Kerala High Court
M/S.Kaikkara Construction Company vs State Of Kerala on 19 July, 2010
Author: K.T.Sankaran
Bench: K.T.Sankaran
IN THE HIGH COURT OF KERALA AT ERNAKULAM
AR.No. 39 of 2009()
1. M/S.KAIKKARA CONSTRUCTION COMPANY,
... Petitioner
Vs
1. STATE OF KERALA, REPRESENTED BY THE
... Respondent
2. THE CHIEF ENGINEER, NATIONAL HIGHWAY,
3. THE SUPERINTENDING ENGINEER,
4. THE EXECUTIVE ENGINEER,
5. UNION OF INDIA,
6. THE DIRECTOR GENERAL,
7. THE CHIEF ENGINEER,
8. THE REGIONAL OFFICER, MORT & H,
For Petitioner :SRI.K.BABU THOMAS
For Respondent :GOVERNMENT PLEADER
The Hon'ble MR. Justice K.T.SANKARAN
Dated :19/07/2010
O R D E R
K.T.SANKARAN, J.
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Arbitration Request No.39 of 2009
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Dated this the 19th day of July, 2010
ORDER
The Arbitration Request relates to the dispute in respect of construction of Edappally Railway Over bridge between km. 436/380 and km. 438/350 of National Highway 47. Though the tenders were invited and accepted in 2005 and though the period for completion of the contract was 24 months, even now the work is not completed, which adds to the misery of the travelling public. The applicant prays for appointing an arbitrator for resolving the dispute mentioned in the Arbitration Request. The respondents contend that going by the terms of the contract, the dispute is not an arbitrable dispute.
2. On 27.1.2005, the applicant submitted tender, above 25.95% of the estimate rate based on 1999 PWD schedule of rates. The tender was accepted as per Annexure A1 letter of acceptance dated 21.7.2005. According to the applicant, the possession of the work site was handed over on 2.9.2005. The AR No.39 of 2009 2 period for completion of the contract expired on 1.9.2007. According to the petitioner, he has done a major part of the work. This is denied by the respondents. According to them, only 41% of the work was completed as on 22.12.2007, based on the original contract price. Based on the revised contract price, the progress achieved was only 30% as on 22.12.2007. According to the respondents, the work carried out from 22.12.2007 to 1.3.2009 was only 12% as against 70% target.
3. A supplemental agreement was executed between the parties. According to the applicant, a sum of Rs.1,18,87,265/- payable to him was withheld by the opposite parties and as a condition for releasing the amount, he was compelled to execute the supplemental agreements. The applicant sought extension of the period for completion of the work. It is stated by the learned counsel for the applicant that extension was granted up to 1.3.2009. On 7.3.2009, the applicant requested for appointment of a Dispute Review Expert as stipulated in Clause 24 of the General Conditions of Contract. On 9.5.2009, the applicant again made a request for appointment of Dispute Review Expert AR No.39 of 2009 3 and also for extension of the "intended completion period". In the letter dated 10.6.2009 issued by the applicant to the Chairman of the Council of Indian Roads Congress, it was stated thus:
"In the letter of acceptance of the tender issued on 21.7.2005. Dispute Review Expert is not appointed. We have repeatedly requested from 9.10.2008 onwards to the Superintending Engineer, to supply panel of Engineers to select one of them for joint appointment of Dispute Review Expert, but there is no response and the contract is illegally terminated on 28.5.2009, without allowing extension of intended completion period sought by us in lieu of 375 days of suspension of the works caused and the time required for carrying out the extra items and variation items introduced to the tune of 26% of the initial contract price and disputes arose are not resolved.
In the circumstances we request the Hon. Chairman of the Council of the Indian Roads Congress, to appoint a Dispute Review Expert as stipulated in clause 36.1 of ITB forming part of the agreement without any delay, with due AR No.39 of 2009 4 intimation to us in writing."
4. On 7th August, 2009, the Indian Roads Congress addressed a letter to the Chief Engineer, PWD National Highways, Thiruvananthapuram to inform about the appointment of Dispute Review Expert as early as possible. On 6th October, 2009, the Indian Roads Congress wrote to the Chief Engineer, Ministry of Road Transport & Highways, New Delhi requesting him to inform about the appointment of Dispute Review Expert. The applicant states that there was no reply to the letters sent by him for appointment of a Dispute Review Expert.
