M/S. Triveni Constructions vs. Military Engineer Services
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Cause title — parties, addresses and appearances
The Court made the following ORDER:
THE HONOURABLE SRI JUSTICE C.V. BHASKAR REDDY ARBITRATIoN APPLICATION No.176 OF 2o22 ORDER: This application, under Section 1 1(6) of the Arbitration and Conciliation Act, 1996 (for short "the Act") read with Scheme for Appointment of Arbitrators, 1996, is hled by the applicant seeking appointment of a sole Arbitrator to adjudicate the claims and disputes between the applicant and the respondents.
The case of the applicant, in brief is that, it is a Partnership firm registered under Micro, Small and Medium Enterprises Development Act, 2OO6 and it is engaged in the business of construction and also undertakes Government work contracts. It is further case of the applicant that Respondent No. I invited tenders for replacement of existing AC sheets with Galvalume sheets in stores Buildings (05 Nos, BLDG Nos.19 lO1, l9/2, 1913, t9l4 e 19/5) including Gas House Bldg No. l7 inside factory area at Medak, vide tender published on 22.71.2019. The respondent No. I accepted the applicant's bid for the subject tender work for a sum of Rs.2, 16,91,366 / - and declared the applicant as successful bidder vide proceedings dt.O6.02.2020. It is further case of applicant that bid amounts quoted were only for completion of work by the applicant and the said bid amount rvas excluding the GST @ 12%
2 ancl labour wclfare cess @ l%o and it was expressly agreed between the applicant and the Respondents that the GST and labour welfare cess are to be charged over and above the bid amounts. Flowever, during internal financial audit it came to light that the Respondent Nos.l and2 have been deducting the GST@ l2Vo and labour welfare cess @ lo/<t from the principal bid amount instead of paying additional amounts to the tune of l3o/o which includes GST and labour welfare cess over and abovc the bicl consideration. The applicant submitted a letter dated, 22.01.2022 to the Respondent No.3 and informed the disparity in the internal financial audit and requested the Respondents to immediately rclease the amounts of the taxes and repay tax amounts deducted along with interest @ 24Yo per annum including penalties, if any, till the date of payment. The Accounts Officer addressed a letter d,a..ed, 14.02.2022, to the Respondent No.3 and the applicant, stating tilat as per their office records the applicable GST and labour .welfare cess have been credited from time to time with public fund account as per Government of India norrns. To the said letter, the applicant gave a reply vide letter dated 18.06.2022 and stated that the bid amounts did not include statutory taxes i.e., GS^t @ L2o/o and labour welfare cess @ 7%o and that the Respondents deducted the said statutory taxes from his quoted rates and therefore, the applicant requested the respondents to release the said statutory taxes i.e. GST @ l2o/o
3 and labour welfare cess @ l% to the applicant over and above the tendered amount quoted within 15 days from the date of receipt of letter and it is further stated that the said communication should be treated as notice under Condition N;.70 of IAFW -2249 forming part 'of the agreement. The Respondent No.3 vide its letter dt.23.O6.2O22 stated that the GST amounts were being uploaded against the GST number provided by the applicant to the department and the lumpsum amounts of a particular month was deposited with Reserve Bank of India and the labour welfare cess was also being deposited with the Telangana State Building and other Construction Workers Welfare Board, Hyderabad through a crossed cheque wherever any amount recovered on account of LEC. It is further case of applicant that due to non-payment of statutory taxes to the tune of Rs.29,OO,O0O/- to the applicant as per the tender condition, he was constrained to issue a letter dated I 1.O7.2O22 invoking Arbitration clause as per condition No-70 of IAFW -2249. However, the respondent No.2 vide letter dated 19.07.2022 stated that as per condition No.7O of IAFW -2249 general conditions of contract, if any, dispute arises between the parties, the same shall be referred to sole arbitrator, who would be a serving officer duly appointed by the Engineer-in-Chief, New Delhi. The Respondent No.2 further stated that the Applicant accepted the final bill process on O8.O2.2O22 without protest and therelore, taking recourse to arbitration in view
