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M/s. Global Agency, represented by its Managing Partner v/s The General Manager, South Central Railway, Rail Nilayam, Secunderabad & Another

    Arbitration Application No. 110 of 2018

    Decided On, 01 October 2021

    At, High Court of Andhra Pradesh

    By, THE HONOURABLE CHIEF JUSTICE MR. ARUP KUMAR GOSWAMI

    For the Applicant: Prasad Rao Vemulapalli, Advocate. For the Respondents: P. Bhaskar, Advocate.



Judgment Text

(Through Video-Conferencing)

Oral Judgment:

1. Heard Mr. Prasad Rao Vemulapalli, learned counsel for the applicant as well as Mr. P. Bhaskar, learned counsel for the respondents.

2. By this application filed under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996 (for short, “the Act of 1996”) read with the Scheme for Appointment of Arbitrator, 2000, the applicant prays for appointment of a sole arbitrator to resolve the disputes between the parties that had arisen in connection with Agreement No.24/16.07.205 dated 09.10.2005.

3. Pursuant to a tender notice issued by the respondents on 28.04.2015 for the contract work of mechanized cleaning including pest control (anti-fly and other insects) & rag picking upto home signal at TPTY Railway Station for 2 years, i.e. 2015-2017, the applicant participated and in such tender process, being successful, contract was awarded to it by way of Letter of Acceptance dated 09.07.2015 for the contract value of Rs.3,21,80,397/-. Subsequent thereto, an agreement was entered into on 09.10.2015. The period of contract was for 24 months commencing from 16.07.2015 to 15.07.2017. It was extended for 2 months from 16.07.2017 to 15.09.2017 by a letter dated 08.07.2017. The contract, however, was completed on 31.08.2017.

4. A subsidiary agreement was entered into by the applicant and the respondents on 13.05.2016, by which value of the contract was reduced to Rs.2,81,68,244/- from Rs.3,21,80,397/-.

5. It is the case of the applicant that since an amount of Rs.32.00 lakh was lying with the respondents by way of securities and as the applicant was doing similar works for other zonal railways, because of apprehension of the said amounts being forfeited, the fear of termination of the agreement and similar coercive acts in respect of other ongoing works, it was compelled to sign the subsidiary agreement and, therefore, such subsidiary agreement was executed by it under financial duress and not out of its free volition. Accordingly, by a letter dated 01.07.2017, the circumstances under which the subsidiary agreement was executed, was notified to the respondents. By a letter dated 05.04.2018, the applicant invoked arbitration clause as per clauses 63 and 64 of the General Conditions of Contract, which was incorporated under clause 39 of the agreement dated 09.10.2015. In the said letter dated 05.04.2018, three claims were raised by the applicant, which are as follows:

“Claim No.1: The difference amount of Rs.40,12,153.00/- (Rupees Forty Lakhs twelve thousand one hundred and fifty three only) between the original contract and revised contract without any legal basis and logical perceptive unilaterally. The same is evident from the records available with you.

Claim No.2: The amount of penalties imposed without any basis time to time during the currency of the contract amounting to Rs.63,26,643/- (Rupees sixty three lakhs twenty six thousand six hundred and forty three only).

Claim No.3: Variation in labour wage index published by the union ministry of Labour from the date of award to the date of completion as applicable to this contract and the same will be quantified at the time of submission of detailed Claim statement.”

6. Accordingly, request was made for constitution of an arbitral Tribunal consisting of a sole arbitrator or a panel of arbitrators.

7. No response having come, the applicant has approached this Court by filing this application.

8. In the counter-affidavit filed by the respondents, no dispute is raised with regard to the existence of the arbitration agreement. The plea taken for dismissal of the arbitration application on the ground of non-maintainability is that the applicant had given a ‘no claim certificate’. It is stated that the subsidiary agreement was signed by the applicant without any protest or objection. The letter dated 01.07.2017 giving reasons for signing the subsidiary agreement was also addressed after one year of signing of the subsidiary agreement on 13.05.2016. The pleas that the applicant was under financial duress or the same was not signed out of free volition, are now raised for the purpose of this case as an after-thought. It is also stated that all payments had been received by the applicant without any protest.

9. Reliance is also placed on clause 28.2 of the General Conditions of Contract in this regard.

10. Learned counsel for the parties had made submissions in tune with the stand taken in the application and the counter-affidavit. Mr. Prasad Rao, learned counsel for the applicant, submits that in view of Section 11 (6-A) of the Act of 1996, this Court, at this stage, has to confine examination to only existence of arbitration agreement and it is not necessary for this Court to go into the question as to whether the applicant had voluntarily executed ‘no claim certificate’ or for that matter, the subsidiary agreement, and the same are to be decided by the arbitral tribunal.

