# UNION OF INDIA v. PARMAR CONSTRUCTION COMPANY

- **Citation:** [2019] 5 S.C.R. 1009
- **Court:** Supreme Court of India
- **Decided:** 2019-03-29
- **Case number:** Civil Appeal No. 3303 of 2019
- **Bench:** A. M. Khanwilkar, Ajay Rastogi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-v-parmar-construction-company-33740
- **Pages:** 37

## Headnote

Arbitration and Conciliation Act, 1996: s. 11(6) - Work
contract - Dispute between the parties - In view of arbitration clause
in the agreement, notice sent by respondent contractor to appellant
to appoint an arbitrator invoking clause of the contract to resolve
the dispute of payment of outstanding dues - Rejected by the
appellants submitting that "No Due Certificate" was signed and
that entails no dispute to be sent to arbitration - Subsequently,
application u/s. 11(6) by the respondent before the High Court for
appointment of independent arbitrator - High Court appointed a
retired judge of the High Court as an independent Arbitrator - On
appeal, held: Emphasis should be on the agreed terms and to first
resort to the procedure as prescribed and open for the parties to
the agreement to settle differences/disputes arising under the terms
of the contract through appointment of a designated arbitrator -
Independence and impartiality of the arbitrator has never been
doubted but where it is in doubt or where the arbitral tribunal
appointed in terms of the arbitration agreement has not functioned,
or has failed to conclude the proceedings or to pass an award
without assigning any reason, it becomes necessary to make a fresh
appointment - On facts, notice sent by respondent much prior to
enforcement of the Amendment Act, 2015, thus, the provisions of
the Act of 2015 not applicable - High Court was not justified in
appointing an independent arbitrator without resorting to the
procedure for appointment of an arbitrator prescribed under the
clause of the contract under the inbuilt mechanism as agreed by the
parties - Orders passed by the High Court quashed and set aside -
Appellants directed to appoint the arbitrator in terms of the
agreement - Arbitration and Conciliation(Amendment Act), 2015.
[2019] 5 S.C.R. 1009
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Disposing of the appeals, the Court
HELD: 1.1 As per clause 43(2) of the Contract, the
contractor signs a "No claim" certificate in favour of the railway
in the prescribed format after the work is finally measured up
and the contractor shall be debarred from disputing the
correctness of the items covered under the "No Claim" certificate
or demanding a clearance to arbitration in respect thereof. Each
of the respondent has to attach no claim certificate with final bills
in the prescribed format to be furnished in advance before the
final bills are being examined and measured by the railway
authorities. Although it has been seriously disputed by the
appellants but that is the reason for which even after furnishing
no claim certificate with the final bills being raised, it came to be
questioned by the respondent(contractor) by filing an application
to refer the matter to arbitration invoking clause 64(3) of the
conditions of contract as agreed by the parties. Under clause 64(1),
if there is any dispute or difference between the parties hitherto
as to the construction or operation of the contract, or the
respective rights and liabilities of the parties on any matter in
question or any other ancillary disputes arising from the terms of
the contract or if the railway establishment fails to take a decision
within the stipulated period and the dispute could not be amicably
settled, such dispute or difference is to be referred to arbitration
and who shall arbitrate such disputes/differences between the
parties, the General Manager may nominate the officer by
designation as referred to under clause 64(3)(a)(i) and a(ii)
respectively with further procedure being prescribed for the sole
arbitrator or the Arbitral Tribunal to adjudicate the disputes/
differences arising under the terms of contract between the
parties. [Paras 20, 21][1025-G-H; 1026-A-E]
1.2 The conjoint reading of Section 21 read with Section 26
leaves no manner of doubt that the provisions of the Amendment
Act, 2015 shall not apply to such of the arbitral proceedings which
has commenced in terms of the pro

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UNION OF INDIA
v.
PARMAR CONSTRUCTION COMPANY
(Civil Appeal No. 3303 of 2019)
MARCH 29, 2019
[A. M. KHANWILKAR AND AJAY RASTOGI, JJ.]
Arbitration and Conciliation Act, 1996: s. 11(6) - Work
contract - Dispute between the parties - In view of arbitration clause
in the agreement, notice sent by respondent contractor to appellant
to appoint an arbitrator invoking clause of the contract to resolve
the dispute of payment of outstanding dues - Rejected by the
appellants submitting that "No Due Certificate" was signed and
that entails no dispute to be sent to arbitration - Subsequently,
application u/s. 11(6) by the respondent before the High Court for
appointment of independent arbitrator - High Court appointed a
retired judge of the High Court as an independent Arbitrator - On
appeal, held: Emphasis should be on the agreed terms and to first
resort to the procedure as prescribed and open for the parties to
the agreement to settle differences/disputes arising under the terms
of the contract through appointment of a designated arbitrator -
Independence and impartiality of the arbitrator has never been
doubted but where it is in doubt or where the arbitral tribunal
appointed in terms of the arbitration agreement has not functioned,
or has failed to conclude the proceedings or to pass an award
without assigning any reason, it becomes necessary to make a fresh
appointment - On facts, notice sent by respondent much prior to
enforcement of the Amendment Act, 2015, thus, the provisions of
the Act of 2015 not applicable - High Court was not justified in
appointing an independent arbitrator without resorting to the
procedure for appointment of an arbitrator prescribed under the
clause of the contract under the inbuilt mechanism as agreed by the
parties - Orders passed by the High Court quashed and set aside -
Appellants directed to appoint the arbitrator in terms of the
agreement - Arbitration and Conciliation(Amendment Act), 2015.
