REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

      CIVIL APPEAL NO(s). 3303 OF 2019    (Arising out of SLP(C ) No(s). 6312 of 2018)

UNION OF INDIA ……Appellants(s)

VERSUS

PARMAR CONSTRUCTION COMPANY       ……Respondent(s)

WITH  

    CIVIL APPEAL NO(s).3306  OF 2019    (Arising out of SLP(C ) No(s). 6034 of 2018)

    CIVIL APPEAL NO(s). 3304 OF 2019    (Arising out of SLP(C ) No(s). 2166 of 2018)

    CIVIL APPEAL NO(s). 3307  OF 2019    (Arising out of SLP(C ) No(s). 6316 of 2018)

    CIVIL APPEAL NO(s). 3312 OF 2019    (Arising out of SLP(C ) No(s). 7720 of 2018)

    CIVIL APPEAL NO(s). 3310 OF 2019    (Arising out of SLP(C ) No(s). 8019 of 2018)

    CIVIL APPEAL NO(s). 3311 OF 2019    (Arising out of SLP(C ) No(s). 8021 of 2018)

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    CIVIL APPEAL NO(s). 3305 OF 2019    (Arising out of SLP(C ) No(s). 7937 of 2018)

    CIVIL APPEAL NO(s). 3308 OF 2019    (Arising out of SLP(C ) No(s). 8597 of 2018)

    CIVIL APPEAL NO(s). 3319 OF 2019    (Arising out of SLP(C ) No(s).8256 OF 2019)

  (Arising out of Diary No.8885/2018)              

    CIVIL APPEAL NO(s). 3309 OF 2019    (Arising out of SLP(C ) No(s). 8596 of 2018)

    CIVIL APPEAL NO(s). 3314 OF 2019    (Arising out of SLP(C ) No(s). 9514 of 2018)

    CIVIL APPEAL NO(s). 3313 OF 2019    (Arising out of SLP(C ) No(s). 8598 of 2018)

    CIVIL APPEAL NO(s). 3315 OF 2019    (Arising out of SLP(C ) No(s). 9559 of 2018)

    CIVIL APPEAL NO(s). 3317 OF 2019    (Arising out of SLP(C ) No(s). 11417 of 2018)

    CIVIL APPEAL NO(s). 3318 OF 2019    (Arising out of SLP(C ) No(s).  11862 of 2018)

    CIVIL APPEAL NO(s). 3316 OF 2019    (Arising out of SLP(C ) No(s).  22263 of 2018)

J U D G M E N T

Rastogi, J.

Leave granted.

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2. The question that arises for consideration in the batch of

appeals by special leave is as to whether (1) the High Court was

justified in invoking amended provision which has been

introduced by Arbitration and Conciliation(Amendment Act),

2015 with effect from 23rd  October, 2015(hereinafter being

referred to as “Amendment Act, 2015”); (2) whether the

arbitration  agreement  stands  discharged  on  acceptance  of the

amount and signing no claim/discharge certificate and (3)

whether it  was  permissible for the  High  Court  under  Section

11(6) of the Arbitration and Conciliation Act, 1996(prior to the

Amendment Act, 2015) to appoint third party or an independent

Arbitrator when the parties have mutually agreed for the

procedure vis­à­vis the authority to appoint the designated

arbitrator.   The High Court has passed separate orders in

exercise of its  powers under Section 11(6)  of the Act,  1996  in

appointing  an independent arbitrator  without adhering to the

mutually agreed procedure under the agreement executed

between the parties.  Since the batch of appeals involve common

questions of law and facts with the consent of parties, are

disposed off by the present judgment.

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3. The facts have been noticed from civil appeal arising out of

SLP(Civil) no. 2166 of 2018.

4. The work for construction of office accommodation for

officer and rest house was allotted to the respondent contractor,

at Dungarpur in the State of Rajasthan on 21st December, 2011.

As alleged, the extension was granted by the appellants to

complete the work by 31st March, 2013.   The measurement was

accepted by the respondent under protest and when appellants

officials failed to clear 7th final bill until the respondent put a line

over “under protest” and signed no claim certificate.   The total

value of the work executed was of Rs. 58.60 lakhs against which

Rs. 55.54 lakhs was paid and escalation cost was not added with

interest @ 18% over delay payment.  Demand notice was sent to

the appellants to appoint an arbitrator invoking Clause 64(3) of

the GCC to resolve the disputes/differences on 23rd  December,

2013.   When the appellants  failed to appoint the arbitrator  in

terms of Clause 64(3), application came to be filed under Section

11(6) of the Act, 1996 before the Chief Justice/his Designate for

appointment of an independent arbitrator who after hearing the

parties under the impugned judgment allowed the application of

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the respondent and appointed a retired judge of the High Court

as an independent arbitrator to arbitrate the proceedings.   

5. In the instant batch of appeals, one fact is common that the

orders were placed for various nature of construction works for

its  execution and the  agreement  executed between the  parties

includes a separate chapter for settlement of disputes leaving any

dispute or difference between the parties to be resolved through

the process of arbitration by appointing an arbitrator  invoking

clause 64(3) of the contract.  As per terms of the agreement, date

of completion of the project was delayed as alleged due to breach

of obligations by the appellants and the scheduled date of

completion had to be extended.   Meanwhile, due to rise in the

prices of raw material, the project was impossible to be completed

by the respondent  contractors  and hence  correspondence  was

made to  either  pay  the escalated price  or in  the  absence, the

respondents would not be in a position to conclude the contract.

It was alleged that the appellants accepted the terms and

conditions for escalated prices and asked the respondents to

complete the work and handover the project.   

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6. But when the respondents raised the final bills in the pre­

determined format (which also included the no dues certificate)

on the  newly agreed  prices, dispute  has arisen in context of

payment of escalated prices or withholding of security deposits,

taking note of the existence of arbitration clause in the agreement

the  respondents  sent  a  notice to  appoint  an arbitrator  as  per

clause 64(3) of GCC to resolve the dispute of payment of

outstanding dues which was declined by the appellants by

sending the reply that “No Due Certificate” was signed and that

entails no dispute to be sent to arbitration.  Since the appellants

failed to appoint the arbitrator in accordance with the arbitration

clause in the agreement, each of the respondent filed application

under Section 11(6) of the Act before the High Court for

appointment of an independent arbitrator and the primary

objection of the appellants before the High Court was that  on

furnishing the no claim certificate by the contractor, no dispute

subsists  which  is to  be sent  to  the  arbitrator  and further the

claims which has been submitted were beyond time as prescribed

in the agreement and thus falls under the ‘excepted matter’ in the

agreement.  

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7. After the matter being heard, the application for

appointment of arbitrator under Section 11(6) of the Act, 1996

came to be decided by the High Court of Rajasthan by separate

order(s) keeping in view the independence and neutrality of

arbitrator as envisaged under Section 12(5) of  the Amendment

Act, 2015.   The High Court further observed that the amended

provisions of Act, 2015 shall  apply to the pending proceedings

and mere furnishing of no claim certificate would not take away

the right of the parties and it is open for adjudication before the

arbitrator and appointed a retired Judge of the High Court as an

independent sole arbitrator under the impugned judgment in

exercise of power under Section 11(6) of the Act, 1996.

Indisputedly, the request for the dispute to be referred to

arbitration in the instant batch of appeals was received by the

appellants  much  before the  Amendment  Act, 2015 came into

force (i.e. 23rd October, 2015).

