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NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

ARBITRATION CASE (CIVIL) NO.36 OF 2014

M/S KSS KSSIIPL CONSORTIUM  THRO. ITS CONSTITUTED ATTORNEY  MR. DEVENDRA KUMAR                    ...PETITIONER

VERSUS

M/S GAIL (INDIA) LTD.                    ...RESPONDENT

WITH

ARBITRATION CASE (CIVIL) NO.38 OF 2014

M/S KSS KSSIIPL CONSORTIUM  THRO. ITS CONSTITUTED ATTORNEY  MR. DEVENDRA KUMAR                    ...PETITIONER

VERSUS

M/S GAIL (INDIA) LTD.                    ...RESPONDENT

JUDGMENT

1. Both these applications under Section 11(6) of  

the  Arbitration  and  Conciliation  Act,  1996  (hereinafter  

referred  to  as  “the  Arbitration  Act”)  have  been  filed  

seeking appointment of  a  sole  arbitrator  to  go into the  

disputes and differences that the petitioner claims to have  

arisen out of two separate contract agreements entered

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into by and between the parties.

2. The facts in brief may be noted at the outset.

3. The petitioner is a consortium of two companies  

i.e.  M/s  JSC  OGCC  KazStoryService,  a  company  

incorporated under the laws of the Republic of Kazakhstan  

and  KazStoryService  Infrastructure  India  Private  Limited  

incorporated under the Companies Act,  1956.   The said  

consortium has been formed by an agreement dated 1st  

July, 2010 for the purposes of executing a contract that  

was to be awarded by the respondent for Pipeline Laying  

and  Terminal  Works  for  Dabhol  –  Bangalore  Pipeline  

Project.

4. According to the petitioner, the respondent had  

floated a Tender for the said project in the year 2010 and  

the  entire  work  was  divided  in  10  Spreads  

(A,B,C,D,E,F,G,H,I,J).   While  Arbitration  Petition  (Civil)  

No.36 of 2014 pertain to the award of work for Spread 'J',  

Arbitration  Petition  (Civil)  No.38  of  2014  relates  to  the  

work awarded for Spread 'D'.

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5. Pursuant to the bid(s) made by the petitioner,  

detailed  letter(s)  of  acceptance  was  issued  by  the  

respondent  on  13th December,  2010.   According  to  the  

petitioner  though  in  terms  of  the  contracts  it  had  

mobilized  its  men  and  machinery,  the  work  got  

jeopardized/frustrated  as  the  respondent  did  not  make  

available to the petitioner the Construction Right of use  

and  permits  in  terms  of  Clause  28  of  the  Special  

Conditions  of  Contract  (hereinafter  referred  to  as  “the  

SCC”). According to the petitioner, the respondent did not  

have the necessary work fronts with respect to SV station  

work.   Furthermore,  the petitioner  has  alleged that  the  

respondent  failed  to  provide  necessary  engineering  

inputs.   Besides, there were frequent modifications with  

respect to drawings, extra work and delays in providing  

free issue materials. All these led to substantial delays in  

the execution of the works, such delay being attributable  

solely to the respondent.

6. According to the petitioner,  on account of the  

delays  due  to  the  aforesaid  reasons,  the  petitioner  

became entitled for extended stay compensation in terms

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of clause 42 of the SCC read with clause 12 of the detailed  

letter  of  acceptance.   Apart  from  extended  stay  

compensation,  the  petitioner  claims  to  be  entitled  for  

payment  for  additional  works  undertaken  during  the  

course of execution of the contracts.  On 4th January, 2013  

and 5th July, 2013, the petitioner submitted its claim to the  

respondent  for  Rs.34,70,11,907/-  (Rupees  Thirty  Four  

Crore Seventy Lacs Eleven thousand Nine hundered and  

seven only)[In  Arbitration Petition (Civil)  No.36 of  2014]  

and  for  Rs.1,79,23,83,208/-  (Rupees  One  Arab  Seventy  

Nine Crore Twenty Three Lacs Eighty Three thousand Two  

hundred  and  Eight  only)  [In  Arbitration  Petition  (Civil)  

No.38 of 2014) respectively.  The petitioner alleges that  

the  respondent  rejected  the  said  claims  which  was  not  

acceptable to  the petitioner.   The petitioner,  thereafter,  

invoked clause 40.2 of the General Conditions of Contract  

which  provides  for  conciliation.   As  the  petitioner's  

proposal for conciliation was rejected by the respondent,  

the petitioner had no option but to invoke the Arbitration  

Clause  (Clause  59)  and  seek  appointment  of  a  sole  

arbitrator in respect of the disputes arising from each of

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the two agreements.  The said demand was repeated in  

several  communications  which  were  not  responded  to.  

The  petitioner,  therefore,  has  lodged  the  present  

applications under Section 11(6) of the Arbitration Act for  

the reliefs earlier noticed.

7. The claims made by the petitioner  have been  

resisted  by  the  respondent  by  filing  separate  counter  

affidavits in both the cases.  A reading of the affidavits  

filed by the respondent indicate that insofar as the claim  

for  extended  stay  compensation  is  concerned,  the  

respondent contend that the said claim does not give rise  

to any arbitrable issue inasmuch as under clause 42.1.1  

the bidder is  required to mention the rate for extended  

stay compensation per month in the “Priced Part”.  Under  

Clause 42.1.2 in case the bidder did not indicate such rate  

it is to be presumed that no extended stay compensation  

is  required  to  be  paid.  Under  clause  42.1.4  it  was  

expressly mentioned that “Bidder to note that in case they  

don't indicate the rate for extended stay compensation as  

per  proforma,  provisions  of  clause  No.42.0  will  not  be  

applicable to them”. According to the respondent in the

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relevant proforma relating to “Compensation for Extended  

Stay”, the petitioner had mentioned/quoted “NIL”.  Thus,  

according to the clauses 42.1.2 and 42.1.4, no extended  

stay compensation is required to be paid to the petitioner.  