[2019] 5 S.C.R. 1009
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Disposing of the appeals, the Court
HELD: 1.1 As per clause 43(2) of the Contract, the
contractor signs a "No claim" certificate in favour of the railway
in the prescribed format after the work is finally measured up
and the contractor shall be debarred from disputing the
correctness of the items covered under the "No Claim" certificate
or demanding a clearance to arbitration in respect thereof. Each
of the respondent has to attach no claim certificate with final bills
in the prescribed format to be furnished in advance before the
final bills are being examined and measured by the railway
authorities. Although it has been seriously disputed by the
appellants but that is the reason for which even after furnishing
no claim certificate with the final bills being raised, it came to be
questioned by the respondent(contractor) by filing an application
to refer the matter to arbitration invoking clause 64(3) of the
conditions of contract as agreed by the parties. Under clause 64(1),
if there is any dispute or difference between the parties hitherto
as to the construction or operation of the contract, or the
respective rights and liabilities of the parties on any matter in
question or any other ancillary disputes arising from the terms of
the contract or if the railway establishment fails to take a decision
within the stipulated period and the dispute could not be amicably
settled, such dispute or difference is to be referred to arbitration
and who shall arbitrate such disputes/differences between the
parties, the General Manager may nominate the officer by
designation as referred to under clause 64(3)(a)(i) and a(ii)
respectively with further procedure being prescribed for the sole
arbitrator or the Arbitral Tribunal to adjudicate the disputes/
differences arising under the terms of contract between the
parties. [Paras 20, 21][1025-G-H; 1026-A-E]
1.2 The conjoint reading of Section 21 read with Section 26
leaves no manner of doubt that the provisions of the Amendment
Act, 2015 shall not apply to such of the arbitral proceedings which
has commenced in terms of the provisions of Section 21 of the
Principal Act unless the parties otherwise agree. The Amendment
Act, 2015 which came into force, i.e. on 23.10.2015, shall not
apply to the arbitral proceedings which has commenced in
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accordance with the provisions of Section 21 of the Principal Act,
1996 before the coming into force of Amendment Act, 2015,
unless the parties otherwise agree. [Paras 25, 26][1027-E;
1029-C-D]
1.3 In the instant case, the request was made and received
by the appellants in the concerned appeal much before the
Amendment Act, 2015 came into force. Whether the application
was pending for appointment of an arbitrator or in the case of
rejection because of no claim as in the instant case for
appointment of an arbitrator including change/substitution of
arbitrator, would not be of any legal effect for invoking the
provisions of Amendment Act, 2015, in terms of Section 21 of
the principal Act, 1996. The applications/requests made by the
respondent contractors deserves to be examined in accordance
with the principal Act, 1996 without taking resort to the
Amendment Act, 2015 which came into force from 23rd October,
2015. [Para 27][1029-D-F]
1.4 There cannot be a rule of absolute kind and each case
has to be looked into on its own facts and circumstances. At the
same time, this Court cannot be oblivious of the ground realities
that where a petty/small contractor has made investments from
his available resources in executing the works contract and bills
have been raised for the escalation cost incurred by him and the
railway establishments/appellants without any justification reduces
the claim unilaterally and take a defence of the no claim certificate
being furnished which as alleged by the respondents to be
furnished at the time of furnishing the final bills in the prescribed
format. [Para 33][1033-C-E]
1.5 The respondents are the contractors and attached with
the railway establishment in the instant batch of appeals are
claiming either refund of security deposits/bank guarantee, which
has been forfeited or the escalation cost has been reduced from
final invoices unilaterally without tendering any justification. It is
manifest from the pleadings on record that the respondent
contractors who entered into contract for construction works with
the railway establishment cannot afford to take any displeasure
from the employer, the amount under the bills for various reasons
UNION OF INDIA v. PARMAR CONSTRUCTION COMPANY
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which may include discharge of his liability towards the bank,
financial institutions and other persons, indeed the railway
establishment has a upper hand. A rebutable presumption could
be drawn that when a no claim has been furnished in the prescribed
format at the time of final bills being raised with unilateral
