M/S K.S. Softnet Solutions Pvt. Ltd vs Government Of Jharkhand

Sujit Narayan Prasad, J

The instant application has been filed under Section 11(6)(c) of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the “Act, 1996”) for appointment of an independent Arbitrator in pursuance to the arbitration clause as contained in Clause 32 of the works’ agreement dated 11.12.2004, executed between the parties, for adjudication of the dispute.

The background facts which led to filing of this application can be summarized as under:-

The State of Jharkhand through Department of Transport and Civil Aviation, has floated a tender for execution of the work pertaining to construction of nine integrated interstate border check posts in the State of Jharkhand. The petitioner participated in the aforesaid bid, in which the petitioner company was declared successful and accordingly directed to enter into an agreement. The agreement was entered in between the parties on 11.12.2004.

The petitioner wrote a letter on 16.10.2004 requesting the Commissioner, Department of Transport, Government of Jharkhand, Ranchi to issue the work order and inform the other details/formalities for Security Deposit. The concerned Department of the State of Jharkhand, in terms of the letter dated 16.10.2004, has issued a letter on 18.10.2004 asking the petitioner to send its technical representation on priority basis for the selection of sites at the nine locations and for the system requirement survey.

As per the contract agreement dated 11.12.2004 in between the petitioner and the respondent, the detailed scope of work and obligations including the payment of the work done has been provided. Under the scope of the work, the integrated interstate border check posts were to be constructed at nine locations in the State of Jharkhand. The work was to be executed in three phases and was to be completed within a period of five years from the date of the issuance of notice to proceed with the work, as would appear from Clause 4 and 6 of the contract agreement.

The agreement also stipulates a condition as under Clause 3 that the Transport Commissioner, Government of Jharkhand was required to provide to the petitioner contractor land for the construction of the check posts within one month from the date of award of work. For ready reference, Clause 3 is required to be referred herein which reads hereunder as :-

“3. The purchaser shall provide the contractor, within one month of award of work, straight leveled land for the construction work free from encumbrances, free of cost as per the approved drawing, after removal of utility services from right of way, all trees and plants removed from right of way and will provide all required permission, clearance/s, No objection Certificate/s and license/s to execute the project wherever required.”

Thus, it is evident that land was to be made available to the petitioner and after handing over the land the petitioner contractor was to prepare the final designs and drawings and had to submit the same to the respondent department for final check and approval.

After the final check and approval by the respondent’s Chief Engineer, Central Design Organization, P.W.D., Ranchi, site wise work orders were to be issued to the petitioner for proceeding with the works in accordance with the Detailed Project Report (DPR).

The DPR of all nine sites prepared by the petitioner upon the land identified by the respondent department were submitted to the concerned respondent for its approval.

It is the case of the applicant company that the respondent Transport Department communicated about the approval of five check posts i.e., (a) ManjhaToli (Gumla) vide letter no.1839 dated 27.12.2005, (b) Baharagora (Jamshedpur) vide letter no.1036 dated 07.07.2006, (c) Chirkunda (Dhanbad) vide letter no.1840 dated 27.12.2005 (d) Murisemer (Garhwa) vide letter no.1045 dated 10.07.2006 and (e) Chas more (Bokaro) vide letter no.1838 dated 27.12.2005.

The petitioner, thereafter, requested for escalation of price because as the land was not handed over to the petitioner in time, the market rate of raw materials, bitumen, steel, cement and aggregate / sand and labour got increased manifold since the year 2003, the year when the petitioner had submitted the tender.

It is the further case of the applicant that the National Highway Authority, thereafter, had written a letter on 29.03.2006 to the Principal Secretary, Transport Department, Government of Jharkhand for neither taking sanction nor giving any prior information to the NHAI for the construction.

The petitioner, in response thereto, had written to the concerned respondent a letter on 13.04.2006 and submitted the Detailed Project Report for building, streetlight and civil work of weigh bridge foundation. The petitioner also submitted the bifurcation of the amount for the different items of works under the agreement of interstate border check post at nine locations. The applicant had further stated that the requirement of buildings along with their plinth areas to be constructed at the check posts were approved by the Chief Engineer, Central Design Organization, Road Construction Department only in December, 2006 and immediately after the receipt of the DPR and land, the petitioner started the construction works on the sites made available to the petitioner by the Transport Department.

