Rash Builders India Pvt. Ltd. vs Hindustan Construction Co. Ltd.

Hakim Imtiyaz Hussain, Judge

This is an application u/s 11 of the Jammu and Kashmir Arbitration and Conciliation Act, 1997 (for short the Act) for the appointment of an

arbitrator, filed by Rash Builders India Pvt. Ltd. Srinagar through its Director and Principal Officer namely Abdul Rashid Zargar.

Rash Builders India Pvt. Ltd. (hereinafter called as the applicant) is a Company incorporated under the Companies Act, 1956 and is engaged in

the business of civil construction.

In pursuance to successful competitive bidding on an NIT issued by the Government of Jammu and Kashmir for construction of Mughal Road

from Bufliaz (Poonch) to Shopian (Pulwama) a work contract came to be allotted to Hindustan Construction Co. Ltd, Mumbai (hereinafter

referred to as the respondent) by the Government of Jammu and Kashmir. Under the main contract, the Government of Jammu and Kashmir was

to pay a total consideration of Rupees Two Hundred and Fourteen Crore Forty Lac (Rs. 214,40,00,000.00p) to the respondent, for the

completion of the main contract and for the remedying defects, if any. In the contract, provision was kept for the respondent to appoint, by

contract, a sub contractor to carry out a part of the construction work of the main contract. On 24th of August 2005, the respondent requested the

applicant to work as sub contractor for the execution of the entire main contract. After various meetings and due deliberations a part of the work

was allotted by the respondent to the applicant for its execution. The applicant has in this behalf stated as under:

The Respondent approached the Applicant and requested him to work as Sub-Contractor for the execution of above referred Work Contract.

After lengthy, hectic and rigorous deliberations and meetings, the work order was released in July, 2006 by the Respondent in favour of the

Applicant for the construction of road upto GSB layer, construction of all cross drainage structures, retaining walls, catch water d rains and other

protection works for the forth (40) kilometer stretch of road on Bafliaz side of the proposed Mughal Road. After watching performance of the

Applicant for a period of over a year and consequent to several meetings and discussions, the respondent of his own doubled the quantum of work

that was to be executed by the Applicant in connection with the above referred Main Contract, to include work beyond scope of work order as

well. This was done in January, 2007.

The applicant has further stated that in January, 2008, a notice was served upon the applicant by the respondent, therein alleging non-

performance on the part of the applicant but this came to be strongly refuted by the applicant. Finally in April, 2008 the above referred Work

Order was terminated by the respondent. The respondent also raised a purported claim of Rs. Thirteen Crore Twenty Four lac Ten Thousand

Nine Hundred Twenty Nine and Paisa Ninety (Rs. 13,24,10.929.90p) against applicant, which purported claim was later raised to Rupees

Nineteen Crore Thirty Eight Lac (19,38,00,000.00p). Wherafter the applicant raised its outstanding bill against the respondent on account of work

done by the applicant in connection with Main Contract under Work Order and otherwise.

The applicant states that when meetings held between the applicant and the respondent did not succeed in resolving the issues between them,

the applicant, raised its claims against the Respondent for an amount of Rupees Ninety Four Crore Forty seven lac Nine Thousand Two Hundred

Twelve and Paisa Forty Six on account of payments for work done, escalation, interest and other losses suffered by the applicant.

In August, 2010, the applicant issued a letter to the respondent, thereby referring all its isues/disputes with, and claims against respondent, to

Arbitration under the arbitration clause of the Main Contract. The applicant, proposed to the respondent a panel of five names, with a request that

the respondent may agree to appointment of any one of them as sole arbitrator, to enter upon reference and decide all claims of the applicant

against the respondent. But the respondent unequivocally rejected the request made by the applicant.

The applicant is thus aggrieved of the conduct of the respondent. He states that under the agreement between the applicant and the respondent

in case of dispute, respondent was required to appoint an arbitrator, since the respondent has despite requests by the applicant, failed to appoint

an arbitrator, there is no longer any possibility to appoint a sole arbitrator between the parties. He states that since the respondent has failed to

appoint an arbitrator within 30 days from the receipt of the application dated 15th of August 2010, respondent has forfeited all/any right to

participate in the appointment of arbitrator under any law. He has, therefore, prayed for appointment of arbitrator under the Arbitration Clause

contained in the main agreement to adjudicate all the issue/disputes/claims between the parties.