deductions made even that acceptable amount will not be released,
unless no claim certificate is being attached to the final bills. The
arbitral dispute subsists and the contract has not been discharged
as being claimed by the appellants employer(s) and all the
contentions in this regard are open to be examined in the arbitral
proceedings.[Para 35][1037-D-G; 1038-A-B]
1.6 Clause (c) of sub-section (6) of Section 11 relates to
failure to perform any function entrusted to a person including an
institution and also failure to act under the procedure agreed
upon by the parties. In other words, clause(a) refers to the party
failing to act as required under that procedure; clause(b) refers
to the agreement where the parties fails to reach to an agreement
expected of them under that procedure and clause (c ) relates to
a person which may not be a party to the agreement but has given
his consent to the agreement and what further transpires is that
before any other alternative is resorted to, agreed procedure
has to be given its precedence and the terms of the agreement
has to be given its due effect as agreed by the parties to the
extent possible. The corrective measures have to be taken first
and the Court is the last resort. By appointing an arbitrator in
terms of sub-section (8) of Section 11 of Act, 1996, due regard
has to be given to the qualification required for the arbitrator by
the agreement of the parties and also the other considerations
such as to secure an independent and impartial arbitrator. To
fulfil the object with terms and conditions which are cumulative
in nature, it is advisable for the Court to ensure that the remedy
provided as agreed between the parties in terms of the contract
is first exhausted. [Para 38][1039-A-E]
1.7 It is the duty of the Court to act on the agreed terms
and to first resort to the procedure as prescribed and open for
the parties to the agreement to settle differences/disputes arising
under the terms of the contract through appointment of a
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designated arbitrator although the name in the arbitration
agreement is not mandatory or must but emphasis should always
be on the terms of the arbitration agreement to be adhered to or
given effect as closely as possible. [Para 41][1043-D-E]
1.8 Independence and impartiality of the arbitrator has never
been doubted but where the impartiality of the arbitrator in terms
of the arbitration agreement is in doubt or where the Arbitral
Tribunal appointed in terms of the arbitration agreement has not
functioned, or has failed to conclude the proceedings or to pass
an award without assigning any reason and it became necessary
to make a fresh appointment, Chief Justice or his designate in
the given circumstances after assigning cogent reasons in
appropriate cases may resort to an alternative arrangement to
give effect to the appointment of independent arbitrator under
Section 11(6) of the Act. [Para 43][1044-B-D]
1.9 The High Court was not justified in appointing an
independent arbitrator without resorting to the procedure for
appointment of an arbitrator which has been prescribed under
clause 64(3) of the contract under the inbuilt mechanism as agreed
by the parties. The orders passed by the High Court are quashed
and set aside. The appellants are directed to appoint the arbitrator
in terms of clause 64(3) of the agreement within the stipulated
period. [Paras 44, 45][1045-B-C]
M/s. Aravali Power Company Private Limited Vs. Era
Infrastructure Engineering Limited (2017) 15 SCC 32;
S.P. Singla Constructions Pvt. Ltd. v. State of Himachal
Pradesh and Others 2018(15) SCALE 421; Union of
India and Others v. Master Construction Company
(2011) 12 SCC 349 : [2011] 5 SCR 853; New India
Assurance Company Limited v. Genus Power
Infrastructure Ltd. (2015) 2 SCC 424 : [2014] 12 SCR
360 ; ONGC Mangalore Petrochemicals Limited v. ANS
Constructions Limited and Anr.
(2018) 3 SCC 373 :
[2018] 2 SCR 598; Union of India & Another v. M.P.
Gupta (2004) 1) SCC 504; Union of India & Another
v. V. S. Engineering(P) Ltd. (2006) 13 SCC 240 : [2006]
UNION OF INDIA v. PARMAR CONSTRUCTION COMPANY
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9 Suppl. SCR 125; Northern Railway Administration,
Ministry of Railway, New Delhi v. Patel Engineering
Co. Limited (2008) 10 SCC 240 : [2008] 12 SCR 216;
Union of India v. Singh Builders Syndicate
(2009) 4
SCC 523: [2009] 3 SCR 563; National Insurance
Company Limited v. Boghara Polyfab Private Limited
(2009) 1 SCC 267: [2008] 13 SCR 638; Datar
Switchgears Ltd. v. Tata Finance Ltd. and Another
(2000) 8 SCC 151; Punj Lloyd Ltd. v. Petronet MHB
Ltd. (2006) 2 SCC 638; Union of India v. Bharat Battery
Manufacturing Co. (P) Ltd. (2007) 7 SCC 684 : [2007]
8 SCR 993; North Eastern Railway and Others v. Tripple
Engineering Works (2014) 9 SCC 288 : [2014] 6 SCR
1143; Union of India and Others v. Uttar Pradesh State
Bridge Corporation Limited (2015) 2 SCC 52; Union
of India v. Kishorilal Gupta & Bros. AIR 1959 SC
1362 : [1960] SCR 493; P.K. Ramaiah & Co. v.
