M/S. Shanti Enterprises vs Union Of India
2016 Latest Caselaw 7580 Bom

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                     IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                             ORDINARY ORIGINAL CIVIL JURISDICTION




                                                                                                 
                             ARBITRATION APPLICATION NO. 89 OF 2015
    M/s. Shanti Enterprises                                                       ...      Applicant




                                                                         
    Versus
    Union of India                                                                ...      Respondent




                                                                        
    Mr. Y. Singh i/b. Auris Legal for the Applicant.
    Mr. Y. Bhate i/b. Ms. Anamika Malhotra for the Respondent.

                                                         CORAM : S.J. KATHAWALLA, J.




                                                                   
                                                         DATED : 22nd December, 2016
    JUDGMENT                               

1. The above Arbitration Application is filed by the Applicant - M/s. Shanti

Enterprises against the Respondent - Union of India under Section 11 of the

Arbitration and Conciliation Act, 1996 (the Act) for appointment of an Arbitrator to

adjudicate the disputes between the parties arising out of the Contract Agreement

No. C.A. No. CENM M-13 of 2011-12 'For Addition / Alteration and Improvement to

Building P / 151 ( Junior Sailors Bock 320 )at INS HAMLA.

2. The Applicant is a partnership concern registered under the provisions of

the Indian Partnership Act, 1932 and is having its office at the address mentioned in

the cause title. The Applicant is engaged in the business of construction activities.

The Respondent is the Union of India represented through the Chief Engineer (Navy)

Mumbai.

3. Tenders were invited by the Respondent pertaining to Addition / Alteration

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and Improvement to Building P / 151 ( Junior Sailors Block 320) at INS HAMLA

(hereinafter referred to as 'the works'). Pursuant to the said tenders, the Applicant

submitted its bid to the Respondent and was declared as the successful bidder.

Thereafter, a letter of acceptance dated 20th October, 2011 was issued to the

Applicant by the Respondent informing the Applicant that their offer of the said work

has been accepted. The total costs of works awarded to the Applicant under the

tender is Rs.53,65,623/-. Pursuant thereto, a work order bearing No. 87257/46/E8C

dated 20th October, 2011 was issued by the Respondent upon the Applicant, wherein

the date of commencement of work was mentioned as 9th November, 2011 and the

date of completion as 9th November, 2012. Thereafter, a formal contract being

Contract Agreement No. C.A. No. CENM M-13 of 2011-12 (hereinafter referred to as

'the contract') was entered into between the Applicant and the Respondent. The said

contract is also governed by General Conditions of the Contract (GCC). Condition

70 pertains to arbitration agreement. The said Condition 70 is reproduced

hereunder :

"70 Arbitration. - All disputes, between the parties to the Contract (other than those for which the decision of the C.W.E or any other person is by the Contract expressed to be final and binding) shall, after written notice by

either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer officer to be appointed by the authority mentioned in the tender documents.

Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Work or termination or

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determination of the Contract under Condition Nos. 55, 56 and 57 hereof. Provided that in the event of abandonment of the Works or cancellation of

the Contract under Condition Nos. 52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalized by the

Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies.

Provided always that commencement or continuance of any arbitration

proceedings hereunder or otherwise shall not in any manner militate against the Government's right of recovery from the contractor as provided in Condition 67 hereof.

If the Arbitrator so appointed resigns his appointment or vacates his office or

is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint any new Arbitrator to act in his place.

The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence.

The Arbitrator may proceed with the arbitration, exparte, if either party,

inspite of a notice from the Arbitrator fails to take part in the proceedings. The Arbitrator may, from time to time with the consent of the parties, enlarge, the time upto but not exceeding one year from the date of his

entering on the reference, for making and publishing the award. The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the case

may be on all matters referred to him and shall indicate his findings, along with sums awarded separately on each individual item of dispute. The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion.

The award of the Arbitration shall be final and binding on both parties to

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the Contract."

4. Conditions 55, 56 and 57 pertain to Termination of Contract for Death,

Termination of Contract (Applicable only to Term Contracts), and special Powers of

Determination (Applicable only to measurement and lump sum contracts)

respectively. Conditions 52, 53 and 54 pertain to cancellation of contract for corrupt

Acts, cancellation of contract for insolvency and cancellation of contract in part or in

full for contractor's default respectively. Of all these conditions, the Respondent has

relied on condition 54 and therefore the same is reproduced hereunder :

"54 Cancellation of Contract in part or in full for Contractor's

Default : If the Contractor -

(a) makes default in commencing the Works within a reasonable time

from the date of the handing over the Site, and continues in that state after a reasonable notice from G.E.

or

(b) in the opinion of the GE, at any time, whether before or after the

date or extended date for completion, makes default in proceeding with the Works, with due diligence and continues in that state after a

reasonable notice from G.E.

(c) fails to comply with any of the terms and conditions of the Contract or after reasonable notice in writing with orders properly issued thereunder,

(d) fails to complete the Works, Work order and items of Works, with individual dates for completion and clear the Site on or before the date of completion.