It is the further case of the petitioner that the Chief Secretary, of the State of Jharkhand, after taking into consideration the abnormal delays in land acquisition, felling of trees and shifting of utilities, took the decisions i.e., (a) not to proceed further on the check posts under construction (b) action on the payment of the petitioner would be taken as per the report / outcome of the enquiry being conducted by the Cabinet (Vigilance) Cell. However, the aforesaid decision was not communicated to the applicant-petitioner by the Transport Department. Later on, the petitioner was informed by the Secretary, Department of Transport, Government of Jharkhand about stopping of the work of development of integrated check posts on 12.04.2013 till further orders/instructions but the respondents, in the meanwhile, had floated tender for the construction of temporary check posts on the same sites under the Commercial Tax Department.

The petitioner, being aggrieved with such decision, wrote a letter to the respondents as well as the Department of Commercial Tax objecting to the floating of tender without giving it a written notice or a letter rescinding / terminating the petitioner’s contract and without even paying towards the due balance amount.

It is the grievance of the applicant/petitioner that the control over the sites were also taken over without any written communication to the petitioner by destroying the previous works undertaken by the petitioner. The petitioner, thereafter, raised bill to the tune of Rs.21,36,16,310.00 and submitted the same before the concerned respondent vide letter dated 22.09.2015. However, the Cabinet (Vigilance) Technical Cell submitted a report on 13.07.2016 wherein the total amount payable to the petitioner contractor has been shown to be Rs.7,19,28,628.00. However, the aforesaid amount was revalued to Rs.10,06,71,702.00.

In the backdrop of the aforesaid case, the grievance has been made by the petitioner that for no fault of its own, the money which the petitioner company is entitled to get, has not been disbursed and accordingly a notice was sent seeking settlement of dispute under Clause 27 and 32 of the contract agreement but the respondents did not respond to it. Thereafter, the petitioner had sent a notice invoking arbitration vide notice dated 29.09.2020, submitted on 01.10.2020, for settlement of the outstanding demand of Rs.99,62,39,696.00 along with interest @ 18% per annum in pursuance of Clause 32 of contract agreement dated 11.12.2004 which provides for settlement of disputes in arbitration but the respondent State since has not taken any decision, therefore, the instant application has been filed.

A counter affidavit has been filed wherein stand has been taken that the petitioner has failed to comply as per the clause of Arbitration and Conciliation Act, 1996, as per which the party has to give prior notice for invoking the arbitration clause and after lapse of 30 days period, the party has to file an arbitration application but without serving such notice, the instant application has been filed invoking the arbitration clause.

It has been stated that the provisions under Section 21 of the Act, 1996 are mandatory in nature and cannot be dispensed with and forms the preceding act in initiation and reference of the disputes between the parties. The petitioner cannot straight away file an application without issuing the notice under Section 21 of the Act, 1996.

In the backdrop of the aforesaid fact, statement has been made that the instant application is misconceived and accordingly, the same is fit to be dismissed.

Rejoinders to the said affidavit have been filed wherein it has been stated that the petitioner has complied with all provisions of the Act, 1996 before filing the instant application.

So far as the compliance of the provision of Section 21 read with Section 11 of the Act, 1996 is concerned, the petitioner had written letter to the Transport Commissioner, Department of Transport on 29.09.2020 requesting him to appoint an Arbitrator within 30 days of receipt of letter filed in terms of Clause 32 of the contract agreement but the respondents have not responded to such request which led the petitioner to file the instant application.

The petitioner has also filed a supplementary affidavit on 20.07.2021 annexing therein the copy of the letter dated 23.09.2020 and 29.09.2020 requesting therein to refer the dispute for adjudication to a tribunal of three Arbitrators in place of a sole Arbitrator.

Mr. VimalKirti Singh, learned counsel appearing for the applicant has submitted by referring to the terms and conditions stipulated as under Clause 32 of the contract which contains a condition for settlement of dispute after giving notice in writing to the other party and in the instant case the notice has been given to the respondent concerned which has duly been received, as would appear from the seal of the office contained in the notice as appended to the supplementary affidavit but even thereafter, no steps have been taken for appointment of Arbitrator for resolution of the dispute and, therefore, it is a fit case where the instant application is to be allowed for appointment of Arbitrator.

It has further been submitted that a retired Judge of this Court may be appointed as an Arbitrator for resolution of the dispute.

