C. Raghavan v. Southern Railway & Union of India and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** ## **THE HONOURABLE MR.JUSTICE ANTONY DOMINIC** ## **THURSDAY, THE 22ND DAY OF NOVEMBER 2012/1ST AGRAHAYANA 1934** ## **AR.No. 7 of 2012 ()** ## **-------------------** ## **APPLICANT(S):** **---------------------------** **C.RAGHAVAN, AGED 54 YEARS, S/O. LATE KUMARAN NAIR, CONTRACTOR, SREEKUMAR BUILDINGS, SOUTH CHALAKUDY, THRISSUR DISTRICT - 680 307.** **BY ADVS.SRI.K.S.BABU SMT.N.SUDHA SRI.V.A.GOPIKRISHNAN SRI.GEEN T.MATHEW SRI.VIPIN VISWAN SRI.BABU SHANKAR** **OPPOSITE PARTY: ------------------------------** **1. SOUTHERN RAILWAY, HEAD QUARTERS OFFICE, PARK TOWN, CHENNAI, PIN - 600 003, REPRESENTED BY IT'S GENERAL MANAGER.** **2. UNION OF INDIA, MINISTRY OF RAILWAYS, NEW DELHI, REPRESENTED BY THE GENERAL MANAGER, SOUTHERN RAILWAY, HEAD QUARTERS OFFICE, PARK TOWN, CHENNAI - PIN-600 003.** **3. CHIEF ENGINEER (CONSTRUCTION) (NORTH) SOUTHERN RAILWAY, EGMORE, CHENNAI - 600 008.** **4. THE CHIEF ADMINISTRATIVE OFFICER (CONSTRUCTION) OFFICE OF THE CHIEF ADMINISTRATIVE OFFICER, SOUTHERN RAILWAY,EGMORE, CHENNAI -8.** **5. DEPUTY CHIEF ENGINEER (CONSTRUCTION), SOUTHERN RAILWAY, PODANNUR, COIMBATORE DISTRICT, TAMIL NADU.** **6. P. NAGARAJAN,** **DEPUTY FINANCIAL ADVISOR AND CHIEF ACCOUNTS OFFICER/II/CONSTRUCTION, SOUTHERN RAILWY,** **EGMORE,CHENNAI -8. sts** **2/-** **-2-** **AR.NO.7/2012** **7. P. MOIDEENKUTTY, DEPUTY CHIEF ENGINEER/CONSTRUCTION, OFFICE OF THE DEPUTY CHIEF ENGINEER, SOUTHERN RAILWAY, THIRUVANANTHAPRUAM.** ## **8. V.M. MAHTEW,** **DEPUTY CHIEF ENGINEER (ELE), OFFICE OF THE CHIEF ADMINISTRATIVE OFFICER (CONSTRUCTION) SOUTHERN RAILWAY, EGMORE, CHENNAI -8.** **R1 TO R5 BY SMT.SUMATHY DANDAPANI ,SENIOR ADVOCATE ADV.SRI.TOJAN J.VATHIKULAM,SC,RAILWAYS SRI.C.S.DIAS,SC, RAILWAYS** **THIS ARBITRATION REQUEST HAVING BEEN FINALLY HEARD ON 22-11-2012, ALONG WITH AR. NO.18/2012, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **sts** ## **AR.NO.7/2012** ## **APPENDIX** ## **APPLICANT'S ANNEXURES:** **ANNEX A1 COPY OF THE LETTER OF ACCEPTANCE NO.W.496/PBW/87/CN/VOL II (6427) DATED 19/8/2005 ISSUED BY THE CHIEF ENGINEER, CONSTRUCTION (NORTH) EGMORE, CHENNAI-8** **ANNEX A2 COPY OF THE AGREEMENT NO.DCE/CN/SA/22/2006 DATED 2/5/2006 EXECUTED BY THE APPLICANT AND THE 5H RESPONDENT.** **ANNEX A3 COPY OF THE NOTICE OF CLAIMS DATED 27/12/2010 SUBMITTED BY THE APPLICANT** **ANNEX A4 COPY OF THE LETTER DATED 31/3/2011 ISSUED BY THE 1ST OPPOSITE PARTY TO THE APPLICANT** **ANNEX A5 COPY OF THE PROCEEDINGS DATED 14/6/2011 ISSUED BY THE 1ST OPPOSITE PARTY INTIMATING THE APPLICANT ABOUT THE CONSTRUCTION OF THE ARBITRAL TRIBUNAL** **ANNEX A6 COPY OF THE LETTER DATED 21/6/2011 ISSUED BY THE 4TH OPPOSITE PARTY, THE CHIEF ADMINISTRATIVE OFFICER (CONSTRUCTION)** **ANNEX A7 COPY OF THE LETTER DATED 29/6/2011 ISSUED BY THE APPLICANT TO THE 1ST OPPOSITE PARTY** **ANNEX A8 COPY OF THE LETTER DATED 1/7/2011 ISSUED BY THE 6TH OPPOSITE PARTY TO THE APPLICANT.** **ANNEX A9 COPY OF THE LETTER DATED 15/7/2011 ISSUED BY THE 1ST OPPOSITE PARTY TO THE 4TH OPPOSITE PARTY** **ANNEX A10 COPY OF THE LETTER DATED 8/8/2011 ISSUED BY THE APPLICANT TO THE 1ST OPPOSITE PARTY** **ANNEX A11 COPY OF THE LETTER ISSUED BY THE APPLICANT TOT EH ARBITRAL TRIBUNAL ON 12/8/2011** - **ANNEX A12 COPY OF THE LETTER DATED 23/8/2011 ISSUED BY THE 1ST OPPOSITE PARTY TO THE 4TH OPPOSITE PARTY** - **ANNEX A13 COPY OF THE LETTER DATED 2/11/2011 ISSUED BY THE 6TH OPPOSITE PARTY TO THE APPLICANT DIRECTING HIM TO SUBMIT HIS STATEMENT OF CLAIMS** **ANNEX A14 COPY OF THE LETTER DATED 18/11/2011 ISSUED BY THE APPLICANT TO THE 6TH OPPOSITE PARTY REQUESTING FOR TIME TO SUBMITE HIS CLAIM STATEMENT** **sts** **2/-** **-2-** ## **A.R.NO.7/2012** **ANNEX A15 COPY OF THE LETTER DATED 16/12/2011 ISSUED BY THE 4TH OPPOSITE PARTY TO THE APPLICANT INTIMATING ABOUT THE DECISION OF THE 1ST OPPOSITE PARTY NOT TO REFER THE CLAS IDENTIFIED AS ''EXCEPTED MATTERS''.