Judgement and Order (Oral):
1. Heard D. Senapati, the learned counsel appearing for the petitioner. The respondents are represented by Mr. K.N. Choudhury, the learned senior counsel.
2. This application is filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the the Arbitration Act ) for appointment of arbitrator for a dispute arising out of a contract between the petitioner/contractor and the Indian Oil Corporation Ltd., Bongaigaon Refinery (hereinafter referred to as the owner ). The contract relates to piping/structural works and the owner gave letter of acceptance on 21.4.2010. The value of the contract was estimated at Rs.4,68,00,265.05 (Rupees four crore sixty eight lakh two hundred sixty five and paise five only), but it was made clear in the acceptance letter itself that, the final contract value shall be subject to variations depending upon the actual quantum of work executed and measured by the Engineer in-charge. The initial period of completion of the work was extended uptill 30.4.2011 by the owner s letter dated 23.3.2011.
3. Since the quantum of work exceeded well beyond the original estimate, the contractor through their letter dated 8.6.2011 requested the Engineer in-charge i.e. M/s. Engineers India Ltd. for approval for the additional work beyond the estimated quantities, since approval is necessary for receiving payment. In response to the contractor s letter, the Engineer in-charge directed the contractor for submission of revised estimate as this information was considered to be a pre-requisite for the decision of the competent authority.
4. The work was completed on 15.6.2011 and the contractor made the measurement and then they forwarded the estimate of the work on 22.6.2011 to the Engineer in-charge, for approval of the competent authorities. The revised estimate appended to the contractor s letter shows that the quantity of the work was expanded considerably and the final value was projected by the contractor to be Rs.8,19,51,225.72 (Rupees eight crore nineteen lakh fifty one thousand two hundred twenty five and paise seventy two only).
5. After receiving the final estimate from the contractor, the owner convened a joint meeting on 22.3.2012 to negotiate a higher discount because of the increased scope of work and accordingly the minutes of the meeting recorded certain additional discount offered by the contractor. Thereafter the final balance bill was submitted by the contractor for Rs.2,84,98,511/- (Rupees two crore eighty four lakh ninety eight thousand five hundred eleven only). Thus the total amount claimed by the contractor for the work with the additional quantum of work was, Rs.8,18,43,467/- (Rupees eight crore eighteen lakh forty three thousand four hundred sixty seven only).
6. However the contractual dues as claimed, was not released and accordingly the aggrieved contractor invoked Clause-9 of the General Conditions of Contract (in short the GCC ) and issued notice on 11.6.2014 for reference of their claim, to be decided by the arbitrator.
7. The owner rejected the demand and in their 5.7.2014 response, the owner took the stand that the contractor did not make the claim for extra payment, in terms of the contract and therefore their claim is not tenable. The contractor s claim was also described as exorbitant and the owner declined to release the contract s security deposit, without final bill payment.
8. Because of the above objection of the owner to the demand for arbitration, the contractor has applied for nomination of arbitrator by the Court, under Section 11(6) of the Arbitration Act. In such proceedings for appointment of arbitrator, the Chief Justice or his delegatee must be satisfied that the application is presented in the competent High Court. Moreover the existence of a binding Arbitration Agreement between the parties is also a pre-requisite for a positive order. But in such summary proceeding, there is no scope to decide the merit of the claim.
9. In National Insurance Company Limited vs. Boghara Polyfab Private Limited reported in (2009) 1 SCC 267, the Supreme Court identified and segregated the preliminary issues, which may arise for consideration of the Court in proceedings under Section 11 of the Arbitration Act. The issues were categorized as those: (i) which the Chief Justice or his delegatee is bound to decide; (ii) those that may be decided and (iii) others which should be left to be decided by the arbitrator. According to this judgment the Judge exercising Section 11 jurisdiction shouldn t decide whether the claim falls within the Arbitration Clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration). Moreover the merits of a claim involved in arbitration, according to the Apex Court, should be left to be decided by the Arbitral Tribunal. This legal proposition was reiterated subsequently in the Indowind Energy Limited vs. Wescare (India) Limited reported in (2010) 5 SCC 306 and also in Indian Oil Corporation Limited vs. SPS Engineering Limited reported in (2011) 3 SCC 507.
