REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6400 OF 2016

UNION OF INDIA                     ...Appellant

VERSUS

PRADEEP VINOD CONSTRUCTION  COMPANY                  …Respondent

With

CIVIL APPEAL NO.6420 OF 2016

UNION OF INDIA                    ...Appellant

VERSUS

M/S. BM CONSTRUCTION COMPANY                     …Respondent

J U D G M E N T

R. BANUMATHI, J.

These appeals arise out  of  the impugned judgments  dated

15.05.2015  and  02.02.2015  passed  by  High  Court  of  Delhi  in

Arbitration Petition No.168 of 2015 and Arbitration Petition No.531

of 2014 in and by which the High Court appointed an independent

arbitrator for adjudication of disputes between the parties, instead of

directing  appointment  of  arbitrator  as  per  Clause  64  of  General

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Conditions  of  Contract  (GCC)  which  stipulates  that  Railways’

Officers should be appointed as Arbitrator.

2. Brief facts which led to filing of these appeals are as under:-

Facts in CA No.6400/2016:-

On 14.07.2010, Northern Railways awarded the contract for

misc. civil engineering works such as construction of duty huts at

L-xings,  water  supply  arrangements,  provision  of  station  name

boards  etc.  in  connection  with  Rewari-Rohtak  New  Line  to  the

respondent. The total  cost of the work at accepted rate came to

Rs.5,30,31,369.30. The work was finally completed on 31.03.2012.

According  to  the  appellant,  final  payments  were  made  by  the

appellant to the respondent vide bill bearing Vr.No.00356/104/C/TKJ

dated 06.05.2014. On the same day i.e. on 06.05.2014, parties also

entered into a supplementary agreement which recorded full accord

and  satisfaction  as  on  06.05.2014.  In  the  meanwhile,  on

05.05.2014, respondent sent a letter to the appellant alleging that

under the compulsion of circumstances, it had to sign the so-called

final bill without protest as desired by the administration, otherwise

heavy financial loss would have been caused to respondent and it

may not be in a position to tender and execute further works. The

respondent averred that a sum of over Rs.1.50 crores still remains

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to be paid to the respondent and calling upon the appellant to make

the payment within 90 days. The respondent  vide its letter dated

05.05.2014 invoked arbitration clause as contained under Clause

64 of General Conditions of Contract.  

3. The appellant issued a reply dated 25.07.2014 rejecting the

arbitration  claim  of  the  respondent,  taking  the  stand  that  the

respondent  had  signed  the  final  bill  and  also  signed  the

supplementary  agreement  which  clearly  stipulates  that  it  was

agreed between the parties that the respondent has accepted the

said sums mentioned therein in full and final satisfaction of all dues

and claims under the principal agreement.

4. The respondent thereafter filed Arbitration Petition No.168 of

2015 under Section 11 of the Arbitration and Conciliation Act, 1996

before  the  High  Court  for  appointment  of  an  arbitrator.  Upon

consideration of contention of the parties, the learned Single Judge

held  that  the  question  whether  the  discharge  certificate  and

supplementary  agreement  were  signed  by  the  respondent  under

duress, would require evidence to be led and is therefore, required

to  be  examined  by  the  arbitrator.  So  far  as  the  appointment  of

arbitrator is concerned, the High Court held that since the Railways

failed to appoint an arbitrator despite invocation of the arbitration

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clause by the respondent on 05.05.2014, the Railways forfeited its

right under the arbitration clause and the learned Judge appointed

Mr. Ram Prakash(Retd.), District and Sessions Judge as the sole

arbitrator instead of directing the appointment of arbitrator as per

Clause 64 of the General Conditions of Contract.

Facts in CA No.6420/2016:-

5. An agreement  dated 17.01.2012 was entered into  between

the Northern Railways and the respondent for construction of two

lane road over bridge in lieu of  L-xing near Muradnagar Railway

Station at a cost of Rs.4,21,69,176.25/-. The work was completed

on 03.08.2013.  According to the Railways, the respondent received

full  and  final  payment  vide  final  bill  bearing  Vr.No.280  dated

29.01.2014  and  also  signed  a  supplementary  agreement  dated

01.03.2014 acknowledging full and final settlement of all claims.  It

was  also  provided  in  this  supplementary  agreement  that  the

principal agreement shall stand finally discharged and the arbitration

clause contained therein shall cease to exist.  The respondent vide

letter  dated  15.01.2014  raised  two  claims  and  requested  for

appointment of arbitrator.  The Railways informed the respondent

that the claims of the respondent are not referable to arbitration as

the same are covered under “excepted matter”.  The respondent-

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contractor  on  28.08.2014  also  sent  a  “No  Claim”  letter  to  the

Railway  stating  that  it  has  no  claim  towards  the  Railways  and

requested for release of security deposit made by it.

