Natha Singh vs Union of India

M.M. Kumar, C.J.—This petition filed u/s 11 of the Jammu and Kashmir Arbitration and Conciliation Act, 1997 (for brevity 'the Act') prays

for referring the dispute raised herein to an independent arbitrator in view of the fact that the respondents have failed to appoint an arbitrator in

accordance with the provision of arbitration clause even before filing of the instant petition. In order to appreciate the controversy it would first be

necessary to notice few facts. The petitioner is a partnership firm and Harjinder Singh s/o S. Natha Singh is one of the partner. The respondents

invited tenders for 'construction of road over bridge No.166, 136, 114, 106 and 58 with 22.30 M PSC Girder 18.30 M RCC T. Beam Slab, Sub

Structure of RUB No. 124, PSC Slab of Bridge No. 111, dismantling of existing ROB No/166, 136, 114, 106, 58 and 34 and protection work

of Bridge No.43 and allied work such as approach Road breast wall, side drain, catch water drain, cutting formation near ROB and RUB and any

protection work between Vijaypur Jammu Kathua in connection with Jalandhar-Pathankot-Jammu Tawi doubling'. The quotations were invited

vide tender notice dated 30.08.2007. The approximate cost of the work was Rs. 814.57 lacs. Earnest money of Rs. 16,29,500/- was to be

deposited by the applicants. The period for completion of work was fixed at 13 months. The last date for submission of tenders was 25.09.2007,

which were to be opened immediately after 15.00 hrs (Annexure-A). It is clear from the terms of the tender indicated in Clause 3 of the Tender

Form that a sum of Rs. 16,29,500/- i.e. 2% of the estimated tender value is to be forwarded as earnest money. The earnest money was to be

forfeited without prejudice to any other rights or remedies in case tender is accepted and the contractor failed to execute contract documents

within 15 days. It is pleaded by the petitioner that no contract agreement was executed between the parties.

The petitioner submitted the tender and was a successful bidder as is clear from communication dated 14.02.2008 conveying acceptance of the

tender by respondents for a total cost of Rs.9,86,49,744.00 (nine crore, eighty six lakhs, forty nine thousand, seven hundred forty four only). It is

obvious that the petitioner has deposited the earnest amount of Rs.16,29,510/-. The petitioner was asked to submit a performance guarantee in the

form of irrevocable bank guarantee within a period of 15 days from the date of acceptance letter amounting to 5% of the contract value as per the

proforma prescribed by the Railway in terms of clause no.5.2 of the special tender conditions and instruction to tenderer/s. The entire work was

required to be completed in all respect within 13 months from the date of issuance of letter dated 14.02.2008. The petitioner was asked to contact

the Deputy Chief Engineer/Construction, Northern Railway, Pathankote for further instructions for commencement of the work (Annexure-B). It is

not disputed that no performance guarantee amounting to Rs. 49,32,490/- was furnished in term of clause 5.1 and 5.2 of the special tender

conditions despite notices issued by the respondents.

2.1. However, the petitioner after visiting the site found that dismantling of boulder stone masonry involved in stair, catch water drains and grouted

pitching on slope of the banks were the pre-requisite, which was not covered by the tender document and was beyond the purview of the tender.

Accordingly, the petitioner informed the respondents vide communication dated 11.03.2008 raising the objection that period of 13 months for

completing the work has to be reckoned from the date of issuance of award letter and failure to show progress of work so as to complete the

work within 13 months should not entail milestone penalty and the dismantling was to be stated only after approval of the planning/procedure

(Annexure-D). The petitioner thus conveyed to the respondents that the work could be executed only after site was provided to the petitioner free

from all other obstructions paving way for it to execute the work. They stressed that the work could not be started in piece meals, which was

unlikely to give the required progress and would have; entailed milestone penalty. The case of the respondents is that the petitioners accepted the

obstructions in the commencement and execution of the work allotted to them with clear stipulations that they must visit the site before bidding.

They took the stand that the mentioned items were minor with respect to quantity as well as financial value and they agreed to add these items in

schedule through addendum (Annexure-E).

