IMPORTANT NOTES TAKEN BY V.K.GUPTA, DY.CE/WORKS N.RLY, DURING CONTRACT & ARBITRATION COURSE NO.

653 FROM 16-01-06 TO 27-01-06 AT IRICEN/PUNE.

ARBITRATION
Acts/Important letters are: Indian Contract Act 1872. Arbitration and Conciliation Act,1996 (Important points & GIST at Annex-I) Engineering Code Chapter 12. Engineering Standing Order No.10 (1998). Railway Boards letter No.94/CE-I/CT/4 dated 22-10-01 & 17-10-02. Important points of Sh. B S Sudhir Chandra Committee Recommendations(ANNEX-IX) HQ to inform Railway Board if amount of arbitration award is more than Rs.50,000/-. (Rly BD no. F(X)IV/86/PW/6 dt. 5/5/87). First letter of contractor to GM shall be treated as application for redressal of claims within 120 days (Para 63 of GCC Railway Board revision dated 09-10-03). If no decision is taken by the GM or contractor is not satisfied with the GMs decision, then after 120 days but before expiry of 180 days contractor shall ask for arbitration otherwise no arbitration. Arbitrator is bound by the agreement signed by claimant and respondent as both of them have signed it. Supplementary Agreement:- Supplementary Agreement should be added in all the contracts of Open Line also as is already being done in Construction contracts. If at the time of final bill contractor refuses to sign supplementary agreement the department should ask the contractor for claims if any and should be ready for arbitration. (ANNEXURE- X). Important clauses of new Act are 7, 16, 11, 31, 34, and 64(5). Clause 7, 16, 34 are contradictory regarding jurisdiction of Arbitration Tribunal. In case of orders by the court to appoint arbitrator, send all the claims to Arbitrator and clearly mention that This is an excepted matter and is not in the purview of arbitrator vide GCC Clause No. ___. against the excepted matters. Since the contractor has signed the contract agreement wherein it was mentioned that the contractor and the department are bound to follow GCC hence courts are also bound to follow GCC of Railways. 1

As per Contract Act 1940 the arbitration has to be completed within 120 days but in the New Act there is no such limit. But it must be completed in reasonable time. On termination of work GCC 61 (1) says approved materials and works shall be payable. Also see 62 (2). Railway shall admit claims for expenditures done in expectations of completing works. Arbitration claims of contractor can be accepted only upto 20% of contract value. For this see clause 63 & 64 of GCC. The Arbitrator must mention in the award regarding the period of payment of award and interest thereon otherwise contractor will get 18% after 60 days as per Clause 31-7b of GCC. Whenever a letter is written by Sole/Presiding/Co-Arbitrator the copy of the same must be sent to the other arbitrators, claimant, respondent and the arbitrator appointing office. Arbitrator to submit all the papers to HQ along with the award. Umpire takes a final decision in case the two Co-Arbitrators do not agree in old cases but in new act majority of arbitrators will decide award, may be even two Co-Arbitrators against the Presiding Arbitrator. In cases prior to 1996 where arbitrator appointed before 1996, award has to be approved by the Court as per Arbitration Act 1940, then only it will become a decree. But In new act, award after expiry of 90 days automatically becomes decree if not challenged in court Cl-34 of GCC. For terminating contract after expiry of DOC only one proforma of Railway Boards letter No.99/CE-I/CT/28(PT) dated 17-05-04 is enough. (ANNEXURE- II). For place of Arbitration GCC Clause 64 (i). Clause 14 & 15 for cases prior to 1997 Arbitrator can be challenged if he does not possess the agreed qualification Clause 12 of Arbitration Act. In prior to 1996 cases, Arbitrator has to be a Railway Gazetted Officer. If L1 withdraws then re-tender, CVC No.98/ORD/1 dated 24-08-01. 2