Chairman and Managing Director, National Thermal
Power Corpn. (1994) 3 Suppl. SCC 126; State of
Maharashtra v. Nav Bharat Builders (1994) 3 Suppl.
SCC 83; Nathani Steels Limited v. Associated
Constructions (1995) 3 Suppl. SCC 324; Damodar
Valley Corporation v. KK Kar
(1974) 1 SCC 141 :
[1974] 2 SCR 240; Bharat Heavy Electricals Limited
Ranipur v. Amarnath Bhan Prakash (1982) 1 SCC 625;
Union of India and Anr. v. L.K. Ahuja and Co. (1988) 3
SCC 76 : [1988] 3 SCR 402 ; Jayesh Engineering Works
v. New India Assurance Co. Ltd. (2000) 10 SCC 178 ;
Chairman and MD, NTPC Ltd. v. Reshmi Constructions
Builders & Contractors (2004) 2 SCC 663 : [2004] 1
SCR 62 - referred to.
Case Law Reference
(2017) 15 SCC 32 referred to
Para 8
2018 (15) SCALE 421 referred to
Para 8
[2011] 5 SCR 853
 referred to
Para 9
[2014] 12 SCR 360
 referred to
Para 9
[2018] 2 SCR 598
 referred to
Para 9
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(2004) 10 SCC 504
 referred to
Para 10
[2006] 9 Suppl. SCR 125 referred to
Para 10
[2008] 12 SCR 216
 referred to
Para 10
[2009] 3 SCR 563
 referred to
Para 10
[2008] 13 SCR 638
 referred to
Para 13
(2000) 8 SCC 151
 referred to
Para 14
(2006) 2 SCC 638
 referred to
Para 14
[2007] 8 SCR 993
 referred to
Para 14
[2014] 6 SCR 1143
 referred to
Para 15
(2015) 2 SCC 52
 referred to
Para 15
[1960] SCR 493
 referred to
Para 29
[1994] 3 Suppl. SCC 126 referred to
Para 29
[1994] 3 Suppl. SCC 83 referred to
Para 29
[1995] 3 Suppl. SCC 324 referred to
Para 29
[1974] 2 SCR 240
 referred to
Para 29
(1982) 1 SCC 625
 referred to
Para 29
[1988] 3 SCR 402
 referred to
Para 29
(2000) 10 SCC 178
 referred to
Para 29
[2004] 1 SCR 62
 referred to
Para 29
CIVIL APPELLATE JURISDICTION: Civil Appeal No.3303 of
2019
From the Judgment and Order dated 14.07.2017 of the High Court
of Rajasthan, Jaipur Bench in S.B.Civil Miscellaneous Application
(Arbitration) No. 14 of 2015
With
Civil Appeal Nos. 3304, 3305, 3306, 3307, 3308, 3309, 3310, 3311,
3312, 3313, 3319, 3314, 3315, 3316, 3317 and 3318 of 2019.
UNION OF INDIA v. PARMAR CONSTRUCTION COMPANY
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K. M. Natarajan, ASG, Ashok K. Srivastava, R. Balasubramanian,
Ms. Shradha Deshmukh, Raj Bahadur, Kisan Bhardwaz, Mrs. Anil
Katiyar, Sameer Jain, Abhinav Shrivastava, Suvigya Awasthy, Karan
Valecha, Rahul Gupta, Ms. Sana Kamra, Vishwa Pal Singh, Surjeet Singh,
Ronak, Manendra Pal Gupta, S. K. Bhattacharya, L. K. Paonam,
Mrs. Tomthinnganbi Koijam, Niraj Bobby Paonam, Nitin Kumar Thakur,
Miss Geetanjali Mohan, E. C. Vidya Sagar, Subash Chandra Sagar, Advs.
for the appearing parties.
The Judgment of the Court was delivered by
RASTOGI, J. 1. Leave granted.
2. The question that arises for consideration in the batch of appeals
by special leave is as to whether (1) the High Court was justified in
invoking amended provision which has been introduced by Arbitration
and Conciliation(Amendment Act), 2015 with effect from 23rd October,
2015(hereinafter being referred to as "Amendment Act, 2015"); (2)
whether the arbitration agreement stands discharged on acceptance of
the amount and signing no claim/discharge certificate and (3) whether it
was permissible for the High Court under Section 11(6) of the Arbitration
and Conciliation Act, 1996(prior to the Amendment Act, 2015) to appoint
third party or an independent Arbitrator when the parties have mutually
agreed for the procedure vis-à-vis the authority to appoint the designated
arbitrator. The High Court has passed separate orders in exercise of its
powers under Section 11(6) of the Act, 1996 in appointing an independent
arbitrator without adhering to the mutually agreed procedure under the
agreement executed between the parties. Since the batch of appeals
involve common questions of law and facts with the consent of parties,
are disposed off by the present judgment.
