Delhi High Court
R.S.Khanna And Sons vs Rites Ltd, Through Its Executive ... on 29 January, 2024
Author: Dinesh Kumar Sharma
Bench: Dinesh Kumar Sharma
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
RESERVED ON - 21.12.2023
% PRONOUNCED ON - 29.01.2024
+ ARB.P. 255/2023
+ ARB.P. 257/2023
R.S.KHANNA AND SONS ..... Petitioner
Through: Ms. Shantha Devi Raman, Mr. Rachit
Gupta, Ms. Rajasree, Mr. Mayank
Yadav, Advs.
versus
RITES LTD. THROUGH ITS EXECUTIVE DIRECTOR & ANR.
..... Respondents
Through: Mr. G.S. Chaturvedi, Mr. Ashok
Kumar Chaudhary, Advs. for R-1
(VC).
Mr. SudhirNangrajog, Sr. Adv. (VC),
Mr. Anurag DayalMathur, Adv. for
R-2.
CORAM:
HON'BLE MR. JUSTICE DINESH KUMAR SHARMA
JUDGMENT
DINESH KUMAR SHARMA,J :
1. By way of the present petitions filed under Section 11 of the
Arbitration and Conciliation Act, 1996 (hereinafter, referred to as the
‗A&C Act'), the petitioner seeks appointment of Arbitral Tribunal
comprising of a Sole Arbitrator to adjudicate the disputes between the
parties.
2. The petition has been filed against Respondent No.1/ RITES Ltd. and
Respondent No.2/Ramjas College, an educational institute affiliated
with the University of Delhi. The petitioner stated that Respondent
No.1 having been hired by Respondent No.2 invited to tender for
construction work of renovation and upgradation of the Auditorium in
the campus of Respondent No.2, at University Enclave, Delhi. The
petitioner was declared as successful bidder and pursuant thereto
entered into a contract with Respondent No.1 on 29.04.2016 through
Agreement No. RITES/CP/TC/Ramjas/Auditorium/2015 for a contract
value of Rs.2,46,34,549.41/-. The LOA was issued on 29.12.2015 with
the stipulated start on 14.01.2016 and completion by 08.09.2016.
However, the work was actually completed on 19.04.2018.
3. It has been stated that the work was delayed on account of various
reasons such as not providing hindrance free site, nonsupply drawing
and specifications etc. However, the work was completed to the
satisfaction of the Respondent and provisional completion certificate
was handed over on 19.04.2018 and final completion certificate was
issued on 27.08.2018 with a delay of3 months.
4. The petitioner submitted that the final bill was submitted by the
Petitioner in January 2019 and the same was verified by the
Respondents and certified for Rs. 2,69,83,534/- on 14.10.2019.
However, the respondent only paid Rs. 2,17,66,547/- leaving balance
amount of Rs.42,32,120/-. The petitioner alleged that the respondent
wrongly withheld the balance amount Rs.42,32,120/- and GST amount
of the certified final bill since from October 2019amounting Rs.
6,06,346/-. It has further been submitted that on account of delay in
issuance of the completion certificate the petitioner also incurred an
extra expenditure of Rs. 1,20,000/- for engaging manpower for watch
and ward forthe safety of the building.
5. It has been submitted that the delay was attributable to the respondent
only. The petitioner has also listed various other claims on account of
freezing the Government Indices, extra expenditure for getting
extension policy premium for vehicle and labour, site expenses due to
extended period of contract and prolongation of contract. The loss of
profit had also been claimed.
6. The petitioner raised the dispute with the respondentthrough General
Manager on 08.03.2022 and invoked arbitration clause of the
agreement for the appointment of an Arbitrator. Subsequently vide
letter dated 12.04.2022, the arbitration was specifically invoked but no
response was received. The petitioner again sent a reminder on
13.08.2022.
7. The notice was issued to the Respondent No.1. Respondent No.1 in its
reply stated that the agreement was entered into by the Respondent
No.1 for and on behalf of Respondent No.2 acting as an Agent/Power
of Attorney holder of Respondent No.2. It was stated that the Letter of
Acceptance and the tender was also floated on behalf of Respondent
No.2 and Respondent No.1 acted only as an agent throughout. It was
stated that in view of the same and as per Section 230 of the Indian
Contract Act Respondent No.1 cannot be sued by the Petitioner and
therefore, is entitled to be deleted from the array of parties.
8. Reliance has been placed upon RITES Vs. Shabbir Ahmed, OMP
No.13/2013and RPP Construction (P) Ltd. Vs. RITES Ltd., Arb. P.
No.35/2016.
9. The respondent has further submitted that even otherwise there is no
liability/obligation upon Respondent No.1 to make any payment, even
in respect of the certification of work done by the Answering
Respondent.
10. Reference has been made to Clause 7 of the Contract which reads as
under:
―Since the Contract is being entered into with the
Contractor by RITES acting for an on behalf of the
Employer as Agent/ Power of Attorney Holder, no RA Bill
will be paid unless sufficient funds have been made
available by the Employer.‖
11. In the reply on merits, respondent No.1 stated that the work was
delayed on account of on account of defaults on the part of the
Petitioner. It was stated that on 31.08.2016 there was only physical
completion which had a number of defects. It has been further
submitted that since no funds were remitted by Respondent No.2, the
certified amount could not be paid to the Petitioner.
12. Respondent No.2 in its reply submitted that there was a failure on the
part of the petitioner to comply with the mandatory pre-conditions/pre-
requisites as enumerated under Clause 25 of the Agreement dated
29.04.2016 before approaching this court. Respondent No.2 submitted
that clause 25 of the agreement provides for the settlement of disputes
and Arbitration with a complete redressal mechanism under the said
clause.
