UNION OF INDIAversusPRADEEP VINOD CONSTRUCTION COMPANY

64                       [2019]
              SUPREME COURT     17 S.C.R. 64
                             REPORTS                     [2019] 17 S.C.R.


A                            UNION OF INDIA
                                      v.
            PRADEEP VINOD CONSTRUCTION COMPANY
                       (Civil Appeal No. 6400 of 2016)
B
                            NOVEMBER 14, 2019
                [R. BANUMATHI, A. S. BOPANNA AND
                       HRISHIKESH ROY, JJ.]
            Arbitration and Conciliation Act, 1996 – s.11 – Northern
C    Railways awarded two contracts for misc. civil engineering works
     to the respondent – According to appellant, the respondent received
     full and final payments and acknowledged the same – However,
     respondent raised claims in both the contracts and invoked
     arbitration clause contained in the agreements and requested
D    appointment of arbitrator – Appellant rejected the claim –
     Thereafter, respondent filed petition u/s.11 of the Act and sought
     appointment of the arbitrator – High Court appointed an
     independent arbitrator for adjudication of disputes between the
     parties, instead of directing appointment as per Cl.64 of the
     agreement – On appeal, held: In the instant case, considering the
E    various matters of railway contracts and setting aside of the
     appointment of independent arbitrators, after referring to M.P.
     Gupta, V.S. Engineering, Parmar Construction Company and other
     Judgments, the appointment of the independent arbitrator was set
     aside – When the agreement specifically provides for appointment
F    of named arbitrators, the appointment should be in terms of the
     agreement – The High Court was not right in appointing an
     independent arbitrator ignoring Cl.64 of the General conditions
     of contract – Therefore, the appellant directed to appoint arbitrator
     in terms of Cl.64(3) of the agreement.

G          Allowing the appeals, the Court
           HELD: 1. In Union of India and another v. M.P. Gupta
     (2004) 10 SCC 504, Union of India and another v. V.S. Engineering
     (P) Ltd. (2006) 13 SCC 240, Union of India v. Singh Builders
     Syndicate (2009) 4 SCC 523 and in a catena of judgments, the
H    court held that whenever the agreement specifically provides for
                                      64
            UNION OF INDIA v. PRADEEP VINOD                          65
               CONSTRUCTION COMPANY

appointment of named arbitrators, the appointment of arbitrator      A
should be in terms of the contract. [Para 14] [72-D]
       2. The court, in V.S. Engineering observed that in the case
of public institutions which are slow in responding to the request
made by the contractor for appointment of an arbitrator, the
power of the High Court to appoint an arbitrator under Section       B
11 is not taken away. The failure of the authorities in appointing
an arbitrator and when the contractor approached the court for
appointment of an arbitrator under Section 11 of the Act, it will
then be in the discretion of the Chief Justice/designated Judge
to appoint a railway officer as per the contract or a High Court
Judge. [Para 14] [73-D-E]                                            C

      3. Considering the various matters of railway contracts
and setting aside the appointment of independent arbitrators,
after referring to M.P. Gupta and V.S. Engineering and other
judgments, in Parmar Construction Company, this Court set aside
the appointment of the independent arbitrator and directed the       D
General Manager of the Railways to appoint arbitrator in terms
of Clause 64(3) of the agreement. The ratio of the Parmar
Construction Company squarely applies to the case in hand.
When the agreement specifically provides for appointment of
named arbitrators, the appointment should be in terms of the
                                                                     E
agreement. The High Court was not right in appointing an
independent arbitrator ignoring Clause 64 of the General
Conditions of Contract. [Para 15] [73-F-G; 74-C-D]
     SP Singla Pvt. Ltd. v. State of Himachal Pradesh and
     another (2019) 2 SCC 488 – referred to.
                                                                     F
     Union of India v. Parmar Construction Company
     (2019) 5 SCALE 453 ; Union of India and another v.
     M.P. Gupta (2004) 10 SCC 504 ; Union of India and
     another v. V.S. Engineering (P) Ltd. (2006) 13 SCC
     240 : [2006] 9 Suppl. SCR 125 ; Union of India v.
     Singh Builders Syndicate (2009) 4 SCC                           G
     523 : [2009] 3 SCR 563 – relied on.
                     Case Law Reference
(2019) 2 SCC 488                 referred to         Para 11
(2019) 5 SCALE 453               relied on           Para 11         H
66            SUPREME COURT REPORTS                       [2019] 17 S.C.R.


