereas the claim and disputes raised by the petitioner are of the value of more than 20% and thus those provisions will not be applicable. The respondents on 18.01.2014 partly made the payment of PVC. Therefore the petitioner vide letters dated 29.01.2014, 17.04.2014 and 31.05.2014, requested the respondent department for appointment of an Arbitrator to resolve the dispute but the respondent department denied the request on the ground that the petitioner has signed the ‘No Claim Certificate’ in favour of the respondent department, and that the petitioner submitted the final bill on 18.12.2012 whereas the original claim was submitted on 17.10.2013 and that was after 90 days of signing of the final bill and therefore the claim submitted by the petitioner was time barred.

4. Learned counsel argued that the respondents in a very illegal manner denied the claim of the petitioner and did not appoint an independent Arbitrator for resolving the dispute regarding the amount of PVC, according to the terms of Clause 63 and 64 of the GCC. The respondents got the ‘No Claim Certificate’ signed by the petitioner under pressure because after completion of the work, the respondents did not make the payment of the final bill for more than two years and the petitioner was under dire need of money. After signing the ‘No Claim Certificate’, the respondents made part payment of PVC on 18.01.2014 and not the complete payment. Therefore, the petitioner in his application dated 29.01.2014 specifically mentioned that the claim of the PVC was not the part of final bill because the PVC index is governed by the RBI and the RBI index is published quarterly therefore the claim of the policy cannot be submitted at the time of submitting the final bill. The respondents, vide letters dated 13.05.2014 and 28.05.2014 wrongly denied the claim of the petitioner on the ground of ‘No Claim Certificate’, whereas the respondent itself made the part payment of PVC dated 18.01.2014. The claim of the petitioner has not been time barred because on 29.07.2013 the petitioner received the payment of the final bill, on 11.10.2013 the amount of security and on 18.01.2014 part payment of PVC, whereas the petitioner submitted his claim on 14.09.2013 and thereafter claim for making the payment of the PVC again submitted on 29.01.2014. Therefore the claim of the petitioner was within time and respondents denied the same in a wrong manner. Even otherwise, mere delay of few days in submission of claim can not be taken as waiver of the claim.

5. Learned counsel submitted that the respondents vide letter dated 11.11.2016 amended the provisions of Clause 64.(3) of the GCC, according to which there is a penal of three gazetted officers not below the grade of Junior Administrator Officer, who can be appointed to decide the claim and name of retired Railway Officers can also be offered therein. It is submitted that the aforesaid amended clause is not applicable in the present case because that came into effect much later whereas the agreement of the petitioner was executed in the year 2007-08. It is argued that despite insistence of the respondent-Railways, in view of the bar contained in Section 12(5) of the Act of 1996, neither serving nor retired Railway officers can be appointed as arbitrators.

6. Learned counsel for the petitioner, in support of his arguments, has relied on the judgment of the Delhi High Court in R.R. Constructions v. Ann. Co-operative Group Housing Society - 2008 (1) ArbiLR 424, and that of this court in Electrosteel Castings Ltd. v. Rajasthan Urban Infrastructure Dev. Project - S.B. Civil Arbitration Application No. 22/2009, decided on 08.12.2011 and Rajendra Prasad Bansal v. The Union of India - S.B. Arbitration Application No. 2/2010, decided on 09.09.2016.

7. Mr. Shailesh Prakash Sharma, learned counsel for the respondent-Railways opposed the application and submitted that the agreement was executed between the parties on 25.09.2007. The petitioner could not complete the work in prescribed time, however, the time was extended from time to time by the respondent department under Clause 17-B of the GCC. Learned counsel for the respondents argued that Clause 68.11 of the agreement executed between the parties clearly states that no price variation shall be payable/recoverable for all extension of time granted under Clause 17-B of the GCC. It is submitted that finally the work was completed on 30.11.2010. ‘No Claim Certificate’ was given by the petitioner on 18.12.2012 and final bill was passed on 06.02.2013. The petitioner was paid the security deposit on 18.03.2013 and the amount of total price variation of Rs. 48,11,527.81 was paid from time to time and the final amount of PVC Rs. 11,37,777.00 was also paid to the petitioner on 16.01.2014.

8. Learned counsel submitted that the petitioner submitted ‘No Claim Certificate’ dated 18.12.2012 on final bill and measurement book, in which it was clearly mentioned that the petitioner has no other claim outstanding against the N.W. Railway for the work done or for labour or materials supplied or any other account and the payment of the bill shall be in final settlement of all his claims in respect of the works to which contract agreement dated 23.09.2008 with the railway relates.

9. Learned counsel further argued that the petitioner submitted the claims on 17.10.2013, which, as per the agreed condition, is time barred. The petitioner has signed the final bill and measurement book on 18.12.2012. As per Clause 64(1)(iv) of the GCC, after 90 days from 18.12.2012, the petitioner would be deemed to have waived his claim and the railway shall be discharged and released of all liabilities under the contract. Clause 64(1)(iv) of the GCC provides that 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 contract in respect of the claims. Learned counsel for the respondents argued that in view of the said Clause, the claims dated 17.10.2013 submitted by the petitioner is barred by limitation.

10. Learned counsel referred to Clause 63 of the GCC, which provides that all disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after its completion and whether before or after the determination of the contract, shall be referred by the contractor to the GM and the GM shall, within 120 days after receipt of the contractor's representation, make and notify decision on all matters referred to by the contractor in writing provided that matters for which provision has been made in Clauses 8, 18, 22(5), 39, 43(2), 45(a), 55, 55-A(5), 57, 57A, 61(1), 61(2) and 62(1) to (xiii)(B) of Standard General Conditions of Contract or in any Clause of the Special Conditions of the Contract shall be deemed as ‘excepted matters’ (matters not arbitrable) and decisions of the Railway authority thereon shall be final and binding on the contractor; provided further that ‘excepted matters’ shall stand specifically excluded from the purview of the Arbitration Clause. Claim of the applicant falls in excepted matter, therefore, it is not arbitrable.

11. Learned counsel, in support of his arguments, has relied on the judgment of the Supreme Court in New India Assurance Company Limited v. Genus Power Infrastructure Limited - (2015) 2 SCC 424, wherein it was held that once the claimant without any protest had accepted the money in full and final settlement of his claim, it should be deemed that he had no further claim.

