TMI Blog2019 (3) TMI 1946X X X X Extracts X X X X X X X X Extracts X X X X ..... rator 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 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 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. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raj Bobby Paonam, Adv., Mrs. Tomthinnganbi Koijam, Adv., Mr. Ranjay Dubey, Adv., Mr. Nitin Kumar Thakur, AOR, Miss Geetanjali Mohan, AOR, Mr. Subash Chandra Sagar, Adv., Mr. E. C. Vidya Sagar, AOR JUDGMENT Ajay Rastogi, J. 1. Leave granted. 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), 2015 with effect from 23rd 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 vis-a-vis 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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. 6. But when the Respondents raised the final bills in the predetermined 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 and S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh and Ors. 2018 (15) Scale 421. 9. Learned Counsel further submits that once the no claim certificate has been signed by each of the Respondent and after 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 Ors. v. Master Construction Co. 2011(12) SCC 349; New India Assurance Co. Limited v. Genus Power Infrastructure Ltd. 2015(2) SCC 424; ONGC Mangalore Petrochemicals Limited v. ANS Constructions Limited and Anr. 2018(3) SCC 373. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certificate is being furnished, it is nothing more than a financial duress and undue influence by the 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 v. Boghara Polyfab Private Limited 2009(1) SCC 267 and there are series of decisions of this Court where no claim certificate in itself has never been considered to be the basis to non-suit 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. v. Tata Finance Ltd. and Anr. 2000(8) SCC 151 followed in Punj Lloyd Ltd. v. Petronet MHB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 prescribed pre-determined format (which also included no dues certificate). Since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lway 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 nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remise 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. 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 predetermined 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. 24. As on 1st January, 2016, the Amendment Act, 2015 was gazetted and according to Section 1(2) of the Amendment Act, 2015, it deemed to have come into force on 23rd 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no question of the Chief Justice or his designate exercising power Under Sub-section (6) of Section 11. 22.1.3. The Chief Justice or his designate while exercising power Under Sub-section (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 Sub-section (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 Constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 v. Kishorilal Gupta Bros. AIR 1959 SC 1362; P.K. Ramaiah Co. v. Chairman and Managing Director, National Thermal Power Corporation 1994 Supp(3) SCC 126; State of Maharashtra v. Nav Bharat Builders 1994 Supp(3) SCC 83; Nathani Steels Limited v. Associated Constructions 1995 Supp(3) SCC 324......(second category) Damodar Valley Corporation v. KK Kar 1974(1) SCC 141; Bharat Hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration. Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the Arbitral Tribunal with a specific direction that the said question should be decided in the first instance. 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 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 v. Boghara Polyfab Private Limited (supra) as follows: 52. Some illustrations (not exhaustive) as to when claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered 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 Ors. v. Master Construction Co. (supra); New India Assurance Co. Limited v. Genus Power Infrastructure Limited (supra); ONGC Mangalore Petrochemicals Limited v. ANS Constructions Limited and Anr. (supra). In all the cases referred, this Court has taken note of the judgment in National Insurance Company Limited v. Boghara Polyfab Private Limited (supra) on which a detailed discussion has been made 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dges' Bench of this Court in Union of India and Anr. v. M.P. Gupta (supra). 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)(a)(ii) Two arbitrators who shall be gazetted railway officers of equal status to be appointed in the manner laid in Clause 64(3)(b) for all claims of ₹ 5,00,000 (Rupees five lakhs) and above, and for all claims irrespective of the amount or value of such claims if 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 Sub-clause (3)(b) for his decision. (3)(a)(iii) It is a term of this contract that no person other than a gaz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed as arbitrators, Justice P.K. Bahri could not be appointed by the High Court as the sole arbitrator. On this short ground alone, the judgment and order under challenge to the extent it appoints Justice P.K. Bahri as sole arbitrator is set aside. Within 30 days from today, the Appellants herein shall appoint two gazetted railway officers as arbitrators. The two newly appointed arbitrators shall enter into reference within a period of another one month and thereafter the arbitrators shall make their award within a period of three months. and further reiterated by this Court in Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Limited (supra) as follows: 5. It is pointed out that there are three clauses in Sub-section (6) of Section 11. Clause (c) relates to failure to perform 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 parties to the agreement. Clause (c) relates to a person who may not be party to the agreement but has given consent to the agreement. It is also pointed out that there is a statutory mandate to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ern Railway Admn., Ministry of Railway v. Patel Engg. Co. Ltd. [(2008) 10 SCC 240]. This Court held that the appointment of arbitrator(s) named in the arbitration agreement is not mandatory or a must, but the emphasis should be on the terms of the arbitration agreement being adhered to and/or given effect, as closely as possible. 14. It was further held in Northern Railway case [(2008) 10 SCC 240] that the Chief Justice or his designate should first ensure that the remedies provided under the arbitration agreement are exhausted, but at the same time also ensure that the twin requirements of Sub-section (8) of Section 11 of the Act are kept in view. This would mean that invariably the court should first appoint the arbitrators in the manner provided for in the arbitration agreement. But where the independence and impartiality of the arbitrator(s) appointed/nominated in terms of the arbitration agreement is in doubt, or where the Arbitral Tribunal appointed in the manner provided in the arbitration agreement has not functioned and it becomes necessary to make fresh appointment, the Chief Justice or his designate is not powerless to make appropriate alternative arrangements to giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endent arbitrator Under Section 11(6) of the Act. In North Eastern Railway and Ors. v. 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 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 Ors. v. Uttar Pradesh State Bridge Corporation Ltd. (supra) and after placing reliance on North Eastern Railway and Ors. v. Tripple Engineering works (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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