3. The facts have been noticed from civil appeal arising out of
SLP(Civil) no. 2166 of 2018.
4. The work for construction of office accommodation for officer
and rest house was allotted to the respondent contractor, at Dungarpur
in the State of Rajasthan on 21st December, 2011. As alleged, the
extension was granted by the appellants to complete the work by
31st March, 2013. The measurement was accepted by the respondent
under protest and when appellants officials failed to clear 7th final bill
until the respondent put a line over "under protest" and signed no claim
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certificate. The total value of the work executed was of Rs. 58.60 lakhs
against which Rs. 55.54 lakhs was paid and escalation cost was not
added with interest @ 18% over delay payment. Demand notice was
sent to the appellants to appoint an arbitrator invoking Clause 64(3) of
the GCC to resolve the disputes/differences on 23rd December, 2013.
When the appellants failed to appoint the arbitrator in terms of Clause
64(3), application came to be filed under Section 11(6) of the Act, 1996
before the Chief Justice/his Designate for appointment of an independent
arbitrator who after hearing the parties under the impugned judgment
allowed the application of the respondent and appointed a retired judge
of the High Court as an independent arbitrator to arbitrate the proceedings.
5. In the instant batch of appeals, one fact is common that the
orders were placed for various nature of construction works for its
execution and the agreement executed between the parties includes a
separate chapter for settlement of disputes leaving any dispute or
difference between the parties to be resolved through the process of
arbitration by appointing an arbitrator invoking clause 64(3) of the contract.
As per terms of the agreement, date of completion of the project was
delayed as alleged due to breach of obligations by the appellants and the
scheduled date of completion had to be extended. Meanwhile, due to
rise in the prices of raw material, the project was impossible to be
completed by the respondent contractors and hence correspondence
was made to either pay the escalated price or in the absence, the
respondents would not be in a position to conclude the contract. It was
alleged that the appellants accepted the terms and conditions for escalated
prices and asked the respondents to complete the work and handover
the project.
6. But when the respondents raised the final bills in the predetermined format (which also included the no dues certificate) on the
newly agreed prices, dispute has arisen in context of payment of escalated
prices or withholding of security deposits, taking note of the existence of
arbitration clause in the agreement the respondents sent a notice to appoint
an arbitrator as per clause 64(3) of GCC to resolve the dispute of payment
of outstanding dues which was declined by the appellants by sending the
reply that "No Due Certificate" was signed and that entails no dispute to
be sent to arbitration. Since the appellants failed to appoint the arbitrator
in accordance with the arbitration clause in the agreement, each of the
UNION OF INDIA v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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respondent filed application under Section 11(6) of the Act before the
High Court for appointment of an independent arbitrator and the primary
objection of the appellants before the High Court was that on furnishing
the no claim certificate by the contractor, no dispute subsists which is to
be sent to the arbitrator and further the claims which has been submitted
were beyond time as prescribed in the agreement and thus falls under
the 'excepted matter' in the agreement.
7. After the matter being heard, the application for appointment
of arbitrator under Section 11(6) of the Act, 1996 came to be decided by
the High Court of Rajasthan by separate order(s) keeping in view the
independence and neutrality of arbitrator as envisaged under Section
12(5) of the Amendment Act, 2015. The High Court further observed
that the amended provisions of Act, 2015 shall apply to the pending
proceedings and mere furnishing of no claim certificate would not take
away the right of the parties and it is open for adjudication before the
arbitrator and appointed a retired Judge of the High Court as an
independent sole arbitrator under the impugned judgment in exercise of
power under Section 11(6) of the Act, 1996. Indisputedly, the request
for the dispute to be referred to arbitration in the instant batch of appeals
was received by the appellants much before the Amendment Act, 2015
came into force (i.e. 23rd October, 2015).
8. Mr. K.M. Natarajan, learned Additional Solicitor General
appearing for the appellants submits that Section 12 including sub-sections
(1) and (5) as also Fifth and Seventh Schedule, has come into force by
the Amendment Act, 2015 w.e.f. 23rd October, 2015 and indisputedly, in
the instant batch of appeals, request to refer to the arbitration was received
by the appellants much prior to the Amendment Act, 2015. In view of
Section 21 read with Section 26 of the Amendment Act, 2015 where the
request has been sent to refer the dispute to arbitration and received by
the other side before the amendment Act, 2015 has come into force, the
proceedings will commence in accordance with the pre-amended
provisions of the Act, 1996 and in the given circumstances, apparent
error has been committed by invoking Section 12(5) of the Amendment
Act, 2015 for appointment of an independent arbitrator without resorting
to the clause 64(3) of GCC as agreed by the parties and in support of
submission, learned counsel has placed reliance on the decision of this
Court in the case of M/s. Aravali Power Company Private Limited
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Vs. Era Infrastructure Engineering Limited 2017(15) SCC 32 and
S.P. Singla Constructions Pvt. Ltd. Vs. State of Himachal Pradesh
and Others 2018(15) Scale 421.
