Deepak Kumar Bansal vs Union Of India & Anr

Act, 1996 (in short `the Act') filed at the instance of the

appellant.

3. The respondent-Union of India invited tenders for

construction of 6 unit Type-II and 24 unit Type-I new

quarters at Phulera Sub Division Office under Railway

Inspector, Kishangarh. An agreement was executed

between the parties on 24th of April, 1996 under which

in response to the said tender, the appellant

submitted his offer, which was accepted and after

completion of all kinds of formalities, the work order

was issued to the appellant on 22nd of September,

1996. The initial estimated cost of the work was

Rs.32,74,904.37. In the said agreement, there is a

Clause 64 in which the arbitration clause has been

inserted. Clause 64 of the arbitration clause runs as

under:-

"(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

2 and liabilities of the parties on any matter in question, dispute or differences 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.

(ii) The demand for arbitration shall specify the matters which are in question. Dispute or difference only such disputes or differences in respect of which the demand has been made shall be referred to arbitration and other matters shall not be included in the reference."

4. The appellant, upon sanction of the work, requested

the respondents for issuing him a work order so that he

could commence the work. On his request, work order

dated 22nd of February, 1996 for a sum of Rs.32, 17, 641.29

indicating the date of completion of work as 21st of

February, 1997 was issued to the appellant, which was

received by him on 7th of May, 1996. Since the quantity of

the work was much more than the work order was issued,

supplementary work order was subsequently issued by the

3 respondents on 30th of December, 1997 for a sum of

Rs.4,99,471.36 and further another supplementary work

order issued on the same date i.e. 30th of December, 1997

for a sum of Rs.3,25,865.02. Thereafter, another work

order to the tune of Rs. 2,17,748.63 was issued on 22nd of

June, 1998. Hence, the total work orders for a cost of Rs.

42,60,726.30 were issued to the appellant. When some

disputes arose between the parties on the question of

payment of money, which was withheld by the respondents,

the appellant requested the respondent from time to time to

take deposition of the material remained and prepare his

final bill, but his request was not acceded to. Accordingly,

finding no other alternative, the appellant raised a dispute

by issuing a notice dated 27th of December, 2004 and

requested for appointment of an Arbitrator in terms of

Clause 64 of the General Conditions of Contract appended

with the agreement. When the respondent had failed to

appoint an arbitrator in terms of Clause 64 of the General

Conditions of Contract, the appellant filed an application

under Section 11(6) of the Act before the High Court of

4 Rajasthan at Jaipur Bench for appointment of an

Arbitrator.

5. As noted herein earlier, by the impugned order, the

application for appointment of an Arbitrator under Section

11(6) of the Act was rejected by the High Court on the

ground that since the value of the claim was more than

20% of the value of the work, the disputes could not be

referred to Arbitrator in view of the Circular issued by the

respondent intimating their intention to incorporate Clause

18 in the General Conditions of Contract limiting

arbitration proceedings to only such claims, which are less

than 20% of the value of the contract. It may be mentioned

herein that the Circular was issued on 11th of June, 2003

whereas the agreement entered into by the parties was long

before issuance of the said circular and it is also not in

dispute that the original work order and supplementary

work orders were issued on 22.02.1996 (original) and

30.12.1997, 30.12.1997 and 22.06.1998.

6. The application for appointment of an Arbitrator was

also rejected by relying on a decision in the case of State of

5 AP. & Another vs. Obulu Reddy [1999(9) SCC 568]. It is

this order, which is under challenge before us by way of a

Special Leave Petition, which on grant of leave, was heard

by us in presence of the learned counsel for the parties.

7. We have heard Ms. Saahila Lamba, learned counsel

for the appellant and Ms. B. Sunita Rao, learned counsel

for the respondents/Union of India. We have examined the

impugned order of the High Court rejecting the application

under Section 11(6) of the Act and also the materials on

record including the notice issued by the appellant for

appointment of an Arbitrator to the respondents and also

the application itself under Section 11(6) of the Act and the

objections filed by the respondents thereto. Having heard

the learned counsel for the parties and after going through

the materials on record, we are of the view that the

impugned order of the High Court is liable to be set aside

for the reasons stated hereinafter.

8. The respondents, in their objection to the application

under Section 11(6) of the Act, raised a plea that question

of appointment of an Arbitrator, in the facts and

6 circumstances of the present case, could not arise in view

of the fact that the claim, as put forward by the appellant,

was an amount being an excess of 20% of total cost of the

work, which is prohibited in terms of the Circular issued on

11.06.2003. The High Court accepted this plea of the

respondent and rejected the application on the grounds

mentioned herein earlier.

9. In our view, the High Court has mis-directed itself in

holding that the claim was in excess of 20% of the total cost

of the work. Admittedly, the work was for a sum of

Rs.32,17,641.29 (original) and three additions viz.

Rs.4,99,471.36, Rs.3,25,865.02 and Rs.2,17,748.63

totalling Rs. 42,60,726.30/-, which cannot be in excess of

20% of the total cost of the work.

10. The High Court has only considered the original work

order that was Rs.32,17,641.29, which, in our view, must

be taken into account along with three supplementary work

orders of Rs.4,99,471.36, Rs.3,25,865,02 and

Rs.2,17,748.63 as mentioned herein earlier. Therefore, the

High Court was wrong in holding that since the value of the

7 claim of the appellant was more than 20% of the value of

the work and in view of the Circular issued by the

respondent, the claim must be held to be more than 20% of

the value of the work and, therefore, disputes could not be

referred to Arbitration. Even assuming that the claim was

in excess of 20% of the total cost of the work, even then, the

Circular, which came into effect from 11.06.2003 would not

be applicable in the case of the appellant. There cannot be

any dispute that the Circular intimating Clause 18 and

issued on 11.06.2003 could not be applied in the case of

the appellant as the said Circular came into force only from

that date i.e. 11.06.2003 and not before that, in the

absence of any subsequent insertion of that Clause in the

original contract, namely, Clause 64 of the General

Conditions of Contract.

11. Accordingly, question of applicability of the said

Circular intimating intention of the respondent to insert

Clause 18 could not arise at all. That being the position,

we are unable to sustain the impugned order of the High

Court and accordingly, the appeal is allowed and the

8 application under Section 11(6) of the Act stands allowed.

In view of our discussions made hereinabove, the decision

cited by the High Court in the case of State of AP & Anr.

Vs. Obulu Reddy (supra) may not be dealt with. The

application is now directed to be posted to the concerned

Judge of the High Court and to appoint an Arbitrator in

compliance with Clause 64 of the General Conditions of

Contract entered into by the parties.

12. The impugned order is set aside. The appeal is thus

allowed to the extent indicated above. There will be no

order as to costs.

..............................J. [TARUN CHATTERJEE]

NEW DELHI; ..............................J. FEBRUARY 17, 2009. [V.S. SIRPURKAR]

9