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Eagle - Omega & KR & Co. (JV), Represented by its authorized signatory, C. Karnan v/s The General Manager, Southern Railway, Chennai

    O.P. No. 88 of 2017

    Decided On, 16 July 2018

    At, High Court of Judicature at Madras


    For the Petitioner: B. Kumar, Senior Counsel for K.K. Muralitharan, Advocate. For the Respondent: P.T. Ramkumar, Advocate.

Judgment Text

(Prayer: Petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, praying to appoint and independent and impartial Arbitrator to hear and decide the disputes between the petitioner and the respondent arising out of the contract No.105/CN/2009, dated 08.10.2009.)

1. This Original Petition is filed seeking appointment of Arbitrator to decide the disputes arisen between the petitioner and the respondent.

2. The facts leading to the filing of this petition, in a nutshell, run thus:

(i) The petitioner was a successful awardee of the contract work of Gauge Conversion between Mayiladuthurai-Thiruvarur-Karaikudi proposed construction of station buildings, borewells, approach roads, PF, PF Shelter, Foot Over Bridge (FOB) etc. between Mayiladuthurai and Thiruvarur Stations, through the tender notice No.9/CE/CN/MS/2009 (OT), dated 24.04.2009. The contract awarded was for a value of Rs.28,61,23,751/-. A letter of acceptance was issued on 31.07.2009 and the work was commenced by the petitioner. Though time agreed for completion of the entire work is 15 months, that is, on or before 30.10.2010, it was further extended upto 36 months and the contract in all respects was completed on 25.05.2012. A Completion Certificate was also issued by the Deputy Chief Engineer in this regard.

(ii) It is stated that there was an attempt made by the respondent to recover the amounts from the on-account bills of the petitioner by applying vitiation clause, contrary to clause 18.1 and 18.2 of the Special Conditions of Contract and clauses 42 and 45 of the General Conditions of Contract (in short GCC ). Apprehending such recovery, O.A.No.149 of 2011 was filed before this Court, in which, this Court had ordered recovery of 50% of the vitiation amount and directed the parties to

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get the issue decided through arbitration.

(iii) In the meanwhile, a letter dated 18.04.2011 was sent by the petitioner invoking the arbitration clause to adjudicate upon the dispute of unjustified application of vitiation clause and consequent recovery thereof. Since there was no response from the respondent, O.P.No.672 of 2011 was filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, praying this Court for appointment of an independent arbitrator. While so, the work under the contract was completed in all respects and a completion certificate was also issued by the respondent. It is stated by the petitioner that at the instructions of the respondent, O.P.No.672 of 2011, which was filed to decide the disputes of vitiation clause, was withdrawn. The petitioner had also furnished a Performance Bank Guarantee (PBG) of Rs.1,43,06,188/-.

(iv) It is alleged by the petitioner that for passing the final bill, for releasing the security deposit and also for releasing the PBG, the respondent compelled the petitioner to submit an unconditional 'No Claim Certificate'. Therefore, the petitioner submitted a No Claim Certificate dated 26.07.2013. Clause 43(2) of the GCC stipulates submission of 'No Claim Certificate' before passing the final bill.

(v) It is the contention of the petitioner that after submission of the 'No Claim Certificate' dated 26.07.2013, the item of Moorum in the agreement was converted as item of Earthwork in the Measurement Book without any communication to the petitioner. Again a 'No Claim Certificate' was issued by the petitioner for release of the Security Deposit on 08.04.2014, though it was endorsed without prejudice.

(vi) It is also stated in the affidavit that the Division Bench of this Court had an occasion to hold that vitiation clause cannot be applied for recovery of amounts in the contracts, where the contract is concluded, invoking the rates quoted by others to calculate the sum payable would go against the general understanding of the contract law.

(vii) It is the case of the petitioner that contrary to the conditions of the contract, the respondent effected recovery by converting supply of Moorum as supply of earth from the petitioner's bill and thereafter only the final bill was passed for payment on 19.11.2014 and the PBG was released in the month of December 2014.

(viii) The admitted payment of price variation amount as per the contract was not paid to the petitioner, while finalising the settlement of bills, which is to the tune of about Rs.70,00,000/-. It is alleged that the respondent had deliberately omitted the balance legitimate payment due to the petitioner. The petitioner had knowledge about the same only on passing the final bill on 19.11.2014. It is stated by the petitioner that on 21.01.2015, a letter was addressed to the Chief Engineer of the respondent stating that 'No Claim Certificate' dated 08.04.2014 and also the withdrawal of O.P.No.672 of 2011 on 08.12.2014 were under pressure for passing the final bill and requested the respondent to release the long pending payments.

(ix) Aggrieved by the long silence from the respondent, a letter dated 10.10.2016 was issued invoking the arbitration clause.

(x) As there was no response, the above Original Petition has been filed seeking for appointment of the Arbitrator.