9. Learned counsel further submits that once the no claim
certificate has been signed by each of the respondent and after settlement
of the final bills, no arbitral dispute subsists and the contract stands
discharged and they cannot be permitted to urge that they gave the no
claim certificate under any kind of financial duress/undue influence and
even in support thereof, no prima facie evidence has been placed on
record. In the given circumstances, the appointment of an independent
arbitrator by the High Court under Section 11(6) of the Act, 1996 is not
sustainable and in support of submission, learned counsel has placed
reliance on the decisions of this Court in Union of India and Others
Vs. Master Construction Company 2011(12) SCC 349; New India
Assurance Company Limited Vs. Genus Power Infrastructure Ltd.
2015(2) SCC 424; ONGC Mangalore Petrochemicals Limited Vs.
ANS Constructions Limited and Anr. 2018(3) SCC 373.
10. Learned counsel further submits that none of the respondents
had made any allegation of bias to the arbitrator who was likely to be
appointed by the railways in terms of the agreement. The said issue
would have cropped up only when the appointment of arbitrator was
made by the railways. It was required in the first instance to make every
possible attempt to respect the agreement agreed upon by the parties in
appointing an arbitrator to settle the disputes/differences and only when
there are allegations of bias or malafide, or the appointed arbitrator has
miserably failed to discharge its obligation in submitting the award, the
Court is required to examine those aspects and to record a finding as to
whether there is any requirement in default to appoint an independent
arbitrator invoking Section 11(6) of the Act, 1996 and in support of
submission, learned counsel has placed reliance on the decision of this
Court in Union of India & Another Vs. M.P. Gupta 2004(10) SCC
504, Union of India & Another Vs. V.S. Engineering(P) Ltd.2006(13)
SCC 240, Northern Railway Administration, Ministry of Railway,
New Delhi Vs. Patel Engineering Co. Limited 2008(10) SCC 240,
Union of India Vs. Singh Builders Syndicate 2009(4) SCC 523.
11. Learned counsel further submits that as indicated in clause
64(7) of the GCC, all statutory modifications thereof will be binding to
UNION OF INDIA v. PARMAR CONSTRUCTION COMPANY
[AJAY RASTOGI, J.]
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the arbitration proceedings and after promulgation of the Arbitration and
Conciliation (Amendment) Act, 2015, clause 64(7) stood amended to
fulfil the mandate of Amendment Act, 2015 and it was clarified that all
statutory modifications thereof shall apply to the appointment of arbitrator
and arbitration proceedings and the respondents being signatory to the
agreement have accepted the enforceability of aforesaid clause 64(7)
and, therefore, are bound by any modification made in GCC even
subsequently and placed reliance on the judgment of this Court in S.P.
Singla Constructions Pvt. Ltd's case(supra).
12. Per contra, Mr. Sameer Jain, learned counsel for the
respondents submits that respondents are the registered contractors
undertaking various nature of works contracts with the railway
establishment and are not in a bargaining position and it is a ground
reality that final bills are not being released without a no claim certificate
being furnished in advance by them. In all the cases, unilateral deductions
have been made from the final bills furnished by each of the respondent
and they are very small and petty contractors and the payments are not
released unless the no claim certificate is being furnished, it is nothing
more than a financial duress and undue influence by the authorities and
is open for the arbitrator to adjudicate by examining the bills which was
furnished for payment.
13. Learned counsel further submits that the effect of no claim
certificate has been examined by this Court in National Insurance
Company Limited Vs. Boghara Polyfab Private Limited 2009(1) SCC
267 and there are series of decisions of this Court where no claim
certificate in itself has never been considered to be the basis to non-suit
the request made in appointing an arbitrator to independently examine
the dispute arising under the terms of the agreement.
14. Learned counsel further submits that once the appellants have
failed to appoint an arbitrator under the terms of agreement before the
application under Section 11(6) being filed before the Court, the authority
forfeits its right of appointing an arbitrator and it is for the Chief Justice/
his designate to appoint an independent arbitrator under Section 11(6) of
the Act, 1996 as held by this Court in Datar Switchgears Ltd. Vs. Tata
Finance Ltd. and Another 2000(8) SCC 151 followed in Punj Lloyd
Ltd. Vs. Petronet MHB Ltd. 2006(2) SCC 638 and later in Union of
India Vs. Bharat Battery Manufacturing Co. (P) Ltd. 2007(7) SCC
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684 that once the party fails to appoint an arbitrator until filing of an
application under Section 11(6) of the Act, the opposite party would lose
its right of appointment of arbitrator(s) as per the terms of the contract.