If a part of an award is to be challenged in a court, the agreed amount should be deposited with the court to avoid interest on that part. If Central PSU is within 10% of L1 the work goes to PSU. Instructions to be revised annually. FDRs etc. to be verified by Accounts Department and not by the Executive Department (as told by ED/Vig. during the lecture to course 653 at IRICEN). Outside Arbitrator if appointed may be asked to accept the fee structure of retired Railway Officers. Must attend each meeting fixed by the arbitrator especially the meeting when fee is to be decided by the arbitrator. Fee must be reasonable as mentioned in Clause 38, 39 of GCC. Presiding Arbitrator participates in the proceedings whereas Empire does not participates in proceedings and only gives the decision in case of any difference between the two Co-Arbitrators. IMPORTANT JUDGEMENTS: 1. U.O.I. V/s Sarvesh Chopra case: - Regarding Excepted Matters. Not to be referred, even High Court cannot ask for referring excepted matters to arbitrators. (ANNEXURE- IV). Union of India V/s M.P.Gupta: - Regarding appointment of Arbitrator under old Act. Only Gazetted Officers to be appointed. No Judge etc. (ANNEXURE- V). Union of India V/s Major ................................ (Guwahati High Court) Interest on Earnest Money, payments etc. (ANNEXURE- VI). New India Civil Erection (P) Ltd. V/s ONGC Arbitrator can not award any amount ruled out by terms of agreement. (ANNEXURE- VII). Sarvesh Kapoor V/s U.O.I. Supplementary agreement signed. Arbitration clause seizes. (ANNEXURE- VIII). Judgment of seven Supreme Court Judges Only High Court can appoint Outside Arbitrator & no interference of High Court in Arbitration Tribunal working. (ANNEXURE- III). No Claim & Supplementary Agreement signed. CPDE/SE Rly. letter No.E-R/ARB/Judgements/S.E.Rd/2004 31-12-04. dated

2.

3. 4. 5. 6.

7.

Bench of HC Calcutta Ambica Court V/s UOI two cases AP No.193 of 2001 & AC No. 9 of 1998. Cl. 43(2) of GCC regarding Supplementary agreement & 16(2) of GCC regarding interest. (ANNEXURE-XI & XIII) Letter must go to contractor informing that proceedings have started for appointment of arbitrator. Whatever you say verbally to Arbitrator/Court during arbitration proceedings submit everything in writing along with the documents to the Arbitrator/or court immediately after the proceedings or as early as possible. In the initial stage of defence first statement is Most Important & carries maximum weightage. Legal misconduct is consequent of mistake whereas personal misconduct means criminal offence. Regarding facilities for inspection, facilities to be given by the contractor see Clause 62 of GCC. Tenders cannot be delayed for indefinite period for verification of FDRs/ credentials. In case arbitrator has awarded a small amount as Excepted Matter, Railway should not go to court to avoid delays and bigger amounts by the other Arbitrators.

(Vinay Kumar Gupta) DYCE/Works/N.Rly. Ph: 9313124250

ANNEX-I ARBITRATION ACT (IMP. POINTS)

Arbitration Fee: Rs.300/- per day, Rs.150/- per half day subject to a maximum of Rs.10,000/- per case. Half day means two hours or less. Railway Boards letter No.E(G)2004/H01-2 dated 24-02-04. Only one steno Rs.500/- per case. Sole Arbitrator for amount less than Rs.5 lakhs for old G.C.C. (1989 and 1973), less than Rs.10 lakhs for new G.C.C. (May 1999). GCC 64 (3) (a) (i). Presiding Arbitrator (Empire) for old G.C.C. nominated by Co-Arbitrators for new G.C.C. by GM. Contractor to nominate one name in old G.C.C. and two in new G.C.C. No direction for Fees of retired Arbitrators. Arbitrator appointment within 120 days of receipt of application of contractor. Arbitration Award within 120 days of nomination. Payment within 90 days or as directed by Arbitrator. In old cases rate of interest was generally 18% but now it is 9% to 12% in general. Open Line and Construction are different organizations. Arbitrator should be from Organization different from the one to which dispute pertains HQ letter No.362E/0/2/Eiv dated 27-11-1967. Procedure for demand of Arb. by contractor GCC 64 (1) (i). Excepted Matters: Clause 8, 18, 22(5), 39, 43(2), 45/A, 55, 55(A), 57, 57/A, 61(2), 61(1), 61(3). 8 Tools/Plants to be issued by Rly. Awareness of site conditions, materialtiate equipment. 19(1) 18 Illegal gratification. No interest 16(3). 22(5) Specs & Drgs. 39 Rates for extra items. 6

43(2) No Claim Certificate. 45(a) Measurements if not objected within 7 days. 55 Wages Act employment. 55A Contract Labour Act. 57 Workmen Compensation Act. 57A Mines Act. 61(1) Determine Contract by Railway. 61(2) - Determine Contract by Railway. 62(1) - Determination of contract due to contractor fault and Prolongation of contract.

