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There can be no manner of doubt that before exercising the power under Section 11(6) of the Arbitration Act to make appointment of an arbitrator the Court will have to decide on the existence of an arbitrable dispute/enforceable claim by and between the parties to the contract. The existence of a claim and denial thereof giving rise to a dispute is required to be determined on the basis of what the parties had agreed upon as embodied in the terms of the contract and only for the purpose of a decision on the question of arbitrability and nothing beyond. It is from the aforesaid standpoint that the issues raised in the present proceedings will have to be considered.

NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

ARBITRATION CASE (CIVIL) NO.36 OF 2014

M/S KSS KSSIIPL CONSORTIUM
THRO. ITS CONSTITUTED ATTORNEY
MR. DEVENDRA KUMAR …PETITIONER
VERSUS

M/S GAIL (INDIA) LTD. …RESPONDENT

WITH

ARBITRATION CASE (CIVIL) NO.38 OF 2014

M/S KSS KSSIIPL CONSORTIUM
THRO. ITS CONSTITUTED ATTORNEY
MR. DEVENDRA KUMAR …PETITIONER
VERSUS

M/S GAIL (INDIA) LTD. …RESPONDENT
JUDGMENT

1. Both these applications under Section 11(6) of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as “the Arbitration
Act”) have been filed seeking appointment of a sole arbitrator to go into
the disputes and differences that the petitioner claims to have arisen out
of two separate contract agreements entered into by and between the
parties.

2. The facts in brief may be noted at the outset.

3. The petitioner is a consortium of two companies i.e. M/s JSC
OGCC KazStoryService, a company incorporated under the laws of the Republic
of Kazakhstan and KazStoryService Infrastructure India Private Limited
incorporated under the Companies Act, 1956. The said consortium has been
formed by an agreement dated 1st July, 2010 for the purposes of executing a
contract that was to be awarded by the respondent for Pipeline Laying and
Terminal Works for Dabhol – Bangalore Pipeline Project.

4. According to the petitioner, the respondent had floated a
Tender for the said project in the year 2010 and the entire work was
divided in 10 Spreads (A,B,C,D,E,F,G,H,I,J). While Arbitration Petition
(Civil) No.36 of 2014 pertain to the award of work for Spread ‘J’,
Arbitration Petition (Civil) No.38 of 2014 relates to the work awarded for
Spread ‘D’.

5. Pursuant to the bid(s) made by the petitioner, detailed
letter(s) of acceptance was issued by the respondent on 13th December,
2010. According to the petitioner though in terms of the contracts it had
mobilized its men and machinery, the work got jeopardized/frustrated as the
respondent did not make available to the petitioner the Construction Right
of use and permits in terms of Clause 28 of the Special Conditions of
Contract (hereinafter referred to as “the SCC”). According to the
petitioner, the respondent did not have the necessary work fronts with
respect to SV station work. Furthermore, the petitioner has alleged that
the respondent failed to provide necessary engineering inputs. Besides,
there were frequent modifications with respect to drawings, extra work and
delays in providing free issue materials. All these led to substantial
delays in the execution of the works, such delay being attributable solely
to the respondent.

6. According to the petitioner, on account of the delays due to
the aforesaid reasons, the petitioner became entitled for extended stay
compensation in terms of clause 42 of the SCC read with clause 12 of the
detailed letter of acceptance. Apart from extended stay compensation, the
petitioner claims to be entitled for payment for additional works
undertaken during the course of execution of the contracts. On 4th
January, 2013 and 5th July, 2013, the petitioner submitted its claim to the
respondent for Rs.34,70,11,907/- (Rupees Thirty Four Crore Seventy Lacs
Eleven thousand Nine hundered and seven only)[In Arbitration Petition
(Civil) No.36 of 2014] and for Rs.1,79,23,83,208/- (Rupees One Arab Seventy
Nine Crore Twenty Three Lacs Eighty Three thousand Two hundred and Eight
only) [In Arbitration Petition (Civil) No.38 of 2014) respectively. The
petitioner alleges that the respondent rejected the said claims which was
not acceptable to the petitioner. The petitioner, thereafter, invoked
clause 40.2 of the General Conditions of Contract which provides for
conciliation. As the petitioner’s proposal for conciliation was rejected
by the respondent, the petitioner had no option but to invoke the
Arbitration Clause (Clause 59) and seek appointment of a sole arbitrator in
respect of the disputes arising from each of the two agreements. The said
demand was repeated in several communications which were not responded to.
The petitioner, therefore, has lodged the present applications under
Section 11(6) of the Arbitration Act for the reliefs earlier noticed.

