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M.V. Omni Projection (India) Limited v/s The Chief S&T Engineer


Company & Directors' Information:- OMNI (INDIA) LIMITED [Under Liquidation] CIN = U72200DL1985PLC021538

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- ENGINEER & ENGINEER PRIVATE LIMITED [Active] CIN = U74999DL2016PTC293097

Company & Directors' Information:- C S ENGINEER PRIVATE LIMITED [Strike Off] CIN = U45201DL2003PTC122355

    Arbitration Application No. 72 of 2008

    Decided On, 11 August 2011

    At, High Court of Rajasthan

    By, THE HONOURABLE MR. JUSTICE PREM SHANKER ASOPA

    For the Appearing Parties: Pankaj Shankhla on behalf of Nitin jain, P.C. Sharma, Advocates.



Judgment Text

Prem Shanker Asopa, J.

1. This arbitration application is arising out of agreement dated 31.3.2003 (Anx.2), which is to be governed by the General Condition of Contract issued by the Engineering Department of Western Railway, containing arbitration Clause 64.

2. Counsel for the applicant submits that the applicant deals with many types of projects in various matters with different government / non government organizations across the country and the applicant company has executed very effectively, satisfactorily and successfully such projects. In response of tender notice issued by the Chief (S & T) Engineer (Construction), North-Western Railway, Jaipur, the applicant accepted the work of supply of 4qd cable, way station, equipment, gate telephones, emergency communication boxes and telephone etc, and trenching laying jointing, back filling, termination along with the installation and commissioning of the HQ control and way station equipments, gate phones, emergency posts etc, For providing communication on 4qd cable in Jaipur - Madar section of Jaipur Division of the North Western Railway, in respect of which, agreement was executed on 31.03.2003 between the parties. In the said agreement, the conditions with regard to the payment of final bill as well as Arbitration Clause 64 exists. The aforesaid work was executed by the Applicant satisfactorily but at the time of making payment of the final bill, the non applicants insisted for no claim certificate and after submission of the same, the non applicants passed the final bill when the Applicant came to know that the non applicants have deducted र10,55,435.00 as liquidated damages. The Applicant gave representation and also invoked arbitration Clause 64 as envisaged in the agreement but the dispute was not resolved as per Clause 64. Counsel further submits that there is no dispute that this Court has territorial jurisdiction to decide the present application and further, there is also no dispute that the applicant is a party to the said agreement, therefore, as per first category referred in National Insurance Co. Ltd v. Boghara Polyfab (P) Ltd.,, 2009 (1) SCC 267, para 22, the applicant is entitled to the appointment of Arbitrator. The objections of the Non Applicant taken in the reply are of second category and third category, therefore, the same have been left to be decided by the Arbitrator.

3. Counsel for the non-applicant has not disputed the territorial jurisdiction of this Court to entertain the arbitration application and further has also not disputed the fact that the Applicant is a party to the arbitration agreement as well as existence of Clause 64 of the General Conditions of Contract. Counsel has also not disputed the receipt of representation / notice given by the Applicant. However, he has raised the preliminary objection that the Applicant submitted the no claim certificate before passing of the final bill, which has been annexed as Annexure R - 7 dated 10.4.2006 and the payment of the said final bill was accepted by him on 31.8.2006, therefore, as per Clause 43 (2) of the General Conditions of Contract, since the contractor has filed no claim certificate in favour of the non-applicant after the works are finally measured, the Applicant is debarred from disputing the correctness of the items covered by the no claim certificate and demanding reference to the Arbitrator. On account of the said Clause 43 (2), the Applicant is estopped from raising the said claim. In support of the aforesaid contention, counsel for the non - applicant has placed reliance on the judgment of the Supreme Court in Union of India & Ors. v. Onkar Nath Bhalla & Sons, 2009 DNJ (SC) 482 (2 learned Judges' Bench), paras 6, 7, 9, 10 and 11. Counsel for the non applicant further submits that in case this Court thinks that the present case has to be referred to the Arbitrator,then it may be referred to the Railway authority as per Clause 64 of the General Conditions of Contract.

