Simplex Infrastructures Limited vs Public Works Department on 5 August, 2022

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Delhi High Court - Orders

Simplex Infrastructures Limited vs Public Works Department on 5 August, 2022

1. The present petition has been filed under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "A&C Act, 1996") on behalf of the petitioner seeking appointment of an independent Sole Arbitrator to adjudicate disputes between the parties.

2. It is submitted in the application that the petitioner is a leading service provider in civil and structural construction and is engaged in piling foundation and ground engineering, construction of roads, railways and bridges, urban infrastructure, building and housing.

3. The respondent issued a Notice Inviting Tender (NIT) in November, 2012 for Comprehensive Development of Corridor (Outer Ring Road) between Vikaspuri to Meera Bagh. SH: - C/o Elevated Road, FOB, RCC Drain, Footpath, Cycle Track, Widening/Strengthening of Road, Rain Water Harvesting Scheme, Electrical Works and other allied works. In view of the Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 1 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58 said Tender, the petitioner submitted its bid for the Tender.

4. The respondent vide its Letter of Acceptance dated 01st February, 2013 accepted the bid of the petitioner and the contract documents were executed between the parties on 20th February, 2013.

5. The Agreement executed between the parties contains a condition for reimbursement of levy/taxes i.e., Clause 38 of GCC, which reads as under: -

"(i) All tendered rates shall be inclusive of all taxes and levies (except Service Tax) payable under respective statutes.

However, if any further tax or levy is imposed by Statute, after the last stipulated date for the receipt of tenders including extensions if any and the contractor thereupon and necessarily and properly pays such taxes/levies/cess, the contractor shall be reimbursed the amount so paid, provide such payments, if any, is not, in the opinion of the Superintending Engineer (whose decision shall be final and binding on the contractor) attributable to delay in execution of work within the control of the contractor.

(ii) The contractor shall keep necessary books of accounts and other documents for the purpose of this condition as may be necessary and shall allow inspection of the same by a duly authorized representative of the Government and/or the Engineer-in-Charge and shall also furnish such other information/document as the Engineer-in-Charge may require from time to time.

(iii) The contractor shall, within a period of 30 days of the imposition of any such further tax or levy or cess, give a written notice thereof to the Engineer-in-Charge that the same is given pursuant to this condition, together with all necessary information relating thereto."

6. Pursuant to Clause 38 (iii), the petitioner notified the respondent vide Letter bearing No. 4426 dated 21st June, 2017 about the applicability of GST w.e.f. 01st July, 2017 and informed the respondent that any additional tax implication arising on account of GST levy, shall be at the account of the Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 2 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58 respondent.

7. The petitioner vide its Letter dated 07th April, 2018 submitted Tax Invoice against certified 67th RA Bill showing GST liability of Rs. 35,31,968/- and sought the release of the payment of Rs. 31,74,481/- after deduction of rebate @ 1.20% amounting to Rs. 3,57,487/- as per the GST compensation statement submitted to the respondent.

8. Prior to implementation of GST, the petitioner invoked the arbitration relating to price adjustment. Shri K.K. Varma was appointed as the Arbitrator and the Award was made on 27th November, 2017 against the respondent directing the respondent to make payment of Rs. 3,58,66,250/- to the petitioner. The said Award was challenged in this Court under Section 34 of the A&C Act, 1996, which was dismissed by this Court vide Order dated 10th April, 2018.

9. The respondent vide its Letter dated 07th June, 2018 informed the petitioner that the Competent Authority has accepted the Award as published by the learned Arbitrator. In response to the said letter, the petitioner vide its Letter dated 19th June, 2018 informed the respondent regarding the applicability of GST liability @ 12% on the certified amount by PWD against the Arbitral Award published by learned Sole Arbitrator. The respondent, however, denied the payment of GST to the petitioner on the illegal and arbitrary ground that no further tax, levy or cess is imposed on the contractor vide its Letter dated 07th July, 2018.

