M/S Global Agency vs Union Of India
2021 Latest Caselaw 3863 AP

     IN THE HIGH COURT OF ANDHRA PRADESH: AMARAVATI

HON'BLE Mr. JUSTICE ARUP KUMAR GOSWAMI, CHIEF JUSTICE

            ARBITRATION APPLICATION No.110 of 2018

                     (Through Video-Conferencing)

M/s. Global Agency, represented by its Managing
Partner, 172, 1st Cross, 1st Block, BSK 3rd Stage,
3rd Phase, Bengaluru - 560085                                ... Applicant

                                 Versus

The General Manager, South Central Railway,
Rail Nilayam, Secunderabad - 500071, and another         ... Respondents

Counsel for the applicant : Mr. Prasad Rao Vemulapalli

Counsel for the respondent : Mr. P. Bhaskar

ORAL JUDGMENT

Dt. 01.10.2021

Heard Mr. Prasad Rao Vemulapalli, learned counsel for the

applicant as well as Mr. P. Bhaskar, learned counsel for the

respondents.

2. By this application filed under Section 11(5) and (6) of the

Arbitration and Conciliation Act, 1996 (for short, "the Act of 1996") read

with the Scheme for Appointment of Arbitrator, 2000, the applicant

prays for appointment of a sole arbitrator to resolve the disputes

between the parties that had arisen in connection with Agreement

No.24/16.07.205 dated 09.10.2005.

3. Pursuant to a tender notice issued by the respondents on

28.04.2015 for the contract work of mechanized cleaning including pest

control (anti-fly and other insects) & rag picking upto home signal at

TPTY Railway Station for 2 years, i.e. 2015-2017, the applicant

participated and in such tender process, being successful, contract was 2 HCJ A.A.No.110 of 2018

awarded to it by way of Letter of Acceptance dated 09.07.2015 for the

contract value of Rs.3,21,80,397/-. Subsequent thereto, an agreement

was entered into on 09.10.2015. The period of contract was for 24

months commencing from 16.07.2015 to 15.07.2017. It was extended

for 2 months from 16.07.2017 to 15.09.2017 by a letter dated

08.07.2017. The contract, however, was completed on 31.08.2017.

4. A subsidiary agreement was entered into by the applicant and

the respondents on 13.05.2016, by which value of the contract was

reduced to Rs.2,81,68,244/- from Rs.3,21,80,397/-.

5. It is the case of the applicant that since an amount of Rs.32.00

lakh was lying with the respondents by way of securities and as the

applicant was doing similar works for other zonal railways, because of

apprehension of the said amounts being forfeited, the fear of

termination of the agreement and similar coercive acts in respect of

other ongoing works, it was compelled to sign the subsidiary

agreement and, therefore, such subsidiary agreement was executed by

it under financial duress and not out of its free volition. Accordingly, by

a letter dated 01.07.2017, the circumstances under which the

subsidiary agreement was executed, was notified to the respondents.

By a letter dated 05.04.2018, the applicant invoked arbitration clause

as per clauses 63 and 64 of the General Conditions of Contract, which

was incorporated under clause 39 of the agreement dated 09.10.2015.

In the said letter dated 05.04.2018, three claims were raised by the

applicant, which are as follows:

"Claim No.1: The difference amount of Rs.40,12,153.00/-

(Rupees Forty Lakhs twelve thousand one hundred and fifty

three only) between the original contract and revised 3 HCJ A.A.No.110 of 2018

contract without any legal basis and logical perceptive

unilaterally. The same is evident from the records available

with you.

Claim No.2: The amount of penalties imposed without any

basis time to time during the currency of the contract

amounting to Rs.63,26,643/- (Rupees sixty three lakhs

twenty six thousand six hundred and forty three only).

Claim No.3: Variation in labour wage index published by the

union ministry of Labour from the date of award to the date

of completion as applicable to this contract and the same will

be quantified at the time of submission of detailed Claim

statement."

6. Accordingly, request was made for constitution of an arbitral

Tribunal consisting of a sole arbitrator or a panel of arbitrators.