15. Learned counsel further submits that while dealing with Section
11(6), the Chief Justice/his designate can even overlook the qualification
of the arbitrator under the agreement but arbitration agreement in the
instant case does not contain any specific qualification of the arbitrator
under Clause 64(3) of the GCC and since the appellants failed to appoint
an arbitrator until the application was filed, Section 11(6) empowers the
Court to deviate from the agreed terms if required by appointing an
independent arbitrator and by virtue of operation of Section 12(5) of the
Amendment Act, 2015, the employee of the railway establishment became
ineligible to be appointed as arbitrator. In the given circumstances, the
authority is vested with the Chief Justice or his designate to appoint an
independent arbitrator under Section 11(6) of the Act and the same has
been held by this Court in North Eastern Railway and Others Vs.
Tripple Engineering Works 2014(9) SCC 288 and Union of India
and Others Vs. Uttar Pradesh State Bridge Corporation Limited
2015(2) SCC 52.
16. Learned counsel further submits that the primary object by
introducing the remedy to measure arbitration is to have a fair, speedy
and inexpensive trial by the Arbitral Tribunal. Unnecessary delay or
expense would frustrate the very purpose of arbitration and it holds out
that arbitrator should always be impartial and neutrality of the arbitrator
is of utmost importance and that has been noticed by the Parliament in
amending Section 12(5) of the Act, 1996 which came into force on 23rd
October, 2015 and when the matters have been taken up for hearing by
the High Court after the amendment has come into force, the effect of
the amended provisions would certainly be taken note of and in the given
circumstances, if an independent arbitrator has been appointed which is
indisputedly an impartial and neutral person fulfilling the mandate of the
object of the proceedings of arbitration, the amended provision has been
rightly invoked by the High Court in the appointment of an independent
arbitrator invoking Section 11(6) of the Act, 1996.
17. We have heard learned counsel for the parties and with their
assistance perused the material on record.
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18. The facts which manifest from the batch of appeals are that
the respondents are the registered contractors with the railway
establishment and undertaking work contracts (construction) of various
kinds. They raised a demand for escalation cost and the interest accrued
thereon because the date of the completion of the project was delayed
as alleged due to breach of obligations by the appellants and the scheduled
date of completion had to be extended. In the interregnum period, there
was a rise in the prices of the raw material and the project became
impossible to be completed by the respondent contractors. Hence, a
request was made to the appellants to either pay the enhanced escalation
price otherwise the respondent contractors would not be in a position to
conclude the contract and on the acceptance for payment of the escalation
costs, respondent contractor completed the work and delivered the project
and raised final bills in the prescribed pre-determined format (which
also included no dues certificate). Since the dispute has arisen in the
context of the payment of the escalated cost, as demanded by respondent
contractors, and their being a clause of arbitration in the agreement,
each of the respondent contractors sent a notice for arbitration invoking
clause 64(3) of GCC, which in majority of the cases declined by the
appellants stating that no dues certificate has been furnished and that
entailed no subsisting dispute and that was the reason due to which each
of the respondent contractor had approached the High Court by filing an
application under Section 11(6) of the Act, 1996. It is also not in dispute
that the request for referring the dispute to arbitration was received by
the appellants much prior to the enforcement of the Amendment Act,
2015 which came into force, w.e.f. 23rd October, 2015.
19. To proceed with the matter further, it will be apposite to take
note of the relevant clauses of the agreement with which we are presently
concerned: -
"CLAIMS 43.(1) Monthly Statement Of Claims : The Contractor
shall prepare and furnish to the Engineer once in every month an
account giving full and detailed particulars of all claims for any
additional expenses to which the Contractor may consider himself
entitled to and of all extra or additional works ordered by the
Engineer which he has executed during the preceding month and
no claim for payment for and such work will be considered which
has not been included in such particulars.
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43.(2) Signing Of "No Claim" Certificate : The Contractor shall
not be entitled to make any claim whatsoever against the Railway
under or by virtue of or arising out of this contract, nor shall the
Railway entertain or consider any such claim, if made by the
Contractor, after he shall have signed a "No Claim" Certificate in
favour of the Railway in such form as shall be required by the
Railway after the works are finally measured up. The Contactor
shall be debarred from disputing the correctness of the items
covered by "No Claim" Certificate or demanding a clearance to
arbitration in respect thereof.
64.(1) Demand for Arbitration:
64.(1) (i) In the event of any dispute or difference between the
parties hereto as to the construction or operation of this contract,
or the respective rights and liabilities of the parties on any matter
in question, dispute or difference on any account or as to the
withholding by the Railway of any certificate to which the contractor
may claim to be entitled to, or if the Railway fails to make a
decision within 120 days, then and in any such case, but except in
any of the "excepted matters" referred to in Clause 63 of these
Conditions, the contractor, after 120 days but within 180 days of
his presenting his final claim on disputed matters shall demand in
writing that the dispute or difference be referred to arbitration.
