2019 (3) TMI 1946 - SC - Indian Laws

Right of settlement of dispute - whether after furnishing of no claim certificate and the receipt of payment of final bills as submitted by the contractor, still any arbitral dispute subsists between the parties or the contract stands discharged? - HELD THAT - It is true that there cannot be a Rule of absolute kind and each case has to be looked into on its own facts and circumstances. At the same time, we cannot be oblivious of the ground realities that where a petty/small contractor has made investments from his available resources in executing the works contract and bills have been raised for the escalation cost incurred by him and the railway establishments/Appellants without any justification reduces the claim unilaterally and take a defence of the no claim certificate being furnished which as alleged by the Respondents to be furnished at the time of furnishing the final bills in the prescribed format. In the present batch of appeals, independence and impartiality of the arbitrator has never been doubted but where the impartiality of the arbitrator in terms of the arbitration agreement is in doubt or where the Arbitral Tribunal appointed in terms of the arbitration agreement has not functioned, or has failed to conclude the proceedings or to pass an award without assigning any reason and it became necessary to make a fresh appointment, Chief Justice or his designate in the given circumstances after assigning cogent reasons in appropriate cases may resort to an alternative arrangement to give effect to the appointment of independent arbitrator Under Section 11(6) of the Act - In the given circumstances, it was the duty of the High Court to first resort to the mechanism in appointment of an arbitrator as per the terms of contract as agreed by the parties and the default procedure was opened to be resorted to if the arbitrator appointed in terms of the agreement failed to discharge its obligations or to arbitrate the dispute which was not the case set up by either of the parties. The High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed under Clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties - the Appellants are directed to appoint the arbitrator in terms of Clause 64(3) of the agreement within a period of one month from today under intimation to each of the Respondents/contractors and since sufficient time has been consumed, at the first stage itself, in the appointment of an arbitrator and majority of the Respondents being the petty contractors, the statement of claim be furnished by each of the Respondents within four weeks thereafter and the arbitrator may decide the claim after affording opportunity of hearing to the parties expeditiously without being influenced/inhibited by the observations made independently in accordance with law. Appeal disposed off.

Summary

Issues Involved:

1. Whether the High Court was justified in invoking the amended provision introduced by the Arbitration and Conciliation (Amendment Act), 2015.
2. Whether the arbitration agreement stands discharged on acceptance of the amount and signing no claim/discharge certificate.
3. Whether it was permissible for the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (prior to the Amendment Act, 2015) to appoint a third-party or an independent Arbitrator when the parties have mutually agreed on the procedure for appointing the designated arbitrator.

Issue-wise Detailed Analysis:

1. Justification of High Court in Invoking the Amended Provision:

The High Court invoked the amended provisions of the Arbitration and Conciliation (Amendment Act), 2015, which came into effect on 23rd October 2015. However, the Supreme Court noted that the request for arbitration was received by the appellants before the Amendment Act, 2015 came into force. According to Section 21 read with Section 26 of the Amendment Act, 2015, the proceedings should commence in accordance with the pre-amended provisions of the Act, 1996. The Supreme Court referred to the principles laid down in Aravali Power Co. Private Limited v. Era Infra Engineering Limited and S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh, emphasizing that the Amendment Act, 2015 does not apply to arbitral proceedings commenced before its enforcement unless the parties agree otherwise. The Court concluded that the High Court erred in applying the amended provisions.

2. Discharge of Arbitration Agreement on Signing No Claim Certificate:

The appellants argued that the signing of a no claim certificate by the contractors indicated a full and final settlement, thereby discharging the arbitration agreement. However, the respondents contended that the no claim certificates were signed under financial duress and undue influence. The Supreme Court reviewed various precedents, including National Insurance Company Limited v. Boghara Polyfab Private Limited, which categorized cases where no claim certificates were signed under coercion and those where they were not. The Court noted that in the present case, the no claim certificates were likely signed under financial duress, and thus, the arbitration agreement was not discharged. The Court held that the arbitral dispute subsists and the contract has not been discharged as claimed by the appellants.

3. Permissibility of High Court to Appoint Independent Arbitrator:

The High Court appointed an independent arbitrator without adhering to the mutually agreed procedure under Clause 64(3) of the agreement. The Supreme Court emphasized that the agreed procedure for appointing an arbitrator should be exhausted first, as per the terms of the contract. The Court referred to several judgments, including Union of India v. M.P. Gupta, Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Co. Limited, and Union of India v. Singh Builders Syndicate, which reiterated that the terms of the arbitration agreement should be adhered to as closely as possible. The Court concluded that the High Court was not justified in appointing an independent arbitrator without first resorting to the procedure prescribed under Clause 64(3) of the agreement.

Conclusion:

The Supreme Court quashed and set aside the orders passed by the High Court. It directed the appellants to appoint an arbitrator in terms of Clause 64(3) of the agreement within one month. The statement of claim should be furnished by each respondent within four weeks thereafter, and the arbitrator should decide the claim expeditiously. The batch of appeals was disposed of on these terms, and no costs were awarded. Pending applications, if any, were also disposed of.