3. This petition was resisted by the respondent contending, inter alia, that the extension of the contract was only at the instance of the petitioner and the work was delayed by the petitioner by not making ready the infrastructure, labour and other items required for the execution of the work. So far as the vitiation amount is concerned, it is the stand of the respondent that it applies to both the parties. The Railways had recovered 50% of the amount, by virtue of the order passed by this Court in O.A.No.149 of 2011 and only 50% is recoverable from the petitioner. It is at the instance of the petitioner, who insisted on the final bill and also the Performance Bank Guarantee, the respondent had released the final bill and the security deposit. Therefore, the petitioner is not entitled to claim vitiation amount from the respondent. The 'No Claim Certificate' issued on 26.07.2013 and 08.04.2014 are with regard to the work done and once 'No Claim Certificate' is issued and the final bill is released, there remains nothing for arbitration. According to the respondent, the petitioner had received the entire claim and issued no claim certificate. Hence, there is no due from the respondent and the petitioner is estopped from making any claim referring it as an arbitrable dispute. Hence, it is prayed for dismissal of the original petition.

4. In the rejoinder filed by the petitioner, it is admitted that the vitiation clause is binding on both the parties. The only dispute is whether the conditions leading to the application of vitiation clause is as per the condition of the contract and the same has to be decided by the Arbitral Tribunal. According to the petitioner, as the work was in progress on the date, when the order was passed by this Court on 01.02.2012 directing the petitioner to pay 50%, the amount could not be quantified. Admittedly, the entire work in all respects was completed only on 25.05.2012. Therefore, the amount of vitiation as per clause 46 of the Special Conditions of Contract could be ascertained only thereafter, as the vitiation amount could be quantified only after preparation of the final bill. When the respondent instructed the petitioner to withdraw O.P.No.672 of 2011, the petitioner immediately obliged. Hence, it is contended that the amount of vitiation is still due to the petitioner. The contention of the respondent that after the issuance of 'No Claim Certificate', no amount is recoverable from the petitioner is denied.

5. It is the consistent stand of the applicant that due to financial hardship, it requested the respondent to pass the final bill and gave consent for recovering full vitiation amount from the final bill. O.P.No.672 of 2011 was also withdrawn by the petitioner only out of compulsion. As per the terms and conditions of contract, the petitioner was required to submit 'No Claim Certificate' before passing of the final bill. It is submitted that the 'No Claim Certificate' submitted by the petitioner on 26.07.2013 and on 08.04.2014 were on the demand of the respondent and that they were issued by the petitioner stating without prejudice.

6. The learned Senior Counsel for the petitioner submitted that when the 'No Claim Certificate' was submitted only on the demand made by the respondent and that too with the endorsement 'without prejudice', it is open to it to seek for an appointment of Arbitrator and make a claim based on the contract. Reliance was placed on paragraphs 16 to 18 of the judgment of the Apex Court in Ambica Constructions V. Union of India, (2006) 13 SCC 475, which are as follows :

'.... 16. Since we are called upon to consider the efficacy of Clause 43(2) of the General Conditions of Contract with reference to the subject matter of the present appeals, the same is set out hereinbelow:

"43(2) Signing of "No claim" Certificate. The Contractor shall not be entitled to make any claim whatsoever against the Railways under or by virtue of or arising out of this contract, nor shall the Railways entertain or consider any such claim, if made by the contractor, after he shall have signed a "No Claim" certificate in favour of the Railways, in such form as shall be required by the Railways, after the works are finally measured up. The contractor shall be debarred from disputing the correctness of the items covered by "No Claim Certificate" or demanding a reference to arbitration in respect thereof."

17. A glance at the said clause will immediately indicate that a No Claim Certificate is required to be submitted by a contractor once the works are finally measured up. In the instant case the work was yet to be completed and there is nothing to indicate that the works, as undertaken by the contractor, had been finally measured and on the basis of the same a No Objection Certificate had been issued by the appellant. On the other hand, even the first Arbitrator, who had been appointed, had come to a finding that No Claim Certificate had been given under coercion and duress. It is the Division Bench of the Calcutta High Court which, for the first time, came to a conclusion that such No Claim Certificate had not been submitted under coercion and duress.

18. From the submissions made on behalf of the respective parties and in particular from the submissions made on behalf of the appellant, it is apparent that unless a discharge certificate is given in advance, payment of bills are generally delayed. Although, Clause 43(2) has been included in the General Conditions of Contract, the same is meant to be a safeguard as against frivolous claims after final measurement. Having regard to the decision in the case of Reshmi Constructions's (supra), it can no longer be said that such a clause in the contract would be an absolute bar to a contractor raising claims which are genuine, even after the submission of such No Claim Certificate.


6.1. In the above said case, the work was still pending and final bill can be drawn only after works are finally measured up. In the instant case, admittedly, work, as per the contract, was completed in all respects on 25.05.2012 and the respondent also issued completion certificate for having completed the work.

7. However, it is pointed out that the 'No Claim Certificate' was submitted by the petitioner after more than an year. Therefore, Clause 43(2) of the GCC indicates that once the works are finally measured up, the 'No Claim Certificate' is to be given. Hence, the petitioner is barred from making any claim after the No Objection Certificate is given, in the absence of any proof, that the same were obtained by duress and coercion.

