M/S.Triveni Constructions vs. Garrison Engineer (Project)

Facts

M/s. Triveni Constructions (the applicant), a partnership firm, entered into a work contract with Garrison Engineer (project), Air Force Academy, Hyderabad (respondent No. 1) and Chief Engineer (Air Force) (respondent No. 2) for an aircraft hangar upgradation project. The tender conditions mandated that bids include GST. Initially, GST was 18%, but the GST Council decided to reduce it to 12% for work contracts with government entities. The applicant submitted its bid on 04.09.2017, incorporating the reduced GST rate of 12%. The contract was awarded on 14.10.2017 for Rs. 3,61,39,005/-. After two years, the respondents issued a show cause notice on 30.01.2020, seeking a refund of 6% of the contractual value (Rs. 15,39,720/-) due to the GST rate reduction. The applicant explained that their bid was based on the 12% GST rate. Subsequently, the respondents unilaterally decided to deduct Rs. 15,39,720/-. The applicant challenged this in WP.No.13530 of 2020, which was disposed of by the High Court directing them to pursue arbitration. The applicant then issued a notice on 02.09.2021 to the respondents invoking arbitration, which the respondents contested, stating no contractual obligation for arbitration.

Held

The Court held that the arbitration clause in the contract is operative. It was not disputed that the general terms and conditions of the contract provided for dispute resolution through arbitration under Condition No. 70. The Court found the respondents' objection to be without basis, particularly in light of the amendment to the Arbitration and Conciliation Act, 1996. The Court noted that a dispute had been raised by the applicant and that Condition No. 70 itself provides for arbitration. Furthermore, the applicant had issued a notice dated 02.09.2021 invoking arbitration. Consequently, the Court allowed the arbitration application. Sri M. Chalapathi Rao, Retired Additional District Judge, was appointed as the sole arbitrator to adjudicate the claims and disputes between the parties. The arbitrator's fees would be as per the Fourth Schedule to the Act of 1996, borne equally by both parties. No order as to costs was made.

Key Issues

1. Whether the arbitration clause in the contract is operative for the dispute regarding the variation in GST rates, despite the respondents' contention that there is no contractual obligation to refer disputes to arbitration? This issue turns on the interpretation of the Arbitration and Conciliation Act, 1996, particularly amendments made thereto, and Condition No. 70 of the contract. Contentions: Petitioner/Applicant: Argued that the arbitration clause is operative. They relied on the notice dated 02.09.2021 invoking arbitration, citing the amendment to the Arbitration and Conciliation Act, 1996, and the Supreme Court decision in PERKINS EASTMAN ARCHITECTS DPC v. HSDC (INDIA) LTD. They approached the High Court for the appointment of an arbitrator as the respondents contested the arbitration. Respondents: Contended that there is no contractual obligation to refer the dispute to arbitration. They argued that the applicant had not made any effort to appoint an arbitrator and was seeking interim measures. They also suggested approaching the Engineer-in-Chief, Delhi, as the designated authority for arbitrator appointment as per Condition No. 70.