5. The applicant relies on Clauses 24 and 25 of the Standard Bidding Document which forms part of the contract. Clauses 24 and 25 read as follows:
"24. Disputes 24.1 If the Contractor believes that a decision taken by the Engineer was either outside the authority given to the Engineer by the Contract or that the decision was wrongly taken the decision shall be referred to the Dispute Review Expert within 14 days of the AR No.39 of 2009 5 notification of the Engineer's decision.
25. Procedure for Disputes.
25.1. The Dispute Review Expert (Board) shall give a decision in writing within 28 days of receipt of notification of a dispute.
25.2 The Dispute Review Expert (Board) shall be paid daily at the rate specified in the Contract Data together with reimbursable expenses of the types specified in the Contract Data and the cost shall be divided equally between the Employer and the Contractor, whatever decision is reached by the Dispute Review Expert. Either party may give notice to the other to refer a decision of the Dispute Review Expert to an Arbitrator within 28 days of the Dispute Review Expert's written decision. If neither party refers the dispute to arbitration within the next 28 days, the Dispute Review Expert's decision will be final and binding.
25.3 The arbitration shall be conducted in accordance with the arbitration procedure stated in the Special Conditions of Contract."
6. The applicant also relies on Clause 25 of the Special Conditions of Contract, which reads as follows: AR No.39 of 2009 6
"The procedure for arbitration will be as follows:
25.3 (a) In case of dispute or difference arising between the Employer and a domestic contractor relating to any matter arising out of or connected with this agreement, such disputes or difference shall be settled in accordance with the Arbitration and Conciliation Act, 1996. The parties shall make efforts to agree on a sole arbitrator and only if such an attempt does not succeed and the Arbitral Tribunal consisting of 3 arbitrators one each to be appointed by the Employer and the Contractor and the third Arbitrator to be chosen by the two Arbitrators so appointed by the Parties to act as Presiding Arbitrator shall be considered. In case of failure of the two arbitrators appointed by the parties to reach upon a consensus within a period of 30 days from the appointment of the arbitrator appointed subsequently, the Presiding Arbitrator shall be appointed by the *Council, Indian Roads Congress.
(b) The Arbitral Tribunal shall consist of three Arbitrators one each to be appointed by the Employer and the contractor. The third AR No.39 of 2009 7 Arbitrator shall be chosen by the two Arbitrators so appointed by the Parties, and shall act a presiding arbitrator. In case of failure of the two arbitrators appointed by the parties to reach upon a consensus within a period of 30 days from the appointment of the arbitrator appointed subsequently, the Presiding arbitrator shall be appointed by the *Council, Indian Roads Congress.
(c) If one of the parties fails to appoint its arbitrator in pursuance of sub clause (a) and
(b) above within 30 days after receipt of the notice of the appointment of its arbitrator by the other party, then the *Council, Indian Roads Congress shall appoint the arbitrator. A certified copy of the order of the Council, Indian Roads Congress, making such an appointment shall be furnished to each of the parties.
(d) Arbitration proceedings shall be held in India, and the language of the arbitration proceedings and that of all documents and communications between the parties shall be English.
(e) The decision of the majority of arbitrators shall be final and binding upon both AR No.39 of 2009 8 parties. The cost and expenses of Arbitration proceedings will be paid as determined by the arbitral tribunal. However, the expenses incurred by each party in connection with the preparation, presentation etc. of its proceedings as also the fees and expenses paid to the arbitrator appointed by such party or on its behalf shall be borne by each party itself.
(f) Performance under the contract shall continue during arbitration proceedings and payments due to the contractor by the owners shall not be withheld unless they are the subject matter of the arbitration proceedings."
7. In Annexure A3 letter dated 11.8.2009 sent by the applicant to the Superintending Engineer, National Highway, Central Circle, Kochi, a request was made by the applicant to agree to the appointment of a sole arbitrator mentioned in the letter. It is stated that no reply was sent to this letter.
8. In the counter affidavit filed by the third respondent, it is stated that the work is owned by the Ministry of Surface AR No.39 of 2009 9 Transport and Highways, Government of India. The National Highway Wing of the State Public Works Department administered the contract as the agent of the Ministry. The contract data, which is part of the contract, does not specify the Government of Kerala or the third respondent (the Superintending Engineer, National Highway, Kochi) as the employer. Clause 24 of the General Conditions of Contract is also relied on, which reads as follows :
"24. Disputes 24.1 If the Contractor believes that a decision taken by the Engineer was either outside the authority given to the Engineer by the Contract or that the decision was wrongly taken the decision shall be referred to the Dispute Review Expert within 14 days of the notification of the Engineer's decision."
