Jose Thomas v. Union of India & Ors.

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **THE HONOURABLE MR. JUSTICE PIUS C.KURIAKOSE** **TUESDAY, THE 25TH MARCH 2008 / 5TH CHAITHRA 1930** **APPLICANT** **---------------------------** **JOSE THOMAS,** **GOVERNMENT CONTRACTOR, JOSE BUNGALOW, PIDAVOOR P.O., PATHANAPURAM, KOLLAM DISTRICT.** **BY ADV. SRI.K.BABU THOMAS** ## **RESPONDENTS: OPPOSITE PARTIES** **------------------------------** ## **1. UNION OF INDIA, REP. BY THE** - **GENERAL MANAGER, SOUTHERN RAILWAYS, SOUTHERN RAILWAY HEAD QUARTERS, CHENNAI-600 003.** ## **2. THE CHIEF ENGINEER,** **SOUTHERN RAILWAY, (CONSTRUCTION), THYCAUD P.O., TRIVANDRUM-14.** **3. THE DEPUTY CHIEF ENGINEER(CONSTRUCTION), SOUTHERN RAILWAY, KOLLAM.** **BY ADV. SRI.ALEXANDER THOMAS, SC,RAILWAYS** **THIS ARBITRATION REQUEST HAVING COME UP FOR ADMISSION ON 25/03/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **PIUS C. KURIAKOSE,J.** **- - - - - - - - - - - - - - - - - - - - - - - - -** A.R..No. 24 of 2007 **- - - - - - - - - - - - - - - - - - - - - - - - -** Dated: 25[th] March, 2008 ## **ORDER** The applicant is a railway contractor. The respondents in this A.R. filed under Section 11 of the Arbitration and Conciliation Act, 1996 are the Union of India, represented by the General Manager, Southern Railways, Chennai(R1), the Chief Engineer, Southern Railway (Construction), Trivandrum (R2) and the Deputy Chief Engineer (Construction), Southern Railway, Kollam (R3). The case of the applicant is that the opposite parties awarded contract for works related to conversion of meter gauge to broad guage in 9 K.M. of Quilon and Tenkasi Railway line to the applicant on 4.7.2005 included in agreement No.11/DYCE/CN/QLN/HQ/05 dated 28.12.2005 of the third opposite party. It is alleged that the opposite parties prevented completion of the works by non-removal of obstructions from the site even by 25.9.2006, though the period stipulated in the agreement had expired on 3.1.2006. Allegedly the contract was illegally terminated on 25.9.2006 retaining huge amounts stated to be due and payable to the applicant. Breach of contract has been committed, according to the applicant, by the opposite parties themselves and A.R.No.24/07 - 2 - since disputes and differences arose between the parties during the course of carrying out of the works and after completion of the contract, the applicant issued Annexure A3 notice demanding payment of Rs.3,96,29,801/- quantified as on that date to be due to the applicant together with interest within 30 days. Through Annexure A3 the arbitration clause 63 of the General Conditions of Contract which is part of the agreement between the parties was invoked and demanded apart from payment of amounts, the constitution of an arbitral tribunal. It was requested that Annexure A3 notice be treated as a notice demanding arbitration invoking arbitration clause. On 29.3.2007, the first opposite party caused to sent a panel of four railway officers to the applicant, requiring to choose upto two names as his nominees from the same for appointment of arbitral tribunal. Annexure A4 is copy of the reply. Pursuant to Annexure A4, the applicant selected Mr.Rajesh Argal, Chief Engineer/Central/Construction/Madras as his nominee as required in Annexure A4 and sent Annexure A5 letter dated 12.4.2007 to the first opposite party. According to the applicant, he included a panel of three Railway Chief Engineers in Annexure A5 and requested the the 1[st] opposite party to constitute an arbitral tribunal A.R.No.24/07 - 3 - choosing any two among those three names along with Mr.Rajesh Argal as the Tribunal. It was also stated in Annexure A5 that the three other names mentioned in Annexure A4 by the 1[st] opposite party are not acceptable to the applicant. The Arbitration Request has been filed by the applicant on the premise that though Annexure A5 was received by the 1[st] opposite party on 19.4.2007 and much time has elapsed thereafter, the 1[st] opposite party failed to constitute the Arbitral Tribunal in accordance with the procedure stipulated in the agreement. The prayer in the A.R. is to appoint an arbitral tribunal from the panel in Annexure A5 including the officer selected by the applicant from Annexure A4 and supplied to the 1[st] opposite party in view of the forfeiture of the right of appointment by the 1[st] opposite party. 