M/S Khajuria Construction Company Kandoli Nagrota Jammu Th Som Nath Khajuria vs. Union Of INDIA Th Ministry Of Defence Goi New Delhi And Others

Held

The Court held that a dispute exists between the parties, as the petitioner has raised claims that have not been addressed by the respondents. The Court found that this dispute necessitates resolution in accordance with Clause 70 of the General Conditions of Contract. Therefore, the Court decided that the dispute must ultimately be decided by an Arbitrator. Accordingly, the petition was disposed of by appointing Mr. Hari Singh, Chief Engineer (Retd.) Contracts, as the sole Arbitrator. The Arbitrator is directed to proceed with the matter, decide the dispute between the parties, and make an award in accordance with the law. The Arbitrator will charge the prescribed fee and incidental expenses, to be shared by the parties. Parties are permitted to raise their claims and counter-claims before the Arbitrator. The Registry was directed to inform the Arbitrator accordingly. No issue was expressly left undecided.

Facts

M/s Khajuria Construction Company, a petitioner firm, was awarded a contract for construction work by the Military Engineer Services (MES) for Rs. 10,18,20,560/-. The work commenced and was later suspended due to winter conditions, resuming thereafter. In 2017, the firm became a partnership. Following the introduction of GST on July 24, 2017, at a rate of 12% on works contracts, the petitioner sought reimbursement for the additional tax liability from the respondent department. The contract work was prolonged due to the respondents' alleged non-fulfillment of obligations, and the petitioner received only part payment. Despite repeated representations for payment of additional GST, the department did not respond. A Dispute Redressal Board (DRB) was constituted in 2020 but could not resolve the grievances. The petitioner then invoked Clause 70 of the General Conditions of Contract for arbitration, requesting an independent arbitrator due to prohibitions under Section 12(5) of the Arbitration and Conciliation Act, 1996.

Key Issues

1. Whether a dispute exists between the petitioner and the respondents that requires resolution by an arbitrator, as contemplated under Clause 70 of the General Conditions of Contract (IAFW-2249)? The petitioner argued that a dispute has arisen due to the non-payment of additional GST liability incurred after the introduction of the tax regime, despite their repeated requests and the prolonged nature of the contract. They contended that the respondents have failed to fulfill their contractual obligations, leading to financial prejudice. The petitioner relied on Section 11(6) of the Arbitration and Conciliation Act, 1996, and Clause 70 of the contract to seek the appointment of an independent arbitrator, citing Section 12(5) and Schedule 7 of the Act which prohibit serving officers from being appointed as arbitrators. The respondents, through their counsel, resisted the application for the appointment of an arbitrator.