Deepak Kumar Bansal Vs.
Union of India & ANR.  INSC 344 (17 February 2009)
E IN THE SUPREME
COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.1089 OF 2009
(Arising out of SLP)No.15730 of 2007) Deepak Kumar Bansal ...
Union of India & Anr. ..Respondents
appeal is directed against the judgment and order dated 25th of May, 2007
passed by a learned Judge of the High Court of Judicature for Rajasthan at
Jaipur Bench in S.B. Arbitration Application No.31 of 2005 by which the learned
Judge had rejected the application 1 under Section 11(6) of the Arbitration
and Conciliation Act, 1996 (in short `the Act') filed at the instance of the
respondent-Union of India invited tenders for construction of 6 unit Type-II
and 24 unit Type-I new quarters at Phulera Sub Division Office under Railway
Inspector, Kishangarh. An agreement was executed between the parties on 24th of
April, 1996 under which in response to the said tender, the appellant submitted
his offer, which was accepted and after completion of all kinds of formalities,
the work order was issued to the appellant on 22nd of September, 1996. The
initial estimated cost of the work was Rs.32,74,904.37. In the said agreement,
there is a Clause 64 in which the arbitration clause has been inserted. Clause
64 of the arbitration clause runs as under:- "(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 2 and liabilities of the
parties on any matter in question, dispute or differences 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.
(ii) The demand for
arbitration shall specify the matters which are in question. Dispute or
difference only such disputes or differences in respect of which the demand has
been made shall be referred to arbitration and other matters shall not be
included in the reference."
appellant, upon sanction of the work, requested the respondents for issuing him
a work order so that he could commence the work. On his request, work order
dated 22nd of February, 1996 for a sum of Rs.32, 17, 641.29 indicating the date
of completion of work as 21st of February, 1997 was issued to the appellant,
which was received by him on 7th of May, 1996. Since the quantity of the work
was much more than the work order was issued, supplementary work order was
subsequently issued by the respondents on 30th of December, 1997 for a sum of
Rs.4,99,471.36 and further another supplementary work order issued on the same
date i.e. 30th of December, 1997 for a sum of Rs.3,25,865.02. Thereafter,
another work order to the tune of Rs. 2,17,748.63 was issued on 22nd of June,
1998. Hence, the total work orders for a cost of Rs. 42,60,726.30 were issued
to the appellant. When some disputes arose between the parties on the question
of payment of money, which was withheld by the respondents, the appellant
requested the respondent from time to time to take deposition of the material
remained and prepare his final bill, but his request was not acceded to.
Accordingly, finding no other alternative, the appellant raised a dispute by
issuing a notice dated 27th of December, 2004 and requested for appointment of
an Arbitrator in terms of Clause 64 of the General Conditions of Contract
appended with the agreement. When the respondent had failed to appoint an
arbitrator in terms of Clause 64 of the General Conditions of Contract, the
appellant filed an application under Section 11(6) of the Act before the High
Court of Rajasthan at Jaipur Bench for appointment of an Arbitrator.
noted herein earlier, by the impugned order, the application for appointment of
an Arbitrator under Section 11(6) of the Act was rejected by the High Court on
the ground that since the value of the claim was more than 20% of the value of
the work, the disputes could not be referred to Arbitrator in view of the
Circular issued by the respondent intimating their intention to incorporate
Clause 18 in the General Conditions of Contract limiting arbitration
proceedings to only such claims, which are less than 20% of the value of the
contract. It may be mentioned herein that the Circular was issued on 11th of
June, 2003 whereas the agreement entered into by the parties was long before
issuance of the said circular and it is also not in dispute that the original
work order and supplementary work orders were issued on 22.02.1996 (original)
and 30.12.1997, 30.12.1997 and 22.06.1998.
application for appointment of an Arbitrator was also rejected by relying on a
decision in the case of State of AP. & Another vs. Obulu Reddy [1999(9) SCC
568]. It is this order, which is under challenge before us by way of a Special
Leave Petition, which on grant of leave, was heard by us in presence of the
learned counsel for the parties.
have heard Ms. Saahila Lamba, learned counsel for the appellant and Ms. B.
Sunita Rao, learned counsel for the respondents/Union of India. We have
examined the impugned order of the High Court rejecting the application under
Section 11(6) of the Act and also the materials on record including the notice
issued by the appellant for appointment of an Arbitrator to the respondents and
also the application itself under Section 11(6) of the Act and the objections
filed by the respondents thereto. Having heard the learned counsel for the
parties and after going through the materials on record, we are of the view
that the impugned order of the High Court is liable to be set aside for the
reasons stated hereinafter.
respondents, in their objection to the application under Section 11(6) of the
Act, raised a plea that question of appointment of an Arbitrator, in the facts
and circumstances of the present case, could not arise in view of the fact that
the claim, as put forward by the appellant, was an amount being an excess of
20% of total cost of the work, which is prohibited in terms of the Circular
issued on 11.06.2003. The High Court accepted this plea of the respondent and
rejected the application on the grounds mentioned herein earlier.
our view, the High Court has mis-directed itself in holding that the claim was
in excess of 20% of the total cost of the work. Admittedly, the work was for a
sum of Rs.32,17,641.29 (original) and three additions viz. Rs.4,99,471.36,
Rs.3,25,865.02 and Rs.2,17,748.63 totalling Rs. 42,60,726.30/-, which cannot be
in excess of 20% of the total cost of the work.
High Court has only considered the original work order that was
Rs.32,17,641.29, which, in our view, must be taken into account along with
three supplementary work orders of Rs.4,99,471.36, Rs.3,25,865,02 and
Rs.2,17,748.63 as mentioned herein earlier. Therefore, the High Court was wrong
in holding that since the value of the claim of the appellant was more than 20%
of the value of the work and in view of the Circular issued by the respondent,
the claim must be held to be more than 20% of the value of the work and,
therefore, disputes could not be referred to Arbitration. Even assuming that
the claim was in excess of 20% of the total cost of the work, even then, the
Circular, which came into effect from 11.06.2003 would not be applicable in the
case of the appellant. There cannot be any dispute that the Circular intimating
Clause 18 and issued on 11.06.2003 could not be applied in the case of the
appellant as the said Circular came into force only from that date i.e.
11.06.2003 and not before that, in the absence of any subsequent insertion of
that Clause in the original contract, namely, Clause 64 of the General
Conditions of Contract.
question of applicability of the said Circular intimating intention of the
respondent to insert Clause 18 could not arise at all. That being the position,
we are unable to sustain the impugned order of the High Court and accordingly,
the appeal is allowed and the application under Section 11(6) of the Act stands
In view of our
discussions made hereinabove, the decision cited by the High Court in the case
of State of AP & Anr. application is now directed to be posted to the
concerned Judge of the High Court and to appoint an Arbitrator in compliance
with Clause 64 of the General Conditions of Contract entered into by the
impugned order is set aside. The appeal is thus allowed to the extent indicated
above. There will be no order as to costs.