2. A detailed counter affidavit has been filed on behalf of the respondents by the 2[nd] respondent wherein all the allegations levelled by the applicant against the opposite parties in the context of breach of contract are stiffly repudiated and it is contended that the applicant has been resorting to dilatory and harassing tactics consistently against the railways both in the matter of executing the work that was given to him and also in the matter of constitution of an arbitral A.R.No.24/07 - 4 - tribunal for settling the disputes which have arisen. The counter affidavit contends that the arbitration request is not maintainable and it is contended that the same is premature since the contractor has not followed the procedure prescribed in the agreement in the matter of appointment of arbitrator and hence the essential jurisdictional fact required for maintaining the request is absent. Having accepted the applicability of the General Conditions of Contract (GCC), the contractor-petitioner has to fully follow the procedure for arbitration prescribed in the GCC and can invoke the statutory appointment procedure under Section 11 of the Act, only if there is patent failure on the part of the opposite party, the appointing authority to take necessary action in accordance with GCC. Quoting clauses 63 and 64 of the GCC, it is contended that in view of the mandatory provisions in the GCC, the applicant-Contractor has to submit a representation as mandated in clause 63 to the Railways on all matters pertaining to the disputes and differences other than for “excepted matters” and the Railways shall within 120 days after the receipt of contractor's representation, make a notified decision on all such matters as stated above which are referred to by the contractor on such representation. Thereafter it is mandatory that where the Railway notifies its decision A.R.No.24/07 - 5 - or fails to take a decision within 120 days , then in any such case, other than for expected matters, the contractor shall after 120 days but within 180 days on his presenting his final claims on disputed matters shall demand in writing that the dispute or difference be referred to arbitration. Thus there are two distinct and separate stages in the procedure to be followed by the contractor for demanding arbitration. The first stage is to submit a representation as mandated in clause 63 on which the Railway shall make and notify decisions. The second stage is that where within 120 days of the receipt of the contractor's representation, the Railway fails to make decisions on the representation within 120 days, then the contractor after 120 days but within 180 days shall demand in writing for referring the dispute to arbitration. Since in the present case the above contractual procedure has not been followed, the arbitration request is not maintainable. It is pointed out that the petitioner is proceeding as if both the two distinct stages can be combined into a single stage affair, by insisting that Annexure A3 is for redressal of grievances as per clause 63 and also demand of arbitration as per clause 64(1)(i). The counter affidavit goes on to meet the prayer for appointment of an arbitral tribunal on its merits also. Referring to A.R.No.24/07 - 6 - clause 64(3)(a)(ii), it is submitted that in the present case the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers not below JA grade as the arbitrators and that the Railway has to send a panel of more than 3 names of Gazetted Railway Officers of one or more departments of the Railway to the contractor who will be asked to suggest to the General Manager upto two names out of the panel for appointment as the contractor's nominee. Thereupon the General Manager is to appoint at least one of them as the contractor's nominee and 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 three Arbitrators so appointed. While nominating Arbitrators, it is also necessary to ensure that one of them is from the Accounts Department and it is also provided that an Officer of Selection Grade of the Accounts Department will be considered of equal status to the officers in SA Grade of other departments of the Railways for the purpose of appointment of arbitrators. It is claimed that though further notice was not received from the Contractor as per clause 64 (1)(i), the contractor presenting his final