THE ARBITRATION AND CONCILIATION ACT, 1996 (IMP. CLAUSES)

INTRODUCTION The law on arbitration was substantially contained in three enactments, viz. the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. Act 26 of 1996: The Arbitration and Conciliation Bill having been passed by both the Houses of Parliament received the assent of the President on 16th August, 1996. It came on the Statute Book as THE ARBITRATION AND CONCILIATION ACT, 1996 (26 OF 1996). 1. Short title, extent and commencement. PART I ARBITRATION CHAPTER I GENERAL PROVISIONS. 2. 3. Definitions. Receipt of written communications:(a) any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and (b) if none of the places referred to in clause (a) can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressees last known place of business. Waiver of right to object. Extent of judicial intervention. Administrative assistance. CHAPTER II ARBITRATION AGREEMENT Arbitration agreement. Power to refer parties to arbitrator where there is an arbitration agreement. If issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made. Interim measures, etc. by Court. CHAPTER III COMPOSITION OF ARBITRAL TRIBUNAL 10. Number of arbitrators:8

4. 5. 6.

7. 8.

9.

The parties are free to determine the number of arbitrators, provided that such number shall not be an even number. 11. Appointment of arbitrators:Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. If the appointment procedure in sub-section (3) applies and (a) A party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) The two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him. The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to (a) Any qualifications required of the arbitrator by the agreement of the parties; and (b) Other considerations as are likely to secure the appointment of an independent and impartial arbitrator. 12. Grounds for challenge:When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. An arbitrator may be challenged only if (a) Circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) He does not possess the qualifications agreed to by the parties. 13. 14. Challenge procedure. Failure or impossibility to act:- The mandate of an arbitrator shall terminate if (a) He becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and (b) He withdraws from his office or the parties agree to the termination of his mandate. Termination of mandate and substitution of arbitrator:Where he withdraws from office for any reason; or

15.

CHAPTER IV JURISDICTION OF ARBITRAL TRIBUNAL 16. 17. Competence of arbitral tribunal to rule on its jurisdiction. Interim measures ordered by arbitral tribunal. CHAPTER V CONDUCT OF ARBITRAL PROCEEDINGS 18. 19. 20. Equal treatment of parties. Determination of rules of procedure. Place of arbitration:Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. The arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members. 21. Commencement of arbitral proceedings:Shall commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. Language:- The arbitral tribunal shall determine. Statement of claim and defence. Unless otherwise agreed by the parties, either party may amend or supplement his claim or defence during the course of the arbitral proceedings. Hearings and written proceedings: Arbitral tribunal shall decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials. The parties shall be given sufficient advance notice. 25. Default of a party:(a) If the claimant fails to communicate his statement of claim in accordance with sub-section (1) of Section 23, the arbitral tribunal shall terminate the proceedings; (b) The respondent fails to communicate his statement of defence in the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant; 10

22. 23.

24.

(c)

A party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it.

26.

Expert appointment by arbitral tribunal:The arbitral tribunal may appoint one or more experts. The experts shall, on the request of a party, make available to that party for examination all documents, goods or other property in the possession of the expert with which he was provided in order to prepare his report.

27.

Court assistance in taking evidence.

CHAPTER VI MAKING OF ARBITRAL AWARD AND TERMINATION OF PROCEEDINGS 28. 29. Rules applicable to substance of dispute. Decision making by panel of arbitrators:Any decision of the arbitral tribunal shall be made by a majority of all its members. Settlement: It is not compatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement. If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms. And shall state that it is an arbitral award & shall have the same status. 31. Form and contents of arbitral award: An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal. In arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient. The arbitral award shall state its date and the place of arbitration. After the arbitral award is made, a signed copy shall be delivered to each party.

30.

11

The arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period. Unless otherwise agreed by the parties the costs of an arbitration shall be fixed by the arbitral tribunal. Explanation:- For the purpose of clause (a), costs means reasonable costs relating to. 32. Termination of proceedings:- The arbitral proceedings shall be terminated by the final arbitral award. (a) The claimant withdraws his claim, unless the respondent objects. (b) The parties agree on the termination of the proceedings, (c) The arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible. Correction and interpretation of award; additional award: (1) Within thirty days from the receipt of the arbitral award. (a) A party, with notice to the other party, may request the arbitral tribunal to correct any computation errors, any clerical or typographical errors. (b) Request the arbitral tribunal to give an interpretation of a specific point. (4) Request within thirty days from the....... , the arbitral tribunal to make an additional arbitral award as to claims presented in the arbitral proceedings but omitted from the arbitral award. (5) If the arbitral tribunal considers the request made under sub-section .....additional arbitral award within sixty days. CHAPTER VII RECOURSE AGAINST ARBITRAL AWARD 34. Application for setting aside arbitral award. (2) An arbitral award may be set aside by the Court only if CHAPTER VIII FINALITY AND ENFORCEMENT OF ARBITRAL AWARDS 35. 36. Finality of arbitral awards. Enforcement: Where the time for making an application to set aside the arbitral award under section 34 has expired. CHAPTER IX APPEALS 37. Appealable orders (1) To the Court authorized by law. CHAPTER X 12

33.

