REPORTABL
E
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1089 OF 2009
(Arising out of SLP)No.15730 of 2007)
Deepak Kumar Bansal ...
Appellant
Versus
Union of India & Anr. ..Respondents
JUDGMENT
TARUN CHATTERJEE,J.
1. Leave granted.
2. This appeal is directed against the judgment and order
dated 25th of May, 2007 passed by a learned Judge of
the High Court of Judicature for Rajasthan at Jaipur
Bench in S.B. Arbitration Application No.31 of 2005 by
which the learned Judge had rejected the application
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under Section 11(6) of the Arbitration and Conciliation
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
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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
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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
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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
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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
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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
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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
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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]
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