4 of condition No.70 of IAFW -2249 would be at the own risk of the applicant and refuscd to settle the dispute amicably. Therefore, the appticant is constrained to Frle the present Arbitration Application for appointment of a Sole Arbiirator as per the provisions of Scction 1 1.and other relevant provisions of the Arbitration and conciliation Act, 1996. 3. A counter affidavit has been filed by the respondent No. 1, wherein inter alia it is stated that the applicant-lirm was awarded a contract bearing No.CE (Fyl /HyD /MDK/02 of 2Otg_2O for Replacement of existing AC sheets with Ga_lvalume sheets in Store Buildings (05 nos. Bldg No.t9l01, 19/02, tg/03, tg/O4 & l9lOS) including Gas House Building No. 17 inside Factory at Ordinance Factory Medak for an amount of Rs.2,16,91,366/ -. As per the work ordcr, the work was commenced on OL.O3.2O2O and the work was physicaliy completed by the contractor on 29.05.2021 subject to completion of rectihcation of defects as pointed out while issuing completion certificate by AGE (Indep) F}r Eddumilaram vide letter No.822O/CE/84/E8 dated 29.05.2021 and requested to rectify rhe defects by 28.06.2021. It is further submitted that the complete details of i'ecovered amount on account of GST/LEC against CA No.CE (Fy)/HYD/MDK/26 of 2Ot9-2O also intimated to the applicant contractor vide letter dated 23.06.2022. Inspite of receiving all the details of payments, applicant is making allegations
5 against the Department that the statutory taxes were neither paid to the applicant nor deposited with the Central Government against the credit of applicant-firm. The amount so deducted against GST from all works executed by the applicant-contractor during tlle period was already deposited with the authorities vide Form GSTR 7A TDS. With regard to Labour welfare cess, the same is deposited with Telangana State Building and other Construction Workers Welfare Board, Hyderabad through a crossed cheque whenever any amount recovered on account of LEC. It is further stated in the counter a,ffrdavit that after lapse of almost 2 years, the applicant with an intention to receive further payments raised this claim of tax returns and when the same was not accepted by the respondents, the applicant has filed the present Arbitration Application. It is further stated that as per Condition 65 of IAFW- 2249, to further claims shall be made by the contractor after submission of Final Bill and they shall be deemed to have been waived and extinguished. Further, since the applicant contractor has signed the final bill without any reservation and as the final bilt was processed and paid to the contractor vide D.V.No.02 of Sep, 2022, no claims whatsoever shall be entertained and prayed for dismissal of application. 4 Heard the arguments of the respective counsel and perused * .- the record.
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Smt. M. Vanajakshi, learned counsel for the applicant has submitted that bid amounts quoted were only for completion of work by the applicant and the said bid amount was excluding the GST @ l2o/o and labour rvelfare cess @ lo/o and it was expressly agrecd between the applicant and the respondents that the GST and labour rvelfare cess are to be charged over and above the bid amounts. It is further stated that during interna-l financial audit it came to light that the Respondent Nos.l & 2 have been deducting the GST @ l2o/o and labour rvelfare cess @ 17o from the principal bid amount instead of paying additional amounts to the tune of 73o/o and soon after noticing the same, the applicant submitted a letter daLed 22.01.2022 to the respondent No.3 and informed the disparity in the internal financial audit and requested the Respondents to immcdiately release the amounts of ttre taxes and repay tax amounts deducted along with interest @ 24% per annum including penalties, if any, till thc date of payment. It is submitted that there are serious disputes with regard to deduction of the amounts contrary to the terms of the agreement and those are required to be determined by the Arbitrator. Since the respondents have not turned up to settle the disputes before the Arbitrator as per the notice dated 18.06-2022, the applicant was constrained to approach this Court invoking the juri iction under Section 11(6) of the Act.