12. I have given my thoughtful consideration to rival submissions and perused the material on record.

13. What is the scope of the Chief Justice or his Designate, while dealing with a request seeking appointment of arbitrator has been dealt with by the Supreme Court in umpteen number of judgments. Reference to some of such judgments would not be out of order at this juncture. The Supreme Court in Indowind Energy Limited v. Wescare (India) Limited - (2010) 5 SCC 306, while considering the question as to whether wider examination of issues by the Chief Justice or its designate, is envisaged, held that scope of examination of the agreement by the Chief Justice or his designate under Section 11(6) is to be strictly restricted to the question whether there is an arbitration agreement between the parties. His jurisdiction cannot extend to examining the agreement to ascertain the rights and obligations regarding performance of such contract between the parties. It was held that such examination cannot extend to examining the agreement to ascertain the rights between the parties to the contract. The Supreme Court in Indowind Energy Limited, supra, reiterated its earlier judgments in SBP & Co. v. Patel Engineering Ltd. - (2005) 8 SCC 618 and also in National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. - (2009) 1 SCC 267, wherein it was held that when an application is filed under Section 11, the Chief Justice or his designate is required to decide only two issues, i.e. whether the party making the application has approached the appropriate court and whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such agreement. Therefore, what is to be considered is only whether there is an arbitration agreement between the applicant and non-applicant. Any wider examination in such a summary proceeding will not be warranted.

14. In Indian Oil Corporation Limited v. Sps Engineering Limited - (2011) 3 SCC 507, again the Supreme Court held that scope of Section 11 of the Act of 1996 does not permit examination of maintainability or tenability of a claim either on facts or on law, and should be left for decision of arbitrator. The questions of res-judicata and limitation were raised in that case and it was held that the designate Judge, while deciding the question of appointment of arbitrator, has exceeded his limited jurisdiction under Section 11, and that he was not expected to go into merits of claim or examine maintainability or tenability of claims either on facts or law in an application under Section 11, except when it was an apparently dead claim, which is evidently and patently long time-barred and where there is no need of detailed consideration of evidence.

15. After revisiting number of its previous judgments on the subject, the Supreme Court in a recent judgment in Arasmeta Captive Power Company Private Limited v. Lafarge India Private Limited - (2013) 15 SCC 414, has succinctly clarified the law in this respect and held that while deciding application under Section 11(6) of the Act, the Chief Justice or designate would not be justified in deciding whether a claim falls under excepted matter or not under the arbitration agreement. The decision as to such issues should be left to arbitrator as it is to be exclusively determined by the arbitrator. The Chief Justice or designate has to record satisfaction that there remains a live issue in between the parties and that prima facie the issue had not become dead by the lapse of time or that any party to the agreement has not slept over the issue beyond the time permitted by law to agitate those issues, but sometime it would be appropriate to leave the question regarding the live claim to be decided by the arbitrator. All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation. But it was further held that Chief Justice/designate in doing so would not embark upon an examination of the issue of arbitrability or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or amongst the parties, he would leave the issue of arbitrability for the decision of the arbitrl tribunal. Even if the arbitrator wrongly held that the dispute is arbitrable, the aggrieved party will have the remedy to challenge the award under Section 34 of the Act of 1996.

16. Question whether non-applicants Railways would be justified in refusing to refer the dispute to Arbitrator on the premise that such dispute falls in the category of “excepted matter”, thus stands covered by law laid down in Arasmeta Captive Power Company Private Limited, supra, in which the Supreme Court has authoritatively held that the Chief Justice or his Designate would not be justified in deciding whether a claim falls under “excepted matter” or not, under arbitration agreement, and such decision ought to be left to arbitrator.

17. Argument of the respondent-Railways is that in view of Section 21 of the Arbitration and Conciliation Act, 1996, unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute shall commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015, which came into force with effect from 23.10.2015, provides that 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. In the present matter, the request for referring the dispute to the arbitrator was made and received prior to enforcement of the Amendment Act, 2015. The tender proceedings in the present case were commenced even prior to enforcement of the Arbitration and Conciliation (Amendment) Act, 2015. The Amendment Act, 2015, shall apply only in relation to arbitral proceedings commenced on or after the date of commencement thereof. The provisions of Section 12 including its sub-sections (1) and (5), as also Fifth and Seventh Schedule, shall not be applicable to cases where the arbitral proceedings have commenced prior to enforcement of the Amendment Act, 2015, argued the learned counsel appearing for the Railways. Therefore, Section 12(5) does not apply to present case.

18. I had the occasion to deal with this question in M/S DWARKA TRADERS PVT LTD v. UNION OF INDIA - 2017 (1) WLC (Raj.) 277. In para 22 of the report, it was held as under:—

“Section 12(5) of the Act of 1996 provides that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. Seventh Schedule referred to in Section 12(5) provides that if the arbitrator is an employee, consultant, advisor or has other past or present business relationship with a party, it would give rise to justifiable doubts as to his independence or impartiality. Clause 5 of Seventh Schedule also provides for similar consequences, if any arbitrator happens to be manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties, if the affiliate is directly involved in the matters in dispute in the arbitration. sub-section (5) of Section 12 of the Act of 1996 has thus been given overriding effect over any prior agreement to the contrary. Therefore, independence and impartiality of arbitrator as mandated by Amending Act of 2015 has now been made a paramount consideration for appointment of arbitrator. In the facts of the case therefore, the General Manager Railways can neither be appointed as an Arbitraor nor can he be called upon to nominate another officer of the Railways to act as the Arbitrator.”

19. The Supreme Court in a recent judgment in Voestalpine Schienen Gmbh v. Delhi Metro Rail Corporation Limited. - 2017 (2) Vol.126 Arb.LR 1, on consideration of amended provisions of Section 12(5), emphasized on the independence, impartiality and utility of the Arbitrator with reference to recommendation of the Law Commission and in para 17 of the report held as under:-

“Keeping in mind the aforequoted recommendation of the Law Commission, with which spirit Section 12 has been amended by the Amendment Act, 2015, it is manifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, sub-section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. In such an eventuality, i.e. when the arbitration clause finds foul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator(s) as may be permissible. That would be the effect of non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement.”