4. In the rejoinder, counsel for the Applicant has categorically submitted that the Supreme Court in the recent judgment decided that the Banks, financial institutions, public sector undertakings would have upper hand and they would not release money unless no demand certificate is signed and considering the said aspect of the matter, the Supreme Court has held that even after submitting the no demand certificate, the dispute can be raised. In support of the aforesaid submissions, counsel for the Applicant has placed reliance on paras 27 to 30 of Chairman & MD, NTPC Ltd. v. Reshmi Constructions, Builders and Contractors (2004) 2 SCC 633, Asian Techs Ltd. v. Union of India and others, (2009) 10 SCC 354, paras 20 and 21 and R.L. Kalathia and Co. v. State of Gujarat, (2011) 2 SCC 400: 2011 (1) WLC (SC) Civil 341 Paras 13 and 14.

5. Before proceeding further, it is relevant to quote Clause 43 (2) and Clause 64.(3) (a) (ii) of the General Conditions of Contract and the relevant portion of the judgments cited by both the parties. The same are as under:

Clause 43 (2) of the G.C.C. relied by the Non-applicant

"(2) The contractor shall not be entitled to make any claim whatsoever against the Railway under or by virtue of 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 Contractor shall be debarred from disputing the correctness of the items covered by "No Claim" certificate or demanding a clearance to arbitration in respect thereof."

Paras 6,7,9,10 and 11 of Union of India & Ors. v. Onkar Nath Bhalla & Sons,

(2009 DNJ (SC) 482 (2 Hon'ble Judges' Bench) Relied by the Non-applicant

6. Learned counsel would also invite our attention to the case of SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618, wherein this Court has observed that:

(a) The function performed by the Chief Justice of the High Court or the Chief Justice of India under sub - section (6) of Section 11 of the Act (i.e. the Arbitration and Conciliation Act, 1996) is administrative, pure and simple, and neither judicial nor quasi-judicial.

(b) The function to be performed by the Chief Justice under sub - section (6) of Section 11 of the Act may be performed by him or by "any person or institution designated by him".

(c) While performing the function under sub-section (6) of Section 11 of the Act, the Chief Justice should be prima facie satisfied that the conditions laid down in Section 11 are satisfied.

7. In the present case, appellants made the full and final payment of the final bill and to which respondent certified by signing the bill without any protest or reservation. Respondent with the intention of receiving further payments, after two years, raised yet another claim and tried to bring up a dispute. And when the claim was denied by the appellants, respondent requested to appoint an Arbitrator.

9. While appointing an Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, two things must be kept in mind:

(i) That there exists a dispute between the parties to the agreement and that the dispute is alive.

(ii) Secondly, an Arbitrator must be appointed as per the terms and conditions of the agreement and as per the need of the dispute.

10. It is the specific case of the appellants, respondent could not have raised yet another claim, as the respondent after signing on the final bill without any protest or reservation has waived his right as per the conditions of the contract. The Court without considering that whether any dispute exists between the parties, could not have appointed an Arbitrator.

11. Therefore, the Court was not justified in appointing a Retired High Court Judge as the sole Arbitrator in the present case."

6. Clause No.64.(3)(a)(ii) of the General Conditions of Contract and the judgments relied by the counsel for the Applicant are as follows:

Clause No.64. (3)(a)(ii) of the General Conditions of Contract relied by the Applicant

"In cases not covered by clause 64(3)(a)(i), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers not below JA grade, as the arbitrators. For this purpose the Railway will send a panel of more than 3 names of Gazetted Rly. Officers of one or more departments, of the Rly to the contractor who will be asked to suggest to General Manager upto 2 names out of the panel for appointment as contractor's nominee. 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. 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 arbitrators."

Paras 27 to 30 Reshmi Constructions, Builders & Contractors (2004) 2 SCC 663

Paras 27 to 30 of Chairman & MD, NTPC Ltd. v. Reshmi Constructions, Builders and Contractors, (2004) 2 SCC 663

27. Even when rights and obligations of the parties are worked out, the contract does not come to an end inter alia for the purpose of determination of the disputes arising thereunder, and, thus, the arbitration agreement can be invoked. Although it may not be strictly in place but we cannot shut our eyes to the ground reality that in a case where a contractor has made huge investment, he cannot afford not to take from the employer the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a "No Demand Certificate" is signed. Each case, therefore, is required to be considered on its own facts.

28. Further, necessitas non habet legem is an old-age maxim which means necessity knows no law. A person may sometimes have to succumb to the pressure of the other party to the bargain who is in a stronger position.

29. We may, however, hasten to add that such a case has to be made out and proved before the arbitrator for obtaining an award.