A    (2004) 10 SCC 504                  relied on              Para 14
     [2006] 9 Suppl. SCR 125            relied on              Para 14
     [2009] 3 SCR 563                   relied on              Para 14
           CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6400
B    of 2016.
           From the Judgment and Order dated 15.05.2015 of the High
     Court of Delhi at New Delhi in Arbitration Petition bearing ARB.P. No.
     168 of 2015.
           With
C
           Civil Appeal No. 6420 of 2016.
           Bharat Singh, Raj Bahadur, Advs. for the Appellant.
           Miss Geetanjali Mohan, Shantanu Kumar, Raghav Agrawal,
     Advs. for the Respondents.
D
           The Judgment of the Court was delivered by
           R. BANUMATHI, J.
            1. These appeals arise out of the impugned judgments dated
     15.05.2015 and 02.02.2015 passed by High Court of Delhi in Arbitration
E    Petition No.168 of 2015 and Arbitration Petition No.531 of 2014 in and
     by which the High Court appointed an independent arbitrator for
     adjudication of disputes between the parties, instead of directing
     appointment of arbitrator as per Clause 64 of General Conditions of
     Contract (GCC) which stipulates that Railways’ Officers should be
F    appointed as Arbitrator.
           2. Brief facts which led to filing of these appeals are as under:-
           Facts in CA No.6400/2016:-
            On 14.07.2010, Northern Railways awarded the contract for
     misc. civil engineering works such as construction of duty huts at
G
     L-xings, water supply arrangements, provision of station name boards
     etc. in connection with Rewari-Rohtak New Line to the respondent.
     The total cost of the work at accepted rate came to Rs.5,30,31,369.30.
     The work was finally completed on 31.03.2012. According to the
     appellant, final payments were made by the appellant to the respondent
H    vide bill bearing Vr.No.00356/104/C/TKJ dated 06.05.2014. On the
           UNION OF INDIA v. PRADEEP VINOD                                   67
       CONSTRUCTION COMPANY [R. BANUMATHI, J.]

same day i.e. on 06.05.2014, parties also entered into a supplementary       A
agreement which recorded full accord and satisfaction as on 06.05.2014.
In the meanwhile, on 05.05.2014, respondent sent a letter to the
appellant alleging that under the compulsion of circumstances, it had to
sign the so-called final bill without protest as desired by the
administration, otherwise heavy financial loss would have been caused
                                                                             B
to respondent and it may not be in a position to tender and execute
further works. The respondent averred that a sum of over Rs.1.50
crores still remains to be paid to the respondent and calling upon the
appellant to make the payment within 90 days. The respondent vide
its letter dated 05.05.2014 invoked arbitration clause as contained under
Clause 64 of General Conditions of Contract.                                 C
       3. The appellant issued a reply dated 25.07.2014 rejecting the
arbitration claim of the respondent, taking the stand that the respondent
had signed the final bill and also signed the supplementary agreement
which clearly stipulates that it was agreed between the parties that the
respondent has accepted the said sums mentioned therein in full and          D
final satisfaction of all dues and claims under the principal agreement.
       4. The respondent thereafter filed Arbitration Petition No.168 of
2015 under Section 11 of the Arbitration and Conciliation Act, 1996
before the High Court for appointment of an arbitrator. Upon
consideration of contention of the parties, the learned Single Judge held    E
that the question whether the discharge certificate and supplementary
agreement were signed by the respondent under duress, would require
evidence to be led and is therefore, required to be examined by the
arbitrator. So far as the appointment of arbitrator is concerned, the High
Court held that since the Railways failed to appoint an arbitrator despite
invocation of the arbitration clause by the respondent on 05.05.2014,        F
the Railways forfeited its right under the arbitration clause and the
learned Judge appointed Mr. Ram Prakash(Retd.), District and Sessions
Judge as the sole arbitrator instead of directing the appointment of
arbitrator as per Clause 64 of the General Conditions of Contract.
      Facts in CA No.6420/2016:-                                             G
      5. An agreement dated 17.01.2012 was entered into between the
Northern Railways and the respondent for construction of two lane road
over bridge in lieu of L-xing near Muradnagar Railway Station at a cost
of Rs.4,21,69,176.25/-. The work was completed on 03.08.2013.
According to the Railways, the respondent received full and final            H
68            SUPREME COURT REPORTS                          [2019] 17 S.C.R.