13. Learned counsel for the respondent submitted that since the petitioner
filed the present petition without exhausting the mandatory agreed
procedure of dispute resolution as contained in clause 25 of the
agreement, the present petition is non-maintainable.
14. Respondent No.2 in its reply submitted that the Petitioner has failed to
satisfy the condition for appointment of Arbitrator under Section 11 (6)
of the Arbitration and Conciliation Act of 1996 as the appointment
procedure agreed upon by the parties has not been followed by the
petitioner. Respondent submitted that the petitioner in the first place
failed to fulfill the pre-requisites and referred the disputes to the
Engineer-in-Charge and therefore, the cause of action for taking
subsequent steps i.e., going to Appellate Authority against the decision
of the Engineer-in-Charge never arose. Respondent No.2 stated that it
is only on being dissatisfied with the decision of the Appellate
Authority that the petitioner could have the matter referred to
Arbitration.
15. Respondent No.2 further stated that even otherwise the present petition
is not maintainable as respondent No.2 was neither a party nor a
signatory to the agreement dated 25.03.2014. The agreement was
executed between the petitioner and Respondent No.1 and hence no
liability can be attributed upon Respondent No.2.
16. Learned counsel for the petitioner submitted that respondent No.1 and
2 both have taken a preliminary objection that the arbitration cannot be
invoked against them. Respondent No.1 has taken a plea that it has
merely acted as an agent/power of Attorney of respondent No.2,
whereas Respondent No.2 had agreed that he is neither a party nor a
signatory to the agreement dated 25.03.2014.
17. Learned counsel submitted that thus both the respondents have taken
contradictory stand and are avoiding their liability.
18. Learned counsel for the petitioner submitted that all other payments for
the work have been released by RespondentNo.2 to Respondent
No.1and in turn Respondent No. 1 has made the payment to the
petitioner and therefore, Respondent No. 2 cannot be allowed to take
the plea that he being non-signatory to the agreement cannot be
proceeded against.
19. Learned counsel for the petitioner submitted that Respondent No. 1 was
only acting as an „Agent‟ and „Power of Attorney Holder‟ of
Respondent No. 2. It was submitted that thus in view of Section 226
and 230 of the Indian Contract Act, it is clear that once there is a
disclosed principal in the contract, the Agent incurs no liability and
takes no benefit and both the liability and benefit is only of the
disclosed principal. In support of his submissions petitioner has relied
upon for following judgments:
20. In regard to the pre-mature petition, learned counsel for the petitioner
submitted that Clause-25Sub-Clause-1 mandates 15 days' notice to be
given to the Engineering-in-charge and it uses the expression "Shall"
which means the contractor is mandatorily to give 15 days request
letter/notice in writing. The Petitioner complied with this requirement
by giving a letter dated 08.03.2022. Learned counsel further submitted
that Clause-25 (1) Sub-para gives an option to the contractor to give a
15-day letter/notice to the Appellate Authority, who is the Group
General Manager. It was stated that this was not mandatory and nearly
directory as it uses the expression "may" while specifying about the 15-
day notice. Learned counsel for the petitioner submitted that this
requirement is though optional, however the Petitioner fulfilled the
same as the legal notice dated 21.12.2022 was issued to both the
respondents which made it clear that the grievance of the Petitioner has
been communicated to both the Respondents by way of legal notice.
21. Learned counsel further submitted that Clause-25 (1) mandates by
using the expression "Shall" when it refers to adjudication through
Arbitration. Learned counsel submits that the Arbitration Clause has
duly been invoked vide notice dated 12.04.2022. Learned counsel
further submitted that the petitioner apart from the legal notice had
issued a letter dated 17.07.2020 to respondent No.2. Respondent No.1
had also sent a letter dated 24.04.2020 through email to Respondent
No. 2 asking for the payment of the balance funds of Rs. 1. 08 Crores
for making payment to the petitioner against the Final bills.
22. Learned counsel for the petitioner further submitted that the procedure
laid down has to be followed because the opportunity should be given
to the Respondents to settle the disputes amicably and also to make
them aware of the grievance of the Petitioner. Learned counsel for the
petitioner has placed reliance upon Visa International Ltd. Vs.
Continental Resources (USA) Ltd., Demerara Distilleries P. Ltd. V s.
Demerara Distilleries Ltd. and Innovation Ltd. Vs. Nayati Healthcare
& Research NCR Pvt. Ltd.
23. Learned counsel for the petitioner further submitted that the objection
of Respondent No.1 is entitled to be rejected in view of Clause-12(6) of
the agreement which states that "In case of any claims by the
contractor, the employer as well as RITES Ltd. acting as Agent to the
employer will implead themselves as parties to the arbitration
proceedings". It has been submitted that both the Respondents are
necessary parties to the arbitration proceedings.
24. Learned counsel for the petitioner further submitted that even the non-
signatories to the agreement can be impleaded as a party to the
arbitration proceedings. Reliance has been placed upon Nirmala Jain
& Others Vs. Jasbir Singh & Others. Learned counsel submitted that
in the said judgment the court has relied upon Cheran Properties Ltd.
V s. Kasturi& Sons Ltd. and has inter alia held that the factors such as
the relationship of a non-signatory to a party which is a signatory to the
agreement, the commonality of subject matter and the composite nature
of the transaction weigh in the balance. Learned counsel for the
petitioner has also relied upon the judgment of Cox & Kings V s. SAP
India Pvt. & Ltd.