30. At this stage, the Court, however, will only be concerned with the question whether triable issues have been raised which are required to be determined by the arbitrators."

(emphasis supplied)

Paras 20 and 21 of Asian Techs Ltd. v. Union of India and others, (2009) 10 SCC 354

"20. It has been held by this Court in National Insurance Co.Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 that even in the case of issuance of full and final discharge / settlement voucher / no dues certificate, the arbitrator or court can go into the question whether the liability has been satisfied or not. This decision has followed the view taken in NTPC Ltd. v. Reshmi Constructions Builders and Contractors, (2004) 2 SCC 663 (vide paras 27 and 28).

21. Apart from the above, it has been held by this Court in Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516 that a clause like Clause 11 only prohibits the Department from entertaining the claim, but it did not prohibit the arbitrator from entertaining it. This view has been followed by another Bench of this Court in Bharat Drilling & Treatment (P) Ltd. V. State of Jharkhand, (2009) 16 SCC 705."

(emphasis supplied)

Paras 13 and 14 of R.L. Kalathia and Co. v. State of Gujarat, (2011) 2 SCC 400

"13. From the above conclusions of this Court, the following principles emerge:

(i) Merely because the contractor has issued "no dues certificate", if there is an acceptable claim, the court cannot reject the same on the ground of issuance of "no - dues certificate".

(ii) Inasmuch as it is common that unless a discharge certificate is given in advance by the contractor, payment of bills are generally delayed, hence such a clause in the contract would not be an absolute bar to a contractor raising claims which are genuine at a later date even after submission of such "no-claim certificate."

(iii) Even after execution of full and final discharge voucher / receipt by one of the parties, if the said party is able to establish that he is entitled to further amount for which he is having adequate material, he is not barred from claiming such amount merely because of acceptance of the final bill by mentioning "without prejudice" or by issuing "no dues certificate."

14. In the light of the above principles, we are convinced from the materials on record that in the instant case, the appellant - plaintiff also had a genuine claim which was considered in great detail by the trial court and supported by oral and documentary evidence. Though the High Court has not adverted to any of the factual details / claim of the plaintiff except reversing the judgment and decree of the trial court on the principle of estoppel, we have carefully perused and considered the detailed discussion and ultimate conclusion of the trial Judge."

(emphasis supplied)

Paras 19, 20, 21, 22, and 23 of National Insurance Company Limited v. Boghara Polyfab Private Limited, (2009) 1 SCC 267

"19. In SBP & C. V. Patel Engg. Ltd, a seven Judge Bench of this Court considered the scope of Section 11 of the Act and held that the scheme of Section 11 of the Act required the Chief Justice or his designate to decide whether there is an arbitration agreement in terms of Section 7 of the Act before exercising his power under Section 11(6) of the Act and its implications. It was of the view that sub - sections (4),(5), and (6) of Section 11 of the new Act, combined the power vested in the court under Sections 8 and 20 of theold Act (the Arbirration Act, 1940). This Court held: (SCC pp.660-61 & 663, paras 39 and 47)

"39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long - barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may nto be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11 (6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal.

47. (iv) The Chief Justice or the Designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators."

20. This Court in SBP & Co. also examined the "competence" of the Arbitral Tribunal to rule upon its own jurisdiction and about the existence of the arbitration clause, when the Chief Justice or his designate had appointed the Arbitral Tribunal under Section 11 of the Act, after deciding upon such jurisdictional issue. This Court held: (SCC pp.644 & 649, paras 12 & 20)

"12.... We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the Arbitral Tribunal...

* * *

20. Section 16 is said to be the recognition of the principle of Kompetenz - Kompetenz. The fact that the Arbitral Tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can, and possibly, ought to decide them. This can happen when the parties have gone to the Arbitral Tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these sections, before a reference is made, Section 16 cannot be held to empower the Arbitral Tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the Arbitral Tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that crates it. That is the position arising out of Section 11 (7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act, are incapable of being reopened before the Arbitral Tribunal".