8. Assailing the said argument, the learned Senior Counsel for the applicant submitted that even after the execution of the full and final discharge by one of the parties, if either of them is able to point out that there were further amounts due to them, subject to proof, then the said party will not be barred from claiming such amount merely because the final bill is discharged after 'No Claim Certificate' is issued by the petitioner. Whether the petitioner is entitled to the claim that is made and whether the said claim is supported by relevant and proper documents could be gone into only if the matter is referred to arbitration. The claim of the petitioner is with respect to certain works, which were completed after the completion certificate was issued. Reliance was placed by the learned Senior Counsel on Duro Felguera, S.A. V. Gangavaram Port Limited, (2017) 9 SCC 729.

9. In the aforesaid decision, the effect of changes introduced by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) with particular reference to Section 11(6) and 11(6-A) of the Act, more particularly, the position prior to the amendment Act 3 of 2016 and post amendment Act were discussed and it is finally held as follows:

'.... 59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. V. Patel Engg. Ltd., (2005) 8 SCC 618 and National Insurance Co. Ltd., V. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267. This position continued till the amendment brought about in 2015. After the amendment, all that the Courts need to see is whether an arbitration agreement exists - nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6A) ought to be respected.'

10. On the other hand, learned counsel for the respondent had placed reliance on the recent judgment of the Supreme Court in ONGC Mangalore Petrochemicals Limited V. ANS Constructions Limited, (2018) 3 SCC 373, wherein, after considering, inter alia, the judgment in Union of India V. Master Construction Co., (2011) 12 SCC 349, it had been held that there is no rule of absolute kind in a case, where the claimant contends that the discharge voucher and No Claim Certificate has been obtained by fraud, coercion, duress and undue influence and the respondents contests the correctness thereof, it is open to the Court to look into the aspect to find out at least a prima facie case, if not a bona fide dispute is raised. It is for the Court to decide to refer the claim to an Arbitrator on coming to the conclusion that the claim of the claimant is bona fide. It is further stated in the said judgement that it is open to the Chief Justice or his designate to refer the matter to an Arbitral Tribunal, once it is found that there is a merit in the allegation of fraud, coercion, duress and undue influence. It is open to the Court itself to decide or to refer the dispute to the Arbitral Tribunal.

11. In paragraph 25 of the instant petition, the petitioner had made claims under nine heads amounting to Rs.4,64,73,540/-. The first of its claim is with respect to refund of vitiation amount of Rs.29,00,000/-. This was the lone claim, which was the subject matter of reference in O.P.No.672 of 2011, which was withdrawn by the petitioner. The learned Senior Counsel also stated that he would give up that claim as (i) it is overlapping ; and (ii) while withdrawing the O.P., the petitioner did not reserve its right to file a fresh petition seeking the said claim. In so far as the claim No.2 is concerned, it is stated that by an error worded as 'difference on account of application of index from the date of negotiation, instead of date of opening of tender'. Now the error is corrected and modified 'PVC difference amount on account of application of index against the terms of contract'. In respect of other claims, already the relevant materials, viz., Measurement Books (M-Book) have been pointed out and filed.

12. It is the contention of the learned counsel for the respondent that the claim now made for the purpose reference to arbitration is more than the value of the contract itself. Hence, the same cannot be deemed to be genuine, and therefore, reference to the arbitral Tribunal is unnecessary. Even in ONGC Mangalore Petrochemicals case, it is held that if the Contractor is able to establish that moneys were due even after the full and final settlement of the claim by making out a prima facie case, the dispute may be referred to an Arbitrator. It is for the Court to decide based on the facts furnished by the petitioner as to whether the dispute could be referred to the Arbitrator.

13. The petitioner, in paragraphs 19 to 21 of the instant petition, has pointed out that the moneys are due from the respondent on several heads. The respondent effected recovery by converting supply of Moorum as supply of earth from the petitioner's bill. Only based on that, the final bill was passed for payment. It is claim of the petitioner that it had to agree for all that, due to the economic duress. The petitioner also had explained in the petition about the money due from the respondent on various heads, which were not in compliance with the conditions of the contract. Whether the amounts are due and recoverable under each of the heads can be decided only in the arbitral proceedings. Hence, it would be proper to refer to it to the Arbitrator.

14. Thus, this Court appoints Mr.M.K.Kabir, Senior Advocate, residing at APT.C, Sree Illam, AJ 124, 1 Street, Off 9th Main Road, Anna Nagar, Chennai-600 040, as the Sole Arbitrator to enter upon reference and adjudicate the disputes inter se the parties. The learned Arbitrator may, after issuing notice to the parties and upon hearing them, pass an award as expeditiously as possible, preferably within a period of six months from the date of receipt of the order. The learned Arbitrator is at liberty to fix his remuneration and other incidental expenses. The proceedings may be conducted under the aegis of the Madras High Court Arbitration Centre and in accordance with the Madras High Court Arbitration Rules.

15. The Original Petition is, accordingly, allowed, leaving the parties to bear their own costs.