Supreme Court Rules on Arbitration in Railway Contract Dispute

The Supreme Court of India, in its judgment dated November 14, 2019, adjudicated on the issue of arbitration in railway contract disputes in the case of Union of India vs. Pradeep Vinod Construction Company & M/S. BM Construction Company. The appeals arose from two judgments of the Delhi High Court, which appointed independent arbitrators instead of directing the appointment of arbitrators as per Clause 64 of the General Conditions of Contract (GCC) governing railway contracts.

Background of the Case

The dispute stemmed from railway contracts awarded to the respondents for civil engineering works. In Civil Appeal No. 6400/2016, the contract was awarded to Pradeep Vinod Construction Company for various civil engineering works, which were completed on March 31, 2012. In Civil Appeal No. 6420/2016, M/S. BM Construction Company was awarded a contract for constructing a two-lane road overbridge, which was completed on August 3, 2013.

After the completion of works, the respondents claimed outstanding dues, arguing that they were compelled to sign the final bill and supplementary agreements under coercion. They invoked the arbitration clause for settlement of disputes, but the Railways rejected their requests, citing the signed agreements as full and final settlement.

Petitioners’ Arguments (Union of India)

• The Railways contended that the respondents had signed final bills and supplementary agreements acknowledging full and final settlement of claims.
• The respondents had issued “No Claim” certificates, and therefore, their claims were not arbitrable.
• The High Court erred in appointing independent arbitrators instead of directing arbitration under Clause 64 of the GCC, which specifies that railway officers should act as arbitrators.
• The amendment to the Arbitration Act in 2015 did not apply as the arbitration requests were made before the amendment came into force.

Respondents’ Arguments

• The “No Claim” certificates were signed under duress, and the disputes regarding pending payments required adjudication.
• The Railways forfeited their right to appoint an arbitrator by failing to do so in time.
• Under Section 11(6) of the Arbitration and Conciliation Act, the court had the discretion to appoint an independent arbitrator.

Supreme Court’s Observations and Ruling

The Supreme Court set aside the High Court’s decision to appoint independent arbitrators and ruled that arbitration must proceed as per Clause 64 of the GCC. The key observations were:

• The GCC explicitly mandates the appointment of railway officers as arbitrators, and deviation from this clause was unjustified.
• Since the arbitration request was made before the 2015 amendment, the pre-amended provisions of the Arbitration Act applied.
• The contention regarding “No Claim” certificates being signed under coercion could be examined by the arbitrator.
• The Railways were directed to appoint arbitrators within one month, and arbitration proceedings were to be concluded expeditiously.

Impact of the Judgment

The judgment reinforces the principle that arbitration clauses in contracts must be honored. It prevents courts from appointing independent arbitrators when contracts specify a particular arbitration mechanism.

Conclusion

The Supreme Court’s ruling clarifies that contractual arbitration provisions must be strictly followed. It sets a precedent for similar disputes, ensuring adherence to agreed dispute resolution mechanisms in government contracts.

Petitioner Name: Union of India.
Respondent Name: Pradeep Vinod Construction Company & M/S. BM Construction Company.
Judgment By: Justice R. Banumathi, Justice A.S. Bopanna, Justice Hrishikesh Roy.
Place Of Incident: India.
Judgment Date: 14-11-2019.

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