M/s. K.K. Enterprises vs Union of India and Another

M.M. Kumar, C.J.—This order shall dispose of three arbitration applications filed by the same petitioner against the same respondents.

However, the cause of action in each one of them emerges from different contract agreements which necessitated filing of three separate petitions

u/s 11 of the Jammu & Kashmir Arbitration and Conciliation Act, 1997. Few undisputed facts taken from A.A. No. 24/2012 may first be noticed.

1.1. The petitioner is a duly approved contractor with Military Engineering Service, Ministry of Defence Government of India and is engaged in

executing works of civil nature. The petitioner was a successful bidder and on 10.10.2007 a contract was allotted to it for a sum of Rs.

8,92,405.57 which was for special repairs to building No. P-11 & T-22, Bikaner line at Domana (Annexure P-1). Accordingly contract

agreement was executed between respondents-Union of India through Garrison Engineer, Jammu-respondent No. 3 and the petitioner firm. The

general conditions of contract namely IAFW 2249 constituted part and parcel of the contract agreement (Annexure P-2). The initial date for

completion of work fixed in the contract agreement was 13.07.2008 and the same was later extended upto 25.11.2008.

1.2. The petitioner claimed that as per the contract agreement intimation was sent about completion of work through various letters. It has been

confirmed by the officers of the department that the work was completed by the petitioner on 07.10.2008. The completion certificate was issued

by the department on 29.11.2008. These letters have been placed on record (Annexure P-3 to P-5). As per the contract agreement, Chief

Engineer is the designated authority to appoint the arbitrator. The petitioner submitted final bill claiming full payment but the same became subject

matter of dispute. A copy of letter dated 13.07.2012 was sent to respondent No. 3 claiming that the work was completed on 25.11.2008 and the

bill has been paid on 18.08.2009. It has been brought to my notice during the course of arguments that the final bill submitted by the petitioner did

not find complete approval of the respondents. A perusal of the documents with the final bill shows that there are a number of items which have

been scored off and there are cuttings/omissions. Even the signature/counter signatures of the contractor have been deleted. The aforesaid

documents have been placed on record and relied upon by the respondents themselves. Signatures which have been encircled at pages 15 and 18

clearly show that the signatures have been cancelled by crossing the same. It is thus clear that final bill submitted by the petitioner has not been fully

honoured by the respondents.

I have heard learned counsel for the parties and have perused the record with their able assistance.

Mr. Mahajan, learned counsel for the petitioner has argued that in terms of Clause 70 of the general conditions of the contract namely IAFW

2249 all disputes between the parties to the contract are required to be referred to the arbitration of a engineer officer after written notice by either

of the party to the contract. In the face of the arbitration clause which stands incorporated in the contract agreement and live dispute between the

parties it has been submitted that the prayer made by the petitioner deserves to be accepted.

On the contrary, Mr. Jamwal learned counsel for the respondents has vehemently argued that Clause 65 as reproduced in Annexure R-5 of the

objections creates a complete bar for referring the dispute between the parties to the contract once the final bill has been submitted by the

contractor. According to Mr. Jamwal, the submission of the final bill by the contractor itself results into operation of Clause 65, which provides that

no further claim could be made by the contractor after submission of the final bill. According to the learned counsel, any other claim is deemed to

have been waived and it would be extinguished.

Having heard learned counsel for the parties and perusing the record I am of the considered view that two basic conditions for making reference

to arbitrator stand satisfied in the present case. There is Clause 70 of the general conditions of contract in the form of IAFW 2249 which provide

for arbitration in case of dispute between the parties. The aforesaid Clause 70 stands incorporated in the contract agreement executed between the

parties as is evident from the copy of the original contract agreement which has been placed on record with CMA No. 5/2013 filed in A.A. No.

24/2012. The aforesaid Clause 5(b) is set out below in extenso:--

General conditions of contract, IAFW-2249 (1989 print) together with amendment No. 1 to 15 and errata 1 to 20.

EEEEEEEEEEEE....

EEEEEEEEEEEE....

(a) EEEEEEEEEEE....

(b) To execute all the works referred to in the said documents upon the terms and conditions contained or referred to three-in and as detailed in

the General Summary on the subsequent page and to carry out each deviation as may be order vide condition 7 of IAFW-2249, (upto a maximum

of 20 percent) and further agreed to refer all disputes as required by condition 70 to the sole arbitrator of an serving officer having degree in

Engineering of equivalent or having passed final/direct final examination of Sub Division II of Institution of surveyors (India) recognized by the

Govt. of India be appointed by Chief Engineer (or Officiating Chief Engineer) Pathankot Zone Pathankot whose decision shall be final conclusive

and binding.

To be deleted where inapplicable.

A perusal of the aforesaid provision shows that the parties have agreed to refer all disputes as per the requirement of condition 70 to the sole

arbitration of a serving officer having degree in engineering or equivalent or having passed final examination of Sub Division II of Institution of

surveyors (India) recognized by the Govt. of India. The arbitrator is to be appointed by the Chief Engineer or Officiating Chief Engineer, Pathankot

Zone Pathankot whose decision is to be binding and final.