7. No response having come, the applicant has approached this

Court by filing this application.

8. In the counter-affidavit filed by the respondents, no dispute is

raised with regard to the existence of the arbitration agreement. The

plea taken for dismissal of the arbitration application on the ground of

non-maintainability is that the applicant had given a 'no claim

certificate'. It is stated that the subsidiary agreement was signed by the

applicant without any protest or objection. The letter dated 01.07.2017

giving reasons for signing the subsidiary agreement was also

addressed after one year of signing of the subsidiary agreement on

13.05.2016. The pleas that the applicant was under financial duress or

the same was not signed out of free volition, are now raised for the 4 HCJ A.A.No.110 of 2018

purpose of this case as an after-thought. It is also stated that all

payments had been received by the applicant without any protest.

9. Reliance is also placed on clause 28.2 of the General Conditions

of Contract in this regard.

10. Learned counsel for the parties had made submissions in tune

with the stand taken in the application and the counter-affidavit.

Mr. Prasad Rao, learned counsel for the applicant, submits that in view

of Section 11 (6-A) of the Act of 1996, this Court, at this stage, has to

confine examination to only existence of arbitration agreement and it is

not necessary for this Court to go into the question as to whether the

applicant had voluntarily executed 'no claim certificate' or for that

matter, the subsidiary agreement, and the same are to be decided by

the arbitral tribunal.

11. In this connection, he has relied on a decision of the Hon'ble

Supreme Court in the case of Vidya Drolia and others v. Durga

Trading Corporation, reported in (2021) 2 SCC 1.

12. I have considered the submissions of the learned counsel for the

parties and have perused the materials on record.

13. The 'no claim certificate', 'no due certificate' and 'certificate' are

all part of one single page and it is appropriate to quote the same

hereinbelow:

"NO CLAIM CERTIFICATE

I have no other claim outsourcing against S.C.

Railway towards release of my performance

Guarantee/Security Deposit and payment of the SD/PG 5 HCJ A.A.No.110 of 2018

shall the final settlement of all my claims in respect of the

SD/PG to which contract work for Mechanized Cleaning of

Tirupathi Railway Station and Premises relates under

Agreement No: 24-G/MD/52/MCC.TPTY/15-17 Dated:

16/07/2015.

NO DUES CERTIFICATE

Certificate that there are no dues to be recovered

from M/s. Global Agency, Bangalore against the contract

work for Mechanized Cleaning of Tirupathi Railway Station

and Premises relates under Agreement No. 24-

G/MD/52/MCC.TPTY/15-17 Dated: 16/07/2015.

CERTIFICATE

Certificate that the purpose to which security deposit

on amount deposited for the work which contract work for

Mechanized Cleaning of Tirupathi Railway Station and

Premises relates under Agreement No. 24-

G/MD/52/MCC.TPTY/15-17 Dated: 16/07/2015.

The security deposit may kindly be return to the

contractor, M/s. Global Agency Bangalore. No Claim

Certificate has been received from contractor. There are

no dues to be recovered from the Global Agency and there

are no pending Audit, Accounts and Vigilance objections

against the contractor as far as this agreement is

concerned."

14. Though there is no date in the 'no claim certificate', the signature

of Chief Medical Superintendent, S.C. Rly. Divn. Hospital, Guntakal, 6 HCJ A.A.No.110 of 2018

appearing below therein, appears to be 22.05.2018. It, thus, appears

that 'no claim certificate' was signed by the applicant subsequent to

issuance of the letter dated 05.04.2018. It is to be remembered that

prior to that, the applicant had written a letter dated 01.07.2017,

indicating the circumstances under which the subsidiary agreement

was executed.

15. Clause 28.2 of the general conditions of contract at page 85 of

the application, reads as follows:

"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 and paid for by the Railways. The

contractor shall be debarred from disputing the

correctness of the items covered by "No claim"

certificate or demanding a clearance to Arbitration in

respect thereof."

