Holding

The claim does not exceed 20% of the total contract value and the 2003 circular is inapplicable; therefore, the application for appointment of an arbitrator under Section 11(6) is allowed.

Summary

The appellant, a contractor, entered into a 1996 construction contract with the Union of India that contained an arbitration clause (Clause 64). After receiving the original work order of Rs.32.17 lakh, several supplementary work orders raised the total contract value to Rs.42.60 lakh. The appellant sought appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, but the High Court rejected the application, holding that the claim exceeded 20% of the contract value and was barred by a 2003 circular limiting arbitration to claims below that threshold. The Supreme Court held that the claim, when measured against the total contract value including supplements, did not exceed 20%, and even if it had, the circular could not apply because it was issued after the contract and was never incorporated into it. Consequently, the Supreme Court set aside the High Court order and allowed the application for appointment of an arbitrator.

Issues considered

The claim amount exceeds 20% of the total contract value for the purpose of arbitration under Section 11(6).
Whether the 2003 circular limiting arbitration to claims below 20% of contract value is applicable to a contract executed in 1996 without amendment.
The validity of rejecting a Section 11(6) application on the basis of the circular.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11(6)

Subjects

ArbitrationSection 11(6)Circular limitationContract valueAppointment of arbitratorSupreme CourtConstruction contractSupplementary work orders

Judgment

(2009] 2 S. C.R. 530

A DEEPAK KUMAR BANSAL
,\----.
v
UNION OF !NOIA & ANR.
Civil Appeal No. 1089 of 2009
FEBRUARY 17, 2009
B
[TARUN CHATTERJEE AND V.S. SIRPURKAR, JJ.]
Arbitration and Conciliation Act, 1996:
ll
s. 11 (6) - Appointment of arbitrator - Denial of in view of '..
Circular limiting arbitration proceedings only to claims which
c were less than 20% of value of contract- Held: Claim was not
in excess of 20% of total cost - Thus referable to arbitration
proceeding - Cost of supplementary work orders issued from
time to time to be added to the original cost of work for
determining total cost of work orders.
D Original contract entered in 1996 - Circular issued in
~
2003 intimating intention to incorporate a clause - Applicability
~
of the circular - Held: Not applicable as the said Circular came
into force only from 2003 and not before that, in the absence
of any subsequent insertion of that Clause in the original
contract - Accordingly, question of applicability of the said
E
Circular could not arise at all.
An agreement was executed between the parties
which contained arbitration clause. In terms thereof, work
"\
order was issued to the appellant on 22.9.1996. The
estimated cost of work was Rs.32.75 lacs. Since the +
F quantity of work was much more than the work order
issued, supplementary work orders were issued from time
to time for Rs.4.99 lacs, Rs.3.26 lacs, Rs.2.17 lacs, Rs.2.17
lacs. The total work orders for the cost of Rs.42.60 were
issued to the appellant. Some dispute arose between the
G parties and appellant invoked arbitration clause. High
Court dismissed the application for appointment of an ... ~
arbitrator under s.11 (6) of the Arbitration and Conciliation ~

Act, 1996 on the ground that since the value of the claim
was more than 20% of the value of the work, the disputes
H 530
DEEPAK KUMAR BANSAL V UNION OF INDIA & ANR. 531

could not be referred to Arbitrator in view of the Circular A
dated 11.6.2003 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 were less than 20% of the value
of the contract. Hence the instant appeal. B
Partly allowing the appeal, the Court
HELD: 1. The High Court 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 lacs c
(original) and three additions viz. Rs.4.99 lacs, Rs.3.25 lacs
and Rs.2.17 lacs totalling Rs. 42.60 lacs, which cannot be
in excess of 20% of the total cost of the work. The High
Court has only considered the original work order that
was Rs.32.17 lacs, which must be taken into account along
0
with three supplementary work orders. 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 E
. 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. Accordingly, F
question of applicability of the said Circular intimating
intention of the respondent to insert Clause 18 could not
arjse at all. [Paras 9-11] [935-F, G, H; 936-A, B]
State of AP & Another v. Obu/u Reddy ( 1999) 9 SCC G
568 - referred to.
t
Case Law Reference
1999) 9 sec 568 referred to Para 6
H
532 SUPREME COURT REPORTS [2009] 2 S.C.R.

A CIVILAPPELLATE JURISDICTION : Civil Appeal No 1089
~~ -·"'-
of 2009
From the final Judgement and Order dated 25.5.2007 of
the High Court of Judicature for Rajasthan at Jaipur Bench in
Arbitration Application No. 31 of 2005.
B
Saahila Lamba and Sudhir Nandrajog, for the Appellant.

B. Sunita Rao, Sushma Suri and B. Krishna Prasad, for ._
the Respondent. '._

c The Judgement of the Court was delivered by

TARUN CHATTERJEE, J.
1. Leave granted.

2. This appeal is directed against the judgment and order
D 1
dated 25 h of May, 2007 passed by a-learned Judge of the High I'--
Court of Judicature for Rajasthan at Jaipur Bench in S.S. )....

Arbitration Application No.31 of 2005 by which the learned
Judge had rejected the application under Section 11 (6) of the
Arbitration and Conciliation Act, 1996 (in short 'the Act') filed at
E
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, +-
F 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 22"d of September, 1996. The initial
G 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 ,,;..
i
has been inserted. Clause 64 of the arbitration clause runs as
under:-

"(i) In the event of any dispute or difference between the
H
DEEPAK KUMAR BANSAL V. UNION OF INDIA & ANR. 533
[TARUN CHATTERJEE J.]

.·• parties hereto as to the construction or operation of this A
contract, or the respective rights 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 B
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 c
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 D
-'\
.... 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 E
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 respondents on 30th of December, 1997 for a F
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 G
!...., 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 H

fr-.
534 SUPREME COURT REPORTS [2009] 2 S.C.R.

A acceded to. Accordingly, finding no other alternative, the
appellant raised a dispute by issuing a notice dated 2ih 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
B 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 Rajasthan at
Jaipur Bench for appointment of an Arbitrator. .l
..
5. As noted herein earlier, by the impugned order, the
c 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 t
I
the work, the disputes could not be referred to Arbitrator in view
of the Circular issued by the respondent intimating their intention
D to incorporate Clause 18 in the General Conditions of Contract
limiting arbitration proceedings to only such claims, which are ,.. r-~:
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
E issuance of the said circular and it is also not in dispute that the I-
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.
'f"
6. The application for appointment of an Arbitrator was +-· ,__
F also rejected by relying on a decision in the case of State of
t

I.-

AP. & Another vs. Obulu Redd~ [1999(9) SCC 568]. It is this I
~-

order, which is under challenge before us by way of a Special t...
Leave Petition, which on grant of leave, was heard by us in
~
presence of the learned counsel for the parties. )-.

. r.
G
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
H
t
DEEPAK KUMAR BANSAL V. UNION OF INDIA & ANR. 535
- [TARUN CHATTERJEE J.]

notice issued by the appellant for appointment of an Arbitrator A
,. .. 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 B
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 circumstances of
the present case, could not arise in view of the fact that the claim