MISCELLANEOUS 38. Deposits: (1) The arbitral tribunal may fix the amount of the deposit ... , as an advance for the costs referred to in.... (2) The deposit referred to in sub-section (1) shall be payable in equal shares by the parties. Provided that where one party fails to pay his share. Further that where the other party also does not pay the aforesaid share in respect of the claim or the counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings.

39.

Lien on arbitral award and deposits as to costs: (2) If in any case an arbitral tribunal refuses to deliver its award except on payment on the costs demanded by it, the Court may, on an application in this behalf, order that the arbitral tribunal shall deliver the arbitral award to the applicant on payment into Court by the applicant of the costs demanded, and shall, after such inquiry, if any, as it thinks fit, further order that out of the money so paid into Court there shall be paid to the arbitral tribunal by way of costs such sum as the Court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant. Arbitration agreement not to be discharged by death of party thereto. Provisions in case of insolvency. Jurisdiction. Limitations: (2) An arbitration shall be deemed to have commenced on the date referred in section 21. PART II ENFORCEMENT OF CERTAIN FOREIGN AWARDS CHAPTER I NEW YORK CONVENTION AWARDS (Clause 44 to 52)

40. 41. 42. 43.

CHAPTER II GENEVA CONVENTION AWARDS (Clause 53 to 60) PART III CONCILIATION 13

64.

Appointment of conciliators. (1) (a) In conciliation proceedings with one conciliator, the parties may agree on the name of a sole conciliator; (b) In conciliation proceedings with two conciliators, each party may appoint one conciliator; (2) Parties may enlist the assistance of a suitable institution or person in connection with the appointment of conciliators. (a) A party may request such an institution or person to recommend the names of suitable individuals to act as conciliator; Role of conciliator. (1) The conciliator shall assist the parties in an independent and impartial manner in their attempt to reach an amicable settlement of their dispute. Administrative assistance. In order to facilitate the conduct of the conciliation by a suitable institution or person. Communication between conciliator and parties: (1) The conciliator may invite the parties to meet him or may communicate with them orally or in writing. He may meet or communicate with the parties together or with each of them separately. Disclosure of information: When the conciliator receives factual information concerning the dispute from a party, he shall disclose the substance of that information to the other party. Provided that when a party gives any information to the conciliator subject to a specific condition that it be kept confidential, the conciliator shall not disclose.

67.

68. 69.

70.

72. 73.

Suggestions by parties for settlement of dispute: Each party may. Settlement agreement: (1) When it appears to the conciliator that there exist elements of a settlement which may be acceptable to the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their observations. Confidentiality. Termination of conciliation proceedings: (a) By the signing of the settlement agreement by the parties. (b) By a written declaration of the conciliator, after consultation with the parties, to the effect that further efforts at conciliation are no longer justified. (c) By a written declaration of the parties addressed to the conciliator. (d) By a written declaration of a party to the other party and the conciliator. 14

75. 76.

77. 78.

Resort to arbitral or judicial proceedings: The parties shall not initiate, during the conciliation proceedings, any arbitral or judicial proceedings. Costs: (1) Upon termination of the conciliation proceedings, the conciliator shall fix the costs of the conciliation. Costs means reasonable costs. THE APPOINTMENT OF ARBITRATORS BY THE CHIEF JUSTICE OF INDIA SCHEME, 1996.

1. 2.

Short title: This Scheme may be called the Appointment of Arbitrators by the Chief Justice of India Scheme, 1996. Submission of request: The request to the Chief Justice under subsection (4) or sub-section (5) or sub-section (6) of section 11 shall be made in writing and shall be accompanied by.... Authority to deal with the request: Chief Justice may either deal with the matter entrusted to him or designate any other person or institution. Rejection of request: The Chief Justice or the person or the institution designation by him may reject it.

3. 6.

15

ANNEX-IX

B.S.Sudhir Chandra Committee Recommendations (IMP. FEATURES)

2.3.4.1. 2.3.4.2. Eligibility criteria for open tenders. Documents to be submitted with tender.