On the other hand, Mr. Mohan Kumar Dubey, learned A.C. to A.G., has submitted by referring to the stand taken in the counter affidavit about the applicability of the provision of Section 21 of the Act, 1996 and disputing the claim on the ground that no such notice has been issued as required to be issued under the arbitration clause as under Clause 32 of the contract agreement. Therefore, according to him, the instant application is not maintainable since the same is contrary to the condition stipulated under Clause 32 of the agreement.

Further submission has been made by referring to the condition stipulated under Clause 27 which provides for settlement of dispute before resorting to the arbitration clause as under Clause 32.

In response to such submission, learned counsel appearing for the petitioner has submitted that so far as the applicability of the provision of Section 21 of the Act, 1996 is concerned, the same is having no relevance in the present case as because Section 21 stipulates about the issuance of arbitration proceeding the day when the notice will be issued for appointment of Arbitrator in terms of the arbitration clause contained in the contract.

Herein, the notice has well been issued which had duly been received in the office of the concerned respondent but as stipulated in the arbitration clause for appointment of Arbitrator within the specific period since no steps have been taken, therefore, the instant application.

So far as the contention about the applicability of the condition as contained under Clause 27 of the contract which speaks about settlement of disputes or differences arising out of or in connection with the contract would, to the extent possible, be settled amicably between the parties. If amicable settlement will not be reached, the dispute would be settled through arbitration.

Herein, the notice has also been issued to the respondents for amicable settlement of the dispute but the dispute has not amicably been settled and, therefore, the applicant is having no option but to invoke the arbitration clause as per the condition stipulated under Clause 32 of the contract and as such, it is incorrect to say on the part of the State that no effort has been made by the petitioner for amicable settlement of the dispute, rather, it is the respondents who have not responded to for amicable settlement of the dispute in terms of the condition stipulated under Clause 27 of the contract and, therefore, it is a fit case where the Arbitrator may be appointed taking into consideration the conditions stipulated under Clause 32 of the contract.

We have heard the learned counsel for the parties and perused the documents available on record.

The fact, which is not in dispute in this case, is that an agreement has been entered into in between the petitioner and the concerned respondent of the State of Jharkhand for construction of nine integrated interstate border check posts in the State of Jharkhand. An agreement has been entered into in between the parties on 11.12.2004 for completion of the work. The aforesaid contract stipulates two conditions for settlement of disputes i.e., one is Clause 27 and another is Clause 32.

The reference of Clause 27 is required to be made since the issue of applicability of condition stipulated under Clause 27 has been taken on the ground that unless the efforts would be made for settlement of disputes amicably under the condition stipulated under Clause 27, there cannot be an application for appointment of Arbitrator in view of Clause 32 of the contract. Clause 27 of the contract is being quoted hereunder :-

“27. SETTLEMENT OF DISPUTES

Except as otherwise specifically provided in the contract, all disputes concerning questions(s) of fact arising from the contract would be decided by the purchaser provided a written reference is made by the KSSSPL to the purchaser.

Any disputes or difference arising out of or in connection with the contract would, to the extent possible, be settled amicably between the parties. If amicable settlement cannot be reached, the dispute would be settled through arbitration as provided hereinafter.”

It is evident from the aforesaid condition that in case of any disputes or differences arising out of or in connection with the contract the disputes will be settled amicably between the parties. If amicably the dispute is not settled, then only, the dispute would be settled through arbitration.

Therefore, the Court has proceeded to examine as to whether the petitioner has taken steps for amicable settlement of dispute before making request for appointment of Arbitrator in terms of provision of Clause 32 of the contract.

It is evident from the material available on record that the petitioner has requested for settlement of dispute vide representation dated 14.11.2017 and 18.06.2018, as appended as Annexure-12 and 12A to the instant application requesting therein to release the payment of dues immediately. Further, on 17.09.2019 also correspondence has been made to the Chief Minister of the State of Jharkhand, as appended as Annexure-12B to the instant application.

It further appears from Annexure-14 dated 25.06.2020 that request has been made to settle the dispute under Clause 27 of the contract.

It requires to refer herein that a counter affidavit has been filed by the State of Jharkhand but no averment has been made with respect to the representation dated 14.11.2017, 18.06.2018, 17.09.2019 and 25.06.2020, appended as Annexure-12, 12A, 12B and 14, respectively so as also no rebuttal reply to the statement in support of which these annexures have been appended, meaning thereby, the State has admitted, in the counter affidavit, about making of request for settlement of the dispute as per the Clause 27 of the contract.