2.2. The petitioner refuted all the allegations and denied the version of the respondents that the quantity involved was a minor one. It was conveyed

that dismantling of stone masonry involved an expense of Rs.108 lacs and it was in the fitness of things to get prior sanction in accordance with

note 9 of the tender documents (Annexure-F). There has been correspondence between the petitioner and respondents and eventually on

31.03.2008 Chief Administrative Officer/Const. Headquarters Office, Kashmere gate Delhi sent a communication suggesting joint survey of the

sites and to make joint notes and photographs. The petitioner was required to clearly mention the modus operandi of work and if any site is not

free what is time frame to give clear site. The report was to be submitted by 07.04.2008 (Annexure-L). The petitioner had conveyed the Deputy

Chief Engineer, Northern Railway Pathankot that its representative would be attending on 09.04.2008 and be part of the joint inspection

(Annexure-M). The petitioner's representative did not sign the joint inspection on the existing position of the sites as prepared by the Deputy Chief

Engineer (Annexure-N) and left the site on the excuse that he has to leave on account of urgent work and that he would come back to sign. It is

claimed thus that it is all afterthought. The petitioner has alleged that joint inspection note was not prepared in the presence of its representative.

The petitioner has further asserted that in the joint inspection report still photographs and video movie were taken on spot depicting the ground

reality which was forwarded to the Chief Administrative Officer/Construction Northern Railway on 17.04.2008 (Annexure-O). Thereafter a joint

meeting was also convened between the Chief Engineer/Construction Northern Railway and the Deputy Chief Engineer wherein it was found that

the report of the joint inspection submitted by the Deputy Chief Engineer was not correct. The case of the petitioner thus is that it has not been

provided clear site for execution of the work which has resulted in inflation of the price of the contract material in general and steel in particular and

the contract could not have been executed in piecemeal as clause 80 of the tender document would be attracted and milestone penalty would be

imposed. It has thus resulted in disability of the petitioner to commence the work despite the fact that it has arranged labour, machinery and

wherewithal by bringing the same on spot.

2.3 The petitioner filled an application u/s 9 of the Act seeking relief to restrain the respondents from asking the petitioner to deposit the

performance bank guarantee to the tune of 5% of the contract value, start the work immediately and restrain them to take action against the

petitioner under Clause 62 of the General Conditions of the contract by engaging another contractor to execute the work on the petitioner's risk

and cost and forfeit the earnest money of Rs.16,29,500 being 2% of the estimated tender value. The learned District Judge, Samba vide order

dated 08.05.2008 passed a restraint order against the respondents restraining them from giving effect to the communication dated 25.04.2008 and

further restrained them from forfeiting the earnest money of Rs. 16,29,500/- being 2% of the estimated tender value. The respondents were further

restrained from proceeding with the re-tendering process at the risk and cost of the petitioner (Annexure-R).

2.4. After the interim order the petitioner vide letter dated 30.04.2009 called upon the respondent to appoint an arbitrator for adjudication of the

disputes (Annexure-S). However, the respondents re-tendered the work in question on 05.08.2008 raising the value from Rs.814.75 lacs to

Rs.11,83,68,822.00 (Annexure-T). It is alleged that all those additional works which the petitioner was asked to do on the basis of NIT dated

25.09.2007 were included in the new NIT dated 08.07.2008. The petitioner has also placed reliance on para 5 of the communication addressed

by the Chief Administrative Officer, Construction/Dy. Chief Engineer/ Cons. Northern Railway, which stipulates that until a formal agreement is

prepared and executed, acceptance of this tender was to constitute a binding contract between the petitioner and railway subject to modification as

may be mutually agreed to between the parties and indicated in the letter of acceptance. The petition raising the demand for referring the dispute to

an independent arbitrator is regulated by Clause 64(i) of the general conditions of the contract.

2.5. On the basis of the aforesaid facts and circumstances the petitioner has made the following prayer:-

i) An independent arbitrator may kindly be appointed;

ii) The disputes, claims raised and to be raised after the order of reference be allowed to be submitted before the arbitrator.

iii) The disputes/claims raised and to be raised be directed to be adjudicated upon by the arbitrator expeditiously.

iv) Such other appropriate order as this Hon'ble Court deems fit and proper in the facts and circumstances of the case be also granted in favour of

the petitioner.

