M/S.PERUMALIL GRANITE CONSTRUCTIONS v. UNION OF INDIA

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR** **MONDAY, THE 3RD DAY OF APRIL 2017/13TH CHAITHRA, 1939** **AR.No. 85 of 2016 () ---------------------** ## **PETITIONER(S): -------------** **M/S.PERUMALIL GRANITE CONSTRUCTIONS, VALIYAKAVALA, VAIKKOM, KOTTAYAM- 686 141. REPRESENTED BY ITS PROPRIETOR, ALEX P. CYRIAC, PERUMALIL HOUSE, ARUNOOTTIMANGALAM P.O., KOTTAYAM DISTRICT- 686 604.** **BY ADVS.SRI.K.BABU THOMAS SMT.MARYKUTTY BABU** **RESPONDENT(S): --------------** **1. UNION OF INDIA, REPRESENTED BY THE GENERAL MANAGER, SOUTHERN RAILWAY SOUTHERN RAILWAY HEAD QUARTERS, PARK TOWN, CHENNAI- 600 003. 2. THE CHIEF ENGINEER (CONSTRUCTIONS) SOUTHERN RAILWAY, ERNAKULAM, KOCHI- 682 016. 3. THE DEPUTY CHIEF ENGINEER (CONSTRUCTIONS) SOUTHERN RAILWAY,ERNAKULAM, KOCHI- 682 016. BY ADV. SRI.C.S.DIAS,SC,** **THIS ARBITRATION REQUEST HAVING BEEN FINALLY HEARD ON 14-02-2017, THE COURT ON 03-04-2017 PASSED THE FOLLOWING:** **K.V.** **AR NO 85 OF 2016:** ## **----------------** ## **APPENDIX** ## **PETITIONERS ANNEXURES: ---------------------** - **A1: COPY OF LETTER OF THE APPLICANT TO THE 3RD OPPOSITE PARTY NOTIFYING RATES CHARGEABLE FOR WORK DELAYED.** - **A2; COPY OF MONTHLY STATEMENT BY THE DEMANDING PAYMENTS OF RS.1,20,80,903-/DUE.** - **A3; COPY OF CLARIFICATION SUBMITTED BY THE APPLICANT SOUGHT BY THE 2ND OPPOSITE PARTY.** - **A4: COPY OF LETTER OF THE 1ST OPPOSITE PARTY INTIMATING CONSTITUTION OF ARBITRAL TRIBUNAL OF 3 MEMBERS.** - **A5: COPY OF LETTER OF THE APPLICANT INSISTING REFERENCE OF THE EXCLUDED CLAIMS FOR PAYMENTS TO ARBITRATION.** - **A6: COPY OF ORDER OF THE FIRST OPPOSITE PARTY REFERRING THE DISPUTES TO ARBITRATION AXCEPT TWO ITEMS.** - **A7: COPY OF THE REPRESENTATION CUM DEMAND OF THE APPLICANT TO THE FIRST OPPOSITE PARTY TO REFER TWO CLAIMS FOR PAYMENT OF RS.43,66,203/-EXCLUDED.** - **A8: COPY OF REPLY OF THE 2ND OPPOSITE PARTY FALSELY CLAIMING EXCEPTED MATTERS UNDER CLAUSE 63 OF THE CGC.** - **A9: COPY OF THE RELEVANT PORTION OF THE AGREEMENT CONTAINING SPECIAL CONDITIONS 11 AND 8.6. AND CLAUSE 63 OF THE GCC OF CONTRACT.** - **A10: COPY OF REPLY TO ANNEXURE A8 STATING THAT EXCUDED CLAIMS FOR PAYMENT OF RS.43,66,203/-ARE NOT EXCEPTED MATTERS UNDER CLAUSE 63 OF THE CGC.** - **A11(A)TRUE COLOR PHOTOGRAPH OF THE ALIGNMENT SUBMERGED IN WATER UP TO 1.50 METERS ABOVE THE GROUND LEVEL.** - **A11(B)TRUE COLOR PHOTOGRAPH OF THE ALIGNMENT SUBMITTED IN WATER UP TO 1.50 METERS ABOVE THE GROUND LEVEL.** - **A11(C) TRUE COLOR PHOTOGRAPH OF THE ALIGNMENT SUBMERGED IN WATER UP TO 1.50 METERS ABOVE THE GROUND LEVEL AND 60 HP MOTOR & PUMP SET FOR DEWATERING BEING CARRIED OUT.** - **A11(D)TRUE COLOR PHOTOGRAPH OF THE ALIGNMENT SUBMERGED IN WATER UP TO 1.50 METERS ABOVE THE GROUND LEVEL AND 60 HP MOTOR & PUMP SET FOR DEWATERING BEING CARRIED OUT.** **AR NO 85 OF 2016:** ## **----------------** ## **RESPONDENTS ANNEXURES:** **----------------------** - **R2(1) COPY OF LETTER DATED 13.1.2014 PASSED BY THE 2ND OPPOSITE PARTY TO THE APPLICANT.** - **R2(2) COPY OF LETTER DATED 18/10/2016 ISSUED BY THE 2ND OPPOSITE PARTY.** **/TRUE COPY/** **P.A.TO JUDGE** **K.V.** ## **P.B.SURESH KUMAR, J.** ## **= = = = = = = = = = = = =** ## **Arb.Request No.85 of 2016.** ## **= = = = = = = = = = = = =** Dated this the 3[rd] day of April, 2017. ## **O R D E R** The applicant is a registered civil engineering contractor executing civil engineering works of the Southern Railway. A civil engineering work was assigned by the third opposite party to the applicant in terms of the agreement dated 28.3.2008. All the claims of the applicant in respect of the said work have not, however, been settled by the opposite parties. The agreement contains an arbitration clause. The applicant, therefore, called upon the opposite parties to resolve the disputes pertaining to the amounts payable to them by recourse to arbitration. Pursuant to the said demand, disputes relating to some of the claims raised by the applicant have been referred for arbitration to the Arbitral Tribunal constituted in accordance with the terms of the agreement. The applicant thereafter pointed out to the third opposite party by way of a representation that the exclusion of the remaining disputes from the purview of the **Arb.Request No.85/2016.** 2 arbitration is not justified. On receipt of the said representation, the third opposite party referred some of the remaining disputes also for arbitration before the Tribunal constituted. It is stated that disputes relating to two claims raised by the applicant amounting to Rs.43,66,203/- are still remaining to be referred for arbitration. The applicant therefore issued Annexure-A7 demand to the opposite parties calling upon to refer the said disputes also to arbitration. The opposite parties, however, refused to accede to the said demand of the applicant on the ground that the said claims pertain to matters excepted from arbitration by virtue of the terms of the agreement. AnnexureA8 is the communication issued by the second opposite party to the applicant in this connection. Aggrieved by the stand taken by the second opposite party in Annexure-A8 communication, this arbitration request is preferred for appointment of an arbitrator to adjudicate the disputes relating to the claims referred to in Annexure-A7 demand. 