7. The claims made by the petitioner have been resisted by the
respondent by filing separate counter affidavits in both the cases. A
reading of the affidavits filed by the respondent indicate that insofar as
the claim for extended stay compensation is concerned, the respondent
contend that the said claim does not give rise to any arbitrable issue
inasmuch as under clause 42.1.1 the bidder is required to mention the rate
for extended stay compensation per month in the “Priced Part”. Under
Clause 42.1.2 in case the bidder did not indicate such rate it is to be
presumed that no extended stay compensation is required to be paid. Under
clause 42.1.4 it was expressly mentioned that “Bidder to note that in case
they don’t indicate the rate for extended stay compensation as per
proforma, provisions of clause No.42.0 will not be applicable to them”.
According to the respondent in the relevant proforma relating to
“Compensation for Extended Stay”, the petitioner had mentioned/quoted
“NIL”. Thus, according to the clauses 42.1.2 and 42.1.4, no extended stay
compensation is required to be paid to the petitioner. The above position
was also expressly stated in clause 12 of the detailed letter of acceptance
dated 13th December, 2010, which is in the following terms:
|”12.0 |COMPENSATION FOR EXTENDED STAY |
| |Extended stay compensation is not |
| |applicable and shall not be payable |
| |to the Contractor as per clause no. |
| |42.0 of Special Conditions of |
| |Contract.” |
8. According to the respondent, the aforesaid clause was further
amplified in Annexure -1 to the said detailed letter of acceptance which
was not placed before the Court though the detailed letter of acceptance
dated 13th December, 2010 formed a part of the petitions filed by the
petitioner.

9. Insofar as the claim of payments for additional works is
concerned, according to the respondent, clause 91.0 of the GCC deals with
such claims. Clauses 91.1 and 91.2 contemplate that such claims will be
verified by the Engineer-in-charge whose decision will be final. The
respondent further states that the claims made by the petitioner for
additional costs had been rejected by the Engineer-in-charge and in terms
of clause 91.2 of the GCC such a decision(s) must be construed to be final
and binding between the parties and therefore would stand excluded from
arbitration.

10. There can be no manner of doubt that before exercising the
power under Section 11(6) of the Arbitration Act to make appointment of an
arbitrator the Court will have to decide on the existence of an arbitrable
dispute/enforceable claim by and between the parties to the contract. The
existence of a claim and denial thereof giving rise to a dispute is
required to be determined on the basis of what the parties had agreed upon
as embodied in the terms of the contract and only for the purpose of a
decision on the question of arbitrability and nothing beyond. It is from
the aforesaid standpoint that the issues raised in the present proceedings
will have to be considered.

11. Clause 42.0 deals with “Compensation for extended stay”. Under
clause 42.1.1 the contractor is required to mention the rate for extended
stay of compensation in the event the contract is to be prolonged/extended
beyond the contemplated date of completion. Clauses 42.1.2 and 42.1.4 of
the SCC contemplate that in the event the contractor/bidder does not
indicate the rate of extended stay, it will be presumed that no extended
stay compensation is required to be paid. In the present case, admittedly,
the petitioner had quoted “NIL” against compensation for extended stay in
its bid. If that is so, it must be understood that the petitioner had
agreed to forego its claim to extended stay compensation in the event the
period of performance of the contract is to be extended as had happened in
the present case. This position was conveyed to the petitioner by the
letter of acceptance dated 13th December, 2010. The petitioner did not
raise any objection on the aforesaid score. If the petitioner had
voluntarily and consciously agreed to the above situation, it will be
difficult to accept the contrary position that has sought to be now adopted
by seeking to claim extended stay compensation which was earlier agreed to
be foregone. It must therefore be held that the claim against the
aforesaid ‘Head’ i.e. ‘extended stay compensation’ does not give rise to an
arbitrable dispute so as to permit/require reference to arbitration under
clause 59.

12. The second issue i.e. claim for payment of additional works
however would stand on a different footing. Clause 91.1 and 91.2
contemplate the making/raising of claims by the contractor for additional
works and consideration thereof by the Engineer-in-chief. The decision of
the Engineer-in-chief is final and binding. The finality attached to such a
decision cannot be an unilateral act beyond the pale of further scrutiny.
Such a view would negate the arbitration clause in the agreement.
Justifiability of such a decision though stated to be final, must, be
subject to a process of enquiry/adjudication which the parties in the
present case have agreed would be by way of arbitration. The objections
raised by the respondent on the aforesaid score, therefore, does not
commend to the Court for acceptance and is hereby rejected.

13. Accordingly, the claims made by the petitioner for payment of
additional works under both the contracts are referred to arbitration by
Shri Justice M.M. Kumar, Chief Justice (Retd.), Jammu & Kashmir High Court,
who is hereby appointed as the sole arbitrator. The learned sole
arbitrator is requested to enter upon the reference and conclude the same
at an early date. The terms of appointment of the sole arbitrator as well
as the venue of arbitration will be decided by the parties in consultation
with the learned Arbitrator.

14. Consequently and in the light of the above, the Arbitration
Petitions are allowed to the extent indicated above.
…………………………….J.
(RANJAN GOGOI)

NEW DELHI
FEBRUARY 12, 2015

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