25. Learned counsel for the petitioner has also placed reliance upon
Edelweiss Asset Re-construction Company Ltd. Vs. GTL
Infrastructure Ltd. and Another. Wherein the co-ordinate bench of
this court inter alia found that third parties, whose rights are affected by
the Arbitral proceedings are to be impleaded therein.
26. Learned counsel further submitted that the scope Under Section-11(6)
of the Arbitration & Conciliation Act is very limited and at this stage,
the court is only required to examine the existence of the Arbitration
Agreement, and all other issues are required to be left to the Arbitrator.
Reliance has been placed upon DLF Home Developers Ltd. Vs. Raja
PuraHomes Pvt. Ltd. & Another (2021) 16 SCC 743.
27. Learned counsel for Respondent No.1 has submitted that Respondent
No.2 approached Respondent No.1 for the construction of a new
academic block and renovation of certain buildings in the college
complex. Thus, Respondent No.1 floated the tender on behalf of
Ramjas College. It was further stated that Apart from the floating of
tender, finalization of contractor, supervision, and certification of work,
Respondent No.1 also undertook to defend Respondent No.2 in
arbitration proceedings if instituted. It was stated that however, the said
service was subject to the charges, fees, and expenses for the arbitration
being borne by Respondent No.2.
28. Learned counsel submitted that Respondent No.1 has merely worked as
a Project Management Consultant and therefore cannot be burdened
with the liability of making the payment. It has been submitted that
Respondent No. 2 remains the Principal in the Contract and
Respondent No.1 is only an agent. Learned counsel submitted that
Respondent No.1 entered into a contract only on behalf of Respondent
No.2 and not in its own capacity. It has been submitted that therefore
Respondent No.1 is not a necessary party. Reliance has been placed
upon RITES Vs. Shabbir Ahmed, OMP No.13/2023, RRP
Construction (P)Ltd. Vs. RITES LTD., Arb. P. No.35/2016 and Raj
&Associates & Ors. Vs. Videsh Sanchar Nigam Limited &Ors. - Suit
No.2380/ 2000.It has further been submitted that Respondent No.1l had
certified the payments of the work done by the Petitioner to the tune of
Rs. 1.09 Crores out of which payment for an amount of Rs. 77.54 lacs
was already made by the Respondent No.1. However, the balance
amount could not be paid as the funds were not made available by
Respondent No.2.
29. Learned counsel submitted that in terms of Clause 7, there is no
liability of the Answering Respondent for making payment to the
contractor, until and unless the funds are available by the
Principal/Employer/Respondent No.2 in the present case. Learned
counsel further submitted that apart from the amount certified for the
work done, the petitioner is not entitled for any other claim as
mentioned in the petition. Learned counsel submitted that even
Respondent No.2 has not paid the project management fees of
Respondent No.2 and therefore in the absence of the bare minimum
fees of Respondent No.1 and no assurance of the payment of the
expenses/fees during the course of the arbitration, it will not be
possible for the Respondent No.1 to participate in the arbitration
proceedings for and on behalf of Respondent No.2.
30. Learned counsel for the Respondent No.2 stated that the present
petition is not maintainable as Ramjas College was not a signatory to
the agreement dated 25.03.2014 and thus no liability can be attributed
upon him. It has further been submitted that under Section 11 (6A) of
the Arbitration and Conciliation Act the referral Court is to consider
and examine as to whether an arbitration agreement exist between the
parties.
31. Learned counsel submitted that the pre-referral jurisdiction of the Court
under Section 11 (6) of the Arbitration Act is narrow and the primary
inquiry which is to be undertaken by the court is to ascertain the
existence of an arbitration agreement between the parties. Reliance has
been placed upon Magic Eye Developers Pvt. Ltd. vs Mis. Green Edge
Infrastructure Pvt. Ltd. & Ors. 2023 (8)SCC 50. Learned counsel
submitted that the existence and validity of an arbitration agreement is
to be decided by the referral court at the referral stage itself. Learned
counsel submitted that Respondent No.2 being non-signatory is entitled
to be deleted. It has further been submitted that even otherwise
petitioner has not exhausted the mandatory agreed procedure of dispute
resolution as contained in clause 25of the agreement and the present
petition is premature and is liable to be dismissed.
32. Learned counsel submitted that this court in Sushil Kumar vs Union of
India 2009 SCC Online Delhi 4355while interpreting the very
language of clause of 25 as contained in the agreement dated
25.03.2014 held that the conditions enumerated under the clause are
mandatory and not directory in nature and the same have to be
exhausted before a petition under section 11of the arbitration act can be
filed and can be held to be maintainable. It has further been submitted
that the co-ordinate bench of this court in M/s. Chambrays vs. HSCC
Associates India Ltd. has inter alia held that the procedure prescribed
in the agreement before evocation of Arbitration Agreement
necessarily needs to be followed as Section 11 of the Act can be
invoked only where the parties have failed to act under the prescribed
procedure.
