UNION OF INDIA vs. M/S HARINARAYAN KHANDELWAL TH. DIRECTOR

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION        CIVIL APPEAL NO(s). 3303 OF 2019    (Arising out of SLP(C ) No(s). 6312 of 2018) UNION OF INDIA ……Appellants(s) VERSUS PARMAR CONSTRUCTION COMPANY       ……Respondent(s) WITH       CIVIL APPEAL NO(s).3306  OF 2019    (Arising out of SLP(C ) No(s). 6034 of 2018)      CIVIL APPEAL NO(s). 3304 OF 2019    (Arising out of SLP(C ) No(s). 2166 of 2018)      CIVIL APPEAL NO(s). 3307  OF 2019    (Arising out of SLP(C ) No(s). 6316 of 2018)      CIVIL APPEAL NO(s). 3312 OF 2019    (Arising out of SLP(C ) No(s). 7720 of 2018)      CIVIL APPEAL NO(s). 3310 OF 2019    (Arising out of SLP(C ) No(s). 8019 of 2018) Signature Not Verified Digitally signed by NEETU KHAJURIA Date: 2019.03.29 16:42:57 IST Reason:      CIVIL APPEAL NO(s). 3311 OF 2019    (Arising out of SLP(C ) No(s). 8021 of 2018) 1      CIVIL APPEAL NO(s). 3305 OF 2019    (Arising out of SLP(C ) No(s). 7937 of 2018)      CIVIL APPEAL NO(s). 3308 OF 2019    (Arising out of SLP(C ) No(s). 8597 of 2018)      CIVIL APPEAL NO(s). 3319 OF 2019    (Arising out of SLP(C ) No(s).8256 OF 2019)    (Arising out of Diary No.8885/2018)                   CIVIL APPEAL NO(s). 3309 OF 2019    (Arising out of SLP(C ) No(s). 8596 of 2018)      CIVIL APPEAL NO(s). 3314 OF 2019    (Arising out of SLP(C ) No(s). 9514 of 2018)      CIVIL APPEAL NO(s). 3313 OF 2019    (Arising out of SLP(C ) No(s). 8598 of 2018)      CIVIL APPEAL NO(s). 3315 OF 2019    (Arising out of SLP(C ) No(s). 9559 of 2018)      CIVIL APPEAL NO(s). 3317 OF 2019    (Arising out of SLP(C ) No(s). 11417 of 2018)      CIVIL APPEAL NO(s). 3318 OF 2019    (Arising out of SLP(C ) No(s).  11862 of 2018)      CIVIL APPEAL NO(s). 3316 OF 2019    (Arising out of SLP(C ) No(s).  22263 of 2018) J U D G M E N T Rastogi, J. Leave granted. 2 2. The question that arises for consideration in the batch of appeals by special leave is as to whether (1) the High Court was justified   in   invoking   amended   provision   which   has   been introduced   by   Arbitration   and   Conciliation(Amendment   Act), rd 2015   with   effect   from   23   October,   2015(hereinafter   being referred   to   as   “Amendment   Act,   2015”);   (2)   whether   the arbitration agreement stands discharged on acceptance of the amount   and   signing   no   claim/discharge   certificate   and   (3) whether   it  was   permissible   for   the   High  Court  under   Section 11(6) of the Arbitration and Conciliation Act, 1996(prior to the Amendment Act, 2015) to appoint third party or an independent Arbitrator   when   the   parties   have   mutually   agreed   for   the procedure   vis­à­vis   the   authority   to   appoint   the   designated arbitrator.     The   High   Court   has   passed   separate   orders   in exercise of its powers under Section 11(6) of the Act, 1996 in appointing   an   independent   arbitrator   without   adhering   to   the mutually   agreed   procedure   under   the   agreement   executed between the parties.  Since the batch of appeals involve common questions   of   law   and   facts   with   the   consent   of   parties,   are disposed off by the present judgment. 3 3. The facts have been noticed from civil appeal arising out of SLP(Civil) no. 2166 of 2018. 4. The   work   for   construction   of   office   accommodation   for officer and rest house was allotted to the respondent contractor, st at Dungarpur in the State of Rajasthan on 21  December, 2011. As   alleged,   the   extension   was   granted   by   the   appellants   to st complete the work by 31  March, 2013.  The measurement was accepted by the respondent under protest and when appellants th officials failed to clear 7  final bill until the respondent put a line over “under protest” and signed no claim certificate.   The total value of the work executed was of Rs. 58.60 lakhs against which Rs. 55.54 lakhs was paid and escalation cost was not added with interest @ 18% over delay payment.  Demand notice was sent to the appellants to appoint an arbitrator invoking Clause 64(3) of rd the GCC to resolve the disputes/differences on 23   December, 2013.   When the appellants failed to appoint the arbitrator in terms of Clause 64(3), application came to be filed under Section 11(6) of the Act, 1996 before the Chief Justice/his Designate for appointment of an independent arbitrator who after hearing the parties under the impugned judgment allowed the application of 4 the respondent and appointed a retired judge of the High Court as an independent arbitrator to arbitrate the proceedings.   5. In the instant batch of appeals, one fact is common that the orders were placed for various nature of construction works for its execution and the agreement executed between the parties includes a separate chapter for settlement of disputes leaving any dispute or difference between the parties to be resolved through the process of arbitration by appointing an arbitrator invoking clause 64(3) of the contract.  As per terms of the agreement, date of completion of the project was delayed as alleged due to breach of   obligations   by   the   appellants   and   the   scheduled   date   of completion had to be extended.   Meanwhile, due to rise in the prices of raw material, the project was impossible to be completed by the respondent contractors and hence correspondence was made to either pay the escalated price or in the absence, the respondents would not be in a position to conclude the contract. It   was   alleged   that   the   appellants   accepted   the   terms   and conditions   for   escalated   prices   and   asked   the   respondents   to complete the work and handover the project.   5 6. But when the respondents raised the final bills in the pre­ determined format (which also included the no dues certificate) on   the   newly   agreed   prices,   dispute   has   arisen   in   context   of payment of escalated prices or withholding of security deposits, taking note of the existence of arbitration clause in the agreement the respondents sent a notice to appoint an arbitrator as per clause   64(3)   of   GCC   to   resolve   the   dispute   of   payment   of outstanding   dues   which   was   declined   by   the   appellants   by sending the reply that “No Due Certificate” was signed and that entails no dispute to be sent to arbitration.  Since the appellants failed to appoint the arbitrator in accordance with the arbitration clause in the agreement, each of the respondent filed application under   Section   11(6)   of   the   Act   before   the   High   Court   for appointment   of   an   independent   arbitrator   and   the   primary objection of the appellants before the High Court was that on furnishing the no claim certificate by the contractor, no dispute subsists which is to be sent to the arbitrator and further the claims which has been submitted were beyond time as prescribed in the agreement and thus falls under the ‘excepted matter’ in the agreement.  