The Accepting Officer may, without prejudice to any other right or

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remedy which shall have accrued or shall accrue thereafter to Government, cancel the Contract as a whole or only such Work

Order(s) or items of Work in default from the Contract. Whenever the Accepting Officer exercises his authority to cancel the Contract as

a whole or in part under this Condition he may complete the Work by any means at Contractor's risk and cost, provided always that in the event of cost of completion or after alternative arrangements have been

finalised by the Government to get the Works completed, estimated cost of completion (as certified by G.E.) being less than the Contract cost, the advantage shall accrue to the Government. If the cost of

completion or after alternative arrangements have been finalised by

the Government to get the Works completed, estimated cost of completion (as certified by G.E.) exceeds the moneys due to Contractor

under this Contract, the Contractor shall either pay the excess amount ordered by G.E. or the same shall be recovered from the Contractor by other means. The Government shall also be at liberty to hold and

retain in their hands materials, tackle, machinery and stores of all

kinds on Site, as they may think proper and may at any time sell any of the said materials, tackle, machinery and stores and apply the proceeds of sale in or towards the satisfaction of any loss which may

arise from the cancellation of the Contract as aforesaid. The Government shall also be at liberty to use the material, tackle, machinery and other stores on Site of the Contractor as they think

proper in completing the work and the Contractor will be allowed the necessary credit. The value of the materials and stores and the amount of credit to be allowed for tackle and machinery belonging to the Contractor and used by the Government in completing the work shall be assessed by the G.E. and the amount so assessed shall be final

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and binding.

In case the Government completes or decides to complete the Works or

any part thereof under the provision of this Condition, the cost of such completion to be taken into account in determining the excess cost to be

charged to the Contractor under this Condition shall consist of the cost or estimated cost (as certified by G.E.) of materials purchased or required to be purchased and / or the labour provided or required to be

provided by the Government as also the cost of the Contractor's materials used with an addition of such percentage to cover superintendence and establishments charges as may be decided by the

C.W.E. whose decision shall be final and binding. "

5. The Applicant by its letter dated 22nd May, 2014 addressed a letter to the

Respondent, wherein the Applicant has categorically stated that though constructed

cost of work was Rs.53,65,623/- and stipulated date of completion of the work is 8th

November, 2012 in view of the delay and hindrance caused from time to time by the

Respondent, the Applicant has carried out work worth Rs. 79,98,416/- and has

completed the same on 30th October, 2013. By the said letter, the Applicant has also

sought appointment of an Arbitrator within a period 30 days and has clarified that

upon failure to do so, the power of the Respondent to appoint an Arbitrator in the

matter shall stand forfeited and on the Respondent filing an Application the Hon'ble

Chief Justice of Bombay High Court would exercise power to appoint an Arbitrator,

who would not be an employee of the Respondent.

6. On 26th July, 2014 the Respondent informed the Applicant that as per

Condition 70 which forms part of the subject Contract Agreement, unless both parties

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agree in writing a reference shall not take place until the completion of the work and

the subject work is not yet completed and therefore the request of appointment was

not correct.

7. The Applicant through its Advocate's letter dated 5th September, 2014

responded to the Respondent's said letter 26th July, 2014. In the said letter, the

Advocate for the Applicant contended that according to the Claimant the work was

completed in all respects and the Respondent, only to avoid the due and legitimate

payment of Applicant is raising irrelevant issues and excuses to avoid its liabilities.

The Advocate for the Applicant once again called upon the Respondent to comply

with Condition 70, failing which the Applicant would be constrained to move the

Court under Section 11 of the Act and the Hon'ble Chief Justice of the Bombay High

Court shall, pursuant to the judgment of Hon'ble Supreme Court in the case of Datar

Switchgears Limited Vs. Tata Finance Limited, reported in 2000 (3), Arb. LR 447

(SC) exercise powers to appoint the Arbitrator in the matter.

8. The Respondent once again by its letter dated 15th October, 2014 reiterated

that the Applicant has not completed the work and that they should complete the

work.

9. In view of the above, on 24th November, 2014, the Applicant filed the above

Application under Section 11 of the Act seeking appointment of the Arbitrator.

10. On 29th December, 2015 the Respondent filed its Affidavit in Reply dated

11th December, 2015, wherein the Respondent took a stand that though the work was

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not completed, the Applicant was seeking appointment of an Arbitrator, which is not

allowed under Condition 70 of the Agreement. The Respondent has referred to the

letters addressed to the Applicant calling upon them to complete the work.