claim within 180 days, the Railway took action in terms of clause 64(3)(a)(i) of the G.C.C. and A.R.No.24/07 - 7 - sent Annexure A4 panel advising the Contractor to choose upto two names from the same. The name of Rajesh Argal was the 4[th] name in that panel and the contractor selected Rajesh Argal as his nominee. But in addition without any provision in the conditions of contract, the Contractor has given a list of three officers of the Railway for selection of other names by the General Manager for constitution of the Tribunal. This action on the part of the Contractor amounted to interference with and non-following of the agreed conditions by the contractor and has created obstructions in the matter of constitution of appointment of arbitral tribunal. Since the Contractor's action was not in accordance with the G.C.C., the Railway had to examine the case in consultation with the legal branch of the Railway before putting up the matter beforethe General Manager. The counter affidavit also contends that the period of limitation of 180 days prescribed by clause 64(1)(i) of the GCC has expired on 23.7.2007 if Annexure A3 is to be treated as first stage representation as per clause 63. Treating Annexure A3 on that way, it will be seen that the present Arbitration Request submitted on 19.7.2007 is before the expiry of the time limit of 180 days. It is submitted that without standing on strict technical procedure, the Railway has treated the A.R.No.24/07 - 8 - request contained in the present A.R. as the second stage written demand for arbitration and to proceed further in the matter. The Railway has accordingly constituted an Arbitral Tribunal on 2.8.2007 consisting of three persons including Mr.Rajesh Argal who was the nominee of the applicant himself. Ulltimately it is contended that in view of appointment of the arbitral tribunal by the Railway, the request cannot be granted. 3. A reply affidavit has been filed by the applicant reiterating his contentions and interpreting the relevant clauses of the GCC, namely, clauses 64(1)(i) and 64(1)(ii). It is contended therein that it is conceded that the opposite parties on receipt of Annexure A3, by Annexure A4 intimated the petitioner of their decision to great the claims for payment as disputes to be resolved through arbitration and to appoint an arbitrial tribunal for adjudicating those disputes. They supplied Annexure A4 panel so that the applicant can choose his name upto two names for appointment of arbitral tribunal. By Annexure A5, the applicant intimated choice to one of the Officers and his objection regarding inclusion of anyone else from Annexure A4 panel. Through Annexure A5 the applicant submitted a panel of three Chief Engineers of the Railways for appointment of arbitral A.R.No.24/07 - 9 - tribunal. It is contended that in terms of clause 64(3)(a)(ii) of the GCC, the 1[st] opposite party should have appointed arbitral tribunal either from the panel or from outside the panel. In view of the word 'simultaneously' incorporated in clause 64(3)(a)(ii) of the GCC, the contentions based on the necessity for submitting a representation in the first stage and an arbitration notice in the second stage is pooh in the reply affidavit since that contention is no longer relevant in view of Annexures A4 and A5. According to the reply affidavit, on receipt of Annexure A5 the first opposite party ought to have immediately appointed the arbitral tribunal. The reply affidavit refers to the judgment of the Supreme Court in **Punj Lloyd Ltd. v. Petronet MHB Ltd.** [(2006) 2 S.C.C. 638], **Union of India v. M/s.V.S.Engineering(P) Ltd.** (2006 AIR SCW 6071) and **Union of India v. Bharat Battery Mfg. Co.(P) Ltd.** [(2007) 7 S.C.C. 684] and submits that any appointment of arbitrators after an arbitration request under Section 11 has been made to the Chief Justice will be illegal. 4. I have heard the submissions of Mr.Babu Thomas, counsel for the applicant and Mr.Alexander Thomas, Standing Counsel for the Railways. A.R.No.24/07 - 10 - 5. Mr.Babu Thomas would seek the appointment of an arbitral tribunal consisting of his own nominee in Annexure A5 and one or more from among the three Chief Engineers by the Railway included by him in Annexure A5. Learned counsel would rely on the judgment of this court in **Union of India v. M/s.V.S.Engineering (P) Ltd.