6 7. After   the   matter   being   heard,   the   application   for appointment of arbitrator under Section 11(6) of the Act, 1996 came to be decided by the High Court of Rajasthan by separate order(s)   keeping   in   view   the   independence   and   neutrality   of arbitrator as envisaged under Section 12(5) of the Amendment Act, 2015.   The High Court further observed that the amended provisions of Act, 2015 shall apply to the pending proceedings and mere furnishing of no claim certificate would not take away the right of the parties and it is open for adjudication before the arbitrator and appointed a retired Judge of the High Court as an independent   sole   arbitrator   under   the   impugned   judgment   in exercise   of   power   under   Section   11(6)   of   the   Act,   1996. Indisputedly,   the   request   for   the   dispute   to   be   referred   to arbitration in the instant batch of appeals was received by the appellants   much   before   the   Amendment   Act,   2015   came   into rd force (i.e. 23  October, 2015). 8. Mr.   K.M.   Natarajan,   learned   Additional   Solicitor   General appearing for the appellants submits that Section 12 including sub­sections (1) and (5) as also Fifth and Seventh Schedule, has rd come into force by the Amendment Act, 2015 w.e.f. 23  October, 7 2015 and indisputedly, in the instant batch of appeals, request to refer to the arbitration was received by the appellants much prior to the Amendment Act, 2015.   In view of Section 21 read with Section 26 of the Amendment Act, 2015 where the request has been sent to refer the dispute to arbitration and received by the other side before the amendment Act, 2015 has come into force, the   proceedings   will   commence   in   accordance   with   the   pre­ amended   provisions   of   the   Act,   1996   and   in   the   given circumstances, apparent error has been committed by invoking Section 12(5) of the Amendment Act, 2015 for appointment of an independent arbitrator without resorting to the clause 64(3) of GCC as agreed by the  parties  and in support of  submission, learned counsel has placed reliance on the decision of this Court in the case of   M/s. Aravali Power Company Private Limited 2017(15) SCC 32 Vs. Era Infrastructure Engineering Limited  and   S.P.   Singla   Constructions   Pvt.   Ltd.  Vs.  State   of  2018(15) Scale 421. Himachal Pradesh and Others 9. Learned counsel further submits  that once  the  no  claim certificate has been signed by each of the respondent and after 8 settlement of the final bills, no arbitral dispute subsists and the contract stands discharged and they cannot be permitted to urge that they gave the no claim certificate under any kind of financial duress/undue influence and even in support thereof, no prima facie   evidence   has   been   placed   on   record.     In   the   given circumstances, the appointment of an independent arbitrator by the   High   Court   under   Section   11(6)   of   the   Act,   1996   is   not sustainable and in support of submission, learned counsel has placed reliance on the decisions of this Court in  Union of India and Others  Vs.  Master Construction Company   2011(12) SCC 349;   New   India   Assurance   Company   Limited  Vs.  Genus  2015(2) SCC 424;  Power Infrastructure Ltd. ONGC Mangalore Petrochemicals Limited Vs. ANS Constructions Limited and  2018(3) SCC 373.  Anr. 10. Learned   counsel   further   submits   that   none   of   the respondents had made any allegation of bias to the arbitrator who was likely to be appointed by the railways in terms of the agreement.  The said issue would have cropped up only when the appointment   of   arbitrator   was   made   by   the   railways.   It   was 9 required in the first instance to make every possible attempt to respect the agreement agreed upon by the parties in appointing an arbitrator to settle the disputes/differences and only when there   are   allegations   of   bias   or   malafide,   or   the   appointed arbitrator   has   miserably   failed   to   discharge   its   obligation   in submitting the award, the Court is required to examine those aspects   and   to   record   a   finding   as   to   whether   there   is   any requirement   in   default   to   appoint   an   independent   arbitrator invoking   Section   11(6)   of   the   Act,   1996   and   in   support   of submission, learned counsel has placed reliance on the decision of this Court in   Union of India & Another  Vs.  M.P. Gupta 2004(10)   SCC   504,   Union   of   India   &   Another   Vs.   V.S. Engineering(P)   Ltd.  2006(13)   SCC   240,   Northern   Railway Administration,   Ministry of   Railway,   New  Delhi  Vs.  Patel  2008(10) SCC 240,  Engineering Co. Limited Union of India Vs. Singh Builders Syndicate  2009(4) SCC 523.  11. Learned counsel further submits that as indicated in clause 64(7)   of   the   GCC,   all   statutory   modifications   thereof   will   be binding to the arbitration proceedings and after promulgation of 10 the Arbitration and Conciliation (Amendment) Act, 2015, clause 64(7) stood amended to fulfil the mandate of Amendment Act, 2015 and it was clarified that all statutory modifications thereof shall   apply   to   the   appointment   of   arbitrator   and   arbitration proceedings   and   the   respondents   being   signatory   to   the agreement have accepted the enforceability of aforesaid clause 64(7) and, therefore, are bound by any modification made in GCC even subsequently and placed reliance on the judgment of this Court in  (supra). S.P. Singla Constructions Pvt. Ltd’s case 12. Per   contra,   Mr.   Sameer   Jain,   learned   counsel   for   the respondents   submits   that   respondents   are   the   registered contractors undertaking various nature of works contracts with the railway establishment and are not in a bargaining position and it is a ground reality that final bills are not being released without   a   no   claim   certificate   being   furnished   in   advance   by them.   In all the cases, unilateral deductions have been made from the final bills furnished by each of the respondent and they are very small and petty contractors and the payments are not released unless the no claim certificate is being furnished, it is nothing more than a financial duress and undue influence by the 11 authorities   and   is   open   for   the   arbitrator   to   adjudicate   by examining the bills which was furnished for payment.   13. Learned counsel further submits that the effect of no claim certificate   has   been   examined   by   this   Court   in   National Insurance   Company   Limited  Vs.  Boghara   Polyfab   Private 2009(1) SCC 267 and there are series of decisions of this Limited  Court   where   no   claim   certificate   in   itself   has   never   been considered   to   be   the   basis   to   non­suit   the   request   made   in appointing an arbitrator to independently examine the dispute arising under the terms of the agreement. 