16. Mr. Prasad Rao has submitted that unless and until the 'no claim

certificate' is given by the applicant or by any contractor, dues payable

are not released and, therefore, they had no option but to execute such

certificate. Therefore, he submits that signing of the 'no claim

certificate' in the circumstances cannot be construed to be voluntary.

                                     7                                   HCJ
                                                          A.A.No.110 of 2018

17. The Hon'ble Supreme Court in Vidya Drolia (supra), at

paragraphs 139, 140 and 141, observed as follows:

"139. We would not like to be too prescriptive, albeit

observe that the court may for legitimate reasons, to

prevent wastage of public and private resources, can

exercise judicial discretion to conduct an intense yet

summary prima facie review while remaining conscious

that it is to assist the arbitration procedure and not

usurp jurisdiction of the Arbitral Tribunal. Undertaking a

detailed full review or a long-drawn review at the

referral stage would obstruct and cause delay

undermining the integrity and efficacy of arbitration as a

dispute resolution mechanism. Conversely, if the court

becomes too reluctant to intervene, it may undermine

effectiveness of both the arbitration and the court.

There are certain cases where the prima facie

examination may require a deeper consideration. The

court's challenge is to find the right amount of and the

context when it would examine the prima facie case or

exercise restraint. The legal order needs a right balance

between avoiding arbitration obstructing tactics at

referral stage and protecting parties from being forced

to arbitrate when the matter is clearly non-arbitrable.

140. Accordingly, when it appears that prima facie

review would be inconclusive, or on consideration

inadequate as it requires detailed examination, the

matter should be left for final determination by the 8 HCJ A.A.No.110 of 2018

Arbitral Tribunal selected by the parties by consent. The

underlying rationale being not to delay or defer and to

discourage parties from using referral proceeding as a

ruse to delay and obstruct. In such cases a full review

by the courts at this stage would encroach on the

jurisdiction of the Arbitral Tribunal and violate the

legislative scheme allocating jurisdiction between the

courts and the Arbitral Tribunal. Centralisation of

litigation with the Arbitral Tribunal as the primary and

first adjudicator is beneficent as it helps in quicker and

efficient resolution of disputes.

141. The court would exercise discretion and refer the

disputes to arbitration when it is satisfied that the

contest requires the Arbitral Tribunal should first decide

the disputes and rule on non-arbitrability. Similarly,

discretion should be exercised when the party opposing

arbitration is adopting delaying tactics and impairing the

referral proceedings. Appropriate in this regard, are

observations of the Supreme Court of Canada in Dell

Computer Corpn. v. Union des Consommateurs &

Olivier Dumoulin [Dell Computer Corpn. v. Union des

Consommateurs & Olivier Dumoulin, 2007 SCC OnLine

Can SC 34 : (2007) 2 SCR 801 : 2007 SCC 34] , which

read: (SCC OnLine Can SC paras 85-86)

85. If the challenge requires the production and

review of factual evidence, the court should

normally refer the case to arbitration, as arbitrators 9 HCJ A.A.No.110 of 2018

have, for this purpose, the same resources and

expertise as courts. Where questions of mixed law

and fact are concerned, the court hearing the

referral application must refer the case to arbitration

unless the questions of fact require only superficial

consideration of the documentary evidence in the

record.

86. Before departing from the general rule of referral,

the court must be satisfied that the challenge to the

arbitrator's jurisdiction is not a delaying tactic and

that it will not unduly impair the conduct of the

arbitration proceeding. This means that even when

considering one of the exceptions, the court might

decide that to allow the arbitrator to rule first on his

or her competence would be best for the arbitration

process."

18. In the case of V.B. Cold Storage Private Limited v. Bajaj

Allianz General Insurance Company Limited (Arbitration Application

No.165 of 2014), which was decided on 24.09.2021, this Court was

confronted with a similar situation and a plea was set up by the

respondent that the applicant therein having executed Indemnity Bond,

Discharge Bond and consent letter as full and final settlement of all the

claims of the applicant, there was no dispute regarding any outstanding

claim and, therefore, the application was misconceived.

