Patel Engineering Ltd. vs Northern Railway Admn.
2009 Latest Caselaw 3296 Del

*    IN THE HIGH COURT OF DELHI AT NEW DELHI

+    Arbitration Petition No.113/2006

Patel Engineering Ltd.                           ... Petitioner
                   Through     Mr.Aspi Chinoy, Sr. Advocate with
                               Mr.Zar T. Andhyarunina,
                               Ms.Bhanu Kapadia, Ms.Seema
                               Sudd, Mr.Abhishek Roy,
                               Mr.Somnath Shukla, Advocates

                   Versus

Northern Railway Admn.                          ... Respondent
                  Through      Ms.Geetanjali Mohan and
                               Mr.S.Rajappa, Advocates


Coram:
Hon'ble the Chief Justice

                            ORDER

% 21.08.2009

The respondent - Northern Railway Administration had

awarded to the petitioner a contract for construction of a single

line BG Tunnel No.4 (which includes cut and cover) between

14.961 Km. to 16.300 Km., as per the approved plan for

Udhampur - Srinagar - Baramulla Rail Link Project. Certain

differences and disputes arose between the parties, which were

referred by the petitioner to the respondent under Clause 63 of

the General Conditions of Contract. Almost all the claims of the

petitioner were rejected by the respondent. The petitioner then invoked the arbitration clause and called upon the respondent to

refer the disputes to the arbitration and this request was also

declined without stating any reasons. Thereafter, a considerable

correspondence was exchanged between the parties and finally

the respondent vide its letter dated 11th August, 2003 informed

the petitioner that the request for reference of the disputes to the

arbitrator cannot be acceded to as the petitioner's claims were

"excepted matters" and accordingly could not be referred to

arbitration. The petitioner is, therefore, constrained to file this

application under Section 11(6) of the Arbitration and Conciliation

Act, 1996 for the appointment of an arbitrator to adjudicate upon

the disputes between the parties.

2. In the reply filed by the respondent, the defence raised is the

same, namely, disputes do not fall within the scope of

arbitration clause and are "excepted matters". Since the

disputes have arisen and there is an arbitration agreement

between the parties as well, the only question, therefore,

needs determination is as to whether the disputes raised by

the petitioner are to be treated as "excepted matters" and

consequently beyond the scope of arbitration. A conjoint

reading of Clauses 63 and 64 is necessary for this purpose.

Therefore, it would be necessary to reproduce both the

Clauses in their entirety:

"63. Matters finally determined by the Railway - All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after its completion and whether before or after the determination of the contract, shall be referred by the contractor to the Railway and the Railway shall within a reasonable time after receipt of the Contractor's representation make and notify decisions on all matters referred to by the contractor in writing provided that matters for which provision has been made in clauses 18, 22(5), 39, 45(a), 55, 55-A(5), 61(2) and 62(1)(xiii)(B)(e)(b) of the General Conditions of Contract or in any clause of the Special Conditions of the Contract shall be deemed as 'excepted matters' and decisions thereon shall be final and binding on the contractor provided further that 'excepted matters' shall stand specifically excluded from the purview of the arbitration clause and not be referred to arbitration. 64 Demand for Arbitration - (1) (i) In the event of any dispute or difference between the parties hereto as to 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 a reasonable time, then and in any such case, save the 'excepted matters" referred to in clause 63 of these conditions, the contractor, after 90 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)    .......
        (iii)   .......
        (2)     .......

         (3) Arbitration - (i)       A sole Arbitrator who shall be

the General Manager or a Gazetted Railway Officer nominated by him in that behalf in cases where the claim in question is below Rs.5,00,000/- (Rupees Five Lakhs) and in cases where the issues involved are not of a complicated nature, the General Manager shall be the Sole Judge to decide whether or not the issues involved are or a complicated nature.

(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 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 divided in their opinions, the matter under disputes will be referred to an Umpire to be appointed in the manner laid down in Clause 3(b) for his decision.

