Sunday 13 December 2015

When claim for payment of additional works can be decided on the basis of arbitration?

 The second issue i.e. claim for payment of
additional works however would stand on a different
footing. Clause 91.1 and 91.2 contemplate the
making/raising of claims by the contractor for additional
works and consideration thereof by the Engineer-in-chief.
The decision of the Engineer-in-chief is final and binding.
The finality attached to such a decision cannot be an
unilateral act beyond the pale of further scrutiny. Such a
view would negate the arbitration clause in the
agreement. Justifiability of such a decision though stated
to be final, must, be subject to a process of
enquiry/adjudication which the parties in the present case
have agreed would be by way of arbitration. The
objections raised by the respondent on the aforesaid
score, therefore, does not commend to the Court for
acceptance and is hereby rejected.
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION CASE (CIVIL) NO.36 OF 2014
M/S KSS KSSIIPL CONSORTIUM
THRO. ITS CONSTITUTED ATTORNEY
MR. DEVENDRA KUMAR ...PETITIONER
VERSUS
M/S GAIL (INDIA) LTD. ...RESPONDENT
WITH
ARBITRATION CASE (CIVIL) NO.38 OF 2014
Citation;2015 (6) MHLJ 15

1. Both these applications under Section 11(6) of
the Arbitration and Conciliation Act, 1996 (hereinafter
referred to as “the Arbitration Act”) have been filed
seeking appointment of a sole arbitrator to go into the
disputes and differences that the petitioner claims to have
arisen out of two separate contract agreements enteredPage 2
2
into by and between the parties.
2. The facts in brief may be noted at the outset.
3. The petitioner is a consortium of two companies
i.e. M/s JSC OGCC KazStoryService, a company
incorporated under the laws of the Republic of Kazakhstan
and KazStoryService Infrastructure India Private Limited
incorporated under the Companies Act, 1956. The said
consortium has been formed by an agreement dated 1st
July, 2010 for the purposes of executing a contract that
was to be awarded by the respondent for Pipeline Laying
and Terminal Works for Dabhol – Bangalore Pipeline
Project.
4. According to the petitioner, the respondent had
floated a Tender for the said project in the year 2010 and
the entire work was divided in 10 Spreads
(A,B,C,D,E,F,G,H,I,J). While Arbitration Petition (Civil)
No.36 of 2014 pertain to the award of work for Spread 'J',
Arbitration Petition (Civil) No.38 of 2014 relates to the
work awarded for Spread 'D'.
5. Pursuant to the bid(s) made by the petitioner,
detailed letter(s) of acceptance was issued by the
respondent on 13th December, 2010. According to the
petitioner though in terms of the contracts it had
mobilized its men and machinery, the work got
jeopardized/frustrated as the respondent did not make
available to the petitioner the Construction Right of use
and permits in terms of Clause 28 of the Special
Conditions of Contract (hereinafter referred to as “the
SCC”). According to the petitioner, the respondent did not
have the necessary work fronts with respect to SV station
work. Furthermore, the petitioner has alleged that the
respondent failed to provide necessary engineering
inputs. Besides, there were frequent modifications with
respect to drawings, extra work and delays in providing
free issue materials. All these led to substantial delays in
the execution of the works, such delay being attributable
solely to the respondent.
6. According to the petitioner, on account of the
delays due to the aforesaid reasons, the petitioner
became entitled for extended stay compensation in termsPage 4
4
of clause 42 of the SCC read with clause 12 of the detailed
letter of acceptance. Apart from extended stay
compensation, the petitioner claims to be entitled for
payment for additional works undertaken during the
course of execution of the contracts. On 4th January, 2013
and 5th July, 2013, the petitioner submitted its claim to the
respondent for Rs.34,70,11,907/- (Rupees Thirty Four
Crore Seventy Lacs Eleven thousand Nine hundered and
seven only)[In Arbitration Petition (Civil) No.36 of 2014]
and for Rs.1,79,23,83,208/- (Rupees One Arab Seventy
Nine Crore Twenty Three Lacs Eighty Three thousand Two
hundred and Eight only) [In Arbitration Petition (Civil)
No.38 of 2014) respectively. The petitioner alleges that
the respondent rejected the said claims which was not
acceptable to the petitioner. The petitioner, thereafter,
invoked clause 40.2 of the General Conditions of Contract
which provides for conciliation. As the petitioner's
proposal for conciliation was rejected by the respondent,
the petitioner had no option but to invoke the Arbitration
Clause (Clause 59) and seek appointment of a sole
arbitrator in respect of the disputes arising from each ofPage 5
5
the two agreements. The said demand was repeated in
several communications which were not responded to.
The petitioner, therefore, has lodged the present
applications under Section 11(6) of the Arbitration Act for
the reliefs earlier noticed.
7. The claims made by the petitioner have been
resisted by the respondent by filing separate counter
affidavits in both the cases. A reading of the affidavits
filed by the respondent indicate that insofar as the claim
for extended stay compensation is concerned, the
respondent contend that the said claim does not give rise
to any arbitrable issue inasmuch as under clause 42.1.1
the bidder is required to mention the rate for extended
stay compensation per month in the “Priced Part”. Under