33. The present petition has been filed for an appointment of a Sole
Arbitrator under Section 11 of the Arbitration and Conciliation Act by
the petitioner for the appointment of a Sole Arbitrator. As the
respondent failed to clear the final bill. Admittedly, an agreement for
construction of New Academic(ScienceBlock) and renovation of
Academic/ Administrative/Laboratory/library Block at Ramjas College,
Delhi was awarded to the petitioner. In pursuance of which an
agreement dated 25.03.2014 was executed between RITES Ltd. and the
petitioner. However, it is pertinent to read the first paragraph of the
agreement which reads as under:
―THIS AGREEMENT is made on 25th day of March Two
thousand fourteen between RITES Ltd. a Government of
India Enterprise and a Company registered under
Companies Act, 1956 having its registered office at SCOPE
Minar, Laxmi Nagar, Delhi 110092 and its Corporate
Office at RITES BHAWAN, Plot No.1, Sector 29, Gurgaon
(Haryana) representing through General Manager, RITES
LIMITED acting for and on behalf of and as an Agent/
Power of Attorney Holder of Ramjas College, Delhi
hereinafter called the Employer (which expression shall,
wherever the context so demands or requires, include their
successors in office and assigns) on one part and M/s R. S.
Khanna & Sons, New Delhi hereinafter called the
Contractor (which expression shall wherever the context so
demands or requires, include his/ their successors and
assigns) of the other part.
WHEREAS the Employer is desirous that certain works
should be executed viz. Construction of New Academic
Block (Science Block) and Renovation of
Academic/Administrative/ Laboratory/Library Block at
Ramjas College, Delhi, and has by Letter of Acceptance
dated 31.01.2014 accepted a tender submitted by the
Contractor for the execution, completion, remedying of any
defects therein and maintenance of such works at a total
Contract Price of Rs. 14,39,29,150.74 (Rupees Fourteen
Crore Thirty Nine Lakh Twenty Nine Thousand One
Fiundred Fifty and Paisa Seventy Four only)‖
34. It is also pertinent to mention here that the RITES Ltd. signed the
agreement in the capacity of Agent/ Power of Attorney holder and for
and on behalf of Ramjas College, Delhi. Thus, the bare perusal of this
makes it clear that the respondent No. 1 had entered into the agreement
as an agent for and on behalf of Ramjas College, Delhi. Therefore, in
the present case without any exception it can be stated that the
Respondent No.2 is an principal and the Respondent No.1 is merely an
agent.
35. In this regard, reference can also be made to letter of acceptance dated
31.01.2014 issued to the petitioner by Respondent No.1 which has also
been signed by General Manager, CP, RITES Ltd. for an on behalf of
Ramjas College, Delhi. Thus, this makes it clear that the contractual
relationship was between the petitioner who performed the work and
the Respondent No.2 who awarded the work and termed as an
employer. The petitioner was only acting for and on behalf of the
disclosed principal namely the Ramjas College, Delhi.
36. It is pertinent to mention Section 226 and 230 of Indian Contract Act,
which are as under:
"226. Enforcement and consequences of agent's contract-
Contracts entered into through an agent, and obligations
arising from acts done by an agent, may be enforced in the
same manner, and will have the same legal consequences,
as if the contracts had been entered into and the acts done
by the principal in person.
230. Agent cannot personally enforce, nor be bound by,
contracts on behalf of principal.--
In the absence of any contact to that effect an agent cannot
personally enforce contracts entered into by him on behalf
of his principal, nor is he personally bound by them.
Presumption of contract to contrary.--
Such a contract shall be presumed to exist in the following
cases:--
(1) where the contract is made by an agent for the sale or
purchase of goods for a merchant resident abroad;
(2) where the agent does not disclose the name of his
principal;
(3) where the principal, though disclosed, cannot be sued. "
37. The perusal of this makes it clear that once there is a disclosed
principal, an agent incurs no liability and takes no benefit and both the
liability and benefit is only of the disclosed principal.
38. Thus Respondent No.2 even for a minute cannot take a plea that he
being a non-signatory is entitled to be deleted from the array of the
parties. The petitioner had performed the work for the Respondent
No.2.
39. Similar question arouse in RPP Construction (P) Ltd. Vs. RITES
LTd., (presently RPP Infra Project Ltd. vs. RITES Ltd.) in this case,
RPP Infra Project Ltd. (RIPL) had filed a petition under Section 11 of
the Arbitration and Conciliation Act for the appointment of an
arbitrator with a plea that RITES had entered into an agreement with
Sri Lankan Railways for upgradation of Colombo-Matara Coastal
Railway Line in the Democratic Republic of Sri Lanka. Pursuant to the
notice inviting tender, the work was awarded to the petitioner.
However, later on the dispute arose between the parties and the petition
was filed for appointment of an arbitrator. The petition was opposed by
RITES on two grounds that there was no contract between RIPL and
RITES since RITES had only acted as an agent of the "employer"
which was the Sri Lankan Railways and secondly, the dispute in
question was the international commercial arbitration.
40. The other issues raised were not considered by the co-ordinate bench of
this court as were in relation to the merits of the dispute. The co-
ordinate bench of this court after considering the arguments of both the
parties inter alia held as under:
―16. At the outset it is necessary to note that the tenders
were invited by RITES on behalf of Sri Lankan Railways.
The opening words of the notice inviting tenders clearly
indicated that tenders were invited by ―RITES LIMITED for
and on behalf of SRI LANKA RAILWAYS‖. The LOA dated
08.02.2010 also clearly indicated that RIPL‟s tender had
been accepted by the Competent Authority of RITES
LIMITED ―in its capacity as an Agent/Power of Attorney
Holder acting for and on behalf of Sri Lankan Railway‖.