14. Learned counsel further submits that once the appellants have failed to appoint an arbitrator under the terms of agreement before the application under Section 11(6) being filed before the Court, the authority forfeits its right of appointing an arbitrator and   it   is   for   the   Chief   Justice/his   designate   to   appoint   an independent arbitrator under Section 11(6) of the Act, 1996 as held by this Court in  Datar Switchgears Ltd. Vs. Tata Finance Ltd. and Another   2000(8) SCC 151 followed in  Punj Lloyd Ltd. 12 Vs. Petronet MHB Ltd.  2006(2) SCC 638 and later in  Union of  2007(7) India Vs. Bharat Battery Manufacturing Co. (P) Ltd. SCC 684 that once the party fails to appoint an arbitrator until filing   of   an   application   under   Section   11(6)   of   the   Act,   the opposite party would lose its right of appointment of arbitrator(s) as per the terms of the contract.   15. Learned   counsel  further   submits   that   while   dealing   with Section 11(6), the Chief Justice/his designate can even overlook the   qualification   of   the   arbitrator   under   the   agreement   but arbitration agreement in the instant case does not contain any specific qualification of the arbitrator under Clause 64(3) of the GCC and since the appellants failed to appoint an arbitrator until the application was filed, Section 11(6) empowers the Court to deviate   from   the   agreed   terms   if   required   by   appointing   an independent arbitrator and by virtue of operation of Section 12(5) of   the   Amendment   Act,   2015,   the   employee   of   the   railway establishment became ineligible to be appointed as arbitrator.  In the given circumstances, the authority is vested with the Chief Justice or  his designate to appoint an independent arbitrator under Section 11(6) of the Act and the same has been held by 13 this Court in  North Eastern Railway and Others Vs. Tripple  2014(9) SCC 288 and  Engineering Works Union of India and Others  Vs.  Uttar Pradesh State Bridge Corporation Limited 2015(2) SCC 52. 16. Learned counsel further submits that the primary object by introducing the remedy to measure arbitration is to have a fair, speedy   and   inexpensive   trial   by   the   Arbitral   Tribunal. Unnecessary delay or expense would frustrate the very purpose of arbitration and it holds out that arbitrator should always be impartial and neutrality of the arbitrator is of utmost importance and that has been noticed by the Parliament in amending Section rd 12(5) of the Act, 1996 which came into force on 23   October, 2015 and when the matters have been taken up for hearing by the High Court after the amendment has come into force, the effect of the amended provisions would certainly be taken note of and in the given circumstances, if an independent arbitrator has been appointed which is indisputedly an impartial and neutral person fulfilling the mandate of the object of the proceedings of arbitration, the amended provision has been rightly invoked by 14 the High Court in the appointment of an independent arbitrator invoking Section 11(6) of the Act, 1996. 17. We  have  heard learned counsel for the parties and  with their assistance perused the material on record. 18. The facts which manifest from the batch of appeals are that the respondents are the registered contractors with the railway establishment and undertaking work contracts (construction) of various kinds.  They raised a demand for escalation cost and the interest accrued thereon because the date of the completion of the project was delayed as alleged due to breach of obligations by the appellants and the scheduled date of completion had to be extended.   In the interregnum period, there was a rise in the prices of the raw material and the project became impossible to be completed by the respondent contractors.   Hence, a request was made to the appellants to either pay the enhanced escalation price otherwise the respondent contractors would not be in a position   to   conclude   the   contract   and   on   the   acceptance   for payment of the escalation costs, respondent contractor completed the work and delivered the project and raised final bills in the 15 prescribed pre­determined format (which also included no dues certificate).   Since the dispute has arisen in the context of the payment   of   the   escalated   cost,   as   demanded   by   respondent contractors,   and   their   being   a   clause   of   arbitration   in   the agreement, each of the respondent contractors sent a notice for arbitration invoking clause 64(3) of GCC, which in majority of the cases declined by the appellants stating that no dues certificate has been furnished and that entailed no subsisting dispute and that   was   the   reason   due   to   which   each   of   the   respondent contractor   had   approached   the   High   Court   by   filing   an application under Section 11(6) of the Act, 1996.  It is also not in dispute that the request for referring the dispute to arbitration was received by the appellants much prior to the enforcement of rd the   Amendment   Act,   2015   which   came   into   force,   w.e.f.   23 October, 2015. 19. To proceed with the matter further, it will be apposite to take note of the relevant clauses of the agreement with which we are presently concerned: ­ “CLAIMS   43.(1) Monthly Statement Of Claims : The Contractor shall prepare and furnish to the Engineer once in every month an account giving full and detailed 16 particulars of all claims for any additional expenses to which the Contractor may consider himself entitled to and of all extra  or additional works ordered by  the Engineer which he has executed during the preceding month and no claim for payment for and such work will be considered which has not been included in such particulars.  43.(2)   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. The Contactor shall be debarred from disputing the correctness of the items covered by "No   Claim"   Certificate   or   demanding   a   clearance   to arbitration in respect thereof. 64.(1) Demand for Arbitration:  64.(1)   (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 and liabilities   of   the   parties   on   any   matter   in   question, dispute   or   difference   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.  64.(1) (ii) The demand for arbitration shall specify the matters   which   are   in   question,   or   subject   of   the dispute or difference as also the amount of claim item­ wise. Only such dispute(s)or difference(s) in respect of which   the   demand   has   been   made,   together   with counter claims or set off, given by the Railway, shall be referred to arbitration and other matters shall not be included in the reference.  17 64.(1)   (iii)   (a)   The   Arbitration   proceedings   shall   be assumed to have commenced from the day, a written and  valid   demand  for   arbitration  is   received  by   the Railway.   (b)   The   claimant   shall   submit   his   claim stating the facts supporting the claims alongwith all the   relevant   documents   and   the   relief   or   remedy sought against each claim within a period of 30 days from the date of appointment of the Arbitral Tribunal. (c) The Railway shall submit its defence statement and counter claim(s), if any, within a period of 60 days of receipt   of   copy   of   claims   from   Tribunal   thereafter, unless   otherwise   extension   has   been   granted   by Tribunal.   (d)   Place   of   Arbitration   :   The   place   of arbitration would be within the geographical limits of the Division of the Railway where the cause of action arose or the Headquarters of the concerned Railway or any other place with the written consent of both the parties.  64.(1)   (iv)   No   new   claim   shall   be   added   during proceedings   by   either   party.   However,   a   party   may amend   or   supplement   the   original   claim   or   defence thereof   during   the   course   of   arbitration   proceedings subject to acceptance by Tribunal having due regard to the delay in making it.  64.(1)   (v)   If   the   contractor(s)   does/do   not   prefer his/their specific and final claims in writing, within a period of 90 days of receiving the intimation from the Railways   that   the   final   bill   is   ready   for   payment, he/they   will   be   deemed   to   have   waived   his/their claim(s)   and   the   Railway   shall   be   discharged   and released of all liabilities under the contract in respect of these claims. 64.(2)   Obligation   During   Pendency   Of   Arbitration   : Work   under   the   contract   shall,   unless   otherwise directed   by   the   Engineer,   continue   during   the arbitration   proceedings,   and   no   payment   due   or payable by the Railway shall be withheld on account of such proceedings, provided, however, it shall be open for Arbitral Tribunal to consider and decide whether or not   such   work   should   continue   during   arbitration proceedings.  64.(3) Appointment of Arbitrator :  18 64.(3) (a)(i) In cases where the total value of all claims in   question   added   together   does   not   exceed   Rs. 25,00,000 (Rupees twenty five lakh only), the Arbitral Tribunal shall consist of a Sole Arbitrator who shall be a   Gazetted   Officer   of   Railway   not   below   JA   Grade, nominated by the General Manager. The sole arbitrator shall be appointed within 60 days from the day when a written and valid demand for arbitration is received by GM. {Authority : Railway Board’s letter no. 2012/CE­ I/CT/ARB./24, Dated 22.10./05.11.2013}  64.(3) (a)(ii) In cases not covered by the Clause 64(3)(a) (i),  the  Arbitral Tribunal shall  consist   of  a  Panel  of three Gazetted Railway Officers not below JA Grade or 2 Railway Gazetted Officers not below JA Grade and a retired Railway Officer, retired not below the rank of SAG Officer, as the arbitrators. For this purpose, the Railway will send a panel of more than 3 names of Gazetted Railway Officers of one or more departments of the Railway which may also include the name(s) of retired   Railway   Officer(s)   empanelled   to   work   as Railway   Arbitrator   to   the   contractor   within   60   days from  the day  when a written and valid demand for arbitration is received by the GM. Contractor will be asked to suggest to General Manager at least 2 names out   of   the   panel   for   appointment   as   contractor’s nominee within 30 days from the date of dispatch of the   request   by   Railway.   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.   GM   shall   complete   this   exercise   of appointing the Arbitral Tribunal within 30 days from the   receipt   of   the   names   of   contractor’s   nominees. 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 arbitrator.  64.(7) Subject   to   the   provisions   of   the   aforesaid Arbitration and Conciliation Act, 1996 and the rules thereunder   and   any   statutory   modifications   thereof 19 shall apply to the arbitration proceedings under this Clause.  20. As   per   clause   43(2),   the   contractor   signs   a   “No   claim” certificate in favour of the railway in the prescribed format after the   work   is   finally   measured   up   and   the   contractor   shall   be debarred   from   disputing   the   correctness   of   the   items   covered under the “No Claim” certificate or demanding a clearance to arbitration in respect thereof.   Each of the respondent has to attach no claim certificate with final bills in the prescribed format to   be   furnished   in   advance   before   the   final   bills   are   being examined and measured by the railway authorities.  Although it has been seriously disputed by the appellants but that is the reason for which even after furnishing no claim certificate with the   final   bills   being   raised,   it   came   to   be   questioned   by   the respondent(contractor) by filing an application to refer the matter to arbitration invoking clause 64(3) of the conditions of contract as agreed by the parties.  21. Under   clause   64(1),   if   there   is   any   dispute   or   difference between the parties hitherto as to the construction or operation 20 of   the   contract,   or   the   respective   rights   and   liabilities   of   the parties on any matter in question or any other ancillary disputes arising   from   the   terms   of   the   contract   or   if   the   railway establishment fails to take a decision within the stipulated period and the dispute could not be amicably settled, such dispute or difference is to be referred to arbitration and who shall arbitrate such   disputes/differences   between   the   parties,   the   General Manager may nominate the officer by designation as referred to under   clause   64(3)(a)(i)   and   a(ii)   respectively   with   further procedure being prescribed for the sole arbitrator or the Arbitral Tribunal to adjudicate the disputes/differences arising under the terms of contract between the parties. 22. It   is   also   not   disputed   that   when   the   request   of   the respondent  contractors  was rejected by the  appellants on  the premise   of   the   no   claim   certificate   being   furnished,   arbitral dispute does not survive which is to be sent to arbitration, each of the respondent contractor approached the High Court by filing an application under Section 11(6) of the Act for appointment of an arbitrator for settling their disputes/differences arising from the terms of contract as agreed between the parties. 21 23. It is to be noticed that the cost of escalation which was raised by each of the respondent contractor with final bills were appended  with the   no claim  certificate  in the  prescribed  pre­ determined   format   and   each   of   the   claim   of   the   respondent contractor for making a reference to the Arbitrator for settling the disputes/differences arising from the terms of the contract, as agreed between the parties was turned down by the appellants because of furnishing no claim certificate. st 24. As on 1   January, 2016, the Amendment Act, 2015 was gazetted and according to Section 1(2) of the Amendment Act, rd 2015, it deemed to have come into force on 23   October 2015. Section 21 of the Act, 1996 clearly envisage that unless otherwise agreed by the parties, the arbitral proceedings in respect of a dispute shall commence from the date on which a request for that   dispute   to   be   referred   to   arbitration   is   received   by   the respondent and the plain reading of Section 26 of Amendment Act,   2015   is   self­explicit,   leaves   no   room   for   interpretation. Section 21 & 26 of the Act, 1996/Amendment Act, 2015 relevant for the purpose is extracted hereunder: ­ 22 “ 21.   