** (supra) in support of his argument that the appointing authority forfeits its right to appoint arbitrator by not making the appointment within the statutory period and that after the Hon'ble Chief Justice is moved, it is for the Hon'ble Chief Justice to appoint the arbitral tribunal. He also relied on the judgment of the Supreme Court in **Union of India v. Bharat Battery Mfg. Co. (P) Ltd.** (supra) and also on the judgment of the Supreme Court in **Punj Lloyd Ltd. v. Petronet MHB Ltd.** (supra). Per contra Mr.Alexander Thomas, Standing Counsel for the Railways placed before me copy of the judgment of this court in W.P.C.No.30616 of 2006, the judgment in W.P.C.No.10406 of 2007 and in C.O.C.No.577 of 2007 and the judgment in W.A.No.1112 of 2007. All these cases initiated by the petitioner against the opposite parties were shown to drive home his point that the version of the Railway that the petitioner has been responsible for the breach is highly probable. Learned counsel would A.R.No.24/07 - 11 - rely on the judgment of the Supreme Court in **Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd.** [(2007) 5 S.C.C. 304] to support the argument that there is no automatic forfeiture of right to appointment on the facts which obtained in this particular case. 6. I have considered the rival submissions in the light of the documents placed on record by the parties and the decisions cited at the Bar. I am not inclined to uphold the contention of the opposite parties that the A.R. is not maintainable in view of the reason that the applicant has not followed the agreed procedure of issuing a report in the first stage and then waiting for the decision of the Railway on that report and of issuing a claim notice in the second stage. Annexure A4 will show that the Railway itself has understood that Annexure A3 is a notice invoking the arbitration clause. Through Annexure A4, the Railway furnishes the names of three officers of the Railway giving option to the applicant to choose upto two names as the applicant's nominee. Annexure A4, in my opinion was in compliance of the agreed procedure. In response to Annexure A4, the applicant issues Annexure A5 choosing Rajesh Argal as his nominee but objecting to the other names and recommending that his own names of three A.R.No.24/07 - 12 - officers of the Railway. The applicant's action in recommending his own name additional, for constitution of arbitral tribunal is not warranted by the contract between the parties. Of course, the opposite parties could have on receiving Annexure A5 constituted Tribunal then and there by appointing Rajesh Argal, the applicant's nominee and any two officers of the Railway not below J.A.Grade either from among Annexure A4 panel or from out side the panel. Instead of doing so, it is seen that the Tribunal has been constituted including the nominee of the applicant and two others who were not in Annexure A4 panel as the Arbitral Tribunal. The Railway has also finalised the terms of reference. The constitution of the arbitral tribunal after this court had been moved could not ordinarily have been appreciated by this court, since once this court is moved under Section 11, it is prerogative of the Chief Justice or the Judge nominated to makes the appointment. However, considering the totality of the circumstances attending on this case, I am inclined to appoint the three persons appointed by the Railways on 2.8.07 themselves as Arbitrators. No objection is seen taken regarding the efficiency or integrity of the two members in the arbitral tribunal other than Sri. Rajesh Argal. Under these circumstances, I allow the A.R.No.24/07 - 13 - A.R. and appoint Smt.Vijayakanth, Financial Advisor & Chief Accounts Officer/Construction, Construction Office, Southern Railway, Chennai, Mr.Rajesh Argal, Chief Engineer/Construction, Construction Office, Southern Railway, Chennai and Mr.Rajendra Prasad, Chief Engineer/South/Construction, Construction officer, Southern Railway, Chennai as the arbitral tribunal to settle the disputes between the parties which are subject matter of Annexure A3 claim cum arbitration notice. Smt.Vijayakanth, Financial Advisor & Chief Accounts Officer/Construction, Construction Office, Southern Railway, Chennai shall be the Presiding Arbitrator. The Arbitrators will enter on reference and pass award at their earliest. srd ## **PIUS C.KURIAKOSE, JUDGE**