20. In a recent judgment dated 03.07.2017 in TRF Ltd. v. Energo Engineering Projects Ltd. - Civil Appeal No. 5306/2017 (@ S.L.P. (C) No. 22912/2016), the Supreme Court was called upon to decide the question whether the High Court, while dealing with the applications under Section 11(6) of the Act of 1996 is justified to repel the submissions of the appellants that once the person, who was required to arbitrate upon the disputes arising under the terms and conditions of the contracts, becomes ineligible by operation of law, would he still be entitled to nominate another person as an arbitrator? On consideration of large number of its earlier decisions especially in Newton Engineering and Chemicals Limited v. Indian Oil Corporation Limited - (2013) 4 SCC 44, the Supreme Court answered the question in negative. Clause 33(d) of the General Terms and Conditions of the Purchase Order (in brief, ‘GTCPO’) in that case stipulated that unless otherwise provided, any dispute or difference between the parties in connection with this agreement shall be referred to sole arbitration of the Managing Director of Buyer or his nominee. The appellant before the Supreme Court invoked the arbitration clause seeking reference of dispute to an Arbitrator and objecting to the aforesaid Clause 33(d) in view of Section 12(5) of the Amendment Act, 2015, and prayed for appointment of Arbitrator in view of the specific terms of the purchase order. The respondents proceeded to appoint a sole Arbitrator in terms of Clause 33(d) of the GTCPO, which was not accepted by appellant. The argument of the appellant before the High Court was that the Managing Director had become ineligible to act as an Arbitrator and as a natural corollary, he had no power to nominate any other arbitrator in view of Section 12(5) of the Amendment Act read with Fifth and Seventh Schedules. This argument was resisted by the respondents before the High Court contending that Fifth and Seventh Schedules merely lay down the guidelines and the arbitrator is not covered under the same and even if it is so, his power to nominate someone to act as an arbitrator is not fettered or abrogated. While rejecting the plea of the appellant, the High Court accepted the argument of the respondent. Matter was taken to the Supreme Court. The appellant argued before the Supreme Court that the relevant clause in the agreement relating to appointment of arbitrator has become void in view of Section 12(5) of the amended Act, for the Managing Director having statutorily become ineligible, cannot act as an arbitrator and that acts as a disqualification and in such a situation, to sustain the stand that his nominees would be validly appointed arbitrators, would bring in an anomalous situation which is not countenanced in law. In those facts, the Supreme Court in para 53, 56 and 57 of the judgment in TRF Ltd., supra, held as under:—

“53. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned senior counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned senior counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the “named sole arbitrator” and he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction. In this regard, our attention has been drawn to a two-Judge Bench decision in State of Orissa v. Commissioner of Land Records & Settlement, Cuttack - (1998) 7 SCC 162. In the said case, the question arose can the Board of Revenue revise the order passed by its delegate. Dwelling upon the said proposition, the Court held:

“25. We have to note that the Commissioner when he exercises power of the Board delegated to him under Section 33 of the Settlement Act, 1958, the order passed by him is to be treated as an order of the Board of Revenue and not as that of the Commissioner in his capacity as Commissioner. This position is clear from two rulings of this Court to which we shall presently refer. The first of the said rulings is the one decided by the Constitution Bench of this Court in Roop Chand v. State of Punjab. In that case, it was held by the majority that where the State Government had, under Section 41(1) of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, delegated its appellate powers vested in it under Section 21(4) to an “officer”, an order passed by such an officer was an order passed by the State Government itself and “not and order passed by any officer under this Act” within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise of powers of revision by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and not as a delegate of the State. The State Government was, therefore, not entitled under Section 42 to call for the records of the case which was disposed of by an officer acting as its delegate.”

56. The aforesaid authorities have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. According to learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or gt it arbitrated upon by a nominee.

57. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so.”

21. The authoritative pronouncement of the Supreme Court in TRF Ltd., supra, would squarely cover the controversy in the present case as herein also 64(3)(a)(i) of the GCC empowers the General Manager to act by himself as sole Arbitrator or nominate any Gazetted Officer of the Railway if value of the contract does not exceed Rs. 10,00,000/-. (This amount has varied from time to time.) Clause 64(3)(a)(ii) of the GCC, as it stood at the relevant time, provides that in cases not covered by Clause 64(3)(a)(i), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers, not below J.A. Grade, as the Arbitrators. For this purpose, the Railway will send a panel of more than three names of Gazetted Railway Officers of one or more Departments of the Railway, to the Contractor, who will be asked to suggest to General Manager upto two names out of the panel for appointment as Contractor's nominee. The General Manager shall appoint atleast 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 three Arbitrators so appointed.

22. What is provided in sub-section (5) of Section 12 of the Amendment Act, 2015, is that any person, whose relationship with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. Though Section 26 of the Amendment Act, 2015 has made the provisions of the Amendment Act applicable only prospectively, the unamended provisions of the Principal Act of 1996 continued to be applicable to arbitral proceedings which commenced in accordance with the provisions of Section 21 of the Act of 1996 before commencement of the Amendment Act, 2015, i.e. 23.10.2015. However, Section 12(5) itself carves out an exception to the exception created by Section 26 of the Amendment Act, 2015, since it begins with a non obstante clause and overrides any other prior agreement containing a clause contrary to what is provided for in Seventh Schedule of the Act of 1996.

23. The Apex Court in North Eastern Railway v. Tripple Engineering Works - 2014 (3) Arb.LR 327 (SC), in which their Lordships, while dealing with the same Arbitration Clause 64(3) of the General Conditions of Contract, considered various earlier decisions with regard to the powers of the Chief Justice/Designate under Section 11 of the said Act, and held as under:—

“6. The “classical notion” that the High Court while exercising its power Under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter for short ‘the Act’) must appoint the arbitrator as per the contract between the parties saw a significant erosion in Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corporation Ltd. wherein this Court had taken the view that though the contract between the parties must be adhered to, deviations therefrom in exceptional circumstances would be permissible. A more significant development had come in a decision that followed soon thereafter in Union Of India v. Bharat Battery Manufacturing Co. (P) Ltd. wherein following a three-Judge Bench decision in Punj Lloyd Ltd. v. Petronet Mhb Ltd. it was held that once an aggrieved party files an application Under Section 11(6) of the Act to the High Court, the opposite party would lose its right of appointment of the arbitrator(s) as per the terms of the contract. The implication that the Court would be free to deviate from the terms of the contract is obvious.