17. The Agreement also clearly stated that the agreement
was entered into by RITES for and on behalf of Sri Lankan
Railways who was referred to as the ―employer‖. The
opening paragraph of the Agreement which describes the
parties thereto reads as under:-
―THIS AGREEMENT is made on 7th day of May Two
thousand Ten between RITES Ltd. a Government of
India Enterprise and a Company registered under
Companies Act, 1856 having its registered office at
SCOPE Minar, Laxmi Nagar, (Delhi) - 110092 and its
Corporate Office at RITES BHAWAN, Plot No.1,
Sector 29, Gurgaon (Haryana) representing through
General Manager, RITES LIMITED for and on behalf
of Sri Lankan Railways hereinafter called the
Employer (which expression shall, wherever the
context so demands or requires, include their
successors in office and assigns) on one part and M/s
R. P. P. Constructions (P) Ltd., P&C Tower, 3rd floor
No.140, Perundurai Road, Erode-638011, Tamil Nadu,
India hereinafter called the Contractor (which
expression shall wherever the context so demands or
requires, include his/their successors and assigns) of
the other part.‖
18. The Agreement was also signed by RITES ―in the
capacity of Agent and Power of Attorney Holder for and on
behalf of Sri Lankan Railways (The Employer)‖. It is
apparent from the above that RITES was not a party to the
Agreement and the Agreement was only between RIPL and
Sri Lankan Railways. Although, RITES had a significant
role to play in the execution of the works, the same was only
in its capacity as an Agent and a Power of Attorney Holder
of Sri Lankan Railways.
19. MrManoharan's contention that the present petition was
maintainable against RITES since RITES had sufficient
interest in the Agreement is difficult to accept. Undoubtedly,
RITES was responsible for conduct of certain business
including payment of bills raised by RIPL; however, even in
this regard, RITES was acting on behalf of the employer -
Sri Lankan Railways and not in any other capacity. RITES
was not liable to pay any consideration to RIPL in its
independent capacity and its obligations to do so were only
in its capacity as an agent of the Sri Lankan Railways.‖
41. Thus the facts in the present case are identical in nature. RITES Ltd.
had merely signed the contract as an agent / power of attorney for an on
behalf of Ramjas College, Delhi that is Respondent No. 2. Therefore,
Respondent No. 2 cannot abandon its liability merely be stating that it
is not signatory to the parties.
42. The petitioner has also referred to Clause-25(6) of the Agreement
which provides that in case of any claims by the contractor, the
employer as well as RITES Ltd. acting as Agent to the employer will
implead themselves as parties to the arbitration proceedings.
43. Similar clause came of consideration before the co-ordinate bench of
this court in aforementioned case M/s RPP Construction (P) Ltd. The
court inter alia held in view of this employer Sri Lankan Railways is a
necessary and proper party. Thus in the present case also, Ramjas
College is a necessary and proper party. However, in view of the
Clause-25(6) of the GCC the RITES acting as Agent to the employer
and Respondent No.2 will implead themselves as parties to the
arbitration proceedings.
44. Respondent No.2 has taken an objection and argued vehemently that
since the Clause-25 of the agreement has not been followed by the
petitioner, the present petition is premature and is liable to be
dismissed.
45. Clause 25 of the Agreement provides as under:
―Clause 25
Settlement of Disputes & Arbitration
Except where otherwise provided in the Contract all
questions and disputes relating to the meaning of the
specifications, design, drawings and instructions herein
before mentioned and as to the quality of workmanship or
materials used on the work or as to any other question,
claim, right, matter or thing whatsoever in any way arising
out of or relating to the Contract, designs, drawings,
specifications, estimates, instructions, orders or these
conditions or otherwise concerning the works or the
execution or failure to execute the same whether arising
during the progress of the work or after the cancellation,
termination, completion or abandonment thereof shall be
dealt with as mentioned hereinafter.
1) If the Contractor considers any work demanded of him to
be outside the requirements of the Contract, or disputes any
drawings, record or decision given in writing by the
Engineer on any matter in connection with or arising out of
the Contract or carrying out of the work, to be
unacceptable, he shall promptly within 15 days request the
Engineer-in-Charge in writing for written instruction or
decision. Thereupon, the Engineer-in-Charge shall give his
written instructions or decision within a period of one
month from the receipt of the Contractor's letter.
If the Engineer-in-Charge fails to give his instructions or
decision in writing within the aforesaid period or if the
Contractor is dissatisfied with the instructions or decision of
the Engineer-in-Charge, the Contractor may, within 15 days
of the receipt of the Engineer-in-Charge decision, appeal to
the Appellate Authority specified in Schedule ‗F' who shall
afford an opportunity to the Contractor to be heard, if the
later so desires, and to other evidence in support of his
appeal. The Appellate Authority shall give his decision
within 30 days of receipt of Contractor's appeal if the
Contractor is dissatisfied with this decision, the Contractor
shall within a period of 30 days from receipt of the decision,
give notice to the Appointing Authority specified in Schedule
F for appointment of arbitrator failing which the said
decision shall be final binding and conclusive and not
referable to adjudication by the arbitrator. 2) Except where
the decision has become final, binding and conclusive in
terms of sub para (1) above, disputes or difference shall be
referred for adjudication through arbitration by a sole
arbitrator appointed by the Appointing Authority. The
selection of Arbitrator by the Appointing Authority will be
governed by the fact whether the dispute is (1) between two
Public Sector Enterprises or () between a Public Sector
Enterprise and a Government Department or () Otherwise.
In case the dispute does not fall under item (i) or (ii) of this
para the Appointing Authority, shall appoint the sole
Arbitrator. Within 30 days of receipt of notice from the
Contractor to refer the dispute for Arbitration, the
Appointing Authority stipulated in Schedule F shall send to
the Contractor a list of three serving officers of RITES of
appropriate status depending on the total value of claim,
who have not been connected with the work under the
Contract. The Contractor shall, within 15 days of receipt of
this list select and then be appointed as the Sole Arbitrator.