Respondents have in their reply stated that this court has got no jurisdiction to entertain the present application as applicant and respondent

Companies have entered into an agreement whereby parties have agreed by virtue of Clause 29 of the Contract of Sub-contract for settlement of

disputes, if any, during the subsistence of the contractual obligations during the entire-currency of work order between the parties to be settled by a

sole arbitrator appointed by the Chairman and the Managing Director of the Hindustan Construction Co. Ltd. Mumbai and the venue shall be at

Mumbai and only the Mumbai Courts will have the jurisdiction. They have further stated that the applicant has not followed the mandate as per the

work order no. SC/100/MRP/003 dated 1st December 2005 read with the clauses of SCC for carrying out the construction of road upto GSB

layer, Cross Drainage Structures, Retaining Wall, catch water drains and other protection work etc. from Bufliaz end at HCC's Mughal Road

Project in State of J&K, which work was allotted to him under the work order. The respondent instructed and gave directions to the applicant

from time to time to execute the work as per the targets set in this behalf, but the applicant has neither fulfilled the contractual obligations nor

carried out the work to the satisfaction of the respondent. The dispute, if any, is attributable to the applicant, for not deploying required man power

and machinery at site due to which the snails pace of the work has made the respondent company to sustain losses for which the applicant is fully

responsible and HCC is within its rights to claim damages from the applicant.

Heard. I have considered the matter.

Learned counsel for the applicant has besides arguing the case also submitted written submissions on behalf of the applicant. It is contended

that the present application has been filed under the Act because the respondent has unequivocally refused to agree to the consensual appointment

of a sole-arbitrator, for the resolution of all the claims of the applicant against the respondent, under the applicable Arbitration Clause contained in

the agreement drawn on 8th February 2006, between the respondent and the Government of Jammu and Kashmir, as required by law. It is further

contended that in the main contract stands incorporated by reference, u/s 7(5) of the Act, between the applicant and the respondent, by virtue of

Clause 1.2 of the Standard Conditions of the sub-contract to the work order, to which the applicant is a party as respor dent's subcontractor. It is

further stated that the applicant had requested the respondent vide letter dated 5th August 2010 for appointment of sole arbitrator, but, the same

was rejected by the respondent vide letter dated 23rd of August 2010.

Relevant clause (Clause 1.2) of Standard Conditions of the Sub-contract which deals with arbitration reads as under: -

If any dispute or difference of any kind what so ever shall arise in connection with or arising out of this contract or the execution of works or

maintenance of works there under, whether before its commencement or during the progress of works or after the termination/abandonment or

breach of the contract, it shall be in the first instance resolved by the parties amicably. However, if the parties fail to resolve amicably the dispute

then referred to arbitrator for arbitration in accordance with the J&K Arbitration and Conciliation Act, 1997. The decision of Arbitrator shall be

final and binding on the parties.

The applicant has placed on file copy of the application (annexure 18) dated 5th August 2010 which would show that the applicant has made a

formal request to the respondent to appoint an arbitrator to resolve the dispute between the parties. The period of 30 days expired on 4th of

September 2010, but, it would appear from the annexures on file that the respondent did not appoint the arbitrator either under the Arbitration

Clause of the main contract invoked by the applicant or even unilaterally under Clause 29 of the Standard Conditions of the Sub-contract until 16th

September 2010.

Letter no. TNP-S/PA/1444 dated 16-09-2010 addressed by Hindustan Construction Co. Ltd. to the applicant would, however, show that

the respondent appointed Sh. N.C. Saxena, Engineer in Chief (Retd) UP PWD to act as the sole arbitrator in terms of Clause 29 of Standard

Conditions of work order dated 1-12-2005. But this appointment was made on 16-09-2010, when the applicant had already moved the court

and filed the present application on 8-9-2010.

It is well settled law now, as has been laid down by the Apex Court in Datar Switchgears Ltd. Vs. Tata Finance Ltd. and Another, that right of

a party to nominate an arbitrator, on the demand of other party ceases as soon as the other party moves the court u/s 11. In para 19 of the

judgement the court held as under:

So far as cases falling u/s 11(6) are concerned such as the one before us - no time limit has been prescribed under the Act, whereas a period

of 30 days has been prescribed u/s 11(4) and Section 11 (5) of the Act. In our view, therefore, so far as Section 11 (6) is concerned, if one party

demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right

to appointment does not gel automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the

demand., but before the first party has moved the Court u/s 11, that would be sufficient. In other words, in cases arising u/s 11(6), if the opposite

party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has

to be made before the former files application u/s 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases.

Datar Switchgears case was affirmed in Punj Lloyd Ltd. v. Petronet MHB Ltd.(2006) 2 SCC 638 and it was held that when one of the party

has a right to appoint arbitrator within 30 days of notice but it does not do so within thirty days after notice is served upon it by the other party and

the other party moves the Court, party having right to appoint arbitrator under arbitral agreement loses the right to do so.

Both these cases were followed in Union of India (UOI) Vs. Bharat Battery Manufacturing Co. (P) Ltd., and it was held that once a party files

an application u/s 11(6) of the Act, the other party extinguishes its right to appoint an arbitrator in terms of the Clause of the agreement thereafter.