The cause of petitioner has been opposed by the respondent by filling detailed objections. The respondents have raised objection that after

acceptance of communication dated 14.02.2008 the documents were required to be executed within a period of two weeks. In that regard the

petitioner was asked on 14.02.2008, 16.02.2008, 13.03.2008 and 16.04.2008 to submit the performance guarantee which was to be furnished to

the tune of 5% of the total amount of contract value. Instead of depositing the performance guarantee the petitioner preferred a petition u/s 9 of the

Act and obtained ex-parte direction on 08.05.2008 as has already been noticed in the preceding para. The performance guarantee was required

to be furnished to either of the State Bank of India or any nationalized bank as per clause 5.2(iv) of the general conditions of contract Northern

Railway (Annexure-D). The petitioner was further asked to commence execution of the work and deposit the performance guarantee on

16.02.2008 as is evident from letter dated 16.02.2008 (Annexure-F). The total amount of performance guarantee comes to Rs.49,32,490.00

which is 5% of the contract value as per the proforma prescribed by the Northern Railway in terms of clause 5.2 (Annexure-F). Despite repeated

reminders the petitioner failed to comply with the terms and conditions leaving no option with the respondents to issue final notice dated

25.04.2008 stating therein that in the event of not depositing the performance bank guarantee which is mandatory for executing the contract

agreement as well as to start the work under rules then action was to be taken as per clause 62 of the general conditions of the contract which

include termination of contract (Annexure-H).

Another objection raised by the respondents is that once the matter is subjudice before the Principal District Judge, Samba a petition u/s 11 of

the Act for appointment of an independent arbitrator would not be maintainable particularly when there is no agreement executed between the

parties incorporating arbitration clause. It has been insisted that in the absence of any contract agreement incorporating arbitration clause the matter

cannot be referred to the arbitrator. The petitioner has failed to comply with the tender condition as per clauses 5.2 and 8.00 of general conditions

of the contract requiring it to deposit performance guarantee in the form of irrevocable bank guarantee despite repeated reminders (Annexure-R-

1). On account of non cooperation of the petitioner contract agreement could not be executed. It has also been pleaded that as per tender

conditions and instructions to tenderers vide clause 7.2 it was represented that they are advised to visit the site of work and investigate actual

conditions regarding nature and conditions of soil, difficulties involved due to inadequate stacking space due to built up area around the site,

availability of materials water and labour probable sites for labour camps, stores, godowns etc. They were also required to satisfy themselves as to

the source of supply and adequacy for their respective purpose of different materials referred in the specifications and indicated in the drawings. It

was also clarified to everyone of them that extent of lead and lift involved in the execution of work and any difficulties involved in the execution of

work should also be examined before formulating the rates for complete items of work described in the schedule. It is asserted that it was duty of

the petitioner to have analyzed the problem before quoting the rate of tender. Therefore the submissions made by the petitioner that he found

dismantling of boulder stone masonry involved in stairs catch water drain not covered in the tender document is alleged to be an after thought and

work cannot be allotted to him as per his dictates. For allotment of extra work there is a set procedure and it is clear that the petitioner did not visit

the site at all before quoting the rate of tender and the allotment of such work is done as per clause 63.1 of the tender document (Annexure R-3

and R-4). Therefore, it has been suggested that the items concerning dismantling could have been incorporated in the contract agreement and the

dismantling of bridge no. 106 was completed by another agency for commencing the; construction of bridge in view of the petitioner condition that

work can only be started if dismantling is done. Dismantling of drain/pitching for other bridge could have also been completed had the petitioner

started the work. The version of the petitioner has been controverted by asserting that in letter dated 14.03.2008 it is clearly mentioned that

dismantling of ROB only be started after construction of new ROB near existing ROB and the dismantling of existing ROB was to be as per the

approved planning/procedure. Hence the petitioner's assertion that prior approval of planning/procedure was required for dismantling boulder

stone masonry involved in stairs, catch water drain and grouted pitching on slope was totally false. They have also clarified that dismantling of

grouted pitching and stone masonry was under progress by another agency and dismantling was completed at bridge No. 106. It was also

mentioned in letters dated 11.04.2008 and 20.03.2008 that grouted pitching and stone masonry was done for protecting embankment near track

and the petitioner was asked to start cutting of the earthwork without any further delay so that the track does not become unsafe after removal of

grouted pitching. As the petitioner did not start the work hence dismantling was not started at other bridges 'which could have made the track

unsafe. The respondents have cited various facts to conclude that the petitioner has been trying to delay the work for his malafide intention and

trying to blackmail the respondents because the work is of national importance and if it is stopped it would cause irreparable operational loss to the

Nation, Railway and people of J&K. As a matter of fact the petitioner did not take any step to start the work by deploying any machinery or

labour on the site till date nor has deposited the required bank guarantee. The respondents have placed reliance on clause 9.3 (Annexure R-7)