10. In the present case Clauses 64(3)(a)(ii) and (iii) of the general conditions of contract do not prescribe any specific qualification of the arbitrators that are to be appointed under the agreement except that they should be Railway Officers. As already noticed, 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), in an appropriate case to depart therefrom…….”

24. The judgment of the Supreme Court in North Eastern Railway v. Tripple Engineering Works, supra, has been followed by the Apex Court recently in Union of India v. U.P. State Bridge Corporation Ltd. - 2014 (10) Scale 561, upholding the appointment of Arbitrator made by the High Court on its own, departing from the prescription made in the arbitration clause. It was held in para 21 as under:—

“21. The appointment of arbitrator by the Court, of its own choice, departing from the arbitration clause, is therefore not unknown and has become an acceptable proposition of law which can be termed as a legal principle which has come to be established by a series of judgments of this Court. Reasons for debating such a course of action are not far to seek and already taken note of above.”

25. The Supreme Court in Datar Switch Gears Ltd. v. TATA Finance Limited - (2000) 8 SCC 151, held that in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite” party ceases. Their Lordships therein therefore disagreed with the earlier judgments which held that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6), is forfeited, but extended this limit upto the date of filing application under Section 11 of the Act, 1996. The said law was again reiterated by the Supreme Court in Punj Lloyd Ltd. v. Petronet Mhb Ltd. - (2006) 2 SCC 638.

26. The Supreme Court in Northern Railway Administration v. Patel Engineering Company Limited, supra, observed that Section 11(6) of the Act of 1996 provides that the Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to; (a) any qualifications required of the arbitrator by the agreement of the parties; and (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator. It was held that appointment of arbitrator or arbitrators named in the arbitration agreement is not a must, but while making appointment the twin requirements of sub-section (8) of Section 11 have to be kept in view, considered and taken into account. Mandate of law contained in sub-section (6) of Section 11 of the Act has to be followed in all such cases, which provides that, “a party may request the Chief Justice or any person or institution designated by him to take the necessary measures.” The expression “necessary” as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. This expression has to be read with the requirement in Section 11(8) of the Act that the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have “due regard” to the two cumulative conditions contained in Sections 11(8)(a) and (b) relating to qualifications and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

27. In view of the precedents noted above, since the respondents failed to refer the dispute for arbitration despite the applicant invoking arbitration clause till filing of the present application, this court would be fully justified in appointing an independent Arbitrator in deviation from what has been prescribed in the agreement.

28. As held by the Supreme Court in Northern Railway Administration v. Patel Engineering Company Limited, supra, the Court must first ensure that the remedies provided for are exhausted. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations. The expression “due regard” means that proper attention to several circumstances have been focused. The expression “necessary” as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. Necessary measures are the steps which are reasonably required to be taken, one of which is to secure appointment of an independent and impartial arbitrator, which aspect has been emphasised even by the Parliament in the newly introduced the Arbitration and Conciliation (Amendment) Act, 2015, especially in Clauses 1 and 5 of the Fifth Schedule with reference to explanation to Section 12(1)(b) and Clauses 1 and 5 of Seventh Schedule with reference to Section 12(5) of the Act.

29. In Reliance Infrastructure Ltd. v. Haryana Power Generation Corporation Ltd., - 2016 (6) Arb.L.R. 480 (P&H), the judgment relied by the respondents, the Punjab and Haryana High Court held that the mere fact that a person was a Chief Secretary or held any other office with the State Government, does not debar him or her from being appointed as Arbitrator. The circumstance “which is likely to give rise to justifiable doubts” as to the arbitrator's independence or impartiality, is referred to in Entry 1 of Fifth Schedule with reference to sub-section (1) of Section 12 of the Act of 1996. It was held that that the bar is against the person, who is at the time of appointment an employee, consultant or advisor of the party concerned but there is no bar against the former employee, consultant or advisor of the party. The words “or has any other past or present business relationship with a party” in Entry 1 of Fifth Schedule of the Act of 1996, do not include the former employee, consultant or advisor of a party, held the High Court.

30. The interpretation placed by Punjab and Haryana High Court on Section 12(1) and Entry 1 of Fifth Schedule that an employee having past or even present relationship with the party, does not include even a former Chief Secretary of the State, is not free from doubt. The Punjab and Haryana High Court in arriving at that conclusion has split Entry 1 of Fifth Schedule with reference to Section 12(1)(a) of the Act of 1996, in two parts, which enumerates the grounds giving rise to justifiable doubts as to the independence or impartiality of arbitrator. Entry 1 of Fifth Schedule with reference to Section 12(1)(a) and Entry 1 of Seventh Schedule with reference to Section 12(5) are similarly worded, both of which read as under:—

“The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.”

31. The Punjab and Haryana High Court has split Entry 1 of the Fifth Schedule, the first part being “The arbitrator is an employee, consultant, advisor…” and second, “..or has any other past or present business relationship with a party.” The High Court held that the latter part does not include a former employee, consultant or advisor of the party. It further held that the word “other” refers to a relationship other than that of an employee, consultant or advisor, which was meant to indicate the business relationship between them. Then, the High Court proceeded to hold that the bar applies in respect of a person, who has had a business relationship with a party, other than as an employee, consultant or advisor. I find myself unable to agree with such interpretation placed by the Court. The words “The arbitrator is an employee, consultant, advisor…” cannot be read separately from the latter part “..or has any other past or present business relationship with a party.” Latter part has to be read thus The arbitrator' ‘has any other past or present business relationship with a party.’ In other words, if the Arbitrator has had any past or present relationship with the party, Section 12(1) would be attracted. The phraseology does not exclude the employee, consultant or advisor but rather expands the scope of the Entry to include even those, who may have been in any form or manner associated, either in past or present, with the party, which one can describe as business relationship. But that does not mean that an employee even though was a former employee of a party would not fall within the purview of past business relationship. There is no warrant for placing such a narrow interpretation on the phraseology ‘business relationship’ to exclude the employees, consultants and advisors completely from its purview. If a person had been an employee, consultant or advisor of one of the parties to the dispute, may be not in the present but at any point of time in the past, he is not absolved of his liability from disclosing in writing such past association in terms of Section 12(1) of the Act of 1996. Therefore, this court is not in agreement with the view taken by the Punjab and Haryana High Court that it is not necessary even for a person, who is approached in connection with his possible appointment as an arbitrator, to disclose in writing a past employment or engagement as an employee, consultant or advisor, with a party, unless such employment or engagement is likely to give rise to justifiable doubts as to his independence or impartiality.