10. In another arbitration between the parties, relating to Deviated Quantity of Structural Steel and Water Proofing Membrane, learned Arbitrator Shri O.P. Bhatia made an Award on 21st April, 2018 directing the respondent to make payment of Rs. 1,03,09,686/- to the petitioner. The said Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 3 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58 Award was accepted by the respondent and no challenge under Section 34 of the A&C Act, 1996 was preferred and informed the petitioner about the acceptance of the Award by the Competent Authority vide its Letter dated 05th July, 2018.

11. After receiving said letter, the petitioner vide its Letter dated 31st July, 2018 submitted Tax Invoices against certification/payment of Arbitral Award published by learned Sole Arbitrator-Shri O.P. Bhatia with GST liability of Rs. 12,37,162/- and requested PWD to release the payment.

12. It is asserted that it is the primary obligation of the respondent to make payment towards the GST under Clause 38 of GCC. However, the petitioner's request was rejected by the respondent vide its Letter dated 21st August, 2018.

13. Thereafter, the petitioner filed an Appeal to the Chief Engineer pursuant to Clause 25(i) of GCC against the decision of Superintending Engineer on 23rd October, 2018 but the Appeal was decided against the petitioner.

14. Not satisfied with the decision of the Chief Engineer, the petitioner submitted its Appeal along with the annexures to the Dispute Redressal Committee (hereinafter referred to as the "DRC") under Clause 25(i) of GCC, but the said Appeal was not allowed as was notified vide Letter dated 24th January, 2019 contending that there was no provision of DRC subsequent to publication of Award by learned Arbitrator. A Notice dated 12th February, 2019 for appointment of Arbitrator was thus sent by the petitioner to the respondent for claims which read as under: -

"i. Reimbursement of GST paid by the Claimant against payment of RA Bill - 67 amounting to Rs. 31,47,481/-;

Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 4 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58

ii. Reimbursement of GST paid by the Claimant against payment of arbitral award dated 27th November, 2017 amounting to Rs. 44,04,908/-;

iii. Reimbursement of GST paid by the Claimant against payment of arbitral award dated 21st April, 2018 amounting to Rs. 12,37,162/-."

15. However, the respondent vide its Letter dated 11th March, 2019 appointed Mr. Rakesh Mishra, Retired, DG as an Arbitrator but referred only first claim in regard to reimbursement of GST paid by the claimant against payment of RA Bill-67 to Arbitrator.

16. The petitioner attended the first hearing wherein the petitioner came to know that only one claim has been referred. The petitioner vide its Letter dated 10th July, 2019 again wrote to the Chief Engineer, PWD to refer remaining claims to the Arbitrator, which read as under: -

"i. Reimbursement of GST paid by the Claimant against payment of arbitral award dated 27th November, 2017 amounting to Rs. 44,04,908/-;

ii. Reimbursement of GST paid by the Claimant against payment of arbitral award dated 21st April, 2018 amounting to Rs. 12,37,162/-."

17. The respondent rejected the request of the petitioner to refer the matter to the arbitration. Hence, the present petition has been filed on behalf of the petitioner seeking appointment of an independent Sole Arbitrator.

18. The respondent in its reply has submitted that the reimbursement of GST liability arising out of the Settlement Agreements dated 12th June, 2018 and 06th July, 2018 as has been claimed by the petitioner on the ground that imposition of GST is a fresh/further Tax imposed by statute enacted after the last stipulated date for the receipt of Tender and, therefore, by virtue of Clause 38 of the Contract Agreement dated 20 th February, 2013, the Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 5 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58 respondent is contractually bound to reimburse the GST liability to the petitioner.