21. It is thus clear that when a contract contains an arbitration clause and any dispute in respect of the said contract is referred to arbitration without the intervention of the court, the Arbitral Tribunal can decide the following questions affecting its jurisdiction: (a) whether there is an arbitration agreement; (b) whether the arbitration agreement is valid; (c) whether the contract in which the arbitration clause is found is null and void, and if so, whether the invalidity extends to the arbitration clause also. It follows, therefore, that if the respondent before the Arbitral Tribunal contends that the contract has been discharged by reason of the claimant accepting payment made by the respondent in full and final settlement, and if the claimant counters it by contending that the discharge voucher was extracted from him by practicing fraud, undue influence, or coercion, the Arbitral Tribunal will have to decide whether the discharge of contract was vitiated by any circumstance which rendered the discharge voidable at the instance of the claimant. If the Arbitral Tribunal comes to the conclusion that there was a valid discharge by voluntary execution of a discharge voucher, it wil refuse to examine the claim on merits, and reject the claim as not maintainable. On the other hand, if the Arbitral Tribunal comes to the conclusion that such discharge of contract was vitiated by any circumstance which rendered it void, it will ignore the same and proceed to decide the claim on merits.

22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. (2005) 8 SCC 618, This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.

"22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

22.2 The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long - barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3 The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.

23. It is clear from the scheme of the Act as explained by this Court in SBP & Co., that in regard to issues falling under the second category, if raised in any application under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary, by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery / fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue.

(emphasis supplied)"

7. I have gone through record of the arbitration application and further considered the aforesaid rival submission of counsel for the parties along with the aforesaid citations.

8. The issue in the judgment cited by the counsel for the non applicant in Union of India & others v. Onkar Nath Bhalla and Sons (supra), was that after signing the final bill, a list of 20 claims was submitted to the appellants (Railways) but here the instant case is of deduction of amount and thus, the facts of the said case differ from the present case. Union of India and others v. Onkar Nath Bhalla & Sons (supra) was decided on 17.4.2009 but the earlier judgment of the Supreme Court in National Insurance Co. was decided on 18.9.2008 wherein paras 39 and 47(iv) of SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 (7 learned Judges' larger Constitution Bench of the Supreme Court) have been considered in detail, has not been considered at all. The said judgment of the National Insurance Co. is based on a thorough consideration of the 7 learned Judges' larger constitution Bench judgment in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 wherein three categories have been culled out and are being consistently followed thereafter, therefore, the issue of estoppel is discretionary for the Chief Justice or his Designate to deci

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de or leave it to the decision of the Arbitral Tribunal. 9. In my view, in the judgment cited by the counsel for the non applicant, although 7 learned Judges' larger constitution bench judgment in SBP & Co. v. Patel Engineering Ltd., 2005 (8) SCC 618 has been considered, but the said consideration is not with regard to para 39 and 47 (iv) the ratio of which has been further categorized by the Supreme Court in the aforesaid case of National Insurance Co. according to para 22 of which,the Chief Justice or the designate will have to decide (a) whether the party making application has approached the appropriate Court, and (b) whether there is an arbitration agreement and whether the party who has applied u/s 11 of the Act is a party to such agreement. On the aforesaid issue, there is no dispute. However, the dispute under Clause 43 (2) is about the second category referred in Para 22.2 (b) regarding awarding contract or transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It is discretionary for the Chief Justice / his designate to decide or leave it open for the Arbtirator to decide the same. Since I am following the 7 learned Judges' larger constitution Bench judgment in SBP & Co. v. Patel Engineering Co. (supra), ratio of which was culled out in National Insurance Co. Ltd. (supra) wherein the issue has been examined with reference to the aforesaid judgment Patel Engineering Co. which has been discussed in detail in SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618 reference of which has been mentioned in the judgment cited by Mr.P.C.Sharma but the same has not been discussed in detail. Otherwise also, Clause 43 (2) is a clause of estoppel debarring the applicant from raising claim after signing the "No Claim" certificate and the said condition has been imposed by the Railway authorities who are having upper hand, therefore, I leave the issue of estoppel to be decided by the Arbitrators appointed by the General Manager, North-Western Railway, Jaipur as per Clause 64. (3) (a) (ii), as discussed by the Supreme Court in Para 22.2(b) of National Insurance Co. (supra) and other aforesaid judgments. 10. In the aforesaid facts and circumstances of the case, I refer the matter to the General Manager, North-Western Railway, Jaipur as per Clause 64. (3) (a) (ii) of the General Conditions of Contract for appointment of Arbitrators within one month from the date of receipt of copy of this order. 11. The application is allowed, as indicated above. 12. A copy of this order be sent to the General Manager, North-Western Railway, Jaipur.
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