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Per contra, Smt.L.Pranathi Reddy, learned Standing Counsel for Government appearing for the respondents has vehemently contended that as per Condition No.65 of IAFW -2249, no further claims shall be made by the contractor after submission of final bill 'and the claims shall be deemed to have been waived and extinguished and therefore, even though the agreement provides arbitration clause, the subject dispute cannot be referred to arbitral tribunal. It is further contended by the learned Standing counsel that since the applicant accepted the Final Bill without any reservation and as the Final Bill was processed and paid to the contractor, no claims whatsoever is maintainable and the application filed under Section I l (6) of the Act is liable to be dismissed as barred by limitation.
In reply, learned counsel for the applicant relying upon the decision in Inder Stngh Rekhi os Delhl Detelopment Autho"itgt has submitted that once there is a valid craim for reference under Section 20 of the Arbitration and Conciliation Act, 1996, the cause of action survives even after passing of the Final Bill. Whether the claim made by the applicant is barred by limitation or not is required to be decided by the arbitrator after entering into reference and at the time of making an award. It is also further stated that at ' (1988) z scc a38
8 the stage of deciding the application hled under Section 1l(6) of the Act, the issue relating to the limitation cannot be gone into.
It is rvell settled principle of law that considering the application filed under Section I 1(6) of the Arbitration and Conciliation Act, 1996, this Court has to see whether there is an arbitral dispute betrveen the parties and rvhether the agreement entered between the parties has an arbitration clause to refer the matter to an arbitrator or not. Further, it is also well-settled law that while deciding the question of appointment of arbitrator, the Court should not touch the merits of the case as it may cause prejudice to the case of the parties.
Condition No.65 of General Conditions of "IAFW-2249" reads as under: .
Finc,l Blll (Appllcable onlg to Meo-surernernt and. Lump Sum Contracts): The Final Bills shnll be submitted- bg the Contractor on IAFW-2262 in duplicate within three monttc of phgsbal completion of th.e u-torks to tle satisfaction of the Engineer-in-Charge. It slall be acumpanied by all abstracts, uouch.ers, etc., supporting it and shall be prepared in the manner prescribed bg the G.E. No Iurther claims slra,ll be mad.e bg the Contractor afier submrbsion of the Final Bill and tlese shall be deemed. to hnue been utaiued and ertingui,shed. Tle Contractor shall be entitled to be paid the fnal sum less the ualue of pagments alreadg made on account, subjed to the certificotion of the finol bill bg the G.E. No ctarges sl'nll be alloued to th.e Contractor on occount of the preparation of tlte final Bill.
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Condition No.70 of General Conditions of "IAFW -2249" which relates to Arbitration Clause, reads as under a7O. Arbltration. All disputes, betu.teen the parties to the Contract(other than thase for which the decision of the C.W.E. or onA other person is bg the Contract expressed to be firal and binding) shall, afier written notice by either party to the Contract to the otter of them. be refened to the sole arbitration of an Engineer olficcr to be appointed. by the autlaritg mentioned in the tender doqtments. Unless both parties agree in writing such referene shall not take place until dfrer the @ntpletion or alleged. ampletion of the Work or termination or determination of tle Contract under Condition /Vos. 55 56and.57 hereof. Prouid.ed tlnt in the euent of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such referene shall not take place until altemotiue arrongements haue been firnlized by th.e Gouemment to get the Works completed bg or tlvough ang other Contractor or Contractors or Agencg or Agencies. Prouided aluags that comnencem.ent or continuance of ang arbitration proceeding hereunder or oth.ertuise sha,ll not in ang manner militote against th.e Gouemment's right of reauery from the contractor as prouided in Condition 67 hereof. If tle Arbitrator so appointed resigns his oppointment or uacates his olfice or is unable or unuilling to act due to ang reason u-thatsoeuer, the authoritg appointing him may appoint a new Arbitrator to act in his place. The Arbitrator slu,ll be deemed. to houe entered on the reference on the date he issues notice to both tlrc patties, asking them to submit to him their statement of the cose and plead.ings in deknce. Tle Arbitrator mag proceed with the arbitration, exparte, if either partg, inspite of a notice from tle Arbitrator fails to take part in the proceedings. i The Arbitrator mag, from time to time with tle crrnsent of tle parties, enlarge, tlLe time upto but not exceeding one gear from the date of his enteing on the reference, for making and publi-shing the award.