** **ANNEX A16 COPY OF THE AWARD DATED 28/11/2009 OF THE ARBITRAL TRIBUNAL APPOINTED BY THE 1ST OPPOSITE PARTY IN RESPECT OF AGREEMENT NO.237/CN/2002 DATED 25/07/2002** **ANNEX A17 COPY OF THE GENERAL CONDITIONS OF CONTRACT,2003, PAGE NOS.1 AND 27 TO 29 OF THE WHICH CONTAIN THE RELEVANT PROVISIONS FOR THE DETERMINATION OF THE DISPUTE.** **ANNEX A18 COPY OF THE LETTER DATED 19/11/2010 ISSUED BY THE 1ST RESPONDENT CONSTITUTING THE ARBITRAL TRIBUNAL AND REFERRING THE TERMS OF REFERENCE INCLUDING EXCEPTED MATTERS.** ## **OPPOSITE PARTY'S EXHIBITS:** ## **NIL** ## **/TRUE COPY/** ## **P.A.TO.JUDGE** **sts** ## **ANTONY DOMINIC, J** ........................................ A.R.Nos.7 & 18 of 2012 .............................................. Dated this the 22[nd] day of November, 2012 ## **ORDER** Since the issues raised in these applications are connected, these cases were heard together and are disposed of by this common judgment treating A.R.18/2012 as the leading case. Facts stated hereunder are those pleaded in the leading case. 2. These applications are filed under Section 11 (6) of the Arbitration and Conciliation Act, 1996. The respondents awarded to the applicant in A.R.18/2012, the work of “proposed construction of 1X20.00m clear span PSC “1” Girder and 2X15.00m clear span PSC “1” Girder Road Over Bridge in lieu of existing level crossing No.159 at Km 531/8-10 (Malampuzha Road) in between KANJIKODE and PALGHAT Jn”. The tender in this regard was opened on 18.08.2005 and after negotiations that were held on 12.12.2005, letter of acceptance was issued to the applicant on 15.03.2006. Subsequently, agreement **A.R.7 & 18/12** 2 dated 05.12.2006 was entered into between the parties with a completion period of 10 months. However, the work was completed only on 16.02.2009. Though the total value of the work awarded was Rs.1,70,85,585/-, the value of the works executed was Rs.1,44,95,813/-. 3. On 18.1.2011, Annexure-A3 notice of claim was issued by the applicant, seeking arbitration on 13 claims and the total amount claimed was Rs.48,80,021/-. By Annexure-A8 order dated 29.06.2011, the first respondent referred the claims, other than Claim Nos.4 and 8 to 11, to an Arbitral Tribunal consisting of the members whose names are mentioned in the order. Insofar as Claim Nos.4 and 8 to 11 are concerned, reference was declined as per Annexure-A9 order and the reasons mentioned therein read as under: **A.R.7 & 18/12** 3 |**Clai**<br>**m**<br>**No.**|**Description of claims**|**Amount**<br>**in Rs.**|**Remarks**| |---|---|---|---| |4|Compensation<br>for<br>additional expenditure<br>incurred towards cost<br>of rental charges of<br>cribs, I.S.M..Bs etc.|2,17,979<br>/-|Excepted<br>matter as<br>per clause<br>36.7<br>of<br>SCC| |8|Compensation for extra<br>expenditure<br>towards<br>supply of cement.|2,63,445/<br>-|Excepted<br>matter as<br>per clause<br>44.2<br>&<br>44.4<br>of<br>SCC since<br>PVC is not<br>applicable<br>for<br>this<br>contract.| |9|Compensation for extra<br>expenditure for the<br>purchase and supply of<br>steel<br>including<br>transportation, loading<br>unloadingand wastage.|13,17,697<br>/-|-Same<br>as<br>above-.| |10|Compensation<br>towards<br>overhead<br>charges<br>incurred after expiry<br>of original currency of<br>agreement<br>for<br>10<br>months.|13,34,873<br>/-|-Same as<br>above-.| |11|Contractor's profit at<br>the rate of 10% on the<br>balance<br>work<br>not<br>executed.|2,58,977/<br>-|Excepted<br>matter as<br>per clause<br>42.4<br>of<br>SCC| **A.R.7 & 18/12** 4 It is on receipt of Annexure-A9, these Applications have been filed seeking reference of the aforesaid claims also to Arbitral Tribunal. 4. Contention raised by the counsel for the applicant is that in view of the principles laid down by the Apex Court, the question whether the claims are covered by “excepted matters” as mentioned in Annexure-A9, is also a matter to be decided by the Arbitral Tribunal and not by one of the parties to the agreement. However, the stand taken by the respondents is that if, in the agreement between the parties, since the claims, the reference of which is sought, are excepted from the purview of arbitration, the applicant cannot seek a reference and that in such a case, the question of reference does not arise. In support of this proposition, learned senior counsel for the respondents relied on the Apex Court judgments in **General Manager, Northern Railway and Another v.