REPORTABL E

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

            CIVIL APPEAL NO.1089 OF 2009 (Arising out of SLP©No.15730 of 2007)

Deepak Kumar Bansal                       ...

Appellant

Versus

Union of India & Anr.                     ..Respondents     

J U D G M E N T

TARUN CHATTERJEE,J.

1. Leave granted.

2. This appeal is directed against the judgment and order

dated 25th of May, 2007 passed by a learned Judge of

the High Court of Judicature for Rajasthan at Jaipur

Bench in S.B. Arbitration Application No.31 of 2005 by

which the learned Judge had rejected the application

1

under Section 11(6) of the Arbitration and Conciliation

Act, 1996 (in short ‘the Act’) filed at the instance of the

appellant.   

3. The  respondent–Union  of  India  invited  tenders  for

construction of 6 unit Type-II and 24 unit Type-I new

quarters at Phulera Sub Division Office under Railway

Inspector,  Kishangarh.  An  agreement  was  executed

between the parties on 24th of April, 1996 under which

in  response  to  the  said  tender,  the  appellant

submitted  his  offer,  which  was  accepted  and  after

completion of all kinds of formalities, the work order

was  issued  to  the  appellant  on  22nd of  September,

1996.   The  initial  estimated  cost  of  the  work  was

Rs.32,74,904.37.  In  the  said  agreement,  there  is  a

Clause  64 in  which the arbitration clause  has been

inserted. Clause 64 of the arbitration clause runs as

under:-

“(i)  In  the  event  of  any  dispute  or  difference between the parties hereto as to the construction or operation of  this contract, or the respective rights

2

and  liabilities  of  the  parties  on  any  matter  in question, dispute or differences on any account, or as  to  the  withholding  by  the  Railway  of  any certificate to which the contractor may claim to be entitled to or if the Railway fails to make a decision within 120 days then and in any such case but except in any of the excepted matters referred to in clause 63 of these conditions, the contractor after 120 days but within 180 days of  his presenting his final claim on disputed matters shall demand in writing that the dispute or difference be referred to arbitration. (ii)  The  demand  for  arbitration  shall  specify  the matters  which  are  in  question.  Dispute  or difference  only  such  disputes  or  differences  in respect of which the demand has been made shall be referred to arbitration and other matters shall not be included in the reference.”

4. The appellant, upon sanction of the work, requested

the respondents for issuing him a work order  so that he

could  commence  the  work.  On  his  request,  work  order

dated 22nd of February, 1996 for a sum of Rs.32, 17, 641.29

indicating  the  date  of  completion  of  work  as  21st of

February,  1997  was  issued  to  the  appellant,  which  was

received by him on 7th of May, 1996.  Since the quantity of

the work was much more than the work order was issued,

supplementary work order was subsequently issued by the

3

respondents  on  30th of  December,  1997  for  a  sum  of

Rs.4,99,471.36  and  further  another  supplementary  work

order issued on the same date i.e. 30th of December, 1997

for  a  sum  of  Rs.3,25,865.02.   Thereafter,  another  work

order to the tune of Rs. 2,17,748.63 was issued on 22nd of

June, 1998.  Hence, the total work orders for a cost of Rs.

42,60,726.30  were  issued  to  the  appellant.  When  some

disputes  arose  between  the  parties  on  the  question  of

payment of money, which was withheld by the respondents,

the appellant requested the respondent from time to time to

take deposition of the material  remained and prepare his

final bill, but his request was not acceded to. Accordingly,

finding no other alternative, the appellant raised a dispute

by  issuing  a  notice  dated  27th of  December,  2004  and

requested  for  appointment  of  an  Arbitrator  in  terms  of

Clause 64 of the General Conditions of Contract appended

with the agreement.   When the respondent  had failed  to

appoint an arbitrator in terms of Clause 64 of the General

Conditions of  Contract,  the  appellant  filed  an application

under  Section  11(6)  of  the  Act  before  the  High  Court  of

4

Rajasthan  at  Jaipur  Bench  for  appointment  of  an

Arbitrator.    

5. As noted herein  earlier,  by the impugned order,  the

application for appointment of an Arbitrator under Section

11(6)  of  the  Act  was  rejected  by  the  High  Court  on  the

ground that since  the  value  of  the claim was more  than

20% of the value of  the work, the disputes could  not be

referred to Arbitrator in view of the Circular issued by the

respondent intimating their intention to incorporate Clause

18  in  the  General  Conditions  of  Contract  limiting

arbitration proceedings to only such claims, which are less

than 20% of the value of the contract.  It may be mentioned

herein that the Circular was issued on 11th of June, 2003

whereas the agreement entered into by the parties was long

before  issuance  of  the  said  circular and it  is  also  not in

dispute  that  the  original  work  order  and  supplementary

work  orders  were  issued  on  22.02.1996  (original)  and

30.12.1997, 30.12.1997 and 22.06.1998.   