The Court further held that the right to appoint arbitrator under the clause of agreement ceases after Section 11(6) petition has been filed by the

other party before the Court seeking appointment of an arbitrator.

In view of these authorities, it is settled principle of law now that right of a party to appoint an arbitrator ceases to exist and is forfeited if an

application u/s 11 of the Act is moved for appointment of an arbitrator. It means that an appointment has to be made by the party of an arbitrator

before filing of the application u/s 11 of the Act. If the appointment is made after the filing of the application u/s 11 of the Act, then such an

appointment is a nullity and in fact no appointment in the eye of law. It is non-est. In view of it, appointment of Sh. N.C. Saxena as an Arbitrator

by the respondents is not a valid appointment hence cannot prevent this Court to consider this application.

That the respondent has now itself appointed an arbitrator vide communication dated 16-09-2010, would show that there; exist grounds and a

Situation has arisen for appointment of an arbitrator. It would show that the dispute which has arisen is such which require adjudication by an

Arbitrator. Thus, according to the respondent also two grounds for appointment of an arbitrator are present. Since appointment of arbitrator has

been made by the respondent after the applicant moved this court, arbitrator is to be appointed now under the provisions of the Act only.

Respondents, in these circumstances, lost all rights, if any, to participate in the appointment of arbitrator under the Arbitration Clause of the main

contract. The applicant contends that all the issues/disputes/claims amongst the parties that are required to be adjudicated through arbitration ere

squarely within the scope of only the arbitration clause of the Main contract. In this behalf, the applicant has in Clauses 2.29 and 2.30 of the written

submissions stated as under:-

2.29 As regards the interplay of the Work Order, Standard Conditions of the Subcontract and the Main contract, as submitted by the Applicant in

the paragraphs above, Clause 1.2 of the Work Order provided as follows:

1.2. .... The standard conditions of subcontract attached and conditions of main contract shall be read and interpreted in mutual explanatory

manner to each other however in case of any ambiguity or discrepancy the conditions of main contract between HCC and client shall prevail.

2.30 As a matter of fact, several issues /claims/ disputes amongst the parties required to be adjudicated through the proposed arbitration are

bound to involve interpretation of and adjudication regarding the scope of work required to be performed under the Main Contract. As a pure

illustration, the Applicant discusses below one such issue/dispute that would not fall within the scope of the arbitration clause of the Standard

Conditions of the Subcontract. The respondent blames the Applicant for the delay in the speed of performance of work. The Applicant, on the

other hand, relies upon Clause 1.0 and Clause 4.1 of the Work Order, read with Clause 2.1 of the General Conditions of Contract of the Main

Contract in order to contend that the performance of the Work Order by the Applicant had to commence only upon after the Respondent had

performed certain obligation under the Work Order and certain obligations under the Main Contract, including the handing over of the site to the

Applicant after ""conducting of initial surveys, design of road and its approval from client/consultant, providing at site to us with right of way/centre

line and bench marks etc. as per approved drawings. The Applicant contends that the respondent did not comply with its applicable obligations,

under the Work Order and the Main Contract, to the applicants detriment. The applicant contends that the respondent has acted contrary to its

obligations under the Work order read with the General conditions of the main contract, by making the site available to the applicant only in parts,

stretch-by-stretch, that too after long interregnums, because of which the very pace of the execution of the work was retarded.

On going through the standard Conditions of the sub-contract and the arbitration clause in the Main contract, I find due merit in the

contentions.

So far respondents objections regarding jurisdiction of this Court is concerned, I could not find any merit in the same.

The respondent contends that the present application is not maintainable under Clause 29 of the Standard Conditions of subcontract. On

consideration, I find that such a stipulation will not apply to the present proceedings u/s 11 of the Act. As has rightly been contended by the

applicants counsel, the Chief Justice or a designated Judge, while exercising powers u/s 11 of the Act acts as a 'judicial authority' performing

'judicial power'. A bare reading of Clause 29 of the standard Conditions of Sub-contract indicates that the parties had no intention to oust the

jurisdiction of the Chief Justice of this Court, u/s 11 of the Act. The word 'court' used in clause 29 of the standard Conditions of sub-contract is

restricted to 'civil court' only, and, in the context of arbitration, cannot in any event traverse beyond 'court' and will not apply to Arbitration

proceedings. In the present case the work order was accepted with this State. It had to be performed by the Applicant within this State.

Therefore, the Arbitration Act applicable in the State will apply in case of any matter relating to Arbitration.

In view of the foregoing, I hereby appoint Mr. Justice S.B. Sinha, former Judge of the Supreme Court of India as the sole arbitrator u/s 11 of

the Act, to adjudicate upon the disputes, claims and counter claims of the parties. The fee of the Arbitration is fixed as Rs. 20,000/- per hearing,

The fee shall be shared equally by both the parties, subject to outcome of the award.

Petition stands allowed in the aforesaid terms.