        (3)(a)(iii)    ............
        (3)(a)(iv)     ............
        (3)(b)      For the purpose of appointing "two arbitrators"

as referred to in sub-clause (a)(ii) above the Railway will send a panel of more than three names of Gazetted railway officers of one or more departments of the Railway to the Contractor who will be asked to suggest to the General Manager one name out of the list for appointment as the Contractor's nominee. The General Manager, while so appointing the Contractor's nominee, will also appoint a second arbitrator as the Railway's nominee either from the panel or from outside the panel, ensuring that one of the two arbitrators so nominated is invariably from the Accounts Department. Before entering upon the reference the two Arbitrators shall nominate an Umpire who shall be a Gazetted Railway Officer to whom the case will be referred to in the event of any difference between the two arbitrators. Officers of the Junior Administrative grade of

the Accounts Department of the Railways shall be considered as of equal status to the officers in the intermediate administrative grade of other departments of the Railway for the purpose of appointment as arbitrator.

(3)(c)............

(3)(d)............

(3)(e)............

(3)(f) Subject as aforesaid, Arbitration Act 1940 and the Rules thereunder and any statutory modification thereof shall apply to the Arbitration proceedings under this clause."

3. Mr.Chinoy, learned counsel appearing for the petitioner,

strenuously contended that the items / claims in question do

not constitute excepted matters and the respondent's refusal

to appoint the arbitrator is based on a patent misreading as to

the meaning and import of Clause 63. He contended that

Clause 63 of the General Conditions clearly provides that only

matters for which provision has been made for a final and

binding determination in certain specified clauses of the

General Conditions, or in any clause of the Special Conditions,

shall be deemed to be "excepted matters". Learned counsel

submitted that none of the claims falls within any of the

specified clauses of the General Conditions, or those clauses of

the special conditions in which provision has been made for a

final and binding determination / decision by the Engineer-in-

Charge. None of the relevant clauses provides for such claims

not capable of being raised or adjudged by employing such

phraseology as "shall not be payable" or "no claim whatsoever

will be entertained by the Railway" or "no claim will/shall be

entertained". They are not "no claim" or "no liability"

clauses. On the other hand, Ms.Geetanjali Mohan, learned

counsel appearing for the respondent, maintained that almost

all the claims fall in the excepted category and cannot be

referred to the arbitration. She contended that Clause 63

specifically states that matters falling in any clause of Special

Conditions of the contract shall be deemed as "excepted

matters" and consequently the claims are not referable to the

arbitration.

4. Both the learned counsel relied upon the decision of the

Supreme Court in the case of General Manager, Northern

Railways & Anr. v. Sarvesh Chopra reported in AIR 2002

SC 1272. In that case, the Supreme Court construed the very

clause 63 in the context of certain claims raised by the

contractor under certain clauses of the Special Conditions of

Contract. The clauses in question being 9.2, 11.3 and 21.5

read as follows:

"9.2. No material price variation or wages escalation on any account whatsoever and compensation for "Force Majaure" etc. shall be payable under this contract.

11.3. No claim whatsoever will be entertained by the Railway on a/c of any delay or hold up of the works arising out of delay in supply of drawings, changes, modifications, alterations, additions, omissions, omissions in the site layout plans or detailed drawings or designs and or late supply of such materials as are required to be arranged by the Railway or due to any other factor on Railway Accounts.

21.5. No claim for idle labour and/or idle machinery etc. on any account will be entertained. Similarly no claim shall be entertained for business loss or any such loss."