Since the dispute has not been settled in view of the condition stipulated under Clause 27, therefore, applicant has made request for appointment of Arbitrator by issuing notice to the concerned respondent, as would appear from the notice dated 29.09.2020 as appended as Annexure-16 to the supplementary affidavit which has duly been received in the office of the respondent, as would appear from the seal of the office contained in the aforesaid notice.

At this juncture, it requires to refer herein Clause 32 of the contract which stipulates about the arbitration clause which reads hereunder as :-

“32. ARBITRATION

If at any time any dispute or difference arises between the purchaser and the KSSSPL in relation to or in connection with the contract either party may give notice in Writing to the other of the existence of such dispute or difference and the same would be referred to the adjudication of an arbitrator to be nominated by the Government of Jharkhand. A certified copy of the order of appointment of the arbitrator would be furnished to both parties to the contract.

The arbitration would be conducted in accordance with the provisions of Indian Arbitration and Conciliation Act, 1996 including any amendment(s) thereto and would be held at such place and time in Ranchi as the arbitrator may determine. The decision of the arbitrator would be final and binding upon both the parties. The arbitrator may also decide regarding responsibility for costs of arbitration, determine the costs, and may make an order regarding payment of such costs and such decision, determination and order would be binding on both parties.

Performance under the contract would, if reasonably practicable, continue during the arbitration proceedings and payments due to the KSSSPL by the purchaser would not be withheld unless they are substantively in dispute in the arbitration proceedings.

If any dispute arises between the Parties hereto during the subsistence or thereafter, in connection with the validity, interpretation, implementation or alleged material breach of any provision of this Agreement or regarding a question, including the questions as to whether the termination of this Agreement by one Party hereto has been legitimate, both Parties hereto shall endeavor to settle such dispute amicably. The attempt to bring about an amicable settlement is considered to have failed as soon as one of the Parties hereto, after reasonable attempts [which attempt shall continue for not less than 30 (thirty) days], give 15 days notice thereof to the other Party in writing.

In the case of such failure the dispute shall be referred to a sole arbitrator or in case of disagreement as to the appointment of the sole arbitrator to three arbitrators, two of whom will be appointed by each Party and the third appointed by the two arbitrators.

The place of arbitration shall be Ranchi, Jharkhand.

The Arbitration proceeding shall be governed by the Arbitration & Conciliation Act, 1996.

The proceedings of arbitration shall be in English language.

The arbitrator’s award shall be substantiated in writing. The court of arbitration shall also decide on the costs of the arbitration procedure.

The Parties hereto shall submit to the arbitrator’s award and the award shall be enforceable in any competent court of law.”

It is evident from the aforesaid condition that in case of any dispute or difference arises between the parties in relation to or in connection with the contract, either party may give notice in writing to the other of the existence of such dispute or difference and the same would be referred to the adjudication of an arbitrator to be nominated by the Government of Jharkhand.

The question of nomination of the Arbitrator by the Government of Jharkhand will only arise if the Arbitrator would have been appointed on the basis of representation made by the petitioner by way of notice for appointment of Arbitrator but the State of Jharkhand, admittedly has not taken any action for appointment of Arbitrator, rather, contest has been made to the claim of the applicant by filing counter affidavit wherein the plea of non-issuance of notice prior to invoking the arbitration clause as under Clause 32 and applicability of Section 21 of the Act, 1996, has been referred.

Very peculiarly, specific submission has been made in the supplementary affidavit about issuance of notice in terms of arbitration clause as under Clause 32 along with the notice appended thereto but no rebuttal reply to such supplementary affidavit has been filed although the counter affidavit has been filed by the State on 18.11.2021, while, the said supplementary affidavit has been filed on 20.07.2021.

It requires to refer herein that on the date when the matter was heard i.e., 23.12.2021, time was allowed to the learned counsel appearing for the State to file reply to the said supplementary affidavit but even then no response to said supplementary affidavit has been filed, meaning thereby, the fact about issuance of notice prior to invoking the arbitration clause as has been averred in the supplementary affidavit along with the relevant document i.e., copy of the notice duly been received in the office of the Department, has been admitted by the State respondent.