19. This Court at paragraphs 18, 19, 20, 22, 26 & 27, observed as

follows:

                               10                                   HCJ
                                                     A.A.No.110 of 2018

"18. Section 11 (6-A) of the Act of 1996 was inserted by

Act 3 of 2016 with effect from 23.10.2015. Section 11 (6-A)

reads as follows:

"11. (6-A) The Supreme Court or, as the case may

be, the High Court, while considering any

application under sub-section (4) or sub-section

(5) or sub-section (6), shall, notwithstanding any

judgment, decree or order of any court, confine

to the examination of the existence of an

arbitration agreement."

19. Section 11(6-A) was omitted by Act 33 of 2019.

However, Section 3 of the Amendment Act of 2019 insofar as

it pertains to this omission has not yet been brought into

force.

20. In Duro Felguera, SA v. Gangavaram Port Ltd.,

reported in (2017) 9 SCC 729, at para 48, the Hon'ble

Supreme Court had observed that the intention of the

legislature is crystal clear that the court should and need only

look into one aspect, which is the existence of an arbitration

agreement. What are the factors for deciding as to whether

there is an arbitration agreement is the next question. The

resolution to that is simple, in that it needs to be seen if the

agreement contains a clause which provides for arbitration

pertaining to the disputes which have arisen between the

parties to the agreement. At para 59, it was observed that

scope of the power under Section 11(6) of the Act of 1996

was considered in the decisions in SBP & Co. v. Patel 11 HCJ A.A.No.110 of 2018

Engg. Ltd., reported in (2005) 8 SCC 618 and Boghara

Polyfab (P) Ltd. (supra) and the said position continued till

the amendment was brought about in the year 2015. It was

emphasized that after the amendment, all that the courts

need to see is whether an arbitration agreement exists -

nothing more nothing less. It was further observed that the

legislative policy and purpose is essentially to minimise the

Court's intervention at the stage of appointing the arbitrator

and this intention as incorporated in Section 11(6-A) ought to

be respected.

22. Following Duro Felguera (supra), the Hon'ble

Supreme Court in Mayavati Trading Private Limited

(supra) observed that the law prior to the 2015 Amendment

that has been laid down by the court which would have

included going into whether accord and satisfaction has

taken place, has now been legislatively overruled. It was

held that Section 11(6-A) is confined to the examination of

the existence of an agreement and is to be understood in the

narrow sense as has been laid down in the judgment in Duro

Felguera (supra) and taking that view, the judgment in

Antique Art Exports Private Limited (supra) was overruled

as having not laid down the correct law.

26. In view of the decision rendered in Mayavati Trading

Private Limited (supra), wherein a three-Judge Bench of the

Hon'ble Supreme Court had observed that as Section 11(6-

A) is confined to the examination of the existence of an

arbitration agreement and is to be understood in a narrow 12 HCJ A.A.No.110 of 2018

sense and as the law which enabled the court to examine as

to whether accord and satisfaction had taken place has been

legislatively overruled, it will not be necessary for this Court

to go into the aforesaid question as to whether the applicant

had voluntarily executed Indemnity Bond, Discharge Bond

and also consent letter or whether the applicant had signed

such indemnity bond, discharge bond and also consent letter

unconditionally and the same is left open to be decided by

the Arbitral Tribunal.

20. In view of the above, I am of the considered opinion that the

applicant having raised various pleas with regard to execution of the

subsidiary agreement as also the execution of the 'no claim certificate',

the dispute between the parties is required to be referred to an

arbitrator as there is a valid arbitration agreement.

21. Resultantly, the Arbitration Application is allowed. Dr. Justice

B. Siva Sankara Rao is appointed as arbitrator to adjudicate the

disputes between the parties. No costs. Pending miscellaneous

applications, if any, shall stand closed.

22. The fee of the arbitrator as well as the other terms and

conditions shall be settled by the parties in consultation with the

arbitrator so appointed. Registry will send a copy of this order to

Dr. Justice B. Siva Sankara Rao in his proper address.

Sd/-

ARUP KUMAR GOSWAMI, CJ MRR