32. The intention of the Parliament that manifests from Section 12(1) of the Act of 1996, is that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances, such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute. In order to better appreciate the point which is sought to be made herein, it would be apposite to reproduce Section 12(1)(a) of the Act of 1996, which reads thus:—

“12. Grounds for challenge.- (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances, -

(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality;”

33. Though Entry 1 of the Fifth Schedule has used the expression “…has any other past or present business relationship with a party.” Section 12(1)(a) has insisted that such person shall disclose in writing such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute. Evidently in the main provision of Section 12(1), the word ‘relationship’ is not prefixed by ‘business’ and is plainly used as ‘relationship’. Any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, would by itself be sufficient to impel the person approached for appointment as arbitrator to make such disclosure in writing. Actual bias need not be proved for that purpose. Regardless of whether the circumstances actually impinge upon independence and impartiality of the Arbitrator, if the circumstances are such, which are likely to give rise to justifiable doubts as to the independence and impartiality, that by itself would be sufficient reason for him to make a disclosure in writing thereabout. On the same analogy, therefore, Section 12(5) of the Act of 1996, which has been given overriding effect over any prior agreement to the contrary, provides that any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. Entry 1 of Seventh Schedule is worded identically to the Entry 1 of Fifth Schedule. Therefore, the reasoning by which the ex-employee of a party to dispute is required to make a disclosure in terms of the format given in the Sixth Schedule, would also be attracted for his appointment as an arbitrator. He would therefore be ineligible to be appointed as an arbitrator by virtue of his past relationship with the party concerned.

34. But now the argument of the respondent-Railways is that the Government of India in its Ministry of Railways (Railway Board), vide Circular No. 2015/CE-I/CT/ARB/18 dated 11.11.2016, which was passed in view of the promulgation of the Arbitration and Conciliation (Amendment) Act, 2015, has modified Clause 64 of the Indian Railways General Conditions of Contract (GCC-2014). Reliance in this connection has been placed on Clause 64.(7) of the GCC to further argue that therein it is clearly provided that “…any statutory modifications thereof shall apply to the arbitration proceedings…”. The petitioner being signatory to the agreement between the parties, has accepted the enforceability of the aforesaid Clause and therefor would be bound by any modification made in the GCC even subsequently. If therefore the Railways, by Circular dated 11.11.2016, have introduced modified Clause 64.(3) in regard to those cases where applicability of Section 12(5) of the Act of 1996 has been waived off, and if applicability of newly introduced Section 12(5) is not waived by the parties in terms of Clause 64.(1) of the GCC, even then the General Manager of the Railways would be entitled to send a panel of at least four 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 him, asking the Contractor to suggest at least two names out of the panel for appointment as contractor's nominee within thirty days therefrom. Such a provision would be binding on the contractor.

35. I am afraid, this argument cannot be countenanced because any unilateral amendment subsequent to execution of the contract agreement between the parties cannot bind the contractor. Even then, let us examine Clause 64.(7) of the GCC.

36. The unamended Clause 64.(7) of the GCC reads as under:—

“Subject to the provisions of the aforesaid Arbitration and Conciliation Act, 1996 and the rules there under and any statutory modifications thereof shall apply to the arbitration proceedings under this clause.”

37. The amended Clause 64.(7) of the GCC reads thus,

“64.(7) Subject to the provisions of the aforesaid Arbitration and Conciliation Act, 1996 and the rules thereunder and relevant para of General Conditions of Contract (GCC) and any statutory modifications thereof shall apply to the appointment of arbitrators and arbitration proceedings under this Clause.”

38. If the unamended Clause 64.(7) is read, it would abundantly become clear that the intention manifest therein is that any statutory modifications in the Act of 1996 and the rules framed thereunder, shall apply to the arbitration proceedings in that Clause. The amended Clause 64.(7) of the GCC has not only provided that any statutory modifications of the Act of 1996 and the Rules framed thereunder, shall apply to the appointment of arbitrator and arbitration proceedings under that Clause, but has also additionally included the General Conditions of Contract therein to say that any statutory modifications thereto shall apply to the appointment of arbitrator. In the first place, modifications unilaterally brought about by the respondent Railways in Clause 64.(7) can not be described as statutory in character and secondly, such unilateral modifications made by the respondent Railways to insist on furnishing the names of retired Railway Officers empanelled to work as arbitrators amongst four names of Gazetted Railway Officers, to the contractor, would still be in direct conflict with the holistic purpose for which sub-section (5) of Section 12 has been inserted with a non obstante clause by providing that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. The only exception that is provided thereto is engrafted in the proviso to sub-section (5) of Section 12 is that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing, which the Railways themselves have incorporated in Clause 64.(1). But in cases where there has been no waiver by the contractor, the Railways cannot achieve what they failed to achieve by not being able to persuade the contractor to waive the applicability of Section 12(5), by insisting on him to select, if not any serving Gazetted Railways Officer as its nominee arbitrator, at least retired Railways Officer empanelled to work as Railway arbitrator to act as contractor's nominee arbitrator. Moreover, as already held above, once the General Manager has been rendered ineligible to act as Arbitrator, he would also not be competent to nominate any other person as Arbitrator, whether serving or retired.

39. Adverting now to the argument that wherever the claim is more than 20% of the contract value, Clause 64 of the GCC would not be applicable. Reliance in this connection is placed by the respondent - the Railways on Clause 86 of the GCC, which reads as under:—

“The provision of Clause 63 & 64 of General Conditions of Contract will be applicable only for settlement of claims or disputes between the parties for value less than or equal to 20% of the value of contract and when claims and disputes are of value more than 20% of the value of the contract, provision of clause 63 & 64 and other clause of the General Conditions of Contract will not be applicable and arbitration will not be a remedy for settlement of such disputes.”