8. Mr. K.M. Natarajan, learned Additional Solicitor General

appearing for the appellants submits that Section 12 including

sub­sections (1) and (5) as also Fifth and Seventh Schedule, has

come into force by the Amendment Act, 2015 w.e.f. 23rd October,

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2015 and indisputedly, in the instant batch of appeals, request to

refer to the arbitration was received by the appellants much prior

to the Amendment Act, 2015.   In view of Section 21 read with

Section 26 of the Amendment Act, 2015 where the request has

been sent to refer the dispute to arbitration and received by the

other side before the amendment Act, 2015 has come into force,

the proceedings will commence in accordance with the pre­

amended provisions of the Act, 1996 and in the given

circumstances, apparent error has been committed by invoking

Section 12(5) of the Amendment Act, 2015 for appointment of an

independent arbitrator without resorting to the clause 64(3) of

GCC as  agreed  by the  parties and in support of submission,

learned counsel has placed reliance on the decision of this Court

in the case of  M/s. Aravali Power Company Private Limited

Vs. Era Infrastructure Engineering Limited 2017(15) SCC 32

and  S.P. Singla Constructions Pvt. Ltd.  Vs.  State of

Himachal Pradesh and Others 2018(15) Scale 421.

9. Learned  counsel further submits that once the  no claim

certificate has been signed by each of the respondent and after

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settlement of the final bills, no arbitral dispute subsists and the

contract stands discharged and they cannot be permitted to urge

that they gave the no claim certificate under any kind of financial

duress/undue influence and even in support thereof, no prima

facie evidence has been placed on record.   In the given

circumstances, the appointment of an independent arbitrator by

the  High  Court under Section 11(6) of the Act, 1996 is not

sustainable and in support of submission, learned counsel has

placed reliance on the decisions of this Court in Union of India

and Others Vs.  Master Construction Company  2011(12) SCC

349;  New India Assurance Company Limited  Vs.  Genus

Power Infrastructure Ltd. 2015(2) SCC 424; ONGC Mangalore

Petrochemicals Limited Vs.  ANS Constructions Limited and

Anr. 2018(3) SCC 373.  

10. Learned counsel further submits that none of the

respondents had made any allegation of  bias  to  the  arbitrator

who was likely to be appointed by the railways in terms of the

agreement.  The said issue would have cropped up only when the

appointment of arbitrator was  made by the railways. It was

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required in the first instance to make every possible attempt to

respect the agreement agreed upon by the parties in appointing

an arbitrator to  settle the  disputes/differences  and only  when

there are allegations of bias or malafide, or the appointed

arbitrator has  miserably failed to discharge its obligation in

submitting  the  award, the  Court is  required  to examine those

aspects and to record a finding as to whether there is any

requirement in default to appoint an independent arbitrator

invoking Section 11(6) of the Act, 1996 and in support of

submission, learned counsel has placed reliance on the decision

of this  Court in  Union of India & Another  Vs.  M.P.  Gupta

2004(10) SCC 504,  Union of India & Another Vs. V.S.

Engineering(P) Ltd.  2006(13) SCC 240,  Northern Railway

Administration,  Ministry  of  Railway,  New Delhi  Vs.  Patel

Engineering Co. Limited 2008(10) SCC 240, Union of India Vs.

Singh Builders Syndicate 2009(4) SCC 523.  

11. Learned counsel further submits that as indicated in clause

64(7) of the GCC, all statutory  modifications thereof will be

binding to the arbitration proceedings and after promulgation of

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the Arbitration and Conciliation (Amendment) Act, 2015, clause

64(7)  stood amended to  fulfil the mandate of  Amendment Act,

2015 and it was clarified that all statutory modifications thereof

shall apply to the appointment of arbitrator and arbitration

proceedings and the respondents being signatory to the

agreement  have accepted  the  enforceability  of  aforesaid clause

64(7) and, therefore, are bound by any modification made in GCC

even subsequently and placed reliance on the judgment of this

Court in S.P. Singla Constructions Pvt. Ltd’s case(supra).

12. Per contra, Mr. Sameer Jain, learned counsel for the

respondents submits that respondents are the registered

contractors undertaking various nature of works contracts with

the railway establishment and are not in a bargaining position

and it is a ground reality that final bills are not being released

without a no claim certificate being furnished in advance by

them.  In all the cases, unilateral deductions have been made

from the final bills furnished by each of the respondent and they

are very small and petty contractors and the payments are not

released unless the no claim certificate is being furnished, it is

nothing more than a financial duress and undue influence by the

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authorities and is open for the arbitrator to adjudicate by

examining the bills which was furnished for payment.   

13. Learned counsel further submits that the effect of no claim

certificate has been examined by this Court in  National

Insurance Company Limited  Vs.  Boghara Polyfab Private

Limited 2009(1) SCC 267 and there are series of decisions of this

Court where no claim certificate in itself has never been

considered to be the basis to non­suit the request  made in

appointing an arbitrator  to  independently  examine the dispute

arising under the terms of the agreement.

14. Learned counsel further submits that once the appellants

have failed to appoint an arbitrator under the terms of agreement

before the application under Section 11(6) being filed before the

Court, the authority forfeits its right of appointing an arbitrator

and it is for the Chief Justice/his designate to appoint an

independent arbitrator under Section 11(6) of the Act, 1996 as

held by this Court in Datar Switchgears Ltd. Vs. Tata Finance

Ltd. and Another  2000(8) SCC 151 followed in Punj Lloyd Ltd.

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Vs. Petronet MHB Ltd. 2006(2) SCC 638 and later in Union of

India Vs.  Bharat Battery Manufacturing Co. (P) Ltd. 2007(7)

SCC 684 that once the party fails to appoint an arbitrator until

filing of an application under Section 11(6) of the Act, the

opposite party would lose its right of appointment of arbitrator(s)

as per the terms of the contract.   

15. Learned counsel further submits that  while dealing  with

Section 11(6), the Chief Justice/his designate can even overlook

the qualification of the arbitrator under the agreement but

arbitration agreement in the instant case does not contain any

specific qualification of the arbitrator under Clause 64(3) of the

GCC and since the appellants failed to appoint an arbitrator until

the application was filed, Section 11(6) empowers the Court to

deviate from the agreed terms if required by appointing an

independent arbitrator and by virtue of operation of Section 12(5)

of the Amendment Act, 2015, the employee of the railway

establishment became ineligible to be appointed as arbitrator.  In

the given circumstances, the authority is vested with the Chief

Justice  or  his  designate to  appoint  an independent  arbitrator

under Section 11(6) of the Act and the same has been held by

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this Court in  North Eastern Railway and Others Vs.  Tripple

Engineering Works 2014(9) SCC 288 and Union of India and

Others Vs.  Uttar Pradesh State Bridge Corporation Limited

2015(2) SCC 52.

16. Learned counsel further submits that the primary object by

introducing the remedy to measure arbitration is to have a fair,

speedy and inexpensive trial by the Arbitral Tribunal.

Unnecessary delay or expense would frustrate the very purpose

of arbitration and it holds out that arbitrator should always be

impartial and neutrality of the arbitrator is of utmost importance

and that has been noticed by the Parliament in amending Section

12(5) of the Act,  1996 which came into  force on 23rd  October,

2015 and when the matters have been taken up for hearing by

the High Court after the amendment has come into  force, the

effect of the amended provisions would certainly be taken note of

and in the given circumstances, if an independent arbitrator has

been appointed which is indisputedly an impartial and neutral

person fulfilling the mandate of the object of the proceedings of

arbitration, the amended provision has been rightly invoked by

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the High Court in the appointment of an independent arbitrator

invoking Section 11(6) of the Act, 1996.

17. We  have  heard learned  counsel for the  parties  and  with

their assistance perused the material on record.