A    payment vide final bill bearing Vr.No.280 dated 29.01.2014 and also
     signed a supplementary agreement dated 01.03.2014 acknowledging full
     and final settlement of all claims. It was also provided in this
     supplementary agreement that the principal agreement shall stand finally
     discharged and the arbitration clause contained therein shall cease to
     exist. The respondent vide letter dated 15.01.2014 raised two claims
B
     and requested for appointment of arbitrator. The Railways informed the
     respondent that the claims of the respondent are not referable to
     arbitration as the same are covered under “excepted matter”. The
     respondent-contractor on 28.08.2014 also sent a “No Claim” letter to
     the Railway stating that it has no claim towards the Railways and
C    requested for release of security deposit made by it.
            6. The respondent thereafter filed Arbitration Petition No.531/
     2014 under Section 11 of the Arbitration and Conciliation Act, 1996
     seeking appointment of an arbitrator. The High Court held that though
     the appellant claims that the disputes raised by the respondent are in
D    the nature of “excepted matters” but that the issue can be examined
     by the arbitrator. With those findings, the court appointed Mr. H.K.
     Chaturvedi, advocate as Sole Arbitrator and directed that arbitration shall
     take place under the aegis of the Delhi International Arbitration Centre.
           7. Mr. Bharat Singh, learned counsel appearing for the appellant-
E    Union of India-Railways submitted that the request for appointment of
     arbitrator was made before the Amendment Act, 2015 (w.e.f
     23.10.2015) and hence, the proceedings will have to be proceeded in
     accordance with the pre-amended provision of the Act, 1996. It was
     submitted that the High Court erred in appointing an independent
     arbitrator instead of directing the General Manager, Railway
F    administration to appoint an arbitrator as per the terms and conditions
     of Clause 64 of GCC which stipulates that “excepted matters” cannot
     be referred to arbitration.
            8. Per contra, Mr. Shantanu Kumar and Ms. Geetanjali Mohan,
     learned counsel for the respondent(s) submitted that once the appellant
G    has failed to appoint an arbitrator under the terms of the agreement
     before the petition under Section 11(6) of the Arbitration Act, 1996 being
     filed before the Court, the authority forfeits its right of appointing an
     arbitrator and it is for the Chief Justice/Designate Judge to appoint an
     independent arbitrator under Section 11(6) of the Act. It was further
     submitted that Section 11(6) empowers the court to deviate from the
H    terms of the agreement, if required, by appointing an independent
           UNION OF INDIA v. PRADEEP VINOD                                  69
       CONSTRUCTION COMPANY [R. BANUMATHI, J.]

arbitrator. Insofar as the contention that the respondent(s) have already   A
received the final bill and issued “No Claim” letter to the Railway, the
learned counsel for the respondent(s) submitted that “No Claim”
certificate was issued under compulsion and it is nothing but due to
undue influence by the authorities and it is open to the arbitrator to
adjudicate by examining the bills which is furnished for payment and in
such circumstances, it cannot be said to be an “excepted matter”.           B

      9. We have heard the learned counsel appearing for the parties.
We have carefully considered the contentions of both the parties and
perused the impugned judgment and materials on record.
       10. The respondent(s) are registered contractors with the            C
Railways and they are claiming certain payments on account of the
work entrusted to them. The request of the respondent(s) for
appointment of arbitrator invoking Clause 64 of the contract was
declined by the Railways stating that their claims have been settled and
the respondent(s) have issued “No Claim” certificate and executed
supplementary agreement recording “accord and satisfaction” and hence,      D
the matter is not referable to arbitration. Admittedly, the request for
referring the dispute was made much prior to the Amendment Act, 2015
which came into force w.e.f. 23.10.2015. Since the request for
appointment of arbitrator was made much prior to the Amendment Act,
2015 (w.e.f. 23.10.2015), the provision of the Amended Act, 2015 shall      E
not apply to the arbitral proceedings in terms of Section 21 of the Act
unless the parties otherwise agree. As rightly pointed out by the learned
counsel for the appellant, the request by the respondent(s)-contractors
is to be examined in accordance with the Principal Act, 1996 without
taking resort to the Amendment Act, 2015.
                                                                            F
      11. Insofar as the applicability of the provisions of the Principal
Unamended Act, 1996, after referring to SP Singla Pvt. Ltd. v. State
of Himachal Pradesh and another (2019) 2 SCC 488, in Union of
India v. Parmar Construction Company 2019 (5) SCALE 453, it
was held as under:-
                                                                            G
      “26. We are also of the view that the Amendment Act, 2015
      which came into force, i.e. on 23rd October, 2015, shall not apply
      to the arbitral proceedings which has commenced in 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.                                                      H
70            SUPREME COURT REPORTS                          [2019] 17 S.C.R.