6. The  respondent  thereafter  filed  Arbitration  Petition

No.531/2014 under Section 11 of  the Arbitration and Conciliation

Act,  1996 seeking appointment of  an arbitrator.   The High Court

held that though the appellant claims that the disputes raised by the

respondent  are  in  the  nature  of  “excepted  matters”  but  that  the

issue can be examined by the arbitrator.  With those findings, the

court  appointed Mr.  H.K.  Chaturvedi,  advocate as Sole Arbitrator

and directed that arbitration shall take place under the aegis of the

Delhi International Arbitration Centre.  

7. Mr. Bharat Singh, learned counsel appearing for the appellant-

Union of India-Railways submitted that the request for appointment

of  arbitrator  was  made  before  the  Amendment  Act,  2015  (w.e.f

23.10.2015) and hence, the proceedings will have to be proceeded

in accordance with the pre-amended provision of the Act, 1996.  It

was  submitted  that  the  High  Court  erred  in  appointing  an

independent  arbitrator  instead  of  directing  the  General  Manager,

Railway administration to appoint an arbitrator as per the terms and

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conditions  of  Clause  64  of  GCC which  stipulates  that  “excepted

matters” cannot be referred to arbitration.   

8. Per contra, Mr. Shantanu Kumar and Ms. Geetanjali Mohan,

learned  counsel  for  the  respondent(s)  submitted  that  once  the

appellant has failed to appoint an arbitrator under the terms of the

agreement before the petition under Section 11(6) of the Arbitration

Act, 1996 being filed before the Court, the authority forfeits its right

of appointing an arbitrator and it is for the Chief Justice/Designate

Judge to appoint an independent arbitrator under Section 11(6) of

the Act.  It was further submitted that Section 11(6) empowers the

court  to deviate from the terms of  the agreement, if  required, by

appointing an independent arbitrator. Insofar as the contention that

the respondent(s) have already received the final bill and issued “No

Claim”  letter  to  the  Railway,  the  learned  counsel  for  the

respondent(s)  submitted  that  “No  Claim”  certificate  was  issued

under compulsion and it is nothing but due to undue influence by

the  authorities  and  it  is  open  to  the  arbitrator  to  adjudicate  by

examining  the  bills  which  is  furnished  for  payment  and  in  such

circumstances, it cannot be said to be an “excepted matter”.

9. We have heard the learned counsel appearing for the parties.

We have carefully considered the contentions of both the parties

and perused the impugned judgment and materials on record.

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10. The  respondent(s)  are  registered  contractors  with  the

Railways and they are claiming certain payments on account of the

work  entrusted  to  them.   The  request  of  the  respondent(s)  for

appointment of  arbitrator  invoking Clause 64 of  the contract  was

declined by the Railways stating that their claims have been settled

and  the  respondent(s)  have  issued  “No  Claim”  certificate  and

executed  supplementary  agreement  recording  “accord  and

satisfaction” and hence, the matter  is not  referable to arbitration.

Admittedly,  the request for  referring the dispute was made much

prior  to  the  Amendment  Act,  2015  which  came  into  force  w.e.f.

23.10.2015.  Since the request for  appointment  of  arbitrator  was

made much prior to the Amendment Act, 2015 (w.e.f. 23.10.2015),

the  provision  of  the  Amended  Act,  2015  shall  not  apply  to  the

arbitral  proceedings in terms of Section 21 of  the Act  unless the

parties  otherwise  agree.   As  rightly  pointed  out  by  the  learned

counsel  for  the  appellant,  the  request  by  the  respondent(s)-

contractors is to be examined in accordance with the Principal Act,

1996 without taking resort to the Amendment Act, 2015.

11. Insofar as the applicability of the provisions of the Principal

Unamended Act, 1996, after referring to SP Singla Pvt. Ltd. v. State

of Himachal Pradesh and another  (2019) 2 SCC 488, in  Union of

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India v. Parmar Construction Company 2019 (5) SCALE 453, it was

held as under:-

“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 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.”

12. In  order  to  appreciate  the  contention  of  the  parties,  it  is

necessary  to  refer  to  Clause  64  of  the  General  Conditions  of

Contract (GCC) which reads as under:-

“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

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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.