18. The facts which manifest from the batch of appeals are that

the respondents are the registered contractors with the railway

establishment and undertaking work contracts (construction) of

various kinds.  They raised a demand for escalation cost and the

interest accrued thereon because the date of the completion of

the project was delayed as alleged due to breach of obligations by

the appellants and the scheduled date of completion had to be

extended.   In  the  interregnum period, there was a rise in  the

prices of the raw material and the project became impossible to

be completed by the respondent contractors.   Hence, a request

was made to the appellants to either pay the enhanced escalation

price  otherwise the respondent  contractors  would not  be in  a

position to conclude the contract and on the acceptance for

payment of the escalation costs, respondent contractor completed

the work and delivered the project and raised final bills in the

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prescribed pre­determined format (which also included no dues

certificate).   Since the dispute has arisen in the context of the

payment of the escalated cost, as demanded by respondent

contractors, and their being a clause of arbitration in the

agreement, each of the respondent contractors sent a notice for

arbitration invoking clause 64(3) of GCC, which in majority of the

cases declined by the appellants stating that no dues certificate

has been furnished and that entailed no subsisting dispute and

that was the reason due to which each of the respondent

contractor had approached the High Court by filing an

application under Section 11(6) of the Act, 1996.  It is also not in

dispute that the request for referring the dispute to arbitration

was received by the appellants much prior to the enforcement of

the  Amendment Act, 2015  which came into force,  w.e.f. 23rd

October, 2015.

19. To proceed with the matter  further, it  will  be apposite to

take note of the relevant clauses of the agreement with which we

are presently concerned: ­

“CLAIMS  43.(1)  Monthly  Statement  Of  Claims  :  The Contractor shall prepare and furnish to the Engineer once in every month an account giving full and detailed

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particulars of all claims for any additional expenses to which the Contractor may consider himself entitled to and  of all extra  or additional  works  ordered  by the Engineer which he has executed during the preceding month and no claim for payment for and such work will be considered which has not been included in such particulars.  

43.(2) Signing Of "No Claim" Certificate : The Contractor shall not be entitled to  make any claim whatsoever against the Railway under or by virtue of or arising out of this contract, nor shall the Railway entertain or consider any such claim, if made by the Contractor, after  he shall  have signed  a "No  Claim" Certificate in  favour of the Railway  in such  form as shall  be required by the Railway after the works are finally measured up. The Contactor shall be debarred from disputing the correctness of the items covered by "No  Claim"  Certificate or demanding a clearance to arbitration in respect thereof.

64.(1) Demand for Arbitration:  

64.(1) (i) In the event of any dispute or difference between the parties hereto as  to  the construction or operation of this contract, or the respective rights and liabilities of the parties on any  matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor  may claim to be entitled  to,  or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the “excepted matters” referred  to in Clause 63 of these Conditions, the contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters shall  demand  in writing  that the dispute or difference be referred to arbitration.  

64.(1) (ii) The demand for arbitration shall specify the matters which are in question, or subject of the dispute or difference as also the amount of claim item­ wise. Only such dispute(s)or difference(s) in respect of which the demand has been made, together with counter claims or set off, given by the Railway, shall be referred to arbitration and other matters shall not be included in the reference.  

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64.(1) (iii) (a) The Arbitration proceedings shall be assumed to have commenced from the day, a written and valid demand for arbitration is received  by the Railway. (b) The claimant shall submit his claim stating  the  facts  supporting  the claims alongwith all the relevant documents and the relief or remedy sought against each claim within a period of 30 days from the date of appointment of the Arbitral Tribunal. (c) The Railway shall submit its defence statement and counter claim(s), if any, within a period of 60 days of receipt of copy of claims from Tribunal thereafter, unless otherwise extension has been granted by Tribunal. (d) Place of Arbitration : The place of arbitration would be within the geographical limits of the Division of the Railway where the cause of action arose or the Headquarters of the concerned Railway or any other place with the written consent of both the parties.  

64.(1) (iv) No new claim shall be added during proceedings by either party. However, a party  may amend or supplement the original claim or defence thereof during the course of arbitration  proceedings subject to acceptance by Tribunal having due regard to the delay in making it.  

64.(1) (v) If the contractor(s) does/do not prefer his/their specific and final claims in writing, within a period of 90 days of receiving the intimation from the Railways that the final bill is ready for payment, he/they will be deemed to have waived his/their claim(s) and the Railway shall be discharged and released of all liabilities under the contract in respect of these claims.

64.(2) Obligation During Pendency Of Arbitration : Work under the contract shall, unless otherwise directed by the Engineer, continue during the arbitration proceedings, and no payment due or payable by the Railway shall be withheld on account of such proceedings, provided, however, it shall be open for Arbitral Tribunal to consider and decide whether or not such work should continue during arbitration proceedings.  

64.(3) Appointment of Arbitrator :  

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64.(3) (a)(i) In cases where the total value of all claims in question added together does not exceed Rs. 25,00,000 (Rupees twenty five lakh only), the Arbitral Tribunal shall consist of a Sole Arbitrator who shall be a Gazetted  Officer of Railway not below JA  Grade, nominated by the General Manager. The sole arbitrator shall be appointed within 60 days from the day when a written and valid demand for arbitration is received by GM. {Authority : Railway Board’s letter no. 2012/CE­ I/CT/ARB./24, Dated 22.10./05.11.2013}  

64.(3) (a)(ii) In cases not covered by the Clause 64(3)(a) (i), the  Arbitral  Tribunal shall consist of a Panel of three Gazetted Railway Officers not below JA Grade or 2 Railway Gazetted Officers not below JA Grade and a retired Railway Officer, retired not below the rank of SAG Officer, as the arbitrators. For this purpose, the Railway will send a  panel  of  more than 3 names of Gazetted Railway Officers of one or more departments of the Railway which may also include the name(s) of retired Railway Officer(s) empanelled to work as Railway  Arbitrator to the contractor  within  60  days from  the  day  when  a  written  and  valid  demand for arbitration is received by the GM. Contractor will  be asked to suggest to General Manager at least 2 names out of the panel for appointment as contractor’s nominee within 30 days from the date of dispatch of the request by  Railway. The  General  Manager shall appoint  at least  one out of them as the contractor’s nominee and will, also simultaneously appoint the balance number of arbitrators either from the panel or from outside the panel, duly indicating the ‘presiding arbitrator’ from amongst the 3 arbitrators so appointed. GM shall complete this exercise of appointing the Arbitral Tribunal within 30 days from the receipt of the names of contractor’s nominees. While nominating the arbitrators, it will be necessary to ensure that one of them is from the Accounts Department. An officer of Selection Grade of the Accounts Department shall be considered of equal status to the officers in SA grade of other departments of the Railway for the purpose of appointment of arbitrator.  

64.(7) Subject to the provisions of the aforesaid Arbitration and Conciliation Act,  1996 and the rules thereunder and any statutory modifications thereof

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shall  apply to the arbitration proceedings under this Clause.  

20. As per clause 43(2), the contractor signs a “No claim”

certificate in favour of the railway in the prescribed format after

the  work is finally  measured  up  and the contractor shall be

debarred from  disputing the correctness of the items covered

under the “No  Claim”  certificate  or  demanding  a clearance to

arbitration  in respect thereof.  Each of the  respondent  has to

attach no claim certificate with final bills in the prescribed format

to be furnished in advance before the final bills are being

examined and measured by the railway authorities.  Although it

has  been seriously  disputed by  the appellants but  that is the

reason for which even after furnishing no claim certificate with

the final bills being raised, it came to be questioned  by the

respondent(contractor) by filing an application to refer the matter

to arbitration invoking clause 64(3) of the conditions of contract

as agreed by the parties.  