A          27. 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
B
           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. In our considered view, the applications/
           requests made by the Respondent contractors deserves to be
           examined in accordance with the principal Act, 1996 without
C          taking resort to the Amendment Act, 2015 which came into force
           from 23rd October, 2015.”
           12. In order to appreciate the contention of the parties, it is
     necessary to refer to Clause 64 of the General Conditions of Contract
     (GCC) which reads as under:-
D
           “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
E
           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
F          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
G          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.
H          ……….
    UNION OF INDIA v. PRADEEP VINOD                                     71
CONSTRUCTION COMPANY [R. BANUMATHI, J.]

64. (3) Appointment of Arbitrator:                                      A
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                    B
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}
64. (3) (a)(ii) In cases not covered by the Clause 64(3)(a) (i),        C
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
                                                                        D
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            E
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
                                                                        F
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        G
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                 H
72            SUPREME COURT REPORTS                         [2019] 17 S.C.R.


A          statutory modifications thereof shall apply to the arbitration
           proceedings under this Clause.”
            13. It is seen from the above that under Clause 64(1) of GCC,
     if there is any dispute or differences between the parties or the
     respective rights and liabilities of the parties on any matter in question
B    or any other ancillary dispute arising from the terms of the contract or
     if the railway administration fails to make a decision within the time
     stipulated thereon, then in any such case, but except in any of the
     “excepted matters”, 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
C    arbitrator or the Arbitral Tribunal to adjudicate the dispute/differences
     arising under the terms of the contract between the parties.
            14. In Union of India and another v. M.P. Gupta (2004) 10
     SCC 504, Union of India and another v. V.S. Engineering (P) Ltd.
     (2006) 13 SCC 240, Union of India v. Singh Builders Syndicate
D    (2009) 4 SCC 523 and in a catena of judgments, the court held that
     whenever the agreement specifically provides for appointment of named
     arbitrators, the appointment of arbitrator should be in terms of the
     contract. After referring to M.P. Gupta, in V.S. Engineering, it was
     held as under:-
E          “3. The learned Additional Solicitor General appearing for the
           appellant Union of India has pointed out that as per clauses 63
           and 64 of the General Conditions of Contract, this Court in no
           uncertain terms has held that the Arbitral Tribunal has to be
           constituted as per the General Conditions of Contract, the High
F          Court should not interfere under Section 11 of the Act and the
           High Court should accept the Arbitral Tribunal appointed by the
           General Manager, Railways. In this connection, the learned ASG
           invited our attention to a decision of this Court directly bearing
           on the subject in Union of India v. M.P. Gupta (2004) 10 SCC
           504 wherein a similar question with regard to appointment of the
G          Arbitral Tribunal for the Railways with reference to clause 64
           of the General Conditions of Contract came up before this Court
           and this Court held that where two gazetted railway officers are
           appointed as the Arbitral Tribunal, the High Court should not
           appoint a retired Judge of the High Court as a sole arbitrator
H          and the appointment of sole arbitrator was set aside. The
           UNION OF INDIA v. PRADEEP VINOD                                   73
       CONSTRUCTION COMPANY [R. BANUMATHI, J.]