……….

64. (3) Appointment of Arbitrator:

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

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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 shall apply to the arbitration proceedings under this

Clause.”

13. It is seen from the above that under Clause 64(1) of GCC, if

there  is  any  dispute  or  differences  between  the  parties  or  the

respective  rights  and  liabilities  of  the  parties  on  any  matter  in

question or any other ancillary dispute arising from the terms of the

contract  or  if  the  railway  administration  fails  to  make a  decision

within the time stipulated thereon, then in any such case, but except

in  any  of  the  “excepted  matters”,  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  dispute/differences  arising  under  the  terms  of  the  contract

between the parties.

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14. In  Union of India and another v. M.P. Gupta (2004) 10 SCC

504, Union of India and another v. V.S. Engineering (P) Ltd. (2006)

13 SCC 240, Union of India v. Singh Builders Syndicate  (2009) 4

SCC  523  and  in  a  catena  of  judgments,  the  court  held  that

whenever  the agreement  specifically  provides for  appointment  of

named arbitrators, the appointment of arbitrator should be in terms

of the contract.  After referring to M.P. Gupta, in V.S. Engineering, it

was held as under:-

“3. The learned Additional Solicitor General appearing for the appellant

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 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)

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“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.””

The court, however observed in para (6) that in the case of public

institutions which are slow in responding to the request made by the

contractor for appointment of an arbitrator, the power of the High

Court to appoint an arbitrator under Section 11 is not taken away.

The failure of the authorities in appointing an arbitrator and when

the contractor approached the court for appointment of an arbitrator

under Section 11 of the Act, it will then be in the discretion of the

Chief Justice/designated Judge to appoint a railway officer as per

the contract or a High Court Judge.

15. Considering  the  various  matters  of  railway  contracts  and

setting  aside  the  appointment  of  independent  arbitrators,  after

referring to M.P. Gupta and V.S. Engineering and other judgments,

in  Parmar  Construction  Company,  this  Court  set  aside  the

appointment of the independent arbitrator and directed the General

Manager of the Railways to appoint arbitrator in terms of Clause

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64(3) of the agreement.  In paras (44) and (45), this Court held as

under:-

“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.”

The  ratio  of  the  above  decision  squarely  applies  to  the  case  in

hand. When the agreement specifically provides for appointment of

named  arbitrators,  the  appointment  should  be  in  terms  of  the

agreement.  The High Court, in our view, was not right in appointing

an  independent  arbitrator  ignoring  Clause  64  of  the  General

Conditions of Contract.   

16. Insofar as the plea of the appellant that there was settlement

of final bill/issuance of “No Claim” letter, the learned counsel for the

appellant has drawn our attention on Clause 43(2) – Signing of the

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“No Claim” Certificate and submitted that 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.  On  behalf  of  the

respondent,  it  has  been seriously  disputed  that  issuance of  “No

Claim”  certificate  as  to  the  supplementary  agreement  recording

accord and satisfaction as on 06.05.2014 (CA No.6400/2016) and

issuance of “No Claim” certificate on 28.08.2014 (CA No.6420/2016)

that they were issued under compulsion and due to undue influence

by the railway authorities.  We are not inclined to go into the merits

of the contention of the parties.  It is for the arbitrator to consider the

claim of the respondent(s) and the stand of the appellant-railways.

This  contention  raised  by  the  parties  are  left  open to  be  raised

before the arbitrator.

17. In the result, the impugned judgments dated 15.05.2015 and

02.02.2015 of the High Court of Delhi in Arbitration Petition No.168

of 2015 and Arbitration Petition No.531 of 2014 are set aside and

these appeals are allowed.  The appellant is directed to appoint the

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

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of  one  month  from today  under  intimation  to  the  respondent(s)-

contractors. As soon as the communication of the appointment of

arbitrator is made to the respondent(s), the statement of claim be

filed by the respondent(s) within six weeks thereafter and the reply

of  the  appellant  to  be  filed  within  four  weeks  thereafter.   The

arbitrator shall proceed with the matter in accordance with law and

decide the claim after affording sufficient opportunity of hearing to

both parties expeditiously preferably within a period of four months.

………………………..J.                                                                         [R. BANUMATHI]

………………………..J.                                                                 [A.S. BOPANNA]

….………………………..J.                                                                [HRISHIKESH ROY]

New Delhi; November 14, 2019

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