21. Under clause 64(1), if there is any  dispute or difference

between the parties hitherto as to the construction or operation

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of the contract, or the respective rights and liabilities of the

parties on any matter in question or any other ancillary disputes

arising from the terms of the contract or if the railway

establishment fails to take a decision within the stipulated period

and the dispute could not be amicably settled, such dispute or

difference is to be referred to arbitration and who shall arbitrate

such disputes/differences between the parties, the General

Manager may nominate the officer by designation as referred to

under clause 64(3)(a)(i) and a(ii) respectively with further

procedure being prescribed for the sole arbitrator or the Arbitral

Tribunal to adjudicate the disputes/differences arising under the

terms of contract between the parties.

22. It is also not disputed that when the request of the

respondent contractors  was rejected  by the  appellants  on the

premise of the no claim certificate being furnished, arbitral

dispute does not survive which is to be sent to arbitration, each

of the respondent contractor approached the High Court by filing

an application under Section 11(6) of the Act for appointment of

an arbitrator for settling their disputes/differences arising from

the terms of contract as agreed between the parties.

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23. It is to  be  noticed  that the cost  of  escalation which was

raised by each of the respondent contractor with final bills were

appended  with the  no  claim certificate in the  prescribed  pre­

determined format and each of the claim of the respondent

contractor for making a reference to the Arbitrator for settling the

disputes/differences arising  from the terms of  the contract,  as

agreed between the parties was turned down by the appellants

because of furnishing no claim certificate.

24. As on 1st  January,  2016, the  Amendment  Act,  2015 was

gazetted and according to Section 1(2)  of the Amendment Act,

2015, it deemed to have come into force on 23rd October 2015.

Section 21 of the Act, 1996 clearly envisage that unless otherwise

agreed by  the  parties, the arbitral  proceedings  in respect  of  a

dispute shall  commence  from the date on which a request  for

that dispute to be referred to arbitration is received by the

respondent and the plain reading of Section 26 of Amendment

Act, 2015 is self­explicit, leaves no room for interpretation.

Section 21 & 26 of the Act, 1996/Amendment Act, 2015 relevant

for the purpose is extracted hereunder: ­

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“21. Commencement of arbitral proceedings.  — Unless otherwise agreed  by the  parties, the arbitral proceedings in respect of a particular dispute commence  on the  date  on  which  a request for that dispute to be referred to arbitration is received by the respondent.

26.   Act not to apply to pending arbitral proceedings –  Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance  with the  provisions  of  Section  21  of the principal  Act, before the commencement of this  Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.”

25. The  conjoint reading  of  Section  21 read  with  Section  26

leaves no manner of doubt that the provisions of the Amendment

Act,  2015  shall  not  apply to  such  of the  arbitral  proceedings

which has commenced in terms of the provisions of Section 21 of

the Principal Act unless the parties otherwise agree.  The effect of

Section 21 read with Section 26 of Amendment Act, 2015 has

been examined by this Court in  Aravali Power Company

Private  Limited  Vs.  Era Infra  Engineering  Limited  (supra)

and taking note of Section 26 of the Amendment Act, 2015 laid

down the broad principles as under:­

“22.  The principles which emerge from the decisions referred to above are:

22.1. In cases governed by 1996 Act as it stood before the Amendment Act came into force:

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22.1.1.  The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. There can however be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate to the officer whose decision is the subject­matter of the dispute.

22.1.2.  Unless the cause of action for invoking jurisdiction under Clauses (a), (b) or (c) of sub­section (6)  of Section 11 of  the 1996 Act arises,  there  is no question of the Chief Justice or his designate exercising power under sub­section (6) of Section 11.

22.1.3.  The Chief Justice or his designate while exercising power under sub­section  (6)  of  Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.

22.1.4. While exercising such power under sub­section (6) of Section 11, if circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure  prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else.

22.2.  In cases governed by 1996 Act after the Amendment Act has come into force: If the arbitration clause finds foul with the amended provisions, the appointment of the arbitrator even if apparently in conformity with the arbitration clause in the agreement, would be illegal and thus the court would be within its powers to appoint such arbitrator(s)  as may be permissible.”

which has been further considered in S.P. Singla Constructions

Pvt. Ltd. case(supra).

24

“16.   Considering the facts and circumstances of the present case, we are not inclined to go into the merits of this contention of the  appellant  nor examine the correctness or otherwise of the above view taken by the Delhi High Court in Ratna Infrastructure Projects case; suffice it to note that as per Section 26 of the Arbitration and  Conciliation (Amendment) Act, 2015 the provisions of the Amended Act, 2015 shall not apply to the arbitral proceedings commenced in accordance  with the  provisions  of  Section  21  of the Principal Act before the commencement of the Amendment Act unless the parties otherwise agree.  In the facts and circumstances of the present case, the proviso in clause (65) of the general conditions of the contract cannot be taken to be the agreement between the parties so as to apply the provisions of the amended Act.   As per Section 26 of the Act, the provisions of the Amendment Act, 2015 shall apply in relation to arbitral proceedings commenced on or after the date of commencement of the Amendment Act, 2015(w.e.f. 23.10.2015).   In the present case, arbitration proceedings commenced way back in 2013, much prior to coming into force of  the amended Act and, therefore, provisions of the Amended Act cannot be invoked.”

26. We  are also of the view that the  Amendment  Act, 2015

which came into force, i.e. on 23rd October, 2015, shall not apply

to the arbitral proceedings which has commenced in accordance

with the provisions of Section 21 of the Principal Act, 1996 before

the coming into force of Amendment Act, 2015, unless the parties

otherwise agree.

27. In the instant case, the request was made and received by

the appellants in the concerned appeal much before the

25

Amendment Act, 2015 came into force.  Whether the application

was pending for appointment of an arbitrator or in the case of

rejection because of no claim as in the instant case for

appointment  of an  arbitrator including change/substitution  of

arbitrator, would not be of any legal effect for invoking the

provisions of Amendment Act, 2015, in terms of Section 21 of the

principal Act, 1996.   In our considered view, the

applications/requests made by the respondent contractors

deserves to be examined in accordance with the principal Act,

1996 without taking resort to the Amendment Act, 2015 which

came into force from 23rd October, 2015.

28. The thrust  of the  learned counsel for the appellants  that

submission of  a  no  claim certificate furnished  by  each  of the

respondent/contractor takes away the right for settlement of

dispute/difference arising in terms of the agreement to be

examined by the arbitrator invoking Clause 64(3) of the

conditions of the contract.   The controversy presented before us

is that whether after furnishing of no claim certificate and the

receipt of payment of final bills as submitted by the contractor,

26

still any arbitral dispute subsists between the parties or the

contract stands discharged.

29. Before  we take  note  of the factual  aspect of the  present

matters, it will be appropriate to carefully consider the plenitude

of decisions of this Court referred to by learned counsel for the

parties  and  to  summarise (first category)  Union of India  Vs.

Kishorilal Gupta & Bros. AIR 1959 SC 1362; P.K. Ramaiah &

Co. Vs. Chairman and Managing Director, National Thermal

Power Corpn.  1994 Supp(3) SCC 126;  State of Maharashtra

Vs. Nav Bharat Builders 1994 Supp(3) SCC 83; Nathani Steels

Limited  Vs.  Associated Constructions  1995 Supp(3) SCC

324……(second category) Damodar Valley Corporation Vs. KK

Kar  1974(1) SCC 141;  Bharat Heavy Electricals Limited

Ranipur  Vs.  Amarnath Bhan Prakash  1982(1) SCC 625;

Union of India and Anr. Vs. L.K. Ahuja and Co. 1988(3) SCC

76; Jayesh Engineering Works Vs. New India Assurance Co.