The argument before the Supreme Court was that so long as the

remedy of the decision by someone though he may be an

authority of the Railways is not provided for, the contractor's

claim cannot be left in lurch by including the same in the

"excepted matters". The Supreme Court held as follows:

"7. A bare reading of Clause 63 shows that it consists of three parts. Firstly, it is an Arbitration Agreement requiring all disputes and differences of any kind whatsoever arising out of or in connection with the contract to be referred for adjudication by arbitration, by the Railways, on a demand being made by the

contractor through a representation in that regard. Secondly, this agreement is qualified by a proviso which deals with 'excepted matters'. 'Excepted matters' are divided into two categories: (i) matters for which provision has been made in specified clauses of the General Conditions, and (ii) matters covered by any clauses of the Special Conditions of the Contract. Thirdly, the third part of the clause is a further proviso, having an overriding effect on the earlier parts of the clause, that all 'excepted matters' shall stand specifically excluded from the purview of the Arbitration Clause and hence shall not be referred to arbitration. The source of controversy is the expression "matters for which provision has been made ... in any clauses of the Special Conditions of the contract shall be deemed as 'excepted matters' and decisions thereon shall be final and binding on the contractor." It is submitted by the learned counsel for the respondent that to qualify as 'excepted matters' not only the relevant clause must find mention in that part of the contract which deals with special conditions but should also provide for a decision by an authority of the Railways by way of an 'in-house remedy' which decision shall be final and binding on the contractor. In other words, if a matter is covered by any of the clauses in the Special Conditions of the contract but no remedy is provided by way of decision by an authority of the Railways then that matter shall not be an 'excepted matter'. The learned counsel supported his submission by reading out a few clauses of General Conditions and Special Conditions. For example, vide Clause 18 of General Conditions any question or dispute as to the commission of any offence or compensation payable to the Railway shall be settled by the General Manager of the Railway in such manner as he shall consider fit and sufficient and his decision shall be final and conclusive. Vide Clause 2.4.2.(b) of Special Conditions a claim for compensation arising on account of dissolution of contractor's firm is to be decided by Chief Engineer (Construction) of the Railway and his decision in the matter shall be final

and binding on the contractor. Vide clause 12.1.2. of Special Conditions a dispute whether the cement stored in the godown of the contractor is fit for the work is to be decided by the Engineer of Railways and his decision shall be final and binding on the contractor. The learned counsel submitted that so long as the remedy of decision by some one though he may be an authority of the Railways is not provided for, the contractor's claim cannot be left in lurch by including the same in 'excepted matters'. We find it difficult to agree.

8. In our opinion those claims which are covered by several clauses of the Special Conditions of the Contract can be categorized into two. One category is of such claims which are just not leviable or entertainable. Clauses 9.2., 11.3 and 21.5 of Special Conditions are illustrative of such claims. Each of these clauses provides for such claims being not capable of being raised or adjudged by employing such phraseology as "shall not be payable", "no claim whatsoever will be entertained by the Railway", or "no claim will/shall be entertained". These are 'no claim', 'no damage', or 'no liability' clauses. The other category of claims is where the dispute or difference has to be determined by an authority of Railways as provided in the relevant clause. In such other category fall such claims as were read out by the learned counsel for the respondent by way of illustration from several clauses of the contract such as General Conditions Clause 18 and Special Conditions Clause 2.4.2.(b) and 12.1.2. The first category is an 'excepted matter' because the claim as per terms and conditions of the contract is simply not entertainable; the second category of claims falls within 'excepted matters' because the claim is liable to be adjudicated upon by an authority of the Railways whose decision the parties have, under the contract, agreed to treat as final and binding and hence not arbitrable. The expression "and decision thereon shall be final and

binding on the contractor" as occurring in Clause 63 refers to the second category of 'excepted matters'.

5. It is apparent from the above observations that Clause 63

contemplates two categories of "excepted matters". The first

category is an "excepted matter" because the claim as per the

terms and conditions of the contract is simply not

entertainable. The second category of claims fall within the

"excepted matters" because the claim is liable to be

adjudicated upon by an authority of the Railways whose

decision the parties have, under the contract, agreed to treat

as final and binding and hence not arbitrable. In the light of

the decision of the Supreme Court what needs to be

determined is whether the claim preferred by the petitioner for

which the petitioner is invoking arbitration, falls in either

category of "excepted matters".