40. The Railways in this regard has relied on two judgments of a coordinate bench of this court, namely, Sisram Bir Singh v. Union of India - 2006 (3) WLC (Raj.) 574 and Trimurti Constructions v. Union of India - 2006 (3) WLC (Raj.) 680. Opposing this argument, learned counsel for the petitioner has relied on the judgment of the Supreme Court in Deepak Kumar Bansal v. Union of India - (2009) 3 SCC 223. In that case, the High Court refused to appoint Arbitrator on the ground that the Circular of respondent Union of India dated 11.06.2003, inserting Clause 18 in the original contract, debarred reference to arbitration if the claim amount was in excess of 20% of the total contract value. It was canvassed before the Supreme Court that in addition to the value of the work originally awarded, three additional work orders were subsequently issued and if they are all added together, the total value of the contract cannot be said to be in excess of 20% of the contract value. The Supreme Court reversed the judgment of the High Court and remitted the matter for appointment of arbitrator. The judgment of the Supreme Court in Deepak Kumar Bansal, supra, was followed by a coordinate bench of this Court in Sh. Shyam Construction v. Union of India - 2013 (2) CDR 1046 (Raj).

41. The petitioner has also canvassed and in my view rightly, that the respondents would not be justified in refusing to make a reference by relying on the value of the original contract of the work awarded. Subsequently issued work orders also ought to be considered for assessing the total value of the work vis-a-vis the extent of the claim to decide whether or not it exceeds 20% of the contract value. Besides, the claimant/contractor can also demand the refund of the earnest money, and the security deposit and can also claim interest, if not the damages, all of which have to be treated as part of the claim. The Supreme Court in a recent judgment in Hyder Consulting (UK) Ltd. v. State of Orissa - (2015) 2 SCC 189, while interpreting the word “sum” mentioned in Section 31(7) of the Act of 1996, vis-a-vis ‘claim’ in the context of the grant of pre-award interest under Section 31(7)(a) and post-award interest under Section 31(7)(b) of the Act of 1996, held that under Section 31(7)(a) of the Act of 1996 the arbitral tribunal is empowered to include pre-award interest in the sum for which award is made, which then becomes part and parcel of the same award. It would however be always open to the Railways to raise such objection before the Arbitrator, who is, as per Section 16 of the Act, competent to rule on his own jurisdiction whether the claim, being less than 20% of the total value of the work is arbitrable or not but denying reference to arbitrator on this count would neither be just nor lawful.

42. This takes us to the question whether the prayer of the petitioner to refer the matter to arbitration can be declined because he received the amount in full and final settlement of all his dues by signing the ‘No Claim Certificate’?

43. In National Insurance Company Limited v. Boghara Polyfab (P) Ltd. - (2009) 1 SCC 267, the question considered by the Supreme Court was whether contractor gave the ‘no claim certificates’ voluntarily or under any kind of financial duress or fraud/coercion/undue influence. The Supreme Court, in para 26 and 51 of the report, observed thus:—

“26. When we refer to a discharge of contract by an agreement signed by both the parties or by execution of a full and final discharge voucher/receipt by one of the parties, we refer to an agreement or discharge voucher which is validly and voluntarily executed. If the party which has executed the discharge agreement or discharge voucher, alleges that the execution of such discharge agreement or voucher was on account of fraud/coercion/undue influence practiced by the other party and is able to establish the same, then obviously the discharge of the contract by such agreement/voucher is rendered void and cannot be acted upon. Consequently, any dispute raised by such party would be arbitrable.

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.”

44. The Supreme Court in Chairman & M.D., N.T.P.C. Ltd. v. Reshmi Constructions, Builders & Contractors - 2004 (1) R.A.J. 232 (SC) was dealing with a case where submission of final bill by the respondent contractor was not accepted by the appellant NTPC Limited. Final bill was prepared by the appellant themselves and forwarded along-with the format “No Demand Certificate”. The respondents though signed the “No Demand Certificate” but on the same day sent a letter to the appellant, informing about signature under coercion and protest, without prejudice to his right. It was held that even when rights and obligations of the parties are worked out, the contract does not come to an end inter alia for the purpose of determination of the disputes arising thereunder, and, thus, the arbitration agreement can be invoked. The Supreme Court observed that although it may not be strictly in place but we cannot shut our eyes to the ground reality that in the cases where a contractor has made huge investment, he cannot afford not to take from the employer the amount under the bills, for various reasons, which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a ‘No demand Certificate’ has been signed. Each case, therefore, is required to be considered on its own merits, held the Supreme Court.

45. In Ambica Construction v. Union Of India. - 2006 (4) Arb.LR 288 (SC), the arbitrator held that ‘no claim certificate’ was signed by the contractor under duress and coercion and passed the award in his favour. The High Court set aside the award. When the matter was taken to the Supreme Court, it was held that the contractor was having genuine claim, which was considered in great detail by the arbitrator, and that notwithstanding submission of a no claim certificate by appellant, he was entitled to claim a reference. The appeal was allowed. In Raj Brothers v. Union of India - 2009 (1) R.A.J. 146 (SC) also final bill was signed by the contractor ‘under protest’. The contractor subsequently withdrew the protest under duress, but later invoked the arbitration clause. It was held that since withdrawal of protest was made under duress, triable issue arises and therefore the matter was rightly referred to arbitrator. In a rather recent judgment in Gayatri Project Limited v. Sai Krishna Construction - (2014) 13 SCC 638, the Supreme Court held that issuance of full and final discharge/settlement voucher/no-dues certificate, does not preclude arbitration when the said full and final settlement itself is disputed. Question whether letter dated 06.06.2003 would constitute a “full and final settlement” would have to be determined on proper appreciation of the evidence led by the parties. This issue by itself was subject to arbitration. Hence reference to arbitrator was maintainable, held the Supreme Court.

46. In Union of India v. L.K. Ahuja and Co. - (1988) 3 SCC 76 : AIR 1988 SC 1172, the contractor executed construction works and accepted payments giving ‘no claim declaration’. He however subsequently claimed certain amount as due on contracts and claimed reference to arbitrator by Government within three years, which was denied. The Supreme Court held that it is true that on completion of the work, right to get payment would normally arise and it is also true that on settlement of the final bill, the right to get further payment gets weakened but the claim subsists and whether it does subsist, is a matter which is arbitrable. In Jayesh Engineering Works v. New India Assurance Co. Ltd. - 2000 (Suppl.) Arb. LR 458 (SC), the respondents intimated the appellant to receive a Cheque in full and final settlement of the works relating to Tenders I and II, which he acknowledged by endorsing on the said letter stating that he had received the said amount as full and final settlement and he had no further claim in that regard. Thereafter, he wrote a letter stating that his statement that payment had been accepted by him in full and final settlement is not correct and still there are outstanding dues which need to be paid, otherwise the matter will have to be referred to arbitration in terms of Clause 37 of the agreement. The High Court dismissed the application. The Supreme Court, relying on its earlier decision in Union of India v. L.K. Ahuja and Co., supra, held that the view taken by the High Court is not correct. Whether any amount is due to be paid and how far the claim made by the appellant is tenable are matters to be considered by the Arbitrator.