Commencement   of   arbitral   proceedings.   — Unless  otherwise   agreed  by   the  parties,  the  arbitral proceedings   in   respect   of   a   particular   dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. 26.     Act   not   to   apply   to   pending   arbitral proceedings   –   Nothing   contained   in   this   Act   shall apply   to   the   arbitral   proceedings   commenced,   in accordance with the provisions of Section 21 of the principal  Act,  before   the   commencement   of   this   Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.” 25. The conjoint reading of Section 21 read with Section 26 leaves no manner of doubt that the provisions of the Amendment Act, 2015 shall not apply to such of the arbitral proceedings which has commenced in terms of the provisions of Section 21 of the Principal Act unless the parties otherwise agree.  The effect of Section 21 read with Section 26 of Amendment Act, 2015 has been   examined   by   this   Court   in   Aravali   Power   Company   (supra) Private   Limited  Vs.  Era  Infra  Engineering   Limited and taking note of Section 26 of the Amendment Act, 2015 laid down the broad principles as under:­ “22.   The principles which emerge from the decisions referred to above are: 22.1.  In cases governed by 1996 Act as it stood before the Amendment Act came into force: 23 22.1.1.   The   fact   that   the   named   arbitrator   is   an employee   of   one   of   the   parties   is   not   ipso   facto   a ground to raise a presumption of bias or partiality or lack of independence on his part. There can however be a justifiable apprehension about the independence or   impartiality   of   an   employee   arbitrator,   if   such person   was   the   controlling   or   dealing   authority   in regard   to   the   subject   contract   or   if   he   is   a   direct subordinate   to   the   officer   whose   decision   is   the subject­matter of the dispute. 22.1.2.   Unless   the   cause   of   action   for   invoking jurisdiction under Clauses ( a ), ( b ) or ( c ) of sub­section (6) of Section 11 of the 1996 Act arises, there is no question   of   the   Chief   Justice   or   his   designate exercising power under sub­section (6) of Section 11. 22.1.3.   The   Chief   Justice   or   his   designate   while exercising power under sub­section (6) of Section 11 shall   endeavour   to   give   effect   to   the   appointment procedure prescribed in the arbitration clause. 22.1.4.  While exercising such power under sub­section (6) of Section 11, if circumstances exist, giving rise to justifiable   doubts   as   to   the   independence   and impartiality   of   the   person   nominated,   or   if   other circumstances warrant appointment of an independent arbitrator   by   ignoring   the   procedure   prescribed,   the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else. 22.2.   In   cases   governed   by   1996   Act   after   the Amendment Act has come into force: If the arbitration clause   finds   foul   with   the   amended   provisions,   the appointment   of   the   arbitrator   even   if   apparently   in conformity   with   the   arbitration   clause   in   the agreement, would be illegal and thus the court would be within its powers to appoint such arbitrator(s) as may be permissible.” which has been further considered in  S.P. Singla Constructions Pvt. Ltd. case(supra) . 24 “16.   Considering the facts and circumstances of the present case, we are not inclined to go into the merits of  this  contention  of the appellant  nor  examine  the correctness or otherwise of the above view taken by the Delhi High Court in Ratna Infrastructure Projects case; suffice   it   to   note   that   as   per   Section   26   of   the Arbitration   and   Conciliation   (Amendment)   Act,   2015 the   provisions   of   the   Amended   Act,   2015   shall   not apply   to   the   arbitral   proceedings   commenced   in accordance with the provisions of Section 21 of the Principal   Act   before   the   commencement   of   the Amendment Act unless the parties otherwise agree.  In the facts and circumstances of the present case, the proviso in clause (65) of the general conditions of the contract cannot be taken to be the agreement between the   parties   so   as   to   apply   the   provisions   of   the amended   Act.     As   per   Section   26   of   the   Act,   the provisions of the Amendment Act, 2015 shall apply in relation to arbitral proceedings commenced on or after the   date   of   commencement   of   the   Amendment   Act, 2015(w.e.f.   23.10.2015).     In   the   present   case, arbitration proceedings commenced way back in 2013, much prior to coming into force of the amended Act and, therefore, provisions of the Amended Act cannot be invoked.” 26. We   are   also  of   the   view  that   the   Amendment   Act,   2015 rd which came into force, i.e. on 23  October, 2015, shall not apply to the arbitral proceedings which has commenced in accordance with the provisions of Section 21 of the Principal Act, 1996 before the coming into force of Amendment Act, 2015, unless the parties otherwise agree. 27. In the instant case, the request was made and received by the   appellants   in   the   concerned   appeal   much   before   the 25 Amendment Act, 2015 came into force.  Whether the application was pending for appointment of an arbitrator or in the case of rejection   because   of   no   claim   as   in   the   instant   case   for appointment of  an arbitrator including  change/substitution of arbitrator,   would   not   be   of   any   legal   effect   for   invoking   the provisions of Amendment Act, 2015, in terms of Section 21 of the principal   Act,   1996.     In   our   considered   view,   the applications/requests   made   by   the   respondent   contractors deserves to be examined in accordance with the principal Act, 1996 without taking resort to the Amendment Act, 2015 which rd came into force from 23  October, 2015. 28. The thrust of the learned counsel for the appellants that submission of a no claim certificate furnished by each of the respondent/contractor   takes   away   the   right   for   settlement   of dispute/difference   arising   in   terms   of   the   agreement   to   be examined   by   the   arbitrator   invoking   Clause   64(3)   of   the conditions of the contract.  The controversy presented before us is that whether after furnishing of no claim certificate and the receipt of payment of final bills as submitted by the contractor, 26 still   any   arbitral   dispute   subsists   between   the   parties   or   the contract stands discharged. 