In respect of joint inspection it has been pointed out vide letter dated 05.04.2008 that the petitioner has given date for joint inspection as

09.04.2008. However, letter was received on 10.04.2008. The petitioner-Harjinder Singh approached the Deputy Chief Engineer on 11.04.2008

for joint inspection and despite the fact that it was a holiday; the Deputy Chief Engineer conducted the joint inspection. The petitioner with ulterior

motives left the side on the pretext that he was to go to Jammu for some urgent work and would sign the report on his coming track which he never

signed. The remarks are given as per the true site conditions in the light of site photographs (still) (Annexure R-8). The respondents have also

submitted that sites were free from encumbrances and there was no problem expect minor problem at Bridge No. 114, 136 and 166 requiring

dismantling of stone masonry and grouted pitching which was stopped due to non-starting of work by the petitioner. It is clear that no arbitrator

could be appointed in the absence of incorporation of arbitration clause by execution of proper contract agreement and as such clause 64 of

General Conditions of Contract dealing with appointment of arbitrator could have been invoked by any person who has entered into the written

agreement by agreeing that in case any dispute arises either of the party can approach the competent authority for appointment of arbitrator. As

there was no agreement executed between the parties the clause could not be invoked particularly when no amount representing the performance

guarantee has been deposited. Accordingly, prayer has been made for dismissal of the petition.

The facts noticed in the preceding paras show that tender notice dated 30.08.2007 clearly stipulates that the petitioner would be bound by

special conditions of the contract and specifications for material and works as laid down by the Railway. The special conditions of contract were

annexed with the tender form. According to clause 3, a sum equivalent to 2% of the estimated tender value was required to be submitted which

amounted to Rs. 16,29,500/-. Clause 3(d) further stipulated execution of performance Guarantee amounting to 5% of the contract value within a

period of 15 days either by depositing cash or by Irrevocable Bank guarantee or Government security including State loan bonds at 5% the market

rate. Clause 3(d) is set out below in extenso:-

A sum of Rs. 16,29,500/- (Rs Sixteen lacs twenty nine thousand five hundred only) i.e. 2% of the estimated tender value rounded off to nearest

Rs. Ten as indicated in tender Notice) is herewith forwarded as Earnest Money. The full value of the Earnest Money shall stand forfeited without

prejudice to any other rights or remedies in case my/our tender is accepted and if:-

a) I/We do not execute the contract documents within Fifteen days after receipt of the notice issued by the Railway that such documents are ready;

and

b)..................................................

c)..................................................

d) I/We do not submit a Performance Guarantee amounting to 5% of Contract Value in any of the following forms, before signing of agreement

which should be normally about 15 days:-

i) A deposit of cash

ii) Irrevocable Bank guarantee

iii) Government securities including state loan bonds at 5% below the market value

iv)...............................................

It has come on record that the rates submitted by the petitioner on 25.09.2007 were accepted by the Competent Authority and letter dated

14.02.2008 was sent to the petitioner (Annexure-B). In the concluding para it has been clarified that the work was required to be completed in all

respects within a period of 13 months from the date of issuance of that letter. It was further emphasised that the Performance Guarantee in the

form of Irrevocable Bank guarantee be submitted within a period of 15 days from the date of acceptance letter. However, the petitioner did not

deposit the Performance Guarantee representing an amount of Rs. 49,32,490/-. A reminder to that effect was sent on 16.02.2008 (Annexure C).

Again a reminder was sent on 25.04.2008 clearly informing the petitioner to deposit the Performance Bank Guarantee and start the work

immediately failing which clause 62 of General Conditions of Contract including termination of acceptance was to be invoked.

The petitioner, however, insisted upon delivery of clear site for execution of the work and also asked for execution of an additional contract as

there were extra items on the site. There is correspondence on record between the parties in that regard. The respondents had also made it clear

that the rates concerning the tender should be offered only after undertaking inspection which is presumed to have been carried. After submitting

the rates, award of the tender and at the instance of the petitioner the respondents offered to undertake the joint inspection of the site as the

petitioner did not start work on the site. The joint inspection was undertaken. In that regard the petitioner gave the date for joint inspection to be

09.04.2008, however, the letter was received in the office of the respondent - Deputy Chief Engineer on 10.04.2008 the petitioner-Harjinder

Singh approached the Deputy Chief Engineer on 11.04.2008 for joint inspection and despite 11.04.2008 being a Sunday; the Deputy Chief

Engineer agreed to conduct the joint inspection. However, the petitioner-Harjinder Singh left the site on the pretext that he was going to Jammu for

some urgent work and would sign the joint inspection report on his way back. However, he never returned to sign the joint inspection report which

was submitted to the Chief Engineer along with the photographs. It has been clarified that the petitioner along with the representative of the

Railways jointly surveyed the site and the existing position on spot was reflected in the Joint inspection report which the petitioner failed to sign.