19. It is submitted by the respondent that the Settlement Agreements dated 12th June, 2018 and 06th July, 2018 were entered into between the parties towards full and final settlements, putting a consensual end to two contractual disputes having arisen between the parties. The Settlement Agreements dated 12th June, 2018 and 06th July, 2018 were accepted by the petitioner and it was agreed that the respondent shall pay a sum of Rs. 3,67,07,564/- and Rs. 1,03,09,686/- as full and final settlement for the two disputes that were adjudicated by the two Arbitrators. The intent of the parties from two Settlement Agreements dated 12th June, 2018 and 06th July, 2018 expressly exhibit that the parties had to put a full and final settlement end to two disputes.

20. Furthermore, it is evident that the petitioner had expressly accepted that it shall not claim any further amount in future against the adjudicated claims and it shall indemnify the respondent from any future liability or dispute that may arise out of the subject matter of settlement. The claim for reimbursement of GST liability is entirely in the teeth of Settlement Agreements dated 12th June, 2018 and 06th July, 2018 and contrary to the settlement law.

21. The respondent has further asserted that two Settlement Agreements dated 12th June, 2018 and 06th July, 2018 supercede all previous agreements, understandings, letters, quotations, comments and memoranda and, therefore, Arbitration Agreement which formed part of Contract Agreement dated 20th February, 2013 stood extinguished on the date when the matters were consensually settled between the parties by virtue of these Settlement Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 6 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58 Agreements dated 12th June, 2018 and 06th July, 2018. It is a settled principle of law that when the original Agreements stand novated, superseded or substituted by a fresh agreement, the arbitration clause incorporated in the original agreements stands extinguished. Two Settlement Agreements dated 12th June, 2018 and 06th July, 2018 did not contain any clause of Arbitration and, therefore, the present dispute is non- arbitral. Furthermore, once the disputes stand adjudicated upon, the parties cannot seek to raise the disputes out of the same subject matter to be referred to the arbitration agreement and the Arbitrator has become functus officio and the parties cannot seek fresh adjudication from the said authority. The petitioner had the option of filing an appeal against the Awards, if the reimbursement of GST liability did not form part of the Awards, but it is not open to the petitioner to seek a fresh arbitration.

22. The respondent has further referred to Clause 38 of GCC which provides for indemnification to the petitioner in terms of reimbursement in cases where any further tax, levy or cess imposed by statute after last stipulated date for the receipt of the Tender including extensions, if any, and the contractor thereupon necessarily and properly pays such taxes, levies or cess. The petitioner, in the present case, is wrongly claiming the liability to pay GST is a further/fresh tax imposed by the Statute. The Goods and Services Tax Act, 2017 does not impose any fresh/further tax on the service provider but subsumed the existing Tax regime and provided for facilitated efficient system for claiming input tax credit for the service providers, like the petitioner. Even principally, Clause 38 is inapplicable in case of GST liability. Furthermore, even if it is found that the petitioner is eligible for the reimbursement of GST liability, this cannot be gone into by way of a fresh Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 7 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58 arbitration proceeding but can be looked into at the stage of Execution. It is, therefore, asserted that the present petition is without merit and is liable to be dismissed.

23. The petitioner in its rejoinder has denied that the Settlement Agreements dated 12th June, 2018 and 06th July, 2018 superseded all previous Agreements, understandings, letters and comments with respect to subject matters of settlement. From the plain reading of Clause 3.2(i) of the Settlement Agreement, it becomes clear that the Settlement Agreements were subject to the provisions of its constitutional documents. The statutory liability of GST as claimed by the petitioner has become due to the Government only after the execution of the Settlement Agreement and the petitioner is entitled to reimbursement of GST under Clause 38(i) of the Contract Agreement.

24. It is further explained that the date of applicability of GST is 01 st July, 2017, while both the Arbitration proceedings were invoked prior to applicability of GST. The first arbitration was invoked on 17 th January, 2017 and the second arbitration was invoked on 22nd March, 2017. Thus, it is clear that the GST was not applicable at the time of invocation of Arbitration clause and hence, the same could not be referred to arbitration. It is also denied that by virtue of the Settlement Agreements, the original Contract Agreement dated 20th February, 2013 stood novated/substituted or that Clause 38 could no longer be invoked in respect of the subject matter of the present petition.