29. Before we take note of the factual aspect of the present matters, it will be appropriate to carefully consider the plenitude of decisions of this Court referred to by learned counsel for the parties and to summarise (first category)   Union of India  Vs.  AIR 1959 SC 1362;  Kishorilal Gupta & Bros. P.K. Ramaiah & Co. Vs. Chairman and Managing Director, National Thermal   1994 Supp(3) SCC 126; Power Corpn.   State of Maharashtra Vs. Nav Bharat Builders  1994 Supp(3) SCC 83;  Nathani Steels Limited  Vs.  Associated   Constructions   1995   Supp(3)   SCC 324……(second category)  Damodar Valley Corporation Vs. KK Kar   1974(1)   SCC   141;   Bharat   Heavy   Electricals   Limited   1982(1)   SCC   625; Ranipur  Vs.  Amarnath   Bhan   Prakash Union of India and Anr. Vs. L.K. Ahuja and Co.  1988(3) SCC 76;  Jayesh Engineering Works Vs. New India Assurance Co. Ltd.   2000(10)   SCC   178;     Chairman   and   MD,     NTPC   Ltd.  Vs. 27 Reshmi Constructions Builders & Contractors   2004(2) SCC 663. 30. The   aforesaid   cases   fall   under   two   categories,   the   one category where the Court after considering the facts found that there   was   full   and   final   settlement   resulting   in   accord   and satisfaction and there was  no substance in the  allegations  of coercion/undue influence.  In the second category of cases, the Court found some substance in the contention of the claimants that “no­dues/no claims certificate or discharge vouchers” were insisted and taken (either on a printed format or otherwise) as a condition   precedent   for   release   of   the   admitted   dues   and consequently this Court held that the disputes are arbitrable.  It took note of the principles earlier examined and summarised in National Insurance Company Limited  Vs.  Boghara Polyfab Private Limited case  (supra) as under: ­

28

31. Further, taking note of the jurisdiction of the Chief Justice/ his Designate in the proceedings under Section 11(6) of Act 1996, this Court culled out the legal proposition in paragraph 51 as follows:­

32. It further laid down the illustrations as to when claims are arbitrable and when they are not.  This may be illustrative (not exhaustive) but beneficial for the authorities in taking a decision as   to   whether   in   a   given   situation   where   no   claim/discharge voucher has been furnished what will be its legal effect and still 29 there  is   any   arbitral   dispute   subsists   to   be   examined   by   the arbitrator in the given facts and circumstances and held in para 52   of   National   Insurance   Company   Limited  Vs.  Boghara Polyfab Private Limited (supra) as follows:­ “52.  Some   illustrations   (not   exhaustive)   as   to   when claims   are   arbitrable   and   when   they   are  not,   when discharge of contract by accord and satisfaction are disputed, to round up the discussion on this subject are: ( i ) A claim is referred to a conciliation or a pre­litigation Lok   Adalat.   The   parties   negotiate   and   arrive   at   a settlement. The terms of settlement are drawn up and signed   by   both   the   parties   and   attested   by   the conciliator  or  the  members  of  the  Lok  Adalat.  After settlement by way of accord and satisfaction, there can be no reference to arbitration. ( ii ) A claimant makes several claims. The admitted or undisputed claims are paid. Thereafter negotiations are held for settlement of the disputed claims resulting in an agreement in writing settling all the pending claims and disputes. On such settlement, the amount agreed is   paid   and   the   contractor   also   issues   a   discharge voucher/no­claim   certificate/full   and   final   receipt. After the contract is discharged by such accord and satisfaction,   neither   the   contract   nor   any   dispute survives   for   consideration.   There   cannot   be   any reference of any dispute to arbitration thereafter. ( iii ) A contractor executes the work and claims payment of say rupees ten lakhs as due in terms of the contract. The   employer   admits   the   claim   only   for   rupees   six lakhs and informs the contractor either in writing or orally   that   unless   the   contractor   gives   a   discharge voucher   in   the   prescribed   format   acknowledging receipt of rupees six lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released. The contractor who is hard­pressed for funds and keen to get the admitted amount released, 30 signs on the dotted line either in a printed form or otherwise, stating that the amount is received in full and final settlement. In such a case, the discharge is under   economic   duress   on   account   of   coercion employed by the employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration. ( iv ) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the insured is   informed   during   discussions   that   unless   the claimant gives a full and final voucher for a specified amount (far lesser than the amount claimed by the insured),   the   entire   claim   will   be   rejected.   Being   in financial   difficulties,   the   claimant   agrees   to   the demand and issues an undated discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount mentioned in the voucher is paid. The   accord   and   satisfaction   in   such   a   case   is   not voluntary but under duress, compulsion and coercion. The   coercion   is   subtle,   but   very   much   real.   The “accord”   is   not   by   free   consent.   The   arbitration agreement can thus be invoked to refer the disputes to arbitration. ( v ) A claimant makes a claim for a huge sum, by way of damages.   The   respondent   disputes   the   claim.   The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and requests for settlement. The respondent agrees and settles the claim and obtains a full and final discharge voucher. Here   even   if   the   claimant   might   have   agreed   for settlement   due   to   financial   compulsions   and commercial pressure or economic duress, the decision was his free choice. There was no threat, coercion or compulsion by the respondent. Therefore, the accord and satisfaction is binding and valid and there cannot be any subsequent claim or reference to arbitration.” 33. It is true that there cannot be a rule of absolute kind and each   case   has   to   be   looked   into   on   its   own   facts   and circumstances.  At the same time, we cannot be oblivious of the 31 ground realities that where a petty/small contractor has made investments from his available resources in executing the works contract   and   bills   have   been   raised   for   the   escalation   cost incurred   by   him   and   the   railway   establishments/appellants without any justification reduces the claim unilaterally and take a defence of the no claim certificate being furnished which as alleged   by   the   respondents   to   be   furnished   at   the   time   of furnishing the final bills in the prescribed format. 34. The   nature   of   work   under   contract   of   the   respondent contractors and the claim of the contractors which is the dispute in   brief   to   be   adjudicated   by   the   arbitrator   is   submitted   as follows:­