The oft quoted clause 70 may also be set out below in extenso, which reads thus:--

Arbitration.--- All disputes, between the parties to the Contract (other than those for which the decision of the C.W.E. or any other person is

by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the either of them, be referred to the

sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents.

Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Works or termination

or determination of the Contract under Condition Nos. 55, 56 and 57 hereof.

Provided that in the event of abandonment of the Words or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such reference

shall not take place until alternative arrangements have been finalized by the Government to get the Works completed by or through any other

Contractor or Contractors or Agency or Agencies.

Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against

the Government's right of recovery from the contractor as provided in Condition 67 hereof.

If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the

authority appointing him may appoint a new Arbitrator to act in his place. The Arbitrator shall be deemed to have entered on the reference on the

date the issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence.

The Arbitrator may proceed with the arbitration, ex-parte, if either party, inspite of a notice from the Arbitrator fails to take part in the

proceedings.

The arbitrator may, from time to time with the consent of the parties, enlarge, the time upto but not exceeding one year from the date of his entering

on the reference, for making and publishing the award.

The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the

case may be on all matters referred to him and shall indicate his findings, along with sums awarded, separately on each individual item of dispute.

The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion.

The Award of the Arbitrator shall be final and binding on both parties to the Contract.

A perusal of Clause 70 would show that all disputes between the parties to the contract are to be referred to the sole arbitration of a engineer

officer to be appointed by the authority mentioned in the tender document. It also cover certain other situations which are not attracted to the facts

of the present case.

It has been claimed that the work was satisfactorily completed by the petitioner on 25.11.2008. Such a claim is evident from the perusal of letter

dated 29.11.2008 sent under registered post to the petitioner by respondent No. 3 (Annexure P-4). The petitioner has also complied with the

conditions laid down in Clause 70 of IAFW 2249 by sending a notice for appointment of arbitrator on 13.07.2012 (Annexure P-6).

However, arbitrator has not been appointed within the period of 30 days resulting in filing of the instant petition on 18.09.2012. The respondents

have failed to appoint the arbitrator till today. Therefore, an independent arbitrator is to be appointed by this Court as has been laid down by

Hon'ble the Supreme Court of Datar Switchgears Ltd. Vs. Tata Finance Ltd. and Another, of Punj Lloyd Ltd. v. Petronet M.H.B. Ltd. (2006) 2

SCC 638, Indian Oil Corporation Ltd. and Others Vs. Raja Transport (P) Ltd., and Deep Trading Company Vs. Indian Oil Corporation and

Others,

It is well settled that once there is a live dispute between the parties and arbitration Clause exists between them then the dispute is required to be

referred to the arbitrator. In that regard reliance may be placed on the observations of the Supreme Court made in the cases of S.B.P. and Co.

Vs. Patel Engineering Ltd. and Another, , National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., and Omnia Technologies P. Ltd. Vs.

W.M.A. Van Loosbroek,

The argument of Mr. Jamwal that Clause 65 creates bar on the rights of the petitioner to seek reference after submission of final bill has failed

to impress me because Clause 65 contemplates that the contractor would be entitled to be paid the final sum. In the present case the final bill

submitted by the contractor has been objected to by the respondents on many counts and even the signatures on the final bill have been canceled

by putting a line going over the signatures as is evident from the perusal of Annexure R-4 at pages 15 and 18. It is doubtful whether it could be

claimed that there was a final bill and secondly whether in the facts and circumstances of the case said Clause 65 could be invoked. Admittedly the

petitioner-contractor has not been paid the whole amount claimed in the final bill which as per Clause 65 he was entitled to be paid. The judgment

of Hon'ble the Supreme Court rendered in the case of Union of India (UOI) and Others Vs. Onkar Nath Bhalla and Sons, would also not be

attracted to the facts of the present case because in para 10 of the judgment their Lordships of Hon'ble the Supreme Court have noticed that there

was no protest raised by the contractor with regard to the payment made on the basis of the final bill nor any reservation was reflected. It was in

the aforesaid facts and circumstances that rights of the contractor were deemed to have been waived and there was no question of any pending

dispute referable to the arbitrator. In the present case the facts are entirely different. The final bill infact has not been honoured by the respondents

and moreover signatures on the final bill have been cancelled after crossing the same by putting a line across the signatures by the contractor

himself. Thus the judgment in the case of M/s. Onkar Nath Bhalla (supra) has no application to the case of the petitioner.

As a sequel to the above discussion, the prayer made by the petitioner in all the three petitions is accepted. The additional Chief Engineer in the

office of Chief Engineer Northern Command C/o 56 A.P.O. is appointed as arbitrator, who shall enter the reference and proceed in accordance

with law. An intimation in that regard be sent to the Additional Chief Engineer in the office of Chief Engineer Northern Command C/o 56 A.P.O.

under registered a/d cover along with copy of this order. The petitioner shall be entitled to raise all claims before the arbitrator which shall be

decided in accordance with law. All the three petitions stand disposed of.