9. It is contended that if arbitration is the mode of settlement of disputes, the name of Dispute Review Expert is to be specifically mentioned in the contract data, which was not done in the present case. In the contract entered into between the parties on 25th August, 2005, there is a specific clause which AR No.39 of 2009 10 reads as follows:
"The parties to this contract agree and undertake the condition that arbitration shall not be a means of settlement of dispute or claims or anything on account of this contract."
10. It is contended that in view of the above stipulation in the contract and in view of the absence of nomination of Dispute Review Expert, there is no valid arbitration agreement. In view of the specific term in the contract that arbitration shall not be a means of settlement of dispute or claims, it is contended that Clauses 24 and 25 of the General Conditions are irrelevant.
11. The learned counsel for the applicant relied on the decision reported in M.K.Abraham & Co. vs. State of Kerala and another (2009 (7) SCC 636). In Abraham's case, it was noticed that a letter dated 28.9.1994 was issued by the Ministry of Surface Transport, Government of India informing all the State Public Works Departments and all Chief Engineers in all the States dealing with National Highways, that a standard AR No.39 of 2009 11 contract clause prescribing the procedure to be followed for appointment of arbitrators was to be incorporated in the bidding conditions for the National Highway works and that the arbitration clause should be compulsorily made part of the bidding conditions in the respective states. In Abraham's case, in the light of the aforesaid communication, a slip signed by both the parties was attached to the contract. The attachment slip was to the following effect.
"Arbitration clause as per the Ministry of Surface Transport's Letter No.RW/NH-34041/3/94-DO-III dated 28.9.1994 will be applicable."
12. However, in the notice inviting tenders for work and in the printed standard form of agreement executed between the parties, the provision for referring to the dispute to arbitration was not incorporated. The High Court dismissed the application for appointment of an arbitrator. The Supreme Court set aside that order. The Supreme Court held thus:
"If a contract consists of a printed form with cyclostyled amendments, typed additions AR No.39 of 2009 12 and deletions and handwritten corrections, an endeavour shall be made to give effect to all the provisions. However, in the event of apparent or irreconcilable inconsistency, the following rules of construction will normally apply :
(i) The cyclostyled amendments will prevail over the printed terms;
(ii) The typewritten additions will prevail over the printed terms and cyclostyled amendments;
(iii) Handwritten corrections will prevail over the printed terms, cyclostyled amendments and typewritten additions."
"24. In the present case, as noticed above, the contract consists of a typewritten contract agreement between the appellant and the second respondent (which does not contain any terms and conditions, but which merely states that the contract is for execution of the described work as per the accompanying articles of agreement, plan, specification and conditions of contract approved by the Project Director (SE), National Highway (ADB), Circle Adappally, Cochin) with several printed forms with cyclostyled additions as annexures and AR No.39 of 2009 13 handwritten corrections. The printed form of articles of agreement has an attachment slip.
25. The contract in the present case does not contain any handwritten terms in regard to arbitration. The contract has printed clauses barring arbitration (clauses 24 and 24
(a) of the notice inviting tenders for works and a preamble clause and clause 3 in the articles of agreement). A cyclostyled slip signed by both parties containing the words "arbitration clause as per the Ministry of Surface Tranport's Letter No.RW/NH-34041/3/94-DO-III dated 28.9.1994 will be applicable" is attached to the printed articles of agreement.
26. By applying the well-settled principles relating to construction of contract the following position will emerge:
(i) the terms of the articles of agreement will prevail over the terms of notice inviting tenders for works, and
(ii) the term contained in the cyclostyled attachment to the printed form of articles of agreement will prevail over the terms of the printed articles of agreement.
Consequently, the contents of the attachment slip to the printed form of articles AR No.39 of 2009 14 of agreement providing for arbitration will prevail over the bar on arbitration contained in the notice inviting tenders for works and the articles of agreement. As a result, it has to be held that there is a provision for arbitration in regard to the disputes between the respective appellant and the respondents."
13. The distinguishing feature in the present case is that in the contract executed between the parties on typed stamp paper, a printed form was attached and in the printed form, it was provided that the parties to the contract agree that arbitration shall not be a means of settlement. Unlike in Abraham's case, there is no slip attached to the agreement providing that the dispute shall be referred to arbitration. Then the question to be considered is whether the contract entered into between the parties on 25.8.2005, in which there is a specific exclusion of arbitration, would prevail or whether the General Conditions and Special Conditions attached to the contract, which contain arbitration clauses, would prevail. In the light of the dictum laid down by the Supreme Court in M.K.Abraham's case, there can be no doubt that the contract AR No.39 of 2009 15 entered into between the parties on 25.8.2005, which specifically excludes arbitration, would prevail. If so, it cannot be said that there is an arbitrable dispute requiring appointment of an arbitrator.