10 The Arbitrator shall giue his au-tord u-tithin a peiod of sk months from the dote of his enteing on the refererun or u-tithin the ertend-ed time os the case maA be on all matters referred to him and shall indicate his findings, along tuith sums anuarded, separatelg on each indiuidual item of di.spute. The uenue of Arbitration shall be such place or places as mog be fixed bg the Arbitrator in hb sole d.iscretion. The au-nrd of the Arbitrator shall be ftnal and binding on both parties to the Contract..'
In IBI Consultancg {IndtQ P) Ltd. u. DSC Ltd.2, the Honble Supreme Court while dealing with the Arbitration Application hled under Section 11(6) read with Section I1(9) of the Arbitration and Conciliation Act, 1996 for appointment of arbitrator to adjudicate the disputes that have arisen between the parties therein in connection with the contracts in question, has held, at Para 8, as under:
The first and the foremost thing is the exi-stence oJ an orbitrotion agreem.ent befiteen the parties to the petition under Section 11 of tle Act and the existence of dispute(s) to be refened to arbitrator is condition precedent for oppointing an arbitrator under Section 1 1 of thE Act. It is also o uell-setlled lau; that uhile deciding the qtestion of aryointment of arbitrator, the aurt t,r.s not to touch the meits of the case as it mag couse prejudice to the case of the parties. The scope under Section 11(6) read u.tith Section 11(9) is uery limited to the ertent of appointment of arbitrator. Thi,s Court has to see wltether therc exi.sts an arbitration agreement.btween the parties and if tLe ansuter is in the alfirmatiue then uhether the applicant hos mqde out a case for the appointment of arbitrator. L2. ln lhtro FeQuera, S,A. a. Gangaoardtn Port Ltd.,3 th.e Honble Supreme Court, at para 59, has held as under: , (20 l SIJ Z.SCC 9s 3 (2OL7l9 SCC 729 l,l
'.7 11 oThc scope of the power under Section 11(6) of the 1996 Act was consid.erablg u.tide in uiew of the decisions in SBP and Co. ISBP and Co. u. Patel Engg. Ltd., (2OOS) 8 SCC 618] and Boghara Polgfab [National Insurqnce Co.Ltd. u. Boghara Potyfab (P) Ltd., (2oO9) I SCC 267: (2OO9) I SCC (Ciu) 1171. This position continued till tle amendment brought about in 2O15. Afi.er the amendment, all thnt the courts need to see rb uhether an arbitration agreenwnt exists nothing more, nothing less. The legislatiue policy and purpose b essentiallg to minimise the Coutt's interuention at the stage of appointing the arbitrator ond this intention as inorporated in Section 1 1(6-A) ought to be respected."
It is settled law that in a commercial dispute, mere failure to pay may not give rise to a cause of action. Once the applicant has asserted his claim and the respondent fails to respond to such claim, such failure will be treated as a denial of the applicant,s claim giving rise to a dispute, and thus it is the cause of action for reference to arbitration. In the case on hand, it is the case of applicant that having found in internal financial audit that the Respondent Nos.l & 2 have been deducting the GST @ L2o/o and labour welfare cess @ l7o from the principal bid amount instead of paying additional amounts to the tune of l3%, has addressed a letter dated 22.O1.2022 to the respondent No.3 requesting to release the amounts. It is further case of the applicant that on 14.02.2022, the respondent has issued a reply through Accounts Ofhcer stating that as per the office records, the applicable GST and labour welfare cess have been credited from time to time with pubtic fund account as per Govemment of India norms. The applicant has issued a reply dated 18.06.2O22 stating that the bid amounts did not include