Limited Tenders: 2.4.4.1 Limited Tenders from approved list of tenderers only. 2.4.4.2 Publishing of Limited Tenders. Limit of calling Limited Tenders raised from Rs.40 lacs to Rs.1 crore. Dy.CE(C)/Sr.DEN = Upto Rs.10 lacs. SAG/DRM = > Rs.10 lacs upto Rs.25 lacs. PHOD = > Rs.25 lacs upto Rs.50 lacs. CAO/C, GM = > Rs.50 lacs upto Rs.1 Crore. Contractors registered in a slab can be allowed in same slab only not even for lower. 2.5.4.1 Approved list of contractors: Upper limit for approved contractors is Rs.1 crore. Upto Rs.10 lacs. > Rs.10 lacs upto Rs.25 lacs. > Rs.25 lacs upto Rs.50 lacs. > Rs.50 lacs upto Rs.1 crore.

Class D Class C Class B Class A

List valid for three years. Reviewed every year for deletion / addition of names. (deletion yearly on 1st July, addition 1st July & 1st Jan.). List separate for Open Line & Construction Organization for each identified category. B, C & D in Division & A in HQ in Const. B,C,D generally Dy.CE/C wise & A by CAO(C) / GM. Class Selection Committee Accepting Authority A One each SAG of Exec. Branch PHOD of Exec. & Finance. B, C One each JAG of Exec. Branch DRM/SAG & Finance. D One each Sr. Scale of Exec. Dy.CE/C, Sr.DEN/C Branch & Finance. In Construction Orgn. generally no contract below Rs.10 lacs.

Registration Fee: D Rs.5000/-, C Rs.7500/-, B Rs.10,000/-, A Rs.15000/- for each category in each slab for 3 years or part thereof. Standing Earnest Money only for approved contractors 16

D Rs.15,000/-, C Rs.35000/-, B Rs.75,000/-, A Rs.1,50000/-. Standing Earnest Money (SEM) separate for Construction & Open Line. Valid for all Branches i.e. Engineering, Electrical, Mechanical ...... Valid in same Organization.

Special Limited Tenders: For works of specialized nature (PHOD), urgent nature (GM), Consultancy work (GM). 6 tenders but never less than 4.

Dispensing calling of Tenders (i.e. calling of quotations):(Para 1211(E) ). 2.7.4.1. Should be avoided & exercised sparingly. With finance concurrence only. Rank of Officer Per case Annual Sr.Scale Rs.50,000/Rs.2,00,000/- With own (Independent administrative Charge) approval of the JAG/SG Rs.1,00,000/ Rs.5,00,000/- officers (Register to be SAG Rs.2,00,000/ Rs.10,00,000/- maintained). Two Packet System of Tendering:May be adopted in specifically identified situations & qualifying criteria concurred by FA&CAO & CAO/C & approved by GM/CAO. 3.4.1. Negotiations:L-1 is lowest, valid, eligible, and technically acceptable. Negotiation with L-1 only (or with PSU not more by 10% higher than L-1). Boards letters No.61/W-II/CT/24 dated 31-10-65, No.73/WII/CT/15 dated 15-3-74 & No.84/W-I/CT/28(P) dated 9-7-85.

2.8.5.1.

Variation in contract qualities: Upto +25% a regulatory mechanism as part of the contract itself. Next 15% (i.e. upto +40%) reduction in rate by 2% beyond (+)25% & 4% for next 10% (i.e. beyond +40% upto +50% reduction of 4%). Beyond +50% of contract value not allowed (Railway Board No.94/CE/CT-1/37 dt.5-5-95.)

17

From beyond +25% quantities monitored carefully at least at JAG level.

18

NORTHERN RAILWAY Headquarters Office Baroda House, New Delhi. No.Dy.CE/Works/Misc./2006. Sr. Divisional Engineer (C), Northern Railway, DLI, FZR, LKO, MB & UMB. Sub: Important Notes taken during Contract & Arbitration Course No.653 from 16-01-06 to 27-01-06 at IRICEN/Pune. The important notes taken by undersigned during Contract & Arbitration Course No.653 from 16-01-06 to 27-01-06 at IRICEN/Pune are enclosed herewith for information and suggestions please. DA/As above. (V.K.GUPTA) DY.CE/WORKS Copy to:Secy./Pr.CE for kind information of Pr.CE please. CTE, CBE, CE/P&D, CE/TSP, CE/G, CE/MRTS, CE/TMC - for kind information. Dy.CE/TP, Dy.CE/TS-I, Dy.CE/TS-II, Dy.CE/TO, Dy.CE/TM, Dy.CE/Br.HQ, Dy.CE/Br.D, Dy.CE/P&D and Dy.CE/Land. Dated: 20-02-06.

19