6. The first claim of the petitioner pertains to Welded Wall Beams

which the petitioner was to fabricate pursuant to Clause 8.14

of the Special Contract Conditions and Instructions to Tenders,

("Special Conditions"). The respondent had agreed to supply

the Rolled Steel Joists (150 x 150) for fabrication of the steel

supports / wall beams under item NS.3 of the BOQ. However,

on account of short supply of Rolled Steel Joists sections during

October, 2000 to March, 2001, the Engineer-in-Charge directed

the petitioner to use generated steel scrap pieces (1.0 m in

length) for fabrication of the wall beams, instead of full length

Rolled Steel Joists. This resulted in the petitioner incurring

additional expenditure in welding and fabricating of wall

beams. Clause 8.14 is reproduced below:

"8.14 Fabrication : Fabrication of the steel support shall be done in accordance with the drawings. Workmanship and finish shall be comparable to the best general practice in modern steel fabrication shop. All ring beam segment shall be fabricated in such a manner that required number of segment selected at random may be easily assembled and bolted together to form a complete support of specified dimensions. Finished diameters of the holes in the beams, butt plates splice plate or wall plates joints etc. shall not be less than that shown in the drawing which is more by 1.5 mm than normal diameter of the bolt. The holes will be drilled and reamed with the parts to be bolted in assembled position."

7. The second item is cutting & threading of tie rods. Item NS-3

of the BSQ required the Railway to supply free of cost, tie rods

which were required to be used by the petitioner for the

manufacture and fabrication of permanent steel supports. The

respondent, however, supplied plain rods instead of tie rods.

The petitioner, therefore, had to incur additional expenses for

fabrication of tie rods by cutting and threading the plain rods.

NS-3 states:

"NS-3 : Manufacturing, leading and erecting permanent steel supports in tunnels as per approved drawings including cutting drilling, welding/riveting cold/hot bending threading, leveling, aligning, fixing in position with all nuts and bolts and washers, providing timber struts and presstressing by blocking against rock/soil including all lead and lifts from fabrication yard to erection site. Railway will supply free of cost only steel sections such as joists, bars, plates, tie rods of sizes at Railway Godown at Manwal / Jammu Railway station or from any other suitable stores within the project site. All other materials including nuts, bolts, washers shall be arranged by contractor at his own cost."

8. The third claim is for overbreak in bottom lining. Clause 7.9.1

of the Special Conditions of the Contract, stipulated for

payment lines i.e. the limit upto which the contractor would be

paid, irrespective of whether the actual excavation fell outside

these lines, except in the case of the natural cleavages etc. An

overbreak occurs when a break or excavation takes place

beyond the 'limit' / 'payment lines' specified. In the present

case the payment line was defined as a measure (normally and

readily) 150 mm beyond the minimum excavation line, which

marked the minimum excavation that the contractor was

required to carry out. Overbreaks that occur on account of the

contractor's fault were not to be paid for by the respondent.

On the other hand, overbreaks which occurred on account of

adverse geological conditions of the rock, known as geological

overbreaks, were to be paid for by the respondent. According

to the petitioner overbreaks occurred to the bottom, sides and

crown portion of the tunnel on account of adverse geological

conditions: concealed joints, inclined bedding planes, faults

and heavy seepage due to poor rock configuration. The

petitioner had to incur additional expenditure on removing the

loose rock fragments and mud and in putting additional

concrete in such overbreaks. The relevant Clause 7.9.4 which

deals with overbreak in bottom lining reads as follows:

"7.9.4 : Geological overbreak

'Geological overbreak' consists of that portion of the overbreak outside a line parallel to and 100 mm beyond the "payline", the occurrence of which, as per the decision of Engineer-in-Charge, is an unavoidable result of adverse geological conditions due to concealed joints faults and other structural defects in rock and not due to lack of reasonable care and skill in excavation on the part of the contractor."