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35

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35. The respondents are the contractors and attached with the railway   establishment   in   the   instant   batch   of   appeals   are claiming   either   refund   of   security   deposits/bank   guarantee, which has been forfeited or the escalation cost has been reduced from   final   invoices   unilaterally   without   tendering   any justification.  It is manifest from the pleadings on record that the respondent   contractors   who   entered   into   contract   for construction works with the railway establishment cannot afford to take any displeasure from the employer, the amount under the bills   for   various   reasons   which   may   include   discharge   of   his liability   towards   the   bank,   financial   institutions   and   other persons, indeed the railway establishment has a upper hand.  A rebutable presumption could be drawn that when a no claim has been furnished in the prescribed format at the time of final bills being   raised   with   unilateral   deductions   made   even   that acceptable   amount   will   not   be   released,   unless   no   claim certificate is being attached to the final bills.  On the stated facts, para   52(iii)   referred   to   by   this   Court   in   National   Insurance 37 Company Limited Vs. Boghara Polyfab Private Limited (supra) indeed covers the cases of the present contractors with whom no option has been left and being in financial duress to accept the amount tendered in reference to the  final bills furnished and from the discharge voucher which has been taken to be a defence by the appellants prima facie cannot be said to be voluntary and has   resulted   in   the   discharge   of   the   contract   by   accord   and satisfaction as claimed by the appellants.  In our considered view, the   arbitral   dispute   subsists   and   the   contract   has   not   been discharged as being claimed by the appellants employer(s) and all the contentions in this regard are open to be examined in the arbitral proceedings. 36. Learned   counsel   for   the   appellants   has   referred   to   the judgments   in   Union   of   India   and   Others  Vs.  Master Construction   Company (supra);    New   India   Assurance Company Limited  Vs.  Genus Power Infrastructure Limited (supra);   ONGC   Mangalore   Petrochemicals   Limited  Vs.  ANS Constructions   Limited   and   Anr.  (supra).     In   all   the   cases referred, this Court has taken note of the judgment in  National 38 Insurance   Company   Limited  Vs.  Boghara   Polyfab   Private   (supra) on which a detailed discussion has been made Limited and taking note of the pleadings of the case on hand, this Court arrived at a conclusion that prima facie there is an evidence on record to justify that no claim certificate or letter of subrogation was   voluntary   and   free   from   coercion/undue   influence   and accordingly held that there is no live claim subsists, which is arbitrable   after   the   discharge   of   the   contract   by   accord   and satisfaction. 37. The further submission made by the appellants that the High Court has committed error in appointing an independent arbitrator   without   resorting   to   the   arbitrator   which   has   been assigned to arbitrate the dispute as referred to under clause 64(3) of the contract.   To examine the issue any further, it may be relevant to take note of three clauses in sub­section 6 of Section 11 of Act, 1996(pre­amended Act, 2015) which is as under:­ “(6) Where, under an appointment procedure agreed upon by the parties,—  (a)   a   party   fails   to   act   as   required   under   that procedure; or  39 (b) the parties, or the two appointed arbitrators, fail to reach   an   agreement   expected   of   them   under   that procedure; or  (c) a person, including an institution, fails to perform any   function   entrusted   to   him   or   it   under   that procedure,  a party may request the Chief Justice or any person or institution designated  by  him  to take the necessary measure,   unless   the   agreement   on   the   appointment procedure   provides   other   means   for   securing   the appointment. 38. Clause (c) of sub­section (6) of Section 11 relates to failure to   perform   any   function   entrusted   to   a   person   including   an institution and also failure to act under the procedure agreed upon by the parties.  In other words, clause(a) refers to the party failing to act as required under that procedure; clause(b) refers to the agreement where the parties fails to reach to an agreement expected of them under that procedure and clause (c ) relates to a person which may not be a party to the agreement but has given his consent to the agreement and what further transpires is that before any other alternative is resorted to, agreed procedure has to be given its precedence and the terms of the agreement has to be given its due effect as agreed by the parties to the extent possible.  The corrective measures have to be taken first and the Court is the last resort.  It is also to be noticed that by appointing 40 an arbitrator in terms of sub­section (8) of Section 11 of Act, 1996, due regard has to be given to the qualification required for the arbitrator by the agreement of the parties and also the other considerations such as to secure an independent and impartial arbitrator.  To fulfil the object with terms and conditions which are cumulative in nature, it is advisable for the Court to ensure that the remedy provided as agreed between the parties in terms of the contract is first exhausted. 39. It has been considered by a three Judges’ Bench of this Court in   (supra). Union of  India &  Another  Vs.  M.P.   Gupta Taking note of clause 64 of the agreement for arbitration, the Court held that in view of express provision contained in terms of the agreement in appointment of two gazetted railway officers, the   High   Court   was   not   justified   in   appointment   of   a   retired Judge as the sole arbitrator.  It held as under:­ “3.  The relevant part of clause 64 runs as under: “64.  Demand for arbitration .—* (3)( )( ) Two arbitrators who shall be gazetted railway a ii officers of equal status to be appointed in the manner laid in clause 64(3)( b ) for  all claims of Rs 5,00,000 (Rupees   five   lakhs)   and   above,   and   for   all   claims irrespective of the amount or value of such claims if 41 the issues involved are of a complicated nature. The General   Manager   shall   be   the   sole   judge   to   decide whether   the   issues   involved   are   of   a   complicated nature or not. In the event of the two arbitrators being undecided in their opinions, the matter under dispute will be referred to an umpire to be appointed in the manner laid down in sub­clause (3)( b ) for his decision. (3)( )( ) It is a term of this contract that no person a iii other than a gazetted railway officer should act as an arbitrator/umpire and if for any reason, that is not possible, the matter is not to be referred to arbitration at all.”