Ltd.  2000(10) SCC  178;  Chairman  and  MD,     NTPC  Ltd.  Vs.

27

Reshmi Constructions Builders & Contractors  2004(2)  SCC

663.

30. The aforesaid cases fall under two categories, the one

category where the Court after considering the facts found that

there was full and final settlement resulting in accord and

satisfaction  and there  was  no  substance in the  allegations  of

coercion/undue influence.   In the second category of cases, the

Court found some substance in the contention of the claimants

that “no­dues/no claims certificate or discharge vouchers” were

insisted and taken (either on a printed format or otherwise) as a

condition precedent for release of the admitted dues and

consequently this Court held that the disputes are arbitrable.  It

took note of the principles earlier examined and summarised in

National Insurance Company Limited  Vs.  Boghara Polyfab

Private Limited case (supra) as under: ­

“44. None of the three cases relied on by the appellant lay down a proposition that mere execution of  a full and final settlement receipt or a discharge voucher is a bar to  arbitration, even  when  the  validity thereof is challenged  by the  claimant  on the  ground of fraud, coercion or undue influence. Nor do they lay down a proposition that even if the discharge of contract is not genuine or legal, the claims cannot be referred to arbitration. In all the three cases, the Court examined

28

the facts and satisfied itself that there was accord and satisfaction or complete discharge of the contract and that there was no evidence to support the allegation of coercion/undue influence.”

31. Further, taking note of the jurisdiction of the Chief Justice/

his Designate in the proceedings under Section 11(6) of Act 1996,

this Court culled out the legal proposition in paragraph 51 as

follows:­

“51. The Chief Justice/his designate exercising jurisdiction under Section 11 of the Act will consider whether there  was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the Chief Justice/his designate  comes  to the  conclusion  that the full  and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration. Alternatively, where the Chief Justice/his designate is satisfied  prima facie that the  discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself,  refer the matter to the Arbitral Tribunal with a specific direction that the said question should be decided in the first instance.”

32. It further laid down the illustrations as to when claims are

arbitrable and when they are not.   This may be illustrative (not

exhaustive) but beneficial for the authorities in taking a decision

as to  whether in a given situation  where  no claim/discharge

voucher has been furnished what will be its legal effect and still

29

there is any arbitral dispute subsists to  be examined  by the

arbitrator in the given facts and circumstances and held in para

52 of  National Insurance Company Limited  Vs.  Boghara

Polyfab Private Limited(supra) as follows:­

“52. Some illustrations (not exhaustive) as to  when claims  are arbitrable and  when they are  not,  when discharge  of contract  by  accord and satisfaction  are disputed, to round up the discussion on this subject are:

(i) A claim is referred to a conciliation or a pre­litigation Lok Adalat. The parties negotiate and arrive at a settlement. The terms of settlement are drawn up and signed by both the parties and attested by the conciliator or the  members of the  Lok  Adalat.  After settlement by way of accord and satisfaction, there can be no reference to arbitration.

(ii) A claimant makes several claims. The admitted or undisputed claims are paid. Thereafter negotiations are held for settlement of the disputed claims resulting in an agreement in writing settling all the pending claims and disputes. On such settlement, the amount agreed is paid and the contractor also issues a discharge voucher/no­claim certificate/full and final receipt. After the contract is  discharged by such accord and satisfaction, neither the contract nor any dispute survives for consideration. There cannot be any reference of any dispute to arbitration thereafter.

(iii) A contractor executes the work and claims payment of say rupees ten lakhs as due in terms of the contract. The employer admits the claim only for rupees six lakhs and informs the contractor either in writing or orally that unless the contractor gives a discharge voucher in the prescribed format acknowledging receipt of rupees six lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released. The contractor who is hard­pressed for funds and keen to get the admitted amount released,

30

signs on  the  dotted  line  either in a  printed  form or otherwise, stating that the amount is received in full and final settlement. In such a case, the discharge is under economic duress on account of coercion employed  by the employer.  Obviously, the  discharge voucher  cannot  be  considered  to  be  voluntary  or  as having resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration.

(iv)  An insured makes a claim for  loss suffered.  The claim is neither admitted nor rejected. But the insured is informed during discussions that unless the claimant gives a full and final voucher for a specified amount (far lesser than the  amount  claimed by the insured), the entire claim  will be rejected.  Being in financial difficulties, the claimant agrees to the demand and issues an undated discharge voucher in full  and final settlement. Only a  few days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but under duress, compulsion and coercion. The coercion is subtle, but very much real. The “accord” is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration.

(v) A claimant makes a claim for a huge sum, by way of damages. The respondent disputes the claim. The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and requests for settlement. The respondent agrees and settles the claim and obtains a full and final discharge voucher. Here even if the claimant might have agreed for settlement due to financial compulsions and commercial pressure or economic duress, the decision was his free choice. There was no threat, coercion or compulsion by the respondent. Therefore,  the accord and satisfaction is binding and valid and there cannot be any subsequent claim or reference to arbitration.”

33. It is true that there cannot be a rule of absolute kind and

each case has to be looked into on its own facts and

circumstances.  At the same time, we cannot be oblivious of the

31

ground realities that where a petty/small contractor has made

investments from his available resources in executing the works

contract and bills have been raised for the escalation cost

incurred by him and the railway establishments/appellants

without any justification reduces the claim unilaterally and take

a defence of the no claim certificate being  furnished which as

alleged by the respondents to be furnished at the time of

furnishing the final bills in the prescribed format.

34. The nature of work under contract of the respondent

contractors and the claim of the contractors which is the dispute

in brief to be adjudicated by the arbitrator is submitted as

follows:­

S.N

o

SLP No Name  of

Contractor

Nature of Work under  Contract

Claim of Contractor

1. 6312/2018 Parmar Construction Company

Construction,  Strengthening and  rebuilding of major  bridges between  Nadbhai-Idgah (Agra) Total Cost of Contract  Rs 3,30,71,724/-

Rs  1,07,98,765/-

(Final  Bill)  +  Interest

and Arbitration Cost.

2. 2166/2018 S.K.

Construction

Construction of Office  Accomodation for  officers and rest house  at Dungarpur. Total Cost of Contract  Rs 43,76,112/-.

Rs 2.96 Lacs (Deficit  amount) + Rs 2.65 Lacs  (Escalation cost) + Rs 2.39  Lacs (Commercial Interest @ 18% p.a.)

32

Total value of Work  done was Rs 58.50  Lacs. Rs 55.54 Lacs were  paid.