Clause 42.1.2 in case the bidder did not indicate such rate
it is to be presumed that no extended stay compensation
is required to be paid. Under clause 42.1.4 it was
expressly mentioned that “Bidder to note that in case they
don't indicate the rate for extended stay compensation as
per proforma, provisions of clause No.42.0 will not be
applicable to them”. According to the respondent in thePage 6
6
relevant proforma relating to “Compensation for Extended
Stay”, the petitioner had mentioned/quoted “NIL”. Thus,
according to the clauses 42.1.2 and 42.1.4, no extended
stay compensation is required to be paid to the petitioner.
The above position was also expressly stated in clause 12
of the detailed letter of acceptance dated 13th December,
2010, which is in the following terms:
“12.0 COMPENSATION FOR EXTENDED
STAY
Extended stay compensation is
not applicable and shall not be
payable to the Contractor as per
clause no. 42.0 of Special
Conditions of Contract.”
8. According to the respondent, the aforesaid
clause was further amplified in Annexure -1 to the said
detailed letter of acceptance which was not placed before
the Court though the detailed letter of acceptance dated
13th December, 2010 formed a part of the petitions filed
by the petitioner.
9. Insofar as the claim of payments for additional
works is concerned, according to the respondent, clausePage 7
7
91.0 of the GCC deals with such claims. Clauses 91.1 and
91.2 contemplate that such claims will be verified by the
Engineer-in-charge whose decision will be final. The
respondent further states that the claims made by the
petitioner for additional costs had been rejected by the
Engineer-in-charge and in terms of clause 91.2 of the GCC
such a decision(s) must be construed to be final and
binding between the parties and therefore would stand
excluded from arbitration.
10. There can be no manner of doubt that before
exercising the power under Section 11(6) of the
Arbitration Act to make appointment of an arbitrator the
Court will have to decide on the existence of an arbitrable
dispute/enforceable claim by and between the parties to
the contract. The existence of a claim and denial thereof
giving rise to a dispute is required to be determined on
the basis of what the parties had agreed upon as
embodied in the terms of the contract and only for the
purpose of a decision on the question of arbitrability and
nothing beyond. It is from the aforesaid standpoint that
the issues raised in the present proceedings will have to
be considered.
11. Clause 42.0 deals with “Compensation for
extended stay”. Under clause 42.1.1 the contractor is
required to mention the rate for extended stay of
compensation in the event the contract is to be
prolonged/extended beyond the contemplated date of
completion. Clauses 42.1.2 and 42.1.4 of the SCC
contemplate that in the event the contractor/bidder does
not indicate the rate of extended stay, it will be presumed
that no extended stay compensation is required to be
paid. In the present case, admittedly, the petitioner had
quoted “NIL” against compensation for extended stay in its
bid. If that is so, it must be understood that the petitioner
had agreed to forego its claim to extended stay
compensation in the event the period of performance of
the contract is to be extended as had happened in the
present case. This position was conveyed to the petitioner
by the letter of acceptance dated 13th December, 2010.
The petitioner did not raise any objection on the aforesaid
score. If the petitioner had voluntarily and consciously
agreed to the above situation, it will be difficult to accept
the contrary position that has sought to be now adopted
by seeking to claim extended stay compensation which
was earlier agreed to be foregone. It must therefore be
held that the claim against the aforesaid 'Head' i.e.
'extended stay compensation' does not give rise to an
arbitrable dispute so as to permit/require reference to
arbitration under clause 59.
12. The second issue i.e. claim for payment of
additional works however would stand on a different
footing. Clause 91.1 and 91.2 contemplate the
making/raising of claims by the contractor for additional
works and consideration thereof by the Engineer-in-chief.
The decision of the Engineer-in-chief is final and binding.
The finality attached to such a decision cannot be an
unilateral act beyond the pale of further scrutiny. Such a
view would negate the arbitration clause in the
agreement. Justifiability of such a decision though stated
to be final, must, be subject to a process of
enquiry/adjudication which the parties in the present case
have agreed would be by way of arbitration. The
objections raised by the respondent on the aforesaid
score, therefore, does not commend to the Court for
acceptance and is hereby rejected.
13. Accordingly, the claims made by the petitioner
for payment of additional works under both the contracts
are referred to arbitration by Shri Justice M.M. Kumar,
Chief Justice (Retd.), Jammu & Kashmir High Court, who is
hereby appointed as the sole arbitrator. The learned sole
arbitrator is requested to enter upon the reference and
conclude the same at an early date. The terms of
appointment of the sole arbitrator as well as the venue of
arbitration will be decided by the parties in consultation
with the learned Arbitrator.
14. Consequently and in the light of the above, the
Arbitration Petitions are allowed to the extent indicated
above.
…………......................J.
 (RANJAN GOGOI)
NEW DELHI
FEBRUARY 12, 2015
Print Page

No comments:

Post a Comment