25. It is explained that the Ministry of Finance, Department of Revenue has notified the GST rates for works contract vide Notification No. 20/2017- Central Tax (Rate) as 6% (CGST) and simultaneously 6% as SGST i.e., total Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 8 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58 12% GST. Due to imposition of new tax, construction work/services rendered under the contract awarded to the petitioner were liable for discharge of tax under GST. It is, therefore, submitted that the matters be referred to the arbitration.

26. Submissions heard.

27. The first objection taken by the respondent to the reference of the dispute to arbitration is that pursuant to the Arbitral Awards dated 27 th July, 2017 and 21st April, 2018, the parties entered into Settlement Agreements dated 12th June, 2018 and 06th July, 2018 respectively, wherein it was specifically observed that all the earlier documents etc. executed between the parties shall stand superseded by these Settlement Agreements. It was claimed that by virtue of the Settlement, the earlier Agreement of 2013 stood superseded and there is no valid Arbitration Clause between the parties for reference of the alleged disputes to arbitration.

28. The perusal of the record shows that the two Arbitral Awards dated 27th July, 2017 and 21st April, 2018 had been made by learned Arbitrator. One Arbitral Award was challenged under Section 34 of the A&C Act, 1996 but the respondent had not met any success. The respondent chose not to challenge the second Award dated 21st April, 2018 and that the respondent, therefore, accepted the Arbitral Awards and it is by way of Execution/payment of the Arbitral Awards that the two Settlement Agreements were entered into between the parties.

29. The Settlement Agreements were in respect of the disputes which had been adjudicated by learned Arbitrator. Clause 4 of the Settlement Agreements provided for "no admission of liability". It is stated that these Settlement Agreements constitute "the settlement of the Arbitral Awards Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 9 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58 and it does not and shall not affect any other rights of the parties or constitute an admission of liability by either of the parties and shall not be used by any party or any other person or entity in any litigation or proceeding for that purpose". It is quite evident that from this Clause that the Settlement was purely of the Arbitral Awards and did not affect any other disputes that may arise independent of Arbitral Awards.

30. Clearly, the petitioner by way of the present petition is raising subsequent/independent disputes, which have arisen consequent to vide Notification No. 20/2017-Central Tax (Rate) of the Ministry of Finance, Department of Revenue imposing GST on the services provided by the petitioner. It is subsequent to cause of action which did not exist on the date when the petitioner had invoked arbitration by issuing a Letter dated 12 th February, 2019. Prima facie, it is shown that there exists an arbitration agreement and also a dispute has been raised by the petitioner in respect of the payment of the GST amounts under the Agreement.

31. Considering the facts and submissions made, the cause of action has arisen subsequent to the Arbitral Awards, the matters are hereby referred to the Arbitrator. This is without prejudice to the claim of the respondent that no arbitral dispute has arisen or that there exists no valid arbitration agreement, which objections can be agitated before the Sole Arbitrator, who may so decide in accordance with law.

32. In view of above, In view of the above, Ms. Manisha, Advocate, Mobile No. 9811941496, is appointed as the Sole Arbitrator.

33. The parties are directed to appear before the Sole Arbitrator as and when notified. This is subject to the Arbitrator making necessary disclosure(s) under Section 12(1) of the Act and not being ineligible under Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 10 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58 Section 12(5) of the Act.

34. The petition is dispose of in the above terms.

NEENA BANSAL KRISHNA, J AUGUST 5, 2022 S.Sharma Signature Not Verified Digitally Signed ARB.P. 715/2019 Page 11 of 11 By:NIRMLA TIWARI Signing Date:10.08.2022 14:31:58

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Delhi High Court - Orders