Total Rs 8 Lacs

3. 7937/2018 Anil  Trading Company

Augmentation of the  capacity of Diesel Shed, Bhagat-ki-kothi,  Jodhpur. Contract Price Rs  2,42,85,808.84/-

Rs. 2,15,000/- (Non  availability of Drawing) + Rs 1,50,000/- (Non availability  of clear site) + Rs 1,14,099  (interest on delay of Final bill payment) + Rs 12,15,000/-  (Bank Guarantee) + Rs  12,14,290/- (Security Deposit with interest) + Rs 1,00,000/- (Arbitration Cost)

Total Rs 30,08,389/-

4. 6034/201

8

Rajendra Prasad Bansal

Construction addition  and alteration and  raising of existing  platform surfacing  RRI Building, S&T  Structures and  dismantling of various  structures at  Bharatpur-Agra Fort  Station Yard. Total Cost of Contract  Rs 87,85,292/- 3 Supplementary  contracts of the value  of rs 24,62,511.52/-,  Rs 3.5 Lacs & Rs  26,12,977,14/-

Rs 1.5 Lacs (deducted along with interest of 18% p.a.) +  Rs 7.9 Lacs (expenses  incurred on office staff and  labour office) + Rs 1.2Lacs  (delayed release of security  amount & Final bill) + Rs  2Lacs (Loss of Profit)

Total Rs 12,60,000/-

5. 6316/201

8

Maya Construction Pvt Ltd

Construction of  Ratangarh Bye Pass. Total Cost of Contract  Rs 8,29,25,822.68/-

Rs 38,27,196/- (Final bill  amount) + Rs 17,78,231/-  (PVC Final bill amount) +  Rs 50,63,738/- (Security  deposit & EMD) Total Rs 1,06,69,165/-

6. 8597/201

8

Bharat  Spun Pipes  & Construction Company

Construction of Road  Over Bridges across  Railway track in  Dausa Yard. Total Cost of Contract  Rs 3,81,90,423.68/-

Rs 1,88,709/- (charged  under head Cess) + Rs  8,36,386/- (Final PVC Bill)

Total Rs 10,25,095/-

33

7. 8596/201

8

Harsha Constructions

Construction of new  Major Bridge no 178  (on Banas River) Total Cost of Contract  Rs 10,51,42,109/-

Rs 1,30,960/- (Payment  withheld for expansion  joints) + Rs 1 Lacs (Refund  of penalty from bill no  XXV) + 36 Lacs (refund of  cost of PSC box girder) + Rs 3,19,573/- (Loss due to  delay in making final  payment) + Rs 76,15,206/-  (Incresed cost of material)

Total Rs 1,17,65,739/-

8. 8019/2018 Bharat Spun  Pipes &  Construction  Company

Construction of road  over bridges across  railway track Total cost of  Contract Rs  6,31,07,472.50/-

Rs 6,18,302/- (charged  under head Cess) + Rs  10,30,081/- (Final PVC Bill)

Total Rs 16,48,383/-

9. 8021/2018 SB-SHC-MCDPL (JV)

Construction of Major  Bridges including  earth work. Total Cost of  Contract Rs  15,92,08,761.97/-

Rs 27,93,752/- (amount  deducted which was  previously paid on account  of overlapping under 10th  running bill) + Rs 1,66,785/- (work done outside the  scope of work order) +  7,98,214/- (deduction of 1%  Cess) + Rs 5,78,144/-  (Interest on delayed  payment) + Rs 28,085 (Cost  of computer stolen) + Rs  24,87,864/- (Cost of  expansion joint) + Rs  1,81,003/- (Price variation)  + Rs 60,390/- (Welding and  bolting)

Total Rs 70,94,237/-

10. 7720/2018 Bharat Spun  Pipes &  Construction  Company

Construction of road  over bridges across  railway track Total cost of  Contract Rs  2,98,59,531/-

Rs 44,514/- (charged under  head Cess) + Rs 7,80,547  (Final PVC Bill)

Total Rs 8,25,061/-

11. 8598/2018 Rajendra  Prasad Bansal

Construction of misc.,  AEN Office,  Signalling structure,  platform surfacing,  

Rs 8.8 Lacs (loss of Profit) + Rs 5 Lacs (loss due to bad  debts) & some other grounds like price variation, non  

34

temporary site offices,  addition and alteration  of existing structure,  dismantling and  rebuilding various  structures between  Idgah-Agra Fort  Station Yard. Total Cost of Contract  Rs 1,40,43,594/-

payment of final bill and  security deposit for 1.5 yrs  & interest on amount of final bill

Total Rs 13.8 Lacs/-

[exact amount not  ascertainable from  documents on record]

12. Diary No  8885/2018

Bharat Spun  Pipes &  Construction  Company

Construction of road  over bridges across  railway track Total cost of  Contract Rs  5,47,26,451.47/-

Rs 4,78,780/- (charged  under head Cess) + Rs  23,07,563/- (Final PVC Bill) along with price variation  and interest

Total Rs 27,86,343/-

13. 9514/201 8

B.M.  Construction  Company

Construction of major  bridge between  Kanauta- Jaipur  stations. Total Cost of  Contract Rs  8,46,08,660/-

Rs 7,21,733/- (for adding  10% more cement) + Rs  6,23,923/- + Rs 7,55,734/-  (Extra work) + Rs  11,07,561/ -(Price variation  of Steel purchased) + 4Lacs  (using pressure rings) +  4,53,304/- (Labour Cess  deducted), Rs 1.25Lacs  (deduction from bills) + Rs  3,47,880/- (interest on  delayed paymet) + Rs 1.28  Lacs (Deducted as penalty)  + Rs 19,01,537 (on a/c of  PVC) + Rs 60Lacs (20Lacs  each for business losses,  mental agonies and social  humiliation) along with  interest

Total Rs 1,93,34,667/-   

14. 9559/201 8

Balaji Builders  & Developers

Construction of 72  Units Type-II, 108  Units Type-III, 36  Units Type-IV in  multi-storied tower  and health units,  shopping complex and  

Rs 1,32,71,424/- (Final PVC Bill) + Rs 50Lacs (Price  variation of steel bars)

Total Rs  1,82,71,424/-

35

other ancillary works  near Getore Jagatpur  Railway Station. Total Cost of Contract  Rs 28,28,20,028/-

15. 22263/20 18

B.M.  Construction  Company

Construction of major  bridge between  Jatwara- Kanauta  stations. Total Cost of  Contract Rs  10,4484,441/-

Rs 39,05,010/- (for vacant  labour charges of 9 months)  + Rs 19,46,970/- (delay in  providing drawing) + Rs  13,66,488/-(Price variation  of Steel purchased) + Rs  3,91,534.88/- (using  pressure rings) + 1,32,655/-  (Labour Cess deducted), Rs  1,30,771/- (deduction from  bills) + Rs 50,000/-  (Deducted from 21 running  bills) + Rs 11,91,127/-  (interest on delayed  payment) + Rs 56,40,327/-  (Security Amount) + Rs  1,38,000/- (deducted as  penalty) + Rs 76,39,600/-  (PVC Bill)+ Rs 60Lacs  (20Lacs each for business  losses, mental agonies and  social humiliation) along  with interest

Total Rs 2,85,32,482/-   

16. 11417/20 18

Kewai  Constructions  Co (JV)

Construction of Minor  Bridge between Dausa  – Lalsot Total Cost of Contract  Rs 5,98,22,476/-

Rs 16,74,748/- (security  Deposit) + Rs 47,66,869/-  (Payment of Bill) + Rs  31,33,116/- (Cost of  material left at site) + Rs  10Lacs (PSC Slab  Advances) + Rs 13.85 Lacs  (Idle Labour Charge) + Rs  50,000/- (Cost of  Arbitration)

Total Rs. 1,20,09,733/-

17. 11862/20 18

Harinarayan  Khandelwal

Construction of  Staircase for fire exit,  drilling tube well,  underground water  tank, and other  

Rs 4,82,283.26/- (Final PVC Bill)

36

miscellaneous works Total Cost of Contract  Rs 1,56,63,006.87/-

35. The respondents are the contractors and attached with the

railway establishment in the instant batch of appeals are

claiming either refund of security deposits/bank guarantee,

which has been forfeited or the escalation cost has been reduced

from final invoices unilaterally without tendering any

justification.  It is manifest from the pleadings on record that the

respondent contractors who entered into contract for

construction works with the railway establishment cannot afford

to take any displeasure from the employer, the amount under the

bills for various reasons  which  may include  discharge of his

liability towards the bank, financial institutions and other

persons, indeed the railway establishment has a upper hand.  A

rebutable presumption could be drawn that when a no claim has

been furnished in the prescribed format at the time of final bills

being raised with unilateral deductions made even that

acceptable amount will not be released, unless no claim

certificate is being attached to the final bills.  On the stated facts,

para 52(iii) referred to by this  Court in  National Insurance

37

Company Limited Vs. Boghara Polyfab Private Limited(supra)

indeed covers the cases of the present contractors with whom no

option has been left and being in financial duress to accept the

amount tendered in reference to the final  bills furnished  and

from the discharge voucher which has been taken to be a defence

by the appellants prima facie cannot be said to be voluntary and

has resulted in the discharge of the contract by accord and

satisfaction as claimed by the appellants.  In our considered view,

the arbitral dispute subsists and the contract has not been

discharged as being claimed by the appellants employer(s) and all

the contentions in this regard are open to be examined in the

arbitral proceedings.