47. In the light of the law propounded by the Supreme Court in number of judgments noticed above, the contrary judgments of the Supreme Court in Union of India v. Onkar Nath Bhalla & Sons - 2009 DNJ (SC) 482 and Harsha Constructions v. Union of India - (2014) 9 SCC 246, which were decided on their own facts, cannot be relied to decline the reference to arbitration because the ratio of other cited judgments whether the contractor/petitioner by merely signing the receipt on proforma of the respondent Railways, which contains the stipulation of such payment being made in full and final settlement, waived his right to seek reference to arbitration, would merely have the effect of weakening its further claim but whether or not the claim subsists is itself an arbitrable dispute and the petitioner/contractor cannot be deprived of the right to have the said dispute referred to arbitration. It would however always be open to the respondent Railways to agitate such objection before the concerned Arbitrator in view of Section 16 of the Act, who, in that scope, is very much competent to rule on his jurisdiction whether the claim is arbitrable or does not survive or whether the claimant/petitioner has waived his right, depending on the evidence adduced by the respondent.

48. Respondents-Railways have relied on Clause 64(1)(iv) of the GCC, which provides that if the contractor(s) does/do not prefer his/her specific and final claims in writing within a period of 90 days of receiving the intimation from the Railway 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 contract in respect of the claims. In my considered opinion, Clause 64(1)(iv) would not be valid and enforceable condition in view of amended provisions of Section 28(b) of the Indian Contract Act read with Article 137 of the Limitation Act. Section 28 was amended by the Indian Contract (Amendment) Act, 1996 (Act 1 of 1997) with effect from 08.01.1997, which reads thus:—

“28. Agreements in restraint of legal proceedings, void - Every agreement,

(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or,

(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent.”

49. A Division Bench of Delhi High Court in Chander Kant and Co. v. The Vice Chairman, DDA - 2009 SCC OnLine Del 3621, distinguishing number of earlier decisions wherein pre-amended Section 28 was relied on, held similar clause to be not valid in view of amended provisions of Section 28(b) of the Indian Contract Act. In Explore Computers Pvt. Ltd…Plaintiff; v. Cals Ltd. & Anr…Defendants. - 131 (2006) DLT 477, the Single Bench of Delhi High Court, after following decision of the Supreme Court in National Insurance Co., Ltd. v. Sujir Ganesh Nayak and Co., - (1997) 4 SCC 366 : AIR 1997 SC 2049, held as under:—

“48. The effect of the amendment of Section 28 thus made it clear that any clause extinguishing the right of a party or discharging any party from the liability in respect of any contract on expiry of specific period so as to restrict the time period would be void.

53. On a conspectus of the aforesaid judgments, two aspects have to be noted. The first is that it is the terms of the bank guarantee which have to be given due weight and the second is the distinction which is sought to be carved out in National Insurance Company Ltd. Case between a clause curtailing the period of limitation being void under Section 28 of the Contract Act and a clause which provides for forfeiture or waiver of a right if no action is commenced within the period stipulated by the agreement. Insofar as the second aspect is concerned, it cannot be lost sight of that the judgment in National Insurance Company Ltd. Case was delivered on 23.3.1997 and thus related to the provisions of Section 28 as it stood prior to the amendment because that was the substantive law in force at the time when the cause of action had arisen. The amendment to Section 28 was made with effect from 8.1.1997 and it is not disputed that the cause of action in respect of the subject matter in the present suit arose after the amendment. Subclause (b) of the amended Section 28 deals with the clauses which extinguish the rights of any party thereto or discharge any party from any liability being void under the said section. Thus, the scope of Section 28 has been widened whereby clause (a) deals with the position prior to the amendment alone and clause (b) is in addition.

54. In view of the amended section coming into force, the distinction sought to be carved out earlier by the legal pronouncements would not hold good.

55. In my considered view it is not open for defendant no. 2 to contend that if any suit or claim is not filed within one month of the expiry of the bank guarantee, the right of the plaintiff to institute any legal proceedings itself is extinguished. Such a plea would fly in the face of the amended Section 28 as defendant no. 2 cannot be discharged from the liability nor can the rights of the plaintiff be extinguished by inclusion of the clause providing so. I am thus of the considered view that to the extent there is restriction on any suit or claim being filed by the plaintiff beyond a period of one month from the expiry of the bank guarantee, the said clause would not prohibit the plaintiff from instituting the suit as it would be barred by the provisions of the amended Section 28 of the Contract Act.”

50. Upon doubts being raised as to correctness of the aforesaid Single Bench judgment, reference was made to Division Bench of Delhi High Court in Chander Kant and Co., supra in an application under Section 11(6) of the Act of 1996 for appointment of arbitrator to adjudicate the dispute between the parties. The application was opposed by Delhi Development Authority mainly on the ground that it is barred by virtue of Clause 25 of the agreement, which required that on final bill being ready for payment, the arbitration clause should be invoked within 90 days thereafter and failure to make demand for arbitration within 90 days, would result in forfeiture or waiver of right. The Delhi Development Authority in that case relied on judgment of the Supreme Court in P. Manohar Reddy & Bros. v. Maharashtra Krishna Valley Development Corporation - (2009) 2 SCC 494, to argue that similar clause in that case was held to be valid and binding and therefore the decision to the contrary relying on Section 28(b) of the Indian Contract Act should be held to be not good law. The Division Bench held that the Supreme Court in P. Manohar Reddy, supra, had no occasion to consider the effect of the insertion of Clause (b) in Section 28 by Amending Act 1 of 1997. Observation of the Court in Para 9, 10 and 11 of the report, are worth quoting:

“9. We are in respectful agreement with the view taken by the learned Judge. In our opinion, in view of the amendment, the distinction which was drawn earlier has been obliterated and the clauses providing for extinction or discharge of the rights of the parties on the expiry of the specified period are also covered by inserting Clause (b) in Section 28 of the Contract Act.