Thereafter, the Respondent has filed an Additional Affidavit in Reply dated 12th

February, 2016 stating that with effect from 17th November, 2015 the Contract has

been cancelled under Condition 54 of IAFW-2249 forming part of the Contract

Agreement, which is annexed as Exhibit-DD at page 107 and 108 to the Affidavit in

Reply of the Respondents. Pursuant to the cancellation of the Contract, the

inventories for the incomplete work was completed on 6th January, 2016 and a report

has already been submitted by the Board of Officers to the Accepting Officer of the

Contract for conclusion of the Risk and Cost Contract. It is submitted that as per

Arbitration Agreement vide Para No. 7(d) on Serial Page No. 39 of the Contract

Agreement and Condition No. 22 of IAFW-2249, the Arbitrator is appointed by the

Appointing Authority after acceptance of the Risk and Cost Contract. It is submitted

that the contention of the Applicant with regard to the words 'alleged completion' is

not tenable since the work is still incomplete as per the inventories placed on the

record of this Court. It is submitted that as per the norms and prevailing practice, the

Arbitrator is to be appointed from the approved list of Arbitrator of M.E.S. The

Respondent has suggested three names of the Arbitrators and submitted that the said

Arbitrators have no direct or indirect interests in the subject matter of the dispute with

regard to the above Contract. It is submitted that the Applicant is not entitled to any

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relief as prayed for and the Arbitration Application is liable to be dismissed with costs.

11. I have perused Clause 70 of the Contract, which pertains to Arbitration. I

have also considered Clause 54 of the Contract and have considered the submissions

advanced by the learned Advocates appearing for the parties.

12. Clause 70 of the GCC clearly provides that unless both the parties agree in

writing, such reference shall not take place until after the completion or alleged

completion of the work or termination or determination of the Contract under

Condition Nos. 55, 56 and 57. Therefore, it is clear that a dispute can be referred to

Arbitration and reference can take place if the contract work is completed or allegedly

completed. It is only in the event of the abandonment of the works or cancellation of

the Contract under Condition Nos. 52, 53 or 54, that such reference shall not take

place until alternative arrangements have been finalized by the Government to get the

works completed by or through any other Contractor or Contractors or Agency or

Agencies.

13. In the instant case, the Applicant by its letter dated 22nd May, 2014 clearly

stated / alleged that the Applicant has completed the work worth of Rs.79,98,416

instead of Rs.53,65,623/- as per the Contract and though the Applicant was required

to complete the work by 8th November, 2012, in view of various defaults and breaches

committed by the Respondent, the Applicant has completed the work on 30th

October, 2013. The Applicant has therefore clearly alleged that the Applicant has

completed the contract work. The said letter is replied to by and / or on behalf of the

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Respondent, wherein the only stand taken by the Respondent is that as per Condition

70 of IAFW 2249 which forms part of the subject Agreement, unless both parties

agree in writing, such reference shall not take place until after the completion of the

work and that subject work was not completed. The Respondent took an incorrect

stand by completely ignoring the fact that Clause 70 also provides that "...... unless

both parties agree in writing, such reference shall not take place until the completion

or alleged completion of the work or ......". Therefore, it was not at all necessary for

both the parties to agree in writing that the reference should take place, as incorrectly

alleged by the Respondent. Again in the said letter, the Respondent has not made any

mention about the abandonment or cancellation of the contract in terms of condition

54 and has also not stated that until alternative arrangements are finalized by the

Government to get the works completed by or through any other Contractor or

Contractors or Agency or Agencies, such reference cannot take place.

14. It is therefore clear that in the present case the Applicant on the one hand

insisted / alleged that the work was completed and on the other hand the Respondent

insisted that the work was not completed. Since Condition 70 provides reference of

dispute to arbitration without any agreement in writing in the event of alleged

completion of work, the Respondent was bound to appoint an Arbitrator as agreed

within a period of 30 days from the receipt of the letter invoking the Arbitration from

the Advocate for the Applicant dated 22nd May, 2014. By not doing so the

Respondent has forfeited its right to appoint an Arbitrator to decide the disputes that

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have arisen between the parties under the Contract. The cancellation of the

Agreement by the Respondent one and a half years after the Applicant invoked the

Arbitration Clause does not support the contention of the Respondent that it is still

entitled to appoint an Arbitrator of its choice. The decision of the Delhi High Court

in the case of A.K. Pahwa versus Union of India, CDJ 2001 DHC 764 relied upon by

the Respondent do not lend any assistance to them because in that case the Contract

awarded to the Petitioner by the Respondent was terminated by the Respondent vide

order dated 14th September, 1999 and the Petitioner made a request for appointment

of Arbitrator thereafter i.e. on 4th November, 1999. The Respondent were therefore

correct in taking a stand that the reference to arbitration could not take place until

alternative arrangement had been finalised by the Government to get the works

completed by or through any other Contractor or Contractors or agency or agencies.

Hence, I pass the following order :

i. The disputes between the parties arising out of Contract Agreement No.

C.A. No. CENM M-13 of 2011-12 regarding 'For Addition / Alteration and

Improvement to Building P / 151 ( Junior Sailors Bock 320 ) at INS HAMLA are

proposed to be referred to the sole arbitration of Mr. Vishal Kanade, Advocate.

ii. Mr. Vishal Kanade, Advocate shall submit his disclosure under Section 11

(8) read with Section 12 (1) of Arbitration and Conciliation Act, 1996.

    iii.           Stand over to 23rd December, 2016.

                                                                          ( S.J.KATHAWALLA, J. )