14. In the contract dated 25.8.2005, there is a concluding portion in Malayalam which reads as follows:
15. The Supreme Court in Abraham's case made certain general observations which are relevant in this context. The Supreme Court held :
"General observations
28. The use of multilayered agreements, with several printed annexures, each with cyclostyled amendments, typed and handwritten additions and deletions lead to confusion, uncertainty, delays in execution apart from giving rise to avoidable disputes. Having a contract with different annexures AR No.39 of 2009 16 dealing with the same issues with various attachments, in construction contracts (and some times insurance contracts) is a nightmare to anyone wanting to understand, implement or enforce them.
29. Complicating contracts with several annexures and attachments with inconsistent, irrelevant, superseded or redundant provisions results in creating a lush dispute generating field. It helps greedy and unscrupulous contractors to make bloated imaginary claims. It enables rule-minded or corrupt officers to play havoc with honest and bona fide contractors. The best form of agreement is where all the relevant clauses/terms are incorporated in a single document with several sections dealing with different aspects/subjects, avoiding any overlapping.
30. The difficulty arises if the same subject is dealt with in more than one section or in more than one document. Confusion and difficulties also arise using certain forms with conditions which were finalised and printed at an earlier point of time and using other sets of conditions which are finalised and printed at different subsequent points of time, without AR No.39 of 2009 17 taking care to specify which of the earlier terms were deleted or modified.
31. For example, in the present case, we have the 1959 terms, that is, Madras Detailed Standard Specifications forming part of the contract, and we have the general conditions of the Kerala Government which were modified from time to time, in particular 1986 and we have the standard instructions of the Ministry of Surface Transport of 1994 which were applicable to National Highway Projects. The result is several years after the completion of the work, parties are still trying to find out what the agreed terms and conditions are and whether there is a specified dispute-resolution process by way of arbitration. On account of such confusion, several efficient and honest contractors stay away from participating in such tenders. The vagueness and confusion give unwarranted discretion and freedom to officers, leading to corruption and nepotism.
32. Clear, simple and straightforward agreement is the need of the hour. Tens of thousands of engineering contracts are being entered all over the country everyday in regard to infrastructural works, without the necessary AR No.39 of 2009 18 clarity, leading to avoidable disputes and considerable strain on the exchequer. With the use of computers, with user-friendly editing procedures with cut and paste facilities, it is fervently hoped that contract forms appropriate to the work would be prepared, to avoid redundancy, confusion, vagueness and inconsistency and to increase efficiency, expedition, reduction of disputes and saving of funds. Be that as it may."
The general observations made by the Supreme Court apply in the present case in its full extent. Even legally trained persons find it difficult to understand the terms of the contract and to find out whether there is an arbitration clause and whether the dispute is arbitrable. If so, what about the case of an ordinary citizen who is not legally trained at all. It is high time that the contracts involving high stakes are made as simple as possible. Such contracts should not be capable of different meanings and should not contain irreconcilable and contradictory terms and conditions. Care should be taken to avoid any gray area in the terms of the contract which would AR No.39 of 2009 19 lead to litigations.
16. The learned counsel appearing for the applicant submitted that the State of Kerala is an agent of the Government of India, Ministry of Surface Transport and therefore, the agent cannot make a stipulation in the contract contrary to the stipulations in the General Conditions of Contract and in the bidding documents issued by the Union of India.
17. The learned Government Pleader submitted that it is true that in the counter affidavit it is mentioned that the National Highway Wing of the State Public Works Department "has administered the contract as the agent of the Ministry", but such expression should not be taken to mean that in all respects the State was acting as the agent. It is submitted by the learned Government Pleader that even going by the Standard Bidding Documents and the instructions issued by the Central Government, an agreement has to be executed between the contractor and the State. There is no provision in the Standard Bidding Document or any other law prohibiting the State from AR No.39 of 2009 20 stipulating a condition that arbitration shall not be a dispute resolution mechanism.
18. Considering the terms of the agreement and the bid documents, I am inclined to accept the contention put forward by the learned Government Pleader.
For the reasons stated above, I am of the view that the Arbitration Request is without merit. Accordingly, the Arbitration Request is dismissed, however, without any order as to costs.
K.T.SANKARAN, JUDGE csl