2. A counter affidavit has been filed by the opposite parties. The essence of the contentions raised by the opposite parties in their counter affidavit is that the claims referred to in **Arb.Request No.85/2016.** 3 Annexure-A7 pertain to excepted matters contained in clause 63 of the general conditions of the contract. 3. A reply affidavit has been filed by the applicant refuting the stand taken by the opposite parties in the counter affidavit and contending that the disputes referred to in Annexure-A7 do not relate to excepted matters in terms of the contract. 4. Heard the learned counsel for the applicant as also the learned counsel for the opposite parties. 5. Clauses 63 and 64(i) of the general conditions of contract entered into between the parties read thus: _“63. 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 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 decision of the Railway Authority thereon shall be final and binding on the contract; provided further that “excepted matters” shall stand specifically excluded from the purview of arbitration clause and shall not be referred to arbitration._ **Arb.Request No.85/2016.** 4 _64(i). Demand for Arbitration:- 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, or if the Railway fails to make a decision within 120 days, then and in any such case, but the except in any of the “excepted matters” referred to clause 62 of these matters, 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.”_ It is evident from the extracted portions of the general conditions of the contract that matters for which 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, have been treated as excepted matters by the parties and that the parties have agreed that disputes relating to those matters would not come within the arbitration clause in the agreement. 6. The question is whether the disputes referred to in Annexure-A7 are disputes falling within the ambit of 'excepted matters' in terms of the agreement. According to the applicant, that is a question to be decided by the arbitrator and according to the opposite parties, that question has to be decided by this **Arb.Request No.85/2016.** 5 Court in this proceedings under Section 11 of the Act. The learned counsel for the opposite parties relied on the decision of the Apex Court in **Harsha Constructions v. Union of India** [(2014) 9 SCC 246] and the decision of this Court in A.R.No.7 of 2012, in support of the said stand of the opposite parties. 7. The scope of the proceedings under Section 11 of the Act has been considered by the Apex Court in **SBP & Co., v. Patel Engineering Ltd.** [(2005)8 SCC 618]. Paragraph 39 of the majority judgment reads thus: “39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of **Arb.Request No.85/2016.** 6 the proceedings before the Arbitral Tribunal.” The principles laid down by the Apex Court in the said case has been reiterated in **National Insurance Co.Ltd. v. Boghara Polyfab (P) Ltd** _**.**_ [(2009)1 SCC 267]. Paragraphs 22 to 24 of the said judgment read thus: **“22.** Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, 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 (long-barred) claim or a live claim. ( _b_ ) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection. **22.3.** The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral **Arb.Request No.85/2016.** 7 ## 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._[13] ~~,~~ 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. **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, coercion 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.” It is evident from the extracted paragraphs of the judgments of the Apex Court referred to above that it is obligatory for this Court in all cases preferred under Section 11 of the Act to **Arb.Request No.85/2016.** 8 consider the question whether there exists an arbitration agreement between the parties. Paragraph 22.3 of the judgment in **National Insurance Co.Ltd. v. Boghara Polyfab (P) Ltd.** (supra), however, clarifies that the issue whether a claim made falls within the arbitration clause including the issue as to whether the claim relates to excepted matters as in the instant case, are issues which the court should leave exclusively to the Arbitral Tribunal. The said aspect has been clarified by the Apex Court in **Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.