36. Learned counsel for the appellants has referred to the

judgments in  Union of India and Others  Vs.  Master

Construction Company(supra);   New India Assurance

Company Limited  Vs.  Genus Power Infrastructure  Limited

(supra);  ONGC  Mangalore Petrochemicals Limited  Vs.  ANS

Constructions Limited and Anr.  (supra).   In all the cases

referred, this Court has taken note of the judgment in National

38

Insurance Company Limited  Vs.  Boghara Polyfab Private

Limited  (supra) on which a detailed discussion has been made

and taking note of the pleadings of the case on hand, this Court

arrived at a conclusion that prima facie there is an evidence on

record to justify that no claim certificate or letter of subrogation

was voluntary and free from coercion/undue influence and

accordingly held  that there  is  no  live claim subsists,  which  is

arbitrable after the discharge of the contract by accord and

satisfaction.

37. The further submission  made  by the  appellants that the

High Court has committed error  in appointing an  independent

arbitrator  without resorting to the arbitrator  which  has been

assigned to arbitrate the dispute as referred to under clause 64(3)

of the contract.  To examine the  issue any  further, it  may be

relevant to take note of three clauses in sub­section 6 of Section

11 of Act, 1996(pre­amended Act, 2015) which is as under:­

“(6)  Where,  under  an  appointment  procedure  agreed upon by the parties,—  

(a) a party fails to act as required under that procedure; or  

39

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or  

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,  

a party may request the Chief Justice or any person or institution  designated  by  him  to take the  necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

38. Clause (c) of sub­section (6) of Section 11 relates to failure

to perform any function entrusted to a person including an

institution and also failure  to act  under  the  procedure agreed

upon by the parties.  In other words, clause(a) refers to the party

failing to act as required under that procedure; clause(b) refers to

the agreement where the parties fails to reach to an agreement

expected of them under that procedure and clause (c ) relates to a

person which may not be a party to the agreement but has given

his consent to the agreement and what further transpires is that

before any other alternative is resorted to, agreed procedure has

to be given its precedence and the terms of the agreement has to

be  given  its  due effect  as  agreed by the  parties to the  extent

possible.  The corrective measures have to be taken first and the

Court is the last resort.  It is also to be noticed that by appointing

40

an arbitrator in terms of  sub­section  (8)  of  Section 11 of  Act,

1996, due regard has to be given to the qualification required for

the arbitrator by the agreement of the parties and also the other

considerations such as to secure an independent and impartial

arbitrator.   To fulfil the object with terms and conditions which

are cumulative in nature, it is advisable for the Court to ensure

that the remedy provided as agreed between the parties in terms

of the contract is first exhausted.

39. It  has  been considered by  a three  Judges’  Bench of this

Court in  Union  of India  & Another  Vs.  M.P.  Gupta(supra).

Taking note  of  clause 64 of the agreement  for  arbitration, the

Court held that in view of express provision contained in terms of

the agreement  in appointment of two gazetted railway officers,

the  High  Court  was  not justified in appointment of a retired

Judge as the sole arbitrator.  It held as under:­

“3. The relevant part of clause 64 runs as under:

“64. Demand for arbitration.—***

(3)(a)(ii) Two arbitrators who shall be gazetted railway officers of equal status to be appointed in the manner laid in clause  64(3)(b) for all claims  of  Rs  5,00,000 (Rupees five lakhs) and above, and for all claims irrespective of the amount or value of such claims if

41

the  issues  involved are of  a complicated nature. The General  Manager shall be the sole judge to decide whether the issues involved are of a complicated nature or not. In the event of the two arbitrators being undecided in their opinions, the matter under dispute will  be referred to an umpire to be appointed in the manner laid down in sub­clause (3)(b) for his decision.

(3)(a)(iii) It is  a term of this  contract  that  no person other than a gazetted railway officer should act as an arbitrator/umpire  and  if for  any reason, that is  not possible, the matter is not to be referred to arbitration at all.”

4. In view of  the express provision contained therein that two gazetted railway officers shall be appointed as arbitrators, Justice P.K. Bahri could not be appointed by the High Court as the sole arbitrator. On this short ground alone, the judgment and order under challenge to the extent it appoints  Justice  P.K.  Bahri as sole arbitrator is set aside. Within 30 days from today, the appellants  herein shall appoint two  gazetted railway officers as arbitrators. The two newly appointed arbitrators shall enter into reference within a period of another one month and thereafter the arbitrators shall make their award within a period of three months.”

40. It was further considered by this Court in  Union of India

and Another Vs. V.S. Engineering(P) Ltd. (supra) as under:­

“3. The learned Additional Solicitor General appearing for the appellants Union of India has pointed out that as per clauses 63 and 64 of the General Conditions of Contract, this Court in no uncertain terms has held that the Arbitral Tribunal has to be constituted as per the General Conditions of Contract, the High Court should not interfere under Section 11 of the Act and  the  High  Court  should  accept  the  Arbitral  Tribunal appointed  by  the  General  Manager,  Railways.  In  this connection,  the  learned  ASG  invited  our  attention  to  a decision of this Court directly bearing on the subject in Union of India v. M.P. Gupta [(2004) 10 SCC 504] wherein a similar question with regard to appointment of the Arbitral Tribunal for the Railways with reference to clause 64 of the General Conditions of Contract came up before this Court and this

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Court  held  that  where  two  gazetted  railway  officers  are appointed as the Arbitral Tribunal, the High Court should not appoint a retired Judge of the High Court as a sole arbitrator and the appointment  of  sole  arbitrator  was set  aside.  The conditions of clauses 63 and 64 of the General Conditions of Contract  are almost  analogous to the one we have in our hand. In that case also relying on clause 64 of the contract a three-Judge  Bench  presided  over  by  the  Chief  Justice  of India observed as follows: (SCC p. 505, para 4)

“4.  In  view  of  the  express  provision contained therein  that  two gazetted railway officers  shall  be  appointed  as  arbitrators, Justice P.K. Bahri could not be appointed by the High Court as the sole arbitrator. On this short ground alone, the judgment and order under  challenge  to  the  extent  it  appoints Justice  P.K.  Bahri  as  sole  arbitrator  is  set aside.  Within  30  days  from  today,  the appellants herein shall appoint two gazetted railway officers as arbitrators. The two newly appointed  arbitrators  shall  enter  into reference  within  a  period  of  another  one month  and  thereafter  the  arbitrators  shall make  their  award  within  a  period  of  three months.”

and further reiterated by this Court in  Northern Railway

Administration,  Ministry  of  Railway,  New Delhi  Vs.  Patel

Engineering Company Limited(supra) as follows:­

“5. It is  pointed  out that there  are three  clauses in sub­section (6) of Section 11. Clause (c) relates to failure to perform function entrusted to a person including an institution and also failure to act under the  procedure agreed  upon  by the  parties. In other words,  clause  (a) refers to  parties to the agreement. Clause (c) relates to a person who may not be party to the agreement but has given consent to the agreement. It is also pointed out that there is a statutory mandate to take necessary measures, unless the agreement on the appointment procedure provided other means for securing the appointment. It is, therefore,  submitted that before the alternative is resorted to, agreed procedure has to be exhausted. The agreement has to

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be given effect and the contract has to be adhered to as closely as possible.  Corrective  measures  have to be taken first and the Court is the last resort.