11. In this connection, he has relied on a decision of the Hon’ble Supreme Court in the case of Vidya Drolia and others v. Durga Trading Corporation, reported in (2021) 2 SCC 1.

12. I have considered the submissions of the learned counsel for the parties and have perused the materials on record.

13. The ‘no claim certificate’, ‘no due certificate’ and ‘certificate’ are all part of one single page and it is appropriate to quote the same hereinbelow:

“NO CLAIM CERTIFICATE

I have no other claim outsourcing against S.C. Railway towards release of my performance Guarantee/Security Deposit and payment of the SD/PG shall the final settlement of all my claims in respect of the SD/PG to which contract work for Mechanized Cleaning of Tirupathi Railway Station and Premises relates under Agreement No: 24-G/MD/52/MCC.TPTY/15-17 Dated: 16/07/2015.

NO DUES CERTIFICATE

Certificate that there are no dues to be recovered from M/s. Global Agency, Bangalore against the contract work for Mechanized Cleaning of Tirupathi Railway Station and Premises relates under Agreement No. 24- G/MD/52/MCC.TPTY/15-17 Dated: 16/07/2015.

CERTIFICATE

Certificate that the purpose to which security deposit on amount deposited for the work which contract work for Mechanized Cleaning of Tirupathi Railway Station and Premises relates under Agreement No. 24- G/MD/52/MCC.TPTY/15-17 Dated: 16/07/2015.

The security deposit may kindly be return to the contractor, M/s. Global Agency Bangalore. No Claim Certificate has been received from contractor. There are no dues to be recovered from the Global Agency and there are no pending Audit, Accounts and Vigilance objections against the contractor as far as this agreement is concerned.”

14. Though there is no date in the ‘no claim certificate’, the signature of Chief Medical Superintendent, S.C. Rly. Divn. Hospital, Guntakal, appearing below therein, appears to be 22.05.2018. It, thus, appears that ‘no claim certificate’ was signed by the applicant subsequent to issuance of the letter dated 05.04.2018. It is to be remembered that prior to that, the applicant had written a letter dated 01.07.2017, indicating the circumstances under which the subsidiary agreement was executed.

15. Clause 28.2 of the general conditions of contract at page 85 of the application, reads as follows:

“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 and paid for by the Railways. 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.”

16. Mr. Prasad Rao has submitted that unless and until the ‘no claim certificate’ is given by the applicant or by any contractor, dues payable are not released and, therefore, they had no option but to execute such certificate. Therefore, he submits that signing of the ‘no claim certificate’ in the circumstances cannot be construed to be voluntary.

17. The Hon’ble Supreme Court in Vidya Drolia (supra), at paragraphs 139, 140 and 141, observed as follows:

“139. We would not like to be too prescriptive, albeit observe that the court may for legitimate reasons, to prevent wastage of public and private resources, can exercise judicial discretion to conduct an intense yet summary prima facie review while remaining conscious that it is to assist the arbitration procedure and not usurp jurisdiction of the Arbitral Tribunal. Undertaking a detailed full review or a long-drawn review at the referral stage would obstruct and cause delay undermining the integrity and efficacy of arbitration as a dispute resolution mechanism. Conversely, if the court becomes too reluctant to intervene, it may undermine effectiveness of both the arbitration and the court. There are certain cases where the prima facie examination may require a deeper consideration. The court's challenge is to find the right amount of and the context when it would examine the prima facie case or exercise restraint. The legal order needs a right balance between avoiding arbitration obstructing tactics at referral stage and protecting parties from being forced to arbitrate when the matter is clearly non-arbitrable.

140. Accordingly, when it appears that prima facie review would be inconclusive, or on consideration inadequate as it requires detailed examination, the matter should be left for final determination by the Arbitral Tribunal selected by the parties by consent. The underlying rationale being not to delay or defer and to discourage parties from using referral proceeding as a ruse to delay and obstruct. In such cases a full review by the courts at this stage would encroach on the jurisdiction of the Arbitral Tribunal and violate the legislative scheme allocating jurisdiction between the courts and the Arbitral Tribunal. Centralisation of litigation with the Arbitral Tribunal as the primary and first adjudicator is beneficent as it helps in quicker and efficient resolution of disputes.