Thus it is claimed that the sites were free from encumbrances and there was no problem except minor at Br. Nos. 114, 136 and 166 requiring

dismantling which was stopped on account of non-commencement of the work by the petitioner. The respondents have also patently denied that

there was any machinery taken to the site.

The first question which arises for consideration is Whether in the absence of depositing the Performance Guarantee mounting to Rs.

49,32,490/-, could it be assumed that the arbitration clause 64 of the General Conditions of the Contract would be deemed to be incorporated or

no contract is deemed to have come into existence'.

The petitioner has placed reliance on para 2 of the tender document, urging that the parties had agreed to abide by the general conditions of

contract corrected up to date and the work has to be carried in accordance with the special conditions of contract. According to the petitioner

para 5 of the tender should be read in such a manner as to incorporate the arbitration clause. Para 5 of the tender postulates that till the execution

of a formal agreement, acceptance of tender was to constitute a binding contract between the parties.

The basic issue however which emerges for consideration is existence of clause 3(d) which postulates that the value of the earnest money was

to be forfeited without any prejudice to the remedies or rights in case the tender was accepted and if the contract document was not executed

within 15 days after receipt of the notice issued by the Railways; and the work is not commenced within 15 days of the date of order to that effect;

and the contractor has failed to furnish Performance Guarantee. It is true that para 2 of the tender document talks of obeying the general conditions

and special conditions of it is Stipulated that till formal agreement is prepared and executed the acceptance of tender was to constitution a binding

contract. However, it cannot be concluded that because of condition in para 5, the arbitration Clause 64 occurring in General Conditions of

Contract is deemed to be incorporated in the agreement But at the same time the provisions of para 3 cannot be over looked which stipulates

execution of the contract document within 15 days and commencement of the work also within 15 days after receipt of order, more particularly the

furnishing of Performance Guarantee amounting to Rs. 49,32,490/-. I have not been able to persuade myself to accept the contention that in view

of para 2 and 5 of the tender document the arbitration clause 64 occurring in General Conditions of Contract 99 has been incorporated because

the tender agreement itself has not come to the stage of completion by execution of contract agreement on account of non-furnishing of

Performance Guarantee and commencement of the work. Therefore, I am not impressed with the submission made by Mr. Johal that the Court

must infer from paras 2 and 5 of the tender document that the arbitration agreement stand incorporated. I find that the judgment in Shakti Bhog

Foods Limited Vs. Kola Shipping Limited, and Trimex International FZE Ltd. Dubai Vs. Vedanta Aluminium Ltd., India, , are not applicable to

the facts and circumstances of this case and no relief on that basis could be given to the petitioner.

As already noticed above, the petitioner in terms of the tender conditions has been repeatedly asked to furnish the Performance Guarantee as

is evident from the letters dated 14.02.2008 (Annexure-E), 16.02.2008 (Annexure-F), 16.04.2008. (Annexure-G), and 25.04.2008 (Annexure-

H). The aforesaid letters were issued on the acceptance of tender, accepting the rates of Rs. 9,86,49,744.00. The first notice for Performance

Guarantee was issued on 14.02.2008 which also conveyed the acceptance of the tender and the notice was required to be responded by

depositing the Performance Guarantee within 15 days. However, instead of depositing the amount of Performance Guarantee the petitioner

engaged respondents with the correspondence concerning issue of site clearance, additional work and showed unwillingness to execute the work.

The petitioner did not co-operate by signing the joint inspection report. The conduct of the petitioner, as placed before this Court, is not credit

worthy, therefore, it is possible to accept the submission made by learned senior counsel Shri K.S. Johal and grant any relief on the basis of the

judgments cited by him which deal with drawing inference concerning arbitration agreement from correspondence, e-mail and exchange of fax etc.

The present petition is wholly without merit and is liable to be dismissed.

As a sequel to the above discussion this petition fails and the same is dismissed. On account of dismissal of this petition to appoint an

arbitrator, the District Judge Samba is directed to take up the matter for interim relief and pass appropriate orders in the light of the discussion in

this order.