40. It was further considered by this Court in  Union of India (supra) as under:­ and Another Vs. V.S. Engineering(P) Ltd.  “3. The learned Additional Solicitor General appearing for the appellants Union of India has pointed out that as per clauses 63 and 64 of the General Conditions of Contract, this Court in no uncertain terms has held that the Arbitral Tribunal has to be constituted as per the General Conditions of Contract, the High Court should not interfere under Section 11 of the Act and the High Court should accept the Arbitral Tribunal appointed by the General Manager, Railways. In this connection, the learned ASG invited our attention to a decision of this Court directly bearing on the subject in Union of India v. M.P. Gupta [(2004) 10 SCC 504] wherein a similar question with regard to appointment of the Arbitral Tribunal for the Railways with reference to clause 64 of the General Conditions of Contract came up before this Court and this 42

and   further   reiterated   by   this   Court   in   Northern   Railway Administration,   Ministry of   Railway,   New  Delhi  Vs.  Patel (supra) as follows:­ Engineering Company Limited

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and   further,   in   Union   of   India  Vs.  Singh   Builders Syndicate (supra) it was held as under:­

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41. This Court has put emphasis to act on the agreed terms and to first resort to the procedure as prescribed and open for the parties to  the   agreement  to  settle   differences/disputes   arising under   the   terms   of   the   contract   through   appointment   of   a designated   arbitrator   although   the   name   in   the   arbitration agreement is not mandatory or must but emphasis should always 45 be on the terms of the arbitration agreement to be adhered to or given effect as closely as possible. 42. The   judgments   in   (supra); Datar   Switchgears   Ltd.   case Punj Lloyd case (supra) and  Union of India Vs. Bharat Battery (supra) on which reliance has Manufacturing Co. (P) Ltd. case been   placed   by   the   learned   counsel   for   the respondents/contractors may not be of assistance for the reason that the question for consideration before this Court was that if one party demands the opposite party to appoint an arbitrator and the other party fails to appoint an arbitrator within 30 days what   will   be   its   legal   consequence   and   it   was   held   in   the cases(supra)  that   if   one   party   demands   the   opposite   party   to appoint an arbitrator and if the opposite party has failed to make an appointment within 30 days, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former makes an application under Section 11 seeking appointment of an arbitrator.  In the instant cases, the question for   consideration   is   as   to   whether   the   Chief   Justice   or   his Designate in exercise of power under Section 11(6) of the Act 46 should   directly   make   an   appointment   of   an   independent arbitrator without, in the first instance, resorting to ensure that the   remedies   provided   under   the   arbitration   agreement   are exhausted.  43. In   the   present   batch   of   appeals,   independence   and impartiality of the arbitrator has never been doubted but where the   impartiality   of   the   arbitrator   in   terms   of   the   arbitration agreement is in doubt or where the Arbitral Tribunal appointed in terms of the arbitration agreement has not functioned, or has failed to conclude the proceedings or to pass an award without assigning any reason and it became necessary to make a fresh appointment,   Chief   Justice   or   his   designate   in   the   given circumstances   after   assigning   cogent   reasons   in   appropriate cases may resort to an alternative arrangement to give effect to the appointment of independent arbitrator under Section 11(6) of the Act.   In   North Eastern Railway and Others  Vs.  Tripple Engineering Works   (supra), though the panel of arbitrators as per clause 64(3)(a)(ii) and (iii) of the general conditions of contract under GCC was appointed in the year 1996 but for two decades, the arbitrator failed to pass the award and no explanation came 47 forward.  In the given situation, this Court observed that general conditions   of   the   contract   do   not   prescribe   any   specific qualification   of   the   arbitrators   to   be   appointed   under   the agreement  except  that   they  should   be  railway   officers   further held that even if the arbitration agreement was to specifically provide   for   any   particular   qualification(s)   of   an   arbitrator   the same would not denude the power of the Court acting under Section 11(6) to depart therefrom and accordingly, confirmed the appointment of an independent arbitrator appointed by the High Court in exercise of Section 11(6) of the Act, 1996.  Almost the same situation was examined by this Court in   Union of India and Others Vs. Uttar Pradesh State Bridge Corporation Ltd. (supra) and after placing reliance on   North Eastern Railway and Others  Vs.  Tripple Engineering works (supra) held that since Arbitral Tribunal has failed to perform and to conclude the proceedings, appointed an independent arbitrator in exercise of power   under   Section   11(6)   of   the   Act,   1996.     In   the   given circumstances, it was the duty of the High Court to first resort to the mechanism in appointment of an arbitrator as per the terms of contract as agreed by the parties and the default procedure 48 was opened to be resorted to if the arbitrator appointed in terms of the agreement failed to discharge its obligations or to arbitrate the   dispute   which   was   not   the   case   set   up   by   either   of   the parties. 44. To conclude, in our considered view, the High Court was not justified   in   appointing   an   independent   arbitrator   without resorting to the procedure for appointment of an arbitrator which has been prescribed under clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties. 45. Consequently,   the   orders   passed   by   the   High   Court   are quashed and set aside.   The appellants are directed to appoint the arbitrator in terms of clause 64(3) of the agreement within a period of one month from today under intimation to each of the respondents/contractors   and   since   sufficient   time   has   been consumed,   at   the   first   stage   itself,   in   the   appointment   of   an arbitrator   and   majority   of   the   respondents   being   the   petty contractors, the statement of claim be furnished by each of the respondents within four weeks thereafter and the arbitrator may decide the   claim  after affording  opportunity  of  hearing  to  the parties expeditiously without being influenced/inhibited by the observations made independently in accordance with law. 49 46.  The batch of appeals are accordingly disposed of on the terms indicated.  No costs. 47. Pending application(s), if any, stand disposed of. …………………………J. (A.M. KHANWILKAR) …………………………J. (AJAY RASTOGI) NEW DELHI March 29, 2019 50