Therefore, according to my considered view, the ground which has been taken about non-issuance of notice before invoking the arbitration clause, is not worth to be considered, accordingly rejected.

So far as the contention raised by the State about applicability of the provision of Section 21 of the Act, 1996 is concerned, according to the considered view of this Court, Section 21 will not give any aid to the State as because Section 21 stipulates which reads hereunder as:-

“21. Commencement of arbitral proceedings – Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.”

Thus, it is evident from the aforesaid provision that Section 21 stipulates about commencement of arbitral proceeding which will be said to have commenced, on the date on which a request for that dispute to be referred to arbitration is received by the respondent. As such, Section 21 cannot be construed to be over-riding effect upon the power conferred to the Chief Justice or his designate Judge as under Section 11(6)(c) of the Act, 1996. Therefore, the ground about applicability of Section 21 of the Act, 1996, in the given facts of this case, is having no relevance, accordingly, the said ground is hereby rejected.

So far as the statutory provision as contained under Section 11(6)(c) of the Act, 1996 is concerned which provides that a person including an institution, fails to perform any function entrusted to him or it under that procedure, the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

This Court, after considering the aforesaid provision and going through the fact of the given case, is of the view that due notice was issued for appointment of Arbitrator by invoking the arbitration clause as provided under Clause 32 of the contract but the respondents have not acted upon, therefore, the instant application has been filed for appointment of Arbitrator in exercise of power conferred under Section 11(6)(c) of the Act, 1996.

It is the settled position of law as per the judgment rendered by Hon'ble Apex Court in Datar Switchgears Ltd. v. Tata Finance Ltd. and Another reported in (2000) 8 SCC 151 and PunjLlyod Ltd. v. Petronet MHB Ltd. reported in (2006) 2 SCC 638 wherein the Hon'ble Apex Court has held that once a notice period of 30 days expires and the party has moved an application under Section 11(6), party having right to appoint Arbitrator under arbitral agreement, loses the right to do so.

Further, in DuroFelguera, S.A. v. Gangavaram Port Limited reported in(2017) 9 SCC 729, it has been held that the power of Court under the provision of Section 11(6) of the Act, 1996 is confined only to examine the existence of arbitration agreement and if the arbitration agreement provides for appointment of Arbitrator on fulfillment of certain terms and conditions, even after its fulfillment when the other party has refused to respond, the Arbitrator is required to be appointed in pursuance to the power conferred under Section 11(6) of the Act, 1996.

Similar ratio has been laid down in the case of Mayavati Trading Private Limited v. Pradyuat Deb Burman reported in (2019) 8 SCC 714 as also in the case of Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited reported in (2019) 9 SCC 209.

This Court, after taking into consideration the fact in entirety and considering the fact that the concerned respondent of the State of Jharkhand has not responded for amicable settlement of dispute as per the condition stipulated under Clause 27 of the contract, which led the applicant to make a request for appointment of Arbitrator by invoking the arbitration clause as under Clause 32 of the contract even then the State of Jharkhand has not acted upon the same, therefore, it is a fit case where the power conferred under Section 11(6)(c) is required to be exercised.

At this stage, Mr. PiyushChitresh, learned associate counsel to Advocate General, proposes the name of Hon’ble Mr. Justice AmareshwarSahay, (Retd.), Former Judge of this Court as arbitrator, to which, learned counsel for the petitioner agreed.

In view thereof, this Court appoints Hon’ble Mr. Justice Amareshwar Sahay, (Retd.), Former Judge of this Court presently residing at “Heritage Parmeshwar” 52, Circular Road, Lalpur, Ranchi as Arbitrator to adjudicate the dispute between the parties, subject to provision as stipulated under Section 12 (5) of Arbitration and Conciliation Act, 1996.

Learned Arbitrator would be free to lay down fees and other expenses towards conduct of the arbitration proceedings, however, keeping into account the ceiling prescribed under Schedule IV of the Act of 1996 as amended. Learned Arbitrator would endeavour to conclude the proceedings expeditiously, and preferably within a period of six months from the date of arbitration proceeding so begins, also taking into regard the mandate of the Legislature under Section 29-A of the Act of 1996.

The Registrar General of this Court is directed to send copy of the entire pleadings along with copy of the entire order sheet to the learned Arbitrator.

Accordingly, the instant Arbitration Application stands disposed of.