9. The following claim is overbreaks in 300 mm band. This covers

overbreaks beyond the pay line of 150 mm (and upto 300 mm)

which could not be avoided on account of adverse geological

conditions in the rock (concealed joints, faults and other

structure defects). The petitioner claimed payment for the

additional excavation and concreting done between pay line of

150 mm and upto 300 mm, from the respondent at the rate

specified in Clause 7.9.6 and 7.9.7 respectively. The Clauses

are reproduced below:

"7.9.6 payment for "Geological overbreak"

Payment for "Geological overbreak" shall be made at ½ (half) of the basic rates for tunnel excavation.

7.9.7 When the excavation of tunnel is in progress, if directed by Engineer-in-Charge, contractor shall backfill portions of 'over break' and 'geological overbreak' as defined in para 7.9.3 and 7.9.4 by concrete of suitable quality as approved by Engineer- in-Charge. Measurement and payment of such a backfill concrete shall be regulated in accordance with relevant provisions made under item of concrete (measurement & payment)."

10. The next claim is balance quantity of geological overbreak. It

is the case of the petitioner that during the course of the

excavation overbreaks occurred to the sidewalls and the

trolley refuges. These were on account of adverse geological

conditions in the rock and, therefore, constituted "geological

overbreaks" and were admittedly "outside a line parallel to

300 mm beyond the 'pay line' ". According to the petitioner

the respondent was liable to compensate the petitioner for

these "geological overbreaks". Clause 7.9.4 of the Special

Conditions of Contract reads as follows:

"7.9.4 : Geological overbreak

'Geological overbreak' consists of that portion of the overbreak outside a line parallel to and 100 mm beyond the "payline", the occurrence of which, as per the decision of Engineer-in-Charge, is an unavoidable result of adverse geological conditions due to concealed joints faults and other structural defects in rock and not due to lack of reasonable care and skill in excavation on the part of the contractor."

11.In none of the above clauses being Clause 8.14, Clause NS.3,

Clause 7.9.1, Clause 7.9.4 and Clauses 7.9.6 and 7.9.7 it is

provided that the claim of the contractor shall not be

entertainable. Further, none of these clauses provide for

determination of the claim by officer of the Railway and attach

any finality to such decision. Thus, the claims do not fall in

either of the excepted categories as held by the Supreme

Court in General Manager, Northern Railways & Anr. v. Sarvesh

Chopra's case.

12.Claims No.6 to 8 are relating to the difference between tender

and negotiated rates. It is the case of the petitioner that

during the course of the work the quantities of eight items of

work specified in the schedule to the tender exceeded the

amounts specified in the tender by the respondent. For the

purpose of fixing the rate payable to the petitioner for the

additional quantities of these eight items of work, the parties

met for negotiations and under duress, the petitioner was

constrained to agree to such rates under protest and without

prejudice to its contentions and its right to claim the rates

specified in the Agreement. It is seen from the record that the

petitioner had signed the negotiations under protest and

without prejudice to its contentions and its right to claim the

contract rates even for the increased quantities of work. The

contention of the respondent is that renegotiation of rates

results in supplementary contract which is not covered by

Clause 64 of the General Conditions. The contention is stated

only to be rejected. Merely because the parties had re-

negotiated the rates does not mean that a new contract has

come into being. It is clearly seen from the record that all

these negotiations and re-negotiations were part of the same

contract.

13.The next claim is for refund of works contract tax which

according to the respondent is not covered by excepted

matters. Lastly, there is claim for interest on delayed

payments. All these issues will have to be decided by the

arbitral tribunal appointed in accordance with Clause 64 of the

General Conditions. Learned counsel appearing for the

respondent has placed on record a list of the panel of twelve

Railway Gazetted Officers nominated by the General Manager.

Out of the three, one has to be from the accounts department.

By consent of the parties, I constitute a panel of Shri Tanvir

Ahmed - FA&CAO/FOIS, Shri Nikhil Pandey - CEGE and Shri

D.D. Singh - CWM/GZB as the Arbitral Tribunal to adjudicate

upon the disputes between the parties. The petition stands

disposed of accordingly.

CHIEF JUSTICE August 21, 2009 "dk/nm"