64.(1) (ii) The demand for arbitration shall specify the matters
which are in question, or subject of the dispute or difference as
also the amount of claim item-wise. Only such dispute(s)or
difference(s) in respect of which the demand has been made,
together with counter claims or set off, given by the Railway,
shall be referred to arbitration and other matters shall not be
included in the reference.
64.(1) (iii) (a) The Arbitration proceedings shall be assumed to
have commenced from the day, a written and valid demand for
arbitration is received by the Railway. (b) The claimant shall submit
his claim stating the facts supporting the claims alongwith all the
relevant documents and the relief or remedy sought against each
claim within a period of 30 days from the date of appointment of
the Arbitral Tribunal. (c) The Railway shall submit its defence
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statement and counter claim(s), if any, within a period of 60 days
of receipt of copy of claims from Tribunal thereafter, unless
otherwise extension has been granted by Tribunal. (d) Place of
Arbitration : The place of arbitration would be within the
geographical limits of the Division of the Railway where the cause
of action arose or the Headquarters of the concerned Railway or
any other place with the written consent of both the parties.
64.(1) (iv) No new claim shall be added during proceedings by
either party. However, a party may amend or supplement the
original claim or defence thereof during the course of arbitration
proceedings subject to acceptance by Tribunal having due regard
to the delay in making it.
64.(1) (v) If the contractor(s) does/do not prefer his/their specific
and final claims in writing, within a period of 90 days of receiving
the intimation from the Railways that the final bill is ready for
payment, he/they will be deemed to have waived his/their claim(s)
and the Railway shall be discharged and released of all liabilities
under the contract in respect of these claims.
64.(2) Obligation During Pendency Of Arbitration : Work under
the contract shall, unless otherwise directed by the Engineer,
continue during the arbitration proceedings, and no payment due
or payable by the Railway shall be withheld on account of such
proceedings, provided, however, it shall be open for Arbitral
Tribunal to consider and decide whether or not such work should
continue during arbitration proceedings.
64.(3) Appointment of Arbitrator :
64.(3) (a)(i) In cases where the total value of all claims in question
added together does not exceed Rs. 25,00,000 (Rupees twenty
five lakh only), the Arbitral Tribunal shall consist of a Sole Arbitrator
who shall be a Gazetted Officer of Railway not below JA Grade,
nominated by the General Manager. The sole arbitrator shall be
appointed within 60 days from the day when a written and valid
demand for arbitration is received by GM. {Authority : Railway
Board's letter no. 2012/CE-I/CT/ARB./24, Dated 22.10./
05.11.2013}
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64.(3) (a)(ii) In cases not covered by the Clause 64(3)(a)(i), the
Arbitral Tribunal shall consist of a Panel of three Gazetted Railway
Officers not below JA Grade or 2 Railway Gazetted Officers not
below JA Grade and a retired Railway Officer, retired not below
the rank of SAG Officer, as the arbitrators. For this purpose, the
Railway will send a panel of more than 3 names of Gazetted
Railway Officers of one or more departments of the Railway
which may also include the name(s) of retired Railway Officer(s)
empanelled to work as Railway Arbitrator to the contractor within
60 days from the day when a written and valid demand for
arbitration is received by the GM. Contractor will be asked to
suggest to General Manager at least 2 names out of the panel for
appointment as contractor's nominee within 30 days from the date
of dispatch of the request by Railway. The General Manager shall
appoint at least one out of them as the contractor's nominee and
will, also simultaneously appoint the balance number of arbitrators
either from the panel or from outside the panel, duly indicating the
'presiding arbitrator' from amongst the 3 arbitrators so appointed.
GM shall complete this exercise of appointing the Arbitral Tribunal
within 30 days from the receipt of the names of contractor's
nominees. While nominating the arbitrators, it will be necessary
to ensure that one of them is from the Accounts Department. An
officer of Selection Grade of the Accounts Department shall be
considered of equal status to the officers in SA grade of other
departments of the Railway for the purpose of appointment of
arbitrator.
64.(7) Subject to the provisions of the aforesaid Arbitration and
Conciliation Act, 1996 and the rules thereunder and any statutory
modifications thereof shall apply to the arbitration proceedings
under this Clause.
20. As per clause 43(2), the contractor signs a "No claim"
certificate in favour of the railway in the prescribed format after the
work is finally measured up and the contractor shall be debarred from
disputing the correctness of the items covered under the "No Claim"
certificate or demanding a clearance to arbitration in respect thereof.
Each of the respondent has to attach no claim certificate with final bills
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in the prescribed format to be furnished in advance before the final bills
are being examined and measured by the railway authorities. Although
it has been seriously disputed by the appellants but that is the reason for
which even after furnishing no claim certificate with the final bills being
raised, it came to be questioned by the respondent(contractor) by filing
an application to refer the matter to arbitration invoking clause 64(3) of
the conditions of contract as agreed by the parties.
21.