If the Contractor falls to communicate his selection of name
within the stipulated period, the Appointing Authority shall
without delay, select one officer from the list and appoint
him as the Sole Arbitrator
3) In case the dispute falls under item (1) ar (1) of sub para
(2) above, the Appointing Authority shall refer the dispute
for Arbitration by one of the Arbitrators in the Department
of Public Enterprises to be nominated by the Secretary to
the Govt. of India in charge of the Department of Public
Enterprises. The Arbitration & Conciliation Act, 1996 shall
not be applicable to the Arbitration in such a case. The
Award of the Arbitrator shall be binding upon the parties to
the dispute, provided however that any party aggrieved by
such award may make a further reference for setting aside
or revision of the award to the Law Secretary, Department
of Legal Affairs, Ministry of Law & Justice, Govt. of India.
Upon such reference, the dispute shall be decided by the
Law Secretary or the Special Secretary/Additional Secretary
when so authorized by the Law Secretary, whose decision
shall bind the parties finally and conclusively. The parties to
the dispute will share equally the cost of Arbitration as
intimated by the Arbitrator. The Arbitrator shall make a
speaking Award and the Award may be published on plain
paper. In the event of the Sole Arbitrator dying, neglecting
or refusing to act or being unable to act for any reason, it
shall be lawful for the Secretary to the Govt. of India in
charge of the Department of Public Enterprises to nominate
another person in place of the outgoing Arbitrator to act as
Sole Arbitrator. The new Arbitrator as appointed shall as
far as practicable proceed from the stage where it was left
by the outgoing Arbitrator.
It is a term of this Contract that the party invoking
arbitration shall give a list of disputes with amount claimed
in respect of each such dispute along with the notice for
appointment of arbitrator and giving reference to the
rejection by the Appellate Authority of the appeal in the
form at Annexure F. It is a term of this Contract that
"Excepted matters or matters where the decision of the
Engineer in-Charge or any higher authority has been
stipulated as "Final and Binding in various Clauses of
Contract, stand specifically excluded from the purview of
Arbitration Clause.
It is also a term of this Contract that no person other than a
person appointed by such Appointing Authority as aforesaid
should act as arbitrator and it for any reason that is not
possible, the matter shall not be referred to arbitration at
all. It is also a term of this Contract that if the Contractor
does not make any demand for appointment of arbitrator in
respect of any claims in writing as aforesaid within 120
days of receiving the information from the Engineer-in-
Charge that the final bill is ready for payment, the claim of
the Contractor shall be deemed to have been waived and
absolutely barred and the Employer shall be discharged and
released of all liabilities under the Contract in respect of
these claims.
4) Obligation during pendency of arbitration
Work under the Contract shall unless otherwise directed by
the Engineer-in-Charge continue during the Arbitration
proceeding and no payment due or payable by the Employer
shall be withheld on account of such proceedings, provided
however, it shall be open for the Arbitrator to consider and
decide whether or not such work should continue during
arbitration proceedings.
5) Signing of "No Claim" certificate
The Contractor shall not be entitled to make any claim
whatsoever against the Employer under or by virtue of or
arising out of the Contract, nor shall the Employer entertain
or consider any such claim if made by the Contractor after
he shall have signed a ―No Claim Certificate‖ in favour of
the Employer in such form as stipulated by the Employer,
after the works are finally measured up. The Contractor
shall be debarred from disputing the correctness of any item
covered by the ―No Claim Certificate‖ or demanding a
reference to arbitration in respect thereof.
6) Parties to be impleaded in the arbitration proceedings In
case of any claims by the Contractor, the Employer as well
as RITES Ltd. acting as Agent to the Employer will implead
themselves as parties to the Arbitration Proceedings.
7) The arbitration shall be conducted in accordance with
the provisions of the Arbitration and Conciliation Act, 1996
(26 of 1996) or any statutory modifications or reenactment
thereof and the rules made there under and for the time
being in force shall apply to the arbitration proceeding
under this clause, except for cases failing under para 2(i) or
(ii).
8) It is also a term of this Contract that the arbitrator shall
adjudication on only such disputes as are referred to him by
the appointing authority and give separate award against
each dispute and claim referred to him and in all cases
where the total amount of the claims by any party exceeds
Rs.1,00,000/- the arbitrator shall give reasons for the
award.
9) It is also a term of the Contract that where the arbitral
award is for the payment of money, no interest shall be
payable on whole or any part of the money for any period
till the date on which the award is made.
10) It is also a term of this Contract that the arbitrator shall
indicate
i) the Award amount payable on the date of award
ii) the period within which it is to be paid and
iii) Simple rate of interest applicable beyond the stipulated
free period for making payment of award amount.
11) It is also a term of the Contract that if any fees are
payable to the arbitrator these shall be paid equally by both
the parties.
12) It is also a term of the Contract that the arbitrator shall
be deemed to have entered on the reference on the date he
issues notice to both the parties calling them to subject their
statement of claims and counter statement of claims. The
venue of the arbitration shall be such place as may be fixed
by the arbitrator in his sole discretion. The fees, if any, of
the arbitrator shall, if required to be paid before the award
is made and published, be paid half and half by each of the
parties. The cost of the reference and of the award
(including the fees, if any, of the arbitrator) shall be in the
discretion of the arbitrator who may direct to any by whom
and in what manner, such costs or any part thereof shall be
paid and fix or settle the amount of costs to be so paid.‖
46. Clause-25(1) provides basically 3 steps to be undertaken:
a. In case of any dispute, arising out of the contract or carrying out
of the work which not acceptable to the contract, the contract shall
promptly within 15 days request the Engineer-in-charge in writing
for written instruction or decision.
b. The Engineer-in-charge shall give his written instructions or
decision within a period of one month from the receipt of the
Contractor‟s letter.
c. If the Engineer-in-charge fails to give his instructions or decision
in writing within the aforesaid period or if the contractor is
dissatisfied with the instructions or decision of Engineer-in-
charge, the contractor may within 15 days of the Engineer-in-
charge decision appeal to the appellate authority. The appellate
authority shall afford an opportunity to the contractor to be heard,
if the later so desires, and offer evidence in support his appeal.