** [(2011)5 SCC 532]. In the said case, after examining the nature and scope of the applications under Sections 8 and 11 of the Act, it was held by the Apex Court that the nature and scope of an application under Section 11 of the Act for appointment of arbitrator, are far narrower than those arising in an application under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. It was also held that while considering an application under Section 11 of the Act, the Court would not embark upon an examination of the issue of “arbitrability” once it is found that there is an arbitration agreement between or among the parties, and would leave the issue of arbitrability for 9 ## **Arb.Request No.85/2016.** ## the decision of the Arbitral Tribunal. Paragraph 32 of the said ## judgment reads thus: **“32.** The nature and scope of issues arising for consideration in an application under Section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of “arbitrability” or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the Arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under Section 34 of the Act, relying upon sub-section (2)( _b_ )( _i_ ) of that section. The expression 'arbitrability' has different connotations. The question whether a claim made falls within the arbitration clause is also a question of arbitrability. The provisions contained in Section 16 of the Arbitration and Conciliation Act are also relevant in this context. Section 16 reads thus: “16. Competence of arbitral tribunal to rule on its jurisdiction (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose. (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the submission clause. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded **Arb.Request No.85/2016.** 10 from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified. (5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. (6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.” In the light of the aforesaid materials, there is no difficulty in concluding that what this Court is obliged to examine in a proceedings under Section 11 of the Act is the issue whether there exists an arbitration agreement between the parties. If it is found that there exists an arbitration agreement between the parties, the question as to whether a particular dispute falls within the ambit of the arbitration clause/agreement, is a matter to be decided by the arbitrator. 8. It is seen that in A.R.No.7 of 2012, this Court took the view that the issue whether the claim pertains to excepted matters is to be decided by this Court in a proceedings under Section 11 of the Act. The view taken by this Court in the **Arb.Request No.85/2016.** 11 said case, according to me, is contrary to the ratio in **National Insurance Co.Ltd. v. Boghara Polyfab (P) Ltd.** and **Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.** _(supra)_ . 9. **Harsha Constructions v. Union of India** _(supra)_ is not a case dealing with the scope of the proceedings under Section 11 of the Act. Instead, what was under challenge before the Apex Court in the said case was an order passed under Section 34 of the Act. The question as to whether it is obligatory for the High Court to decide the issue as to whether a dispute falls within the scope of an arbitration agreement in a proceedings under Section 11 of the Act did not arise for consideration in the said case. The said judgement, in the circumstances, cannot be relied on by the opposite parties in support of the contention advanced by them in this proceedings. 10. As noted above, the Arbitral Tribunal constituted by the opposite parties as referred to in Annexure-A6 communication dated 3.7.2013 is the Arbitral Tribunal provided for under the agreement entered into between the parties. In the circumstances, I am of the view that the arbitrability of the disputes raised by the applicant in Annexure-A7 also has to be **Arb.Request No.85/2016.** 12 decided by the said Arbitral Tribunal, especially when the said disputes relate to the same contract and closely linked to the issues which are pending adjudication before the arbitral tribunal. In the result, the Arbitration Request is allowed and the opposite parties are directed to refer the disputes pertaining to the claims raised by the applicant in Annexure-A7 also to the arbitral tribunal referred to in Annexure-A6 communication. It is also directed that the said tribunal shall decide the arbitrability of the disputes raised in Annexure-A7 as a preliminary issue and pass an interim award in relation to the same so as to enable the aggrieved party to take up the matter further. _**Sd/-**_ **JUDGE.** **P.B.SURESH KUMAR,** ## _**Kvs/-**_ ## _**// true copy //**_ ## _**PA TO JUDGE.**_