      conditions of clauses 63 and 64 of the General Conditions of           A
      Contract are almost analogous to the one we have in our hand.
      In that case also relying on clause 64 of the contract a three-
      Judge Bench presided over by the Chief Justice of India observed
      as follows: (SCC p. 505, para 4)
      “4. In view of the express provision contained therein that two        B
      gazetted railway officers shall be appointed as arbitrators, Justice
      P.K. Bahri could not be appointed by the High Court as the sole
      arbitrator. On this short ground alone, the judgment and order
      under challenge to the extent it appoints Justice P.K. Bahri as
      sole arbitrator is set aside. Within 30 days from today, the
                                                                             C
      appellants herein shall appoint two gazetted railway officers as
      arbitrators. The two newly appointed arbitrators shall enter into
      reference within a period of another one month and thereafter
      the arbitrators shall make their award within a period of three
      months.””
                                                                             D
       The court, however observed in para (6) that in the case of public
institutions which are slow in responding to the request made by the
contractor for appointment of an arbitrator, the power of the High Court
to appoint an arbitrator under Section 11 is not taken away. The failure
of the authorities in appointing an arbitrator and when the contractor
approached the court for appointment of an arbitrator under Section          E
11 of the Act, it will then be in the discretion of the Chief Justice/
designated Judge to appoint a railway officer as per the contract or a
High Court Judge.
       15. Considering the various matters of railway contracts and
setting aside the appointment of independent arbitrators, after referring    F
to M.P. Gupta and V.S. Engineering and other judgments, in Parmar
Construction Company, this Court set aside the appointment of the
independent arbitrator and directed the General Manager of the
Railways to appoint arbitrator in terms of Clause 64(3) of the agreement.
In paras (44) and (45), this Court held as under:-                           G
      “44. To conclude, in our considered view, 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.                        H
74            SUPREME COURT REPORTS                         [2019] 17 S.C.R.


A          45. Consequently, 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
           a period of one month from today under intimation to each of
           the Respondents/contractors and since sufficient time has been
           consumed, at the first stage itself, in the appointment of an
B
           arbitrator and majority of the Respondents being the petty
           contractors, the statement of claim be furnished by each of the
           Respondents within four weeks thereafter and the arbitrator may
           decide the claim after affording opportunity of hearing to the
           parties expeditiously without being influenced/inhibited by the
C          observations made independently in accordance with law.”
            The ratio of the above decision squarely applies to the case in
     hand. When the agreement specifically provides for appointment of
     named arbitrators, the appointment should be in terms of the agreement.
     The High Court, in our view, was not right in appointing an independent
D    arbitrator ignoring Clause 64 of the General Conditions of Contract.
             16. Insofar as the plea of the appellant that there was settlement
     of final bill/issuance of “No Claim” letter, the learned counsel for the
     appellant has drawn our attention on Clause 43(2) – Signing of the
     “No Claim” Certificate and submitted that as per Clause 43(2), the
E    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. On behalf of the respondent, it has been
     seriously disputed that issuance of “No Claim” certificate as to the
F    supplementary agreement recording accord and satisfaction as on
     06.05.2014 (CA No.6400/2016) and issuance of “No Claim” certificate
     on 28.08.2014 (CA No.6420/2016) that they were issued under
     compulsion and due to undue influence by the railway authorities. We
     are not inclined to go into the merits of the contention of the parties.
G    It is for the arbitrator to consider the claim of the respondent(s) and
     the stand of the appellant-railways. This contention raised by the parties
     are left open to be raised before the arbitrator.
           17. In the result, the impugned judgments dated 15.05.2015 and
     02.02.2015 of the High Court of Delhi in Arbitration Petition No.168
H    of 2015 and Arbitration Petition No.531 of 2014 are set aside and these
           UNION OF INDIA v. PRADEEP VINOD                                    75
       CONSTRUCTION COMPANY [R. BANUMATHI, J.]

appeals are allowed. The appellant is directed to appoint the arbitrator      A
in terms of Clause 64(3) of the agreement within a period of one month
from today under intimation to the respondent(s)-contractors. As soon
as the communication of the appointment of arbitrator is made to the
respondent(s), the statement of claim be filed by the respondent(s) within
six weeks thereafter and the reply of the appellant to be filed within
                                                                              B
four weeks thereafter. The arbitrator shall proceed with the matter in
accordance with law and decide the claim after affording sufficient
opportunity of hearing to both parties expeditiously preferably within a
period of four months.

                                                                              C
Ankit Gyan                                                 Appeals allowed.




                                                                              D




                                                                              E




                                                                              F




                                                                              G




                                                                              H