6. The application for appointment of an Arbitrator was

also rejected by relying on a decision in the case of State of

5

AP. & Another vs. Obulu Reddy [1999(9) SCC 568]. It is

this order, which is under challenge before us by way of a

Special Leave Petition, which on grant of leave, was heard

by us in presence of the learned counsel for the parties.   

7. We have  heard Ms.  Saahila  Lamba,  learned counsel

for the appellant and Ms. B. Sunita Rao, learned counsel

for the respondents/Union of India.  We have examined the

impugned order of the High Court rejecting the application

under Section 11(6)  of  the Act and also the materials on

record  including  the  notice  issued  by  the  appellant  for

appointment of an Arbitrator to the respondents and also

the application itself under Section 11(6) of the Act and the

objections filed by the respondents thereto.  Having heard

the learned counsel for the parties and after going through

the  materials  on  record,  we  are  of  the  view  that  the

impugned order of the High Court is liable to be set aside

for the reasons stated hereinafter.   

8. The respondents, in their objection to the application

under Section 11(6) of the Act, raised a plea that question

of  appointment  of  an  Arbitrator,  in  the  facts  and

6

circumstances of the present case, could not arise in view

of the fact that the claim, as put forward by the appellant,

was an amount being an excess of 20% of total cost of the

work, which is prohibited in terms of the Circular issued on

11.06.2003.   The  High  Court  accepted  this  plea  of  the

respondent  and  rejected  the  application  on  the  grounds

mentioned herein earlier.   

9. In our view, the High Court has mis-directed itself in

holding that the claim was in excess of 20% of the total cost

of  the  work.   Admittedly,  the  work  was  for  a  sum  of

Rs.32,17,641.29  (original)  and  three  additions  viz.

Rs.4,99,471.36,  Rs.3,25,865.02  and  Rs.2,17,748.63

totalling Rs. 42,60,726.30/-, which cannot be in excess of

20% of the total cost of the work.

10. The High Court has only considered the original work

order that was Rs.32,17,641.29, which, in our view, must

be taken into account along with three supplementary work

orders  of  Rs.4,99,471.36,  Rs.3,25,865,02  and

Rs.2,17,748.63 as mentioned herein earlier.  Therefore, the

High Court was wrong in holding that since the value of the

7

claim of the appellant was more than 20% of the value of

the  work  and  in  view  of  the  Circular  issued  by  the

respondent, the claim must be held to be more than 20% of

the value of the work and, therefore, disputes could not be

referred to Arbitration.  Even assuming that the claim was

in excess of 20% of the total cost of the work, even then, the

Circular, which came into effect from 11.06.2003 would not

be applicable in the case of the appellant.  There cannot be

any  dispute  that  the  Circular  intimating  Clause  18  and

issued on 11.06.2003 could not be applied in the case of

the appellant as the said Circular came into force only from

that  date  i.e.  11.06.2003  and  not  before  that,  in  the

absence of any subsequent insertion of that Clause in the

original  contract,  namely,  Clause  64  of  the  General

Conditions of Contract.   

11. Accordingly,  question  of  applicability  of  the  said

Circular  intimating  intention  of  the  respondent  to  insert

Clause 18 could not arise at all.  That being the position,

we are unable to sustain the impugned order of the High

Court  and  accordingly,  the  appeal  is  allowed  and  the

8

application under Section 11(6) of the Act stands allowed.

In view of our discussions made hereinabove, the decision

cited by the High Court in the case of  State of AP  & Anr.

Vs.  Obulu  Reddy  (supra) may  not  be  dealt  with.  The

application is now directed to be posted to the concerned

Judge of the High Court  and to appoint  an Arbitrator  in

compliance  with  Clause  64  of  the  General  Conditions  of

Contract entered into by the parties.   

12. The impugned order is set aside.  The appeal is thus

allowed  to  the  extent  indicated  above.   There  will  be  no

order as to costs.        

    …………………………J.   [TARUN CHATTERJEE]

NEW DELHI;                         ..……………………….J. FEBRUARY 17, 2009.            [V.S. SIRPURKAR]

9