The appellate authority shall give his decision within 30 days of
the receipt of contractor‟s appeal.
d. If the contractor is dissatisfied with the decision. The contractor
shall within a period of 30 days from receipt of the decision give
notice to the appointing authority for appointment of an arbitrator.
47. Thus the petitioner was first required to give in writing within 15 days
of his grievances to the Engineer-in-charge. The Engineer-in-charge
was required to respond within one month an if the petitioner was not
satisfied with the same he was required to file an appeal with the
appellate authority within 15 days.
48. The plea of Respondent No.2 is that the petitioner has not exhausted
the remedies as provided in Clause-25(1). Similar, Clause-25 came up
for consideration before this court in Sushil Kumar Bhardwaj Vs.
Union Of India 2009 SCC OnLine Del 4355. The court on the basis of
clause framed the following questions:
a. Whether the procedure prescribed in sub Clause. (i) of clause 25 is
applicable to all disputes or to only the matters of the contractor
being required to do any work considered by him to be outside the
contract or where the contractor disputes any drawing, record or
decision given in writing only.
b. Whether the procedure prescribed in sub clause (i) is mandatory or
directory.
c. Whether the designate of the Chief Justice under Section 11(6) of
the Arbitration Act, 1996 is empowered to appoint an arbitrator if
the procedure prescribed in sub-clause (i) is not followed.
49. The court while replying to the Question-A inter alia held as under:
―7. Not only is the language wide enough as aforesaid to
cover all disputes, I also do not find any rationale in
providing the aforesaid procedure for only some and not all
disputes. The parties, in the making of contract, while
interpreting the same, are expected to have been guided by
reason, rather than having acted irrationally. Yet another
reason for me to hold so, is that if procedure prescribed in
sub-clause (i) is held to apply to some only and not all
disputes, it will add another tier of conflict between the
parties, leading to further delays in disposal of applications
under Section 11(6) of the Act.
8. The aforesaid procedure has been prescribed so that
before the parties resort to lengthy/costly arbitration, there
is ample opportunity to the MCD to, if finds any merit in the
claims of the contractor, to settle the same. The parties are
perfectly within their right to provide for such a procedure.
A public body as the MCD, in the discharge of its functions
is dependent upon its officials and since such bodies are the
largest employers for such works, and the value whereof
may vary to a large extent, the intent seems to be that even if
the engineer-in-charge or the superintending engineer for
any reason whatsoever out of any differences with the
contractor, have not acted reasonably, there is full
opportunity at all levels for amicable settlement of the
claims. The clause is also intended to prevent a contractor
from without inviting the attention of the engineer-in-charge
and/or superintending engineer approaching the chief
engineer who may otherwise not be in know of all the facts,
to appoint the arbitrator. Once the aforesaid procedure has
been followed, the Chief Engineer, before appointing the
arbitrator would have the reasons of the engineer-in-charge
and the superintending engineer before him and would also
be entitled to, if he still finds merit in the claims of the
contractor, to settle the same without resorting to
arbitration.
9. Sub clause (ii) does not use the word "other disputes" so
as to apply the same to any dispute other than that defined
in sub clause (i). In fact sub clause (i) ends with a notice for
appointment of arbitrator being required to be given and
sub clause (ii) is in continuation of the said procedure by
providing for appointment of arbitrator. The purpose seems
to be that there should be due application of mind by the
expert body of the public body before the contractor is
compelled to take recourse to the arbitration proceedings. -
Conversely, the possibility of the contractor being satisfied
by the reasoning given by successive officials and hence not
insisting on arbitration, cannot also be ruled out. Most of
such contractors have several such projects with such
public bodies and may be convinced/satisfied with the
hearing of their grievance by higher officials. I would thus
respectfully agree with Concrete India (supra), particularly
when ihere, does not appear to be much discussion on this
aspect in the latter judgment. The question No. 1 is thus
answered to the effect that the procedure of inviting the
decision in writing on any claim/dispute, of approaching the
superintending engineer and thereafter the chief engineer
for decision on the dispute is to be exhausted before the
chief engineer can be approached for appointment of the
arbitrator. ‖
50. In respect of Question-B the court has inter alia held as under:
―10. In Saraswati Construction Co. v. East Delhi Coop.
Group Housing Society Ltd. (1995) 57 DLT 343 decided
under the 1940 Act and refied upon by counsel for
petitioners, a view was taken that such procedure as in
clause 25 is directory and not mandatory and a petition to
the court for appointment of arbitrator cannot be defeated
for the reason of the procedure having not been exhausted.
It was held that once an arbitration clause is found, the
court necessarily has to appoint the arbitrator. But I find
that there is a marked shift in the provision qua filing of
application in the court for appointment of the arbitrator, in
the 1996 Act from the 1940 Act.