10. Let me now take note of the Arbitration Clause, which govern the parties and it is extracted here-in-below for ready reference:-
9.0.0.0 ABITRATION
9.0.1.0 Subject to the provisions of Clauses 6.7.1.0, 6.7.2.0 and 9.0.2.0 hereof, any dispute arising out of a Notified Claim of the CONTRACTOR included in the Final Bill of the CONTRACTOR in accordance with the provisions of Clause 6.6.3.0 hereof, if the CONTRACTOR has not opted for the Alternative Dispute Resolution Machinery referred to in Clause 9.1.1.0 hereof, and any dispute arising out of any Claim(s) of the OWNER against the CONTRACTOR shall be referred to the arbitration of a Sole Arbitrator selected in accordance with the provisions of Clause 9.0.1.1 hereof. It is specifically agreed that the OWNER may prefer its claim(s) against the CONTRACTOR as counter-claim(s) if a Notified Claim of the CONTRACTOR has been referred to arbitration. The CONTRACTOR shall not, however, be entitled to raise as a set-off defence or counter-claim any claim which is not a Notified Claim included in the CONTRACTOR s Final Bill in accordance with the provisions of Clauses 6.6.3.0 hereof.
11. As can be seen from the above clause, a dispute arising out of the notified claim of the contractor can be referred for arbitration and under Clause 9.0.4.0, the venue for the arbitration is stipulated as New Delhi with liberty to the arbitrator, to decide upon any other venue with the consent of the parties.
12. In the present case, the contractor notified their own estimate of the contractual dues on 22.6.2011 i.e. within 10 days of completion of the work on 15.6.2011. Thereafter discount was negotiated by the owner and the contractor on 22.3.2012 and eventually final bill was raised by the contractor on 4.2.2014. But until this petition was filed on 24.7.2014, there was no response of the owner to the final bill of the contractor.
13. However in the rejoinder affidavit filed by the contractor on 22.5.2015, the owner s letter dated 2.2.2015 is enclosed which shows that payment of some additional amount for extra item(s) was approved by the respondent. Under this communication, the revised contract value was accepted at Rs.7,66,07,732.33 (Rupees seven crore sixty six lakh seven thousand seven hundred thirty two and paise thirty three only). Thus a difference of Rs.52,35,734.67 (Rupees fifty two lakh thirty five thousand seven hundred thirty four and paise sixty seven only) on what is claimed and what is proposed to be paid is clearly discernable since the contractor s estimation was Rs.8,18,43,467/-. Moreover the security deposit for the contract is still being retained by the owner and this too gives rise to an arbitrable dispute, under Clause 2.1.0.0 of the GCC.
14. Mr. K.N. Choudhury, the learned senior counsel for the owner submits that in this proceeding itself, the Court must decide whether the claim for additional work made by the contractor gives rise to an arbitrable dispute, in the context of the Arbitration clause. The learned counsel relies on Bongaigaon Refinery and Petrochamicals Ltd. vs. G.R. Engineering Works Ltd. reported in 2015 (3) Arb. LR 395 (Gauhati) to argue that before an arbitrator is appointed, the Court must determine whether the dispute falls within the terms of the Arbitration clause. The cited judgment was rendered in a proceeding under Section 34 of the Arbitration Act, where the Arbitral award was challenged in the High Court and in that context, this Court held that when the Arbitral award deals with a dispute not coming within the purview of arbitration, it is a jurisdictional error, which is rectifiable in a proceeding under Section 34 of the Arbitration Act. Therefore this decision in my view, does not support the owner s contentions.
15. The Supreme Court had already held that the Judge while exercising jurisdiction under Section 11 of the Arbitration Act, is to satisfy himself on the existence of the arbitration agreement between the litigating parties. However there is no scope for further examination about whether a claim falls within the arbitration clause and this should be left to be decided by the arbitrator. When the decisions of National Insurance Company Limited (Supra), Indowind Energy Limited (Supra) and in SPS Engineering Limited (Supra) are applied here, there can be no escape from the conclusion that the point raised by the owner should be dealt by the appointed arbitrator as otherwise, this Court will traverse beyond its permissible jurisdiction.
16. In the present case, since the contractor s final claim is only partially admitted by the owner through the letter dated 2.2.2015, it is apparent that a contractual dispute has arisen. As the parties have failed to appoint the arbitrator as per the agreed procedure, I find this to be a fit case for nomination of arbitrator by the Court. The agreed place of arbitration is New Delhi and thus taking into account the leanings of the parties for a Delhi based former Judge of the Supreme Court, Hon ble Dr. Justice Arijit Pasayat is nominated to be the arbitrator in this dispute. The Registry is accordingly directed to send a copy of this order to the learned Arbitrator who may then proceed with the matter in accordance with law.
17. With the above order, the case stands allowed.