10. The contention of the DDA's counsel that the decisions of this Court no longer hold good in view of the decision in P. Manohar Reddy's case is misconceived. That decision is clearly distinguishable on facts. In that case Clause 54 of the contract provided that if the contractor considers any work demanded of him outside the requirements of the contract, he shall promptly ask the Executive Engineer, in writing, for written instructions or decisions. Thereupon, the Executive Engineer shall give his written instructions or decision within a period of 30 days of such request. If the Executive Engineer fails to give his decision in writing within a period of 30 days after being requested, or if the contractor is dissatisfied with the instructions or decision of the Executive Engineer, the contractor may within 30 days after receiving the instructions or decision, appeal to the upward authority who shall afford an opportunity to the contractor to be heard and to offer evidence in support of his appeal. It was further provided that if the contractor is dissatisfied with this decision, the contractor within a period of 30 days from receipt of the decision shall indicate his intention to refer the dispute to arbitration as per Clause 55 failing which the said decision would be final and conclusive. Clause 55 of the contract provided that all the disputes or differences in respect of which the decision has not been final and conclusive as per Clause 54 shall be referred for arbitration to a sole arbitrator appointed in the manner prescribed by that clause. It is thus seen that Clause 54 of the contract did not seek to forfeit or extinguish the right of the contractor but it merely provided that failure to make a demand for arbitration within the specified time would make the decision final and conclusive and consequently such claim will not be referable to arbitration under Clause 55 of the contract. In other words, the claim would fall in excepted category. The argument before the Supreme Court was that the limitation for raising a claim as envisaged under Clause 54 was not applicable to the case and in view of the fact that the claim was rejected only on 26.2.1992 by the appellate authority, the period of 30 days ought to have been counted therefrom and it was also argued that under Section 8 of the Arbitration Act, the court was concerned only with the question as to whether there was a triable issue. Repelling the argument, the Supreme Court held as follows:

“18. The arbitration clause, thus, could be invoked only in a case where the decision has not become final and conclusive as per Clause 54.

19. A plain reading of the aforementioned provisions clearly shows that Clause 54 does not envisage raising of a claim in respect of extra or additional work after the completion of contract. The jurisdiction of the civil court under Section 8 of the Act or under Section 20 thereof can be invoked if the disputes and differences arising between the parties was the one to which the arbitration agreement applied.

20. The contractual clause provides for a limitation for the purpose of raising a claim having regard to the provisions of Section 28 of the Contract Act. It is no doubt true that the period of limitation as prescribed under Article 137 of the Limitation Act would be applicable, but it is well settled that a clause providing for limitation so as to enable a party to lodge his claim with the other side is not invalid.”

11. In P. Manohar Reddy's case the Supreme Court had no occasion to consider the effect of the insertion of Clause (b) in Section 28 by Amending Act 1 of 1997. The Court did refer to the judgments in Vulcan Insurance Co. Ltd. v. Maharaj Singh and Wild Life Institute of India, Dehradun v. Vijay Kumar Garg but it was obvious that the observations were made in the context of unamended Section 28 of the Contract Act. It is also seen from the judgment that the cause of action had arisen in that case on 29.10.1991 on which date the appellant's claim was rejected. It is thus clear that the Court considered the case in the light of the unamended provisions of Section 28 of the Contract Act.”

51. I had the occasion to deal with somewhat similar Clause 24.2 of the agreement between the parties in JIL-Aquafil v. Rajasthan Urban Infrastructure Development Project Project - 2016 (4) WLC (Raj.) 474, which was to the effect that if the Contractor failed to give written notice to commence arbitration on or before 28 days after the day on which he received notice as to the decision of the Project Manager under Clause 24.1, the said decision becomes final and binding upon him, amounting to waiver of arbitration clause by the contractor. Apart from holding that aforesaid condition was directory and not mandatory in nature, it was held by this Court that in view of amended Section 28(b) of the Indian Contract Act, the aforesaid condition was void.

52. In view of the above analysis of law and facts, the condition contained in Clause 64(1)(iv) of the GCC, which assumes waiver of the claim by the contractor and discharge and release of the Railways of all its liabilities under contract in respect of the claims, is held to be void in view of Section 28(b) of the Indian Contract Act.

53. The objection of the respondent-Railways is that that the petitioner is entitled to get the benefit of price variation only on two items, namely, cement and steel. The variation in prices of materials other than cement and steel i.e. labour, fuel explosives, has to be determined as per para 68.1 of the Special Conditions of Contract. But the price variation for steel and cement has to be calculated as per para 68.2 of the Special Conditions of Contract. While the respondents have paid to the petitioner the price variation on steel and cement as per para 68.2, the petitioner is claiming escalation of cement and steel by adding the costs of these into overall value as per the formula specified in para 68.1, supra. In this manner, the petitioner is claiming the PVC for steel and cement twice. The plea of the petitioner is that since the cement and steel were not supplied by the respondent Railways, hence the value of the work done by the petitioner also included the cement and steel.

54. Whether the price variation clause has been correctly applied and the computation has been correctly made, cannot be gone into by this Court as this by itself is an arbitrable issue. It is for the arbitrator to decide this question on the basis of the evidence as to what is legally and factually correct. The issue is therefore left open to be decided by the Arbitrator.

55. Having regard to the facts of the present case and considering that there exists a dispute between the parties and the parties agreed to resolve the same by way of arbitration as the agreement contains arbitration clause, such dispute is liable to be resolved through arbitration proceedings, present application deserves to succeed and same is allowed. Mr. Mohammad Hanif, retired Officer of R.H.J.S., (cell no. 9928485786) R/o A-30, Street No. 1, Opposite ICICI Bank, Raghunathpuri, Kalwar Road, Jhotwara, Jaipur - 302012, is hereby appointed as an independent sole arbitrator to resolve the disputes between the parties. Payment of the costs of arbitration proceedings and the arbitration fees shall be made as per the Fourth Schedule of the Arbitration and Conciliation (Amendment) Act, 2015 read with Manual of Procedure for Alternative Dispute Resolution, 2009 of this Court, as amended from time to time.

56. A copy of this order be sent to Mr. Mohammad Hanif, retired Officer of R.H.J.S., (cell no. 9928485786) R/o A-30, Street No. 1, Opposite ICICI Bank, Raghunathpuri, Kalwar Road, Jhotwara, Jaipur - 302012, for needful.