11. Under Section 20 of the 1940 Act any party to an
arbitration agreement, instead of following the procedure
prescribed in Chapter II thereof i.e., of themselves
appointing an arbitrator, could apply to the court for having
the arbitrator appointed by the court. Thus, under Section
20 of the 1940 Act, the party had a choice of either
themselves appointing an arbitrator or straightway
approach the court for appointment of the arbitrator. All
that the court was required to see in a petition under section
20 - was as to whether there was an agreement of
appointment of arbitrator. The court was not, required to
see whether the party had attempted constitution of arbitral
tribunal. themselves as per procedure prescribed in Chapter
II and/or whether the parties were unable to do so. It was in
the aforesaid state of law that it was held that the agreed
procedure for appointment was directory and not
mandatory.
12. Per contra, under Section 11 of the 1996 Act, the
designate of the Chief Justice can be approached for
appointment of an arbitrator only where a party has failed
to act as required under the agreed procedure and/or where
a person or an institution has failed to perform any function
entrusted to him/it under that procedure. Thus, the parties
now under the 1996 Act do not have a choice of either,
attempt appointment of the arbitral Tribunal themselves or
at least take steps therefor or approaching the court directly
but are now before approaching the court required to first
exhaust the agreed procedure or the procedure prescribed
by law. Without the same being done, there would be no
cause of action for approaching the designate of the Chief
Justice. I may in this regard also refer to the judgments
relied upon by the counsel for the Government of NCT of
Delhi.
13. In The Iron & Steel Co. Ltd. v. Tiwari Road Lines
(2007) 5 SCC 703: AIR 2007 SC 2064 it was held that in the
matter of settlement of dispute the agreement executed by
the parties has to be given great importance and an agreed
procedure for appointing the arbitrator has been placed on
high pedestal and has to be given --- preference to any other
mode for securing appointment of an arbitrator. Similarly in
Municipal Corp, Jabalpur v. Rajesh Construction Co.
(2007) 2 Arb LR 65 (SC), the agreement required furnishing
security before demanding constitution of Arbitral Tribunal,
the Apex Court held that the obligation of corporation to
constitute an - Arbitration Board to resolve disputes could
not arise because of failure of applicant to furnish security
and the designate of the Chief Justice of the High was held
to be in error in appointing an independent arbitrator. The
Kerala High Court also in Bel House Associates Pvt. Ltd. v.
General Manager Southern Railway AIR 2001 Ker 163 and
NirmanSindia v. IndalElectromelts Ltd. AIR 1999 Ker 440
held that where agreement stipulated reference to
arbitration to be proceeded by a decision by the Engineer
and a challenge to that decision before the adjudicator,
without resorting to those essential or preceding steps for
arbitration or waiver thereof, the agreement prohibited
either party from enforcing the arbitration clause; the
application under Section 11(6) was held to be premature.
14. The counsel for the petitioners relied upon Kailash v.
Nankhe (2005) 4 SCC 480 in paragraphs 28 to 30 whereof
it has been emphasized "procedure are the handmade of
justice". Reliance was also placed on Hindustan Petroleum
Corpa v. Pinkcity Midway Petroleums (2003) 6 SCC 503 to
urge that in cases where there is an arbitration clause in the
agreement, it is obligatory for the court to refer parties to
arbitration. However, neither of the said judgments is on the
controversy before this court. There is a definite purpose, as
aforesaid in the agreement providing for steps to be taken
before resorting to arbitration and such agreement ought
not to be interfered with specially when Section 11(6) also
provides cause of action only after such agreement has been
followed.
15. There is yet another aspect of the matter. The 1940 Act
deals with arbitration only. Per contra, the 1996 Act gives
legal recognition to conciliation and the two are not
repugnant to each other. The steps preceding arbitration
are to encourage conciliation and the designate of the Chief
Justice ought to encourage such mechanism for conciliation
agreed upon by the parties.
16. The second question is also thus answered to the effect
that the procedure prescribed is mandatory and not
directory.‖
51. In respect of Question-C the court has inter alia held as under:
―17. Axiomatically this question has to be answered to the
effect that following the agreed procedure being mandatory,
in the absence of an averment or a pleading to the effect
that the agreed procedure or the procedure prescribed in
law has been followed, there would be no option but to
reject the application under Section -11(6) of the Act as
without cause of action and/or premature.
18. In this regard I may also notice a recent judgment of the
Apex Court in P Manohar Reddy v. Maharashtra Krishna
Valley Development Corp., (2009) 2 SCC 494 giving
supremacy to contractual terms in arbitration. Arbitration is
a feature of an agreement and in arbitration matters the
agreement is supreme and cannot be given a go-bye by the
parties, especially when it is found to be in the interest of
the parties and to have been inserted with a view to avoid
unnecessary arbitrations in matters in which the higher
authorities find a possibility of settlement.‖
52. Thus a similar clause 25 of the GCC came up for examination before
the co-ordinate bench of this court in M/s Chhabra Associates vs. M/s
HSCC India Limited &Anr. in ARB. P. 782/2022.Wherein the co-
ordinate bench of this court followed the view taken Sushil Kumar
Bhardwaj (Supra) and dismissed the petition as premature.
53. The issue in the present case is squarely covered in Sushi Kumar
Bhardwaj (Supra) and M/s Chhabra Associates vs. M/s HSCC India
Limited &Anr. in ARB. P. 782/2022. and there is no reason for this
court to have any further discussion on the matter. Thus the petitioner
having not exhausted the remedies as provided in clause-25, the present
petition is liable to be dismissed being premature.
DINESH KUMAR SHARMA, J
JANUARY 29, 2024/AR/SJ/HT..