12 statutory taxes i.e., GST @ l2Yo and. labour welfare cess @ L'r/o and that the Respondents deducted the said statutory taxes from his quoted rates and thcrefore, the applicant requested the respondents to release the said statutory taxes i.e., GST @ 127n and labour welfare cess @ 19'o to the applicant over and above the tendered arnount quoted within 15 days from the date of receipt of letter, otherwise requested the respondents to treat the said letter as notice under Condition No.70 of IAFW -2249 forming part of the contract agreement. This shows that the applicant soon after settlement of Final Bill, has raised a dispute that the amounts have been deducted over and above as mentioned in the statutory contract and requested the respondents to pay the amolrnts, othenvise treat the said communication as notice invoking the arbitration clause. L4. Sofaras timitation aspect is concerned, it is settled law that mere negotiations will not postpone the cause of action for the purpose of limitation. The limitation period of three years fior hling such application would commence from the date when the cause of action arose. Since there is no provision in the Arbitration and Conciliation Act, 1996 speci$ing the period of limitation for hling an application under Section 11, one would have to take recourse to the Limitation Act, 1963. Section 43 of the Arbitration and Conciliation Act, 1996 provides that the Limitation Act shall apply
*-%,...57 15 to arbitrators, as it applies to proceedings in Court. Since none of the Articles in Schedule to the Limitation Act, 1963 provide a time period for filing an application for appointment of arbitrator under Section 11, it would be covered by the residual provision under Article 137 of the Limitation Act which provides that the period of limitation is three years for any other application for which no period of limitation is provided elsewhere in the division. The time limit starts from the period when the right to apply accrues. Admittedly, in the instant case, the Final Bill of the applicant has been settled on 06.09.2022 and even before the expiry of the three years limitation period prescribed under Article 137 of the Limitation Act, 1963, the applicant has raised a dispute and sought reference to the Arbitrator. Therefore, viewing the case from any angle, the dispute sought for reference to the arbitrator is not barred by limitation. Adding further, whether the claim is barred by lapse of time is a matter which requires to be decided by the Arbitrator at the time of making an order under Section 20 of the Arbitration and Conciliation Act, 1996
For the aforementioned reasons, Sri Tariq Khan, Advocate (resident of 21st Floor, Vijay Krishna Towers, Nanakramguda, Gachibowli, Hyderabad-32, Mobile No.9999663628) is appointed as Arbitrator to adjudicate the disputes between the parties. The learned Arbitrator is requested to enter upon reference and take I I " -:.-_.- r:.asr-, i,&ii-' :. r..*- ^-.. ^,r-1i8.: , !t-
further steps in terms of the Arbitration and conciliation Act, 1996. The learned Arbitrator shall fix his remuneration, costs and expenses of the secretarial assistance for the arbitration proceedings upon deliberation and consultation with the parties. The learned Arbitrator is requested to complete the arbitration proceedings, and pass an award at the earliest, preferably within a period of six months from the date of commencement of the arbitral proceedings. Needless to state that the respondents are at liberty to raise all such objections as are permissible to be raised under Section 16 of the Act.
The parties shall appear before the learned Arbitrator on 27 .O1.2024 at I I :OO am for further proceedings.
Registry to inform and communicate a copy of this order to the learned Arbitrator.
Accordingly, this Arbitration Application is allowed. Miscellaneous Applications, if any, pending in the Arbitration Application shall stand closed. . M. VIJAYA BHASKER JOINT REGISTRAR //// ( Ur SECTION OFFICER Toi. Sri tariq Khan, Advocate R/o. 2]"t F!oo1, Vijay-Krishna Towers, Ninakrarmquda. Gachibowli, Hyderabad - 32 , Mobile No' 9999663628 (Ay Speciai Messenger) ( Alon! with a copy of affidavit and material papers) z. brie CC to M/s. M. VANAJAKSHI, Advocate [OPUC]
One CC to SRl. L. PRANATHI REDDY ( SC FOR CENTRAL GOVT) loPUcl 4.oneCCtoSris.o.o.s.SectionHighCourtfortheStateofTelanganaat Hyderabad
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tI tI HIGH COURT CVBRJ DATED:03/01/2024 ORDER ARBITRATION APPLICATION 'No'176 ol 2022 ALLOWING THE ARBITRATION APPLICATION @@W v- ^ 0 t[\ 1s1[ t \u - s OEgPN * sr T E q f o Or o
Reproduced from the public record of the Telangana High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.