141. The court would exercise discretion and refer the disputes to arbitration when it is satisfied that the contest requires the Arbitral Tribunal should first decide the disputes and rule on non-arbitrability. Similarly, discretion should be exercised when the party opposing arbitration is adopting delaying tactics and impairing the referral proceedings. Appropriate in this regard, are observations of the Supreme Court of Canada in Dell Computer Corpn. v. Union des Consommateurs & Olivier Dumoulin [Dell Computer Corpn. v. Union des Consommateurs & Olivier Dumoulin, 2007 SCC OnLine Can SC 34 : (2007) 2 SCR 801 : 2007 SCC 34], which read: (SCC OnLine Can SC paras 85-86)

85. If the challenge requires the production and review of factual evidence, the court should normally refer the case to arbitration, as arbitrators have, for this purpose, the same resources and expertise as courts. Where questions of mixed law and fact are concerned, the court hearing the referral application must refer the case to arbitration unless the questions of fact require only superficial consideration of the documentary evidence in the record.

86. Before departing from the general rule of referral, the court must be satisfied that the challenge to the arbitrator's jurisdiction is not a delaying tactic and that it will not unduly impair the conduct of the arbitration proceeding. This means that even when considering one of the exceptions, the court might decide that to allow the arbitrator to rule first on his or her competence would be best for the arbitration process.”

18. In the case of V.B. Cold Storage Private Limited v. Bajaj Allianz General Insurance Company Limited (Arbitration Application No.165 of 2014), which was decided on 24.09.2021, this Court was confronted with a similar situation and a plea was set up by the respondent that the applicant therein having executed Indemnity Bond, Discharge Bond and consent letter as full and final settlement of all the claims of the applicant, there was no dispute regarding any outstanding claim and, therefore, the application was misconceived.

19. This Court at paragraphs 18, 19, 20, 22, 26 & 27, observed as follows:

“18. Section 11 (6-A) of the Act of 1996 was inserted by Act 3 of 2016 with effect from 23.10.2015. Section 11 (6-A) reads as follows:

“11. (6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement.”

19. Section 11(6-A) was omitted by Act 33 of 2019. However, Section 3 of the Amendment Act of 2019 insofar as it pertains to this omission has not yet been brought into force.

20. In Duro Felguera, SA v. Gangavaram Port Ltd., reported in (2017) 9 SCC 729, at para 48, the Hon’ble Supreme Court had observed that the intention of the legislature is crystal clear that the court should and need only look into one aspect, which is the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple, in that it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. At para 59, it was observed that scope of the power under Section 11(6) of the Act of 1996 was considered in the decisions in SBP & Co. v. Patel Engg. Ltd., reported in (2005) 8 SCC 618 and Boghara Polyfab (P) Ltd. (supra) and the said position continued till the amendment was brought about in the year 2015. It was emphasized that after the amendment, all that the courts need to see is whether an arbitration agreement exists – nothing more nothing less. It was further observed that the legislative policy and purpose is essentially to minimise the Court’s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.

22. Following Duro Felguera (supra), the Hon’ble Supreme Court in Mayavati Trading Private Limited (supra) observed that the law prior to the 2015 Amendment that has been laid down by the court which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. It was held that Section 11(6-A) is confined to the examination of the existence of an agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera (supra) and taking that view, the judgment in Antique Art Exports Private Limited (s

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upra) was overruled as having not laid down the correct law. 26. In view of the decision rendered in Mayavati Trading Private Limited (supra), wherein a three-Judge Bench of the Hon’ble Supreme Court had observed that as Section 11(6- A) is confined to the examination of the existence of an arbitration agreement and is to be understood in a narrow sense and as the law which enabled the court to examine as to whether accord and satisfaction had taken place has been legislatively overruled, it will not be necessary for this Court to go into the aforesaid question as to whether the applicant had voluntarily executed Indemnity Bond, Discharge Bond and also consent letter or whether the applicant had signed such indemnity bond, discharge bond and also consent letter unconditionally and the same is left open to be decided by the Arbitral Tribunal. 20. In view of the above, I am of the considered opinion that the applicant having raised various pleas with regard to execution of the subsidiary agreement as also the execution of the ‘no claim certificate’, the dispute between the parties is required to be referred to an arbitrator as there is a valid arbitration agreement. 21. Resultantly, the Arbitration Application is allowed. Dr. Justice B. Siva Sankara Rao is appointed as arbitrator to adjudicate the disputes between the parties. No costs. Pending miscellaneous applications, if any, shall stand closed. 22. The fee of the arbitrator as well as the other terms and conditions shall be settled by the parties in consultation with the arbitrator so appointed. Registry will send a copy of this order to Dr. Justice B. Siva Sankara Rao in his proper address.
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