6. It is also pointed out that while appointing an arbitrator in terms of sub­section (8) of Section 11, the Court has to give due regard to any qualification required for the arbitrator by the agreement of the parties and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. It is pointed out that both these conditions are cumulative in nature. Therefore, the Court should not  directly  make  an appointment. It  has to  ensure first that the provided remedy  is  exhausted and  the Court may ask to do what has not been done.

12. A bare reading of the scheme of Section 11 shows that  the emphasis  is on the terms of the agreement being adhered to and/or given effect as closely as possible. In other words, the Court may ask to do what has not been done. The Court must first ensure that the remedies provided for are exhausted. It is true as contended by Mr. Desai, that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named arbitrator or arbitrators. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations.”

and further, in  Union of India  Vs.  Singh Builders

Syndicate(supra) it was held as under:­

“11. The question that arises for consideration in this appeal by special leave is whether the appointment of a retired Judge of the High Court as sole arbitrator should be set aside and an Arbitral Tribunal should again be constituted in the manner provided in terms of Clause 64.

12. Dealing with a matter arising from the old Act (the Arbitration Act, 1940), this Court, in Union of India v. M.P. Gupta [(2004) 10 SCC 504] held that appointment of a retired Judge as sole arbitrator

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contrary to Clause 64 (which requiring serving gazetted railway officers being appointed) was impermissible.

13. The position after the new Act came into force, is different, as explained by this Court in Northern Railway Admn., Ministry of Railway v. Patel Engg. Co. Ltd.[(2008) 10 SCC 240]. This Court held that the appointment of arbitrator(s)  named in the arbitration agreement is not mandatory or a must, but the emphasis should be on the terms of the arbitration  agreement being adhered to and/or given effect, as closely as possible.

14. It was further held in Northern Railway case [(2008) 10 SCC 240] that the Chief Justice or his designate should first ensure that the remedies provided under the arbitration agreement are exhausted, but at the same time also ensure that the twin requirements of sub­section (8) of Section 11 of the Act are kept in view. This would mean that invariably the court should first appoint the arbitrators in the manner provided for in the arbitration agreement. But where the independence and impartiality of the arbitrator(s) appointed/nominated in terms of the arbitration agreement is in doubt, or where the Arbitral Tribunal appointed in the manner provided in the arbitration agreement has not functioned  and it becomes  necessary to  make fresh appointment, the Chief Justice or his designate is not powerless to make appropriate alternative arrangements to give effect to the provision for arbitration.”

41. This Court has put emphasis to act on the agreed terms and

to first resort to the procedure as prescribed and open for the

parties to the  agreement to settle differences/disputes arising

under the terms of the contract through appointment of a

designated arbitrator although the name in the arbitration

agreement is not mandatory or must but emphasis should always

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be on the terms of the arbitration agreement to be adhered to or

given effect as closely as possible.

42. The judgments in  Datar  Switchgears  Ltd. case(supra);

Punj Lloyd case(supra) and Union of India Vs. Bharat Battery

Manufacturing Co. (P) Ltd. case(supra) on which reliance has

been placed by the learned counsel for the

respondents/contractors may not be of assistance for the reason

that the question for consideration before this Court was that if

one party demands the opposite party to appoint an arbitrator

and the other party fails to appoint an arbitrator within 30 days

what will be its legal consequence and it was held in the

cases(supra) that if one  party demands the opposite  party to

appoint an arbitrator and if the opposite party has failed to make

an appointment within 30 days, the right to make appointment is

not forfeited but continues, but an appointment has to be made

before the former makes an application under Section 11 seeking

appointment of an arbitrator.  In the instant cases, the question

for consideration is as to whether the Chief Justice or his

Designate in  exercise  of  power  under  Section 11(6)  of the Act

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should directly make an appointment of an independent

arbitrator without, in the first instance, resorting to ensure that

the remedies provided under the arbitration agreement are

exhausted.  

43. In the present batch of appeals, independence and

impartiality of the arbitrator has never been doubted but where

the impartiality of the arbitrator in terms of the arbitration

agreement is in doubt or where the Arbitral Tribunal appointed in

terms of the arbitration agreement has not functioned, or has

failed to conclude the proceedings or to pass an award without

assigning any reason and it became necessary to make a fresh

appointment, Chief Justice or his designate in the given

circumstances after assigning cogent reasons in appropriate

cases may resort to an alternative arrangement to give effect to

the appointment of independent arbitrator under Section 11(6) of

the Act.   In  North Eastern Railway and Others  Vs.  Tripple

Engineering Works  (supra), though the panel of arbitrators as

per clause 64(3)(a)(ii) and (iii) of the general conditions of contract

under GCC was appointed in the year 1996 but for two decades,

the arbitrator failed to pass the award and no explanation came

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forward.  In the given situation, this Court observed that general

conditions of the contract do not prescribe any specific

qualification of the arbitrators to be appointed under the

agreement except that they should  be railway officers further

held that  even  if the  arbitration agreement  was  to  specifically

provide for any  particular qualification(s) of an arbitrator the

same would  not  denude the  power  of the  Court  acting  under

Section 11(6) to depart therefrom and accordingly, confirmed the

appointment of an independent arbitrator appointed by the High

Court in exercise of Section 11(6) of the Act, 1996.   Almost the

same situation was examined by this Court in  Union of India

and Others Vs. Uttar Pradesh State Bridge Corporation Ltd.

(supra)  and after  placing reliance on  North Eastern Railway

and Others  Vs.  Tripple  Engineering works(supra)  held that

since Arbitral Tribunal has failed to perform and to conclude the

proceedings, appointed an independent arbitrator in exercise of

power under Section 11(6) of the Act, 1996.   In the given

circumstances, it was the duty of the High Court to first resort to

the mechanism in appointment of an arbitrator as per the terms

of contract as agreed by the parties and the default procedure

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was opened to be resorted to if the arbitrator appointed in terms

of the agreement failed to discharge its obligations or to arbitrate

the dispute  which  was not the case set up by either of the

parties.

44. To conclude, in our considered view, the High Court was not

justified in appointing an independent arbitrator without

resorting to the procedure for appointment of an arbitrator which

has been prescribed under clause 64(3) of the contract under the

inbuilt mechanism as agreed by the parties.

45. Consequently, the orders passed by the  High  Court are

quashed and set aside.   The appellants are directed to appoint

the arbitrator in terms of clause 64(3) of the agreement within a

period of one month from today under intimation to each of the

respondents/contractors and since sufficient time has been

consumed, at the first stage itself, in the appointment of an

arbitrator and majority of the respondents being the petty

contractors, the statement of claim be furnished by each of the

respondents within four weeks thereafter and the arbitrator may

decide the claim  after  affording  opportunity  of  hearing to the

parties expeditiously without being  influenced/inhibited by the

observations made independently in accordance with law.

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46.  The  batch  of appeals  are  accordingly  disposed  of on the

terms indicated.  No costs.

47. Pending application(s), if any, stand disposed of.

…………………………J. (A.M. KHANWILKAR)

…………………………J. (AJAY RASTOGI)

NEW DELHI March 29, 2019

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