** 5 ## **A.R.7 & 18/12** **Sarvesh Chopra (2002(4) SCC 45)** and **Union of India and Another v. Raunaq International Ltd(2008 KHC 4683** ). 5. I have considered the submissions made. 6. The case of the respondents that the claims in question are matters excepted from the purview of the Arbitration agreement is set up on the basis of clause 63 of the General Conditions of Contract, which reads thus: **Matters finally determined by the Railway:** _All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after their completion and whether before or after the determination of the contract, shall be referred by the Contractor to the Railway and the Railway shall within 120 days after receipt of the Contractor's representation make and notify decisions on all matters referred to by the Contractor in writing provided that matters for which_ **A.R.7 & 18/12** 6 _provision has been made in clauses 8(a), 18, 22(5), 39, 43(2), 45(a), 55, 55-A(5), 57, 57-A, 61(1), 61(2) and 62(1)(B) of the General Conditions of Contract or in any clause of the special conditions of the Contract shall be deemed as “excepted matters” and decisions of the Railway authority, thereon shall be final and binding on the Contractor; provided further that “excepted matters” shall stand specifically excluded from the purview of the arbitration clause and shall not be referred to arbitration._ _7._ A reading of this clause shows that all matters for which provision has been made in the Special Conditions of Contract(Annexure-A2), shall be deemed as “excepted matters” and that “excepted matters” shall stand specifically excluded from the purview of the arbitration clause and shall not be referred for arbitration. Reading of Annexure-A9 referred to above, shows that Clauses Nos.36.7, 44.2 and 44.4 of the Special Conditions of Contract, a copy of which is Annexure-A2, are relied on by the respondents to decline the **A.R.7 & 18/12** 7 reference sought for in respect of Claim Nos.4 and 8 to 11. 8. The applicant accepts that the claims which are now raised are matters to which the provisions of the Special Conditions of Contract are applicable. If that be so, in view of Clause 63 of the General Conditions of Contract, those matters are specifically excluded from the purview of the Arbitration Clause and shall not be referred for Arbitration. In spite of it, counsel for the applicants contended that whether a claim is excluded from the purview of the Arbitration Clause or not, is a matter to be decided by the Arbitrator and not by one of the parties to the agreement. In support of this contention, learned counsel for the applicant relied on the Apex Court judgment in **National Insurance Company Limited v. Boghara Polyfab Private Limited (2009 (1) SCC 267)** where in paragraph 22 to 24 it has been held thus:- **A.R.7 & 18/12** 8 22. _“Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section II, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide._ _22.1. The issues (first category) which the Chief Justice/his designate will have to decide are :_ _(a). whether the party making the application has approached the appropriate High Court_ _(b). Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement._ _22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal are :_ _(a). Whether the claim is a dead (longbarred) claim or a live claim._ _(b). Whether the parties have concluded the contract/transaction by recording satisfaction or their mutual rights and obligation or by receiving the final payment without objection._ **A.R.7 & 18/12** 9 _22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are :_ _(i). Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)._ _(ii). Merits or any claim involved in the arbitration._ _23. It is clear from the scheme of the_ _Act as explained by this Court in SBP & Co., that in regard to issues falling under the second category, if raised in any application under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary, by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue._ 10 ## **A.R.7 & 18/12** _24. What is however clear is when a respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercive or undue influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under Section 11 of the Act or by the Arbitral Tribunal as directed by the order under Section 11 of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant._ 9. In my view, in the facts of this case, this contention is untenable. In **SBP & Co. v. Patel Engineering Ltd. and Another (2005(8) SCC 618)** , it was held that when an application under Section 11 (6) is considered, the question whether there is a valid arbitration agreement between the parties, is a matter to be decided by the High Court. As already seen, by virtue of the provisions contained in Clause 63 of the General Conditions of **A.R.7 & 18/12** 11 Contract, matters governed by Special Conditions of Contract are excluded from the purview of Arbitration Clause. In this case, there is no dispute regarding the applicability of Special Conditions of Contract. If that be so, in respect of matters covered by the Special Conditions of Contract, there is no arbitration agreement between the parties and in respect of those issues which are governed by the Special Conditions of Contract, there cannot be any reference to arbitration. Therefore, reference of an undisputed issue, which is excluded from the purview of arbitration will be futile and unnecessary and the application under Section 11(6) of the Act in respect of those issues, is liable to be rejected on that ground itself. 10. However, according to the learned counsel for the applicant, since the work in question was not completed within the agreed period of ten months, ## **A.R.7 & 18/12** 12 the “excepted matters” provision of the agreement has become inapplicable to the claims in question. Therefore, according to him, the claims are also liable to be referred to arbitration in the light of the principle laid down by the Apex Court in paragraph 22.3 of the **National Insurance Company Limited** judgment. 11. Thus the applicant admits that if the work was completed within the ten months period specified in the agreement, the claims in question would have been governed by the “excepted matters” provision of the agreement. Once this position is accepted, the question is whether the fact that the work was not completed within the agreed period of ten months would render the “excepted matters” provision of the agreement inapplicable to the claims in question. In my view, it will not and the applicant also could not explain the legal basis for such a contention. Further, if the **A.R.7 & 18/12** 13 argument of the learned counsel for the applicant is accepted, that will render the whole agreement inapplicable to the claims in question. This means, the if the argument is accepted, even the arbitration clause incorporated in the agreement will also be inapplicable to the claim in question. For these reasons, I am unable to accept the contention of the learned counsel for the applicant, that since the work continued beyond the ten months period, the “excepted matters” provision has become inapplicable to the claims in question. 12. In my view, since the applicant itself is accepting the applicability of the “excepted matters” provision, it is unnecessary and futile to make reference to the arbitrator and the principles laid down by the Apex Court in its judgment in **National Insurance Company Limited** (supra), has no application to the facts of this case. 14 ## **A.R.7 & 18/12** For the aforesaid reasons, I do not find any merit in these Arbitration Requests and hence they are rejected. ## **Sd/- ANTONY DOMINIC, JUDGE** mrcs /true copy/ sd/- P.A. To Judge