The above position was also expressly stated in clause 12  

of the detailed letter of acceptance dated 13th December,  

2010, which is in the following terms:

“12.0 COMPENSATION FOR EXTENDED  STAY

Extended  stay  compensation  is  not applicable and shall  not be  payable to the Contractor as per  clause  no.  42.0  of  Special  Conditions of Contract.”

8. According  to  the  respondent,  the  aforesaid  

clause was further amplified in Annexure -1 to the said  

detailed letter of acceptance which was not placed before  

the Court though the detailed letter of acceptance dated  

13th December, 2010 formed a part of the petitions filed  

by the petitioner.   

9. Insofar as the claim of payments for additional  

works is concerned, according to the respondent, clause

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91.0 of the GCC deals with such claims. Clauses 91.1 and  

91.2 contemplate that such claims will be verified by the  

Engineer-in-charge  whose  decision  will  be  final.  The  

respondent  further  states  that  the  claims  made by  the  

petitioner  for  additional  costs had been rejected by the  

Engineer-in-charge and in terms of clause 91.2 of the GCC  

such  a  decision(s)  must  be  construed  to  be  final  and  

binding  between the  parties  and therefore  would  stand  

excluded from arbitration.   

10. There can be no manner of doubt that before  

exercising  the  power  under  Section  11(6)  of  the  

Arbitration Act to make appointment of an arbitrator the  

Court will have to decide on the existence of an arbitrable  

dispute/enforceable claim by and between the parties to  

the contract.  The existence of a claim and denial thereof  

giving rise to a dispute is required to be determined on  

the  basis  of  what  the  parties  had  agreed  upon  as  

embodied in the terms of the contract and only for the  

purpose of a decision on the question of arbitrability and  

nothing beyond.  It is from the aforesaid standpoint that  

the issues raised in the present proceedings will have to

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be considered.   

11. Clause  42.0  deals  with  “Compensation  for  

extended  stay”.   Under  clause  42.1.1  the  contractor  is  

required  to  mention  the  rate  for  extended  stay  of  

compensation  in  the  event  the  contract  is  to  be  

prolonged/extended  beyond  the  contemplated  date  of  

completion.   Clauses  42.1.2  and  42.1.4  of  the  SCC  

contemplate that in the event the contractor/bidder does  

not indicate the rate of extended stay, it will be presumed  

that  no  extended  stay  compensation  is  required  to  be  

paid.  In the present case, admittedly, the petitioner had  

quoted “NIL” against compensation for extended stay in its  

bid.  If that is so, it must be understood that the petitioner  

had  agreed  to  forego  its  claim  to  extended  stay  

compensation in the event the period of performance of  

the contract is to be extended as had happened in the  

present case. This position was conveyed to the petitioner  

by the letter of acceptance dated 13th December, 2010.  

The petitioner did not raise any objection on the aforesaid  

score.   If  the petitioner  had voluntarily  and consciously  

agreed to the above situation, it will be difficult to accept

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the contrary position that has sought to be now adopted  

by seeking to claim extended stay compensation which  

was earlier agreed to be foregone.  It must therefore be  

held  that  the  claim  against  the  aforesaid  'Head'  i.e.  

'extended  stay  compensation'  does  not  give  rise  to  an  

arbitrable  dispute  so  as  to  permit/require  reference  to  

arbitration under clause 59.   

12. The  second  issue  i.e.  claim  for  payment  of  

additional  works  however  would  stand  on  a  different  

footing.   Clause  91.1  and  91.2  contemplate  the  

making/raising of claims by the contractor for additional  

works and consideration thereof by the Engineer-in-chief.  

The decision of the Engineer-in-chief is final and binding.  

The  finality  attached  to  such  a  decision  cannot  be  an  

unilateral act beyond the pale of further scrutiny. Such a  

view  would  negate  the  arbitration  clause  in  the  

agreement.  Justifiability of such a decision though stated  

to  be  final,  must,  be  subject  to  a  process  of  

enquiry/adjudication which the parties in the present case  

have  agreed  would  be  by  way  of  arbitration.   The  

objections  raised  by  the  respondent  on  the  aforesaid

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score,  therefore,  does  not  commend  to  the  Court  for  

acceptance and is hereby rejected.

13. Accordingly, the claims made by the petitioner  

for payment of additional works under both the contracts  

are  referred  to  arbitration  by  Shri  Justice  M.M.  Kumar,  

Chief Justice (Retd.), Jammu & Kashmir High Court, who is  

hereby appointed as the sole arbitrator.  The learned sole  

arbitrator is  requested to enter  upon the reference and  

conclude  the  same  at  an  early  date.   The  terms  of  

appointment of the sole arbitrator as well as the venue of  

arbitration will be decided by the parties in consultation  

with the learned Arbitrator.

14. Consequently and in the light of the above, the  

Arbitration Petitions  are allowed to  the extent indicated  

above.  

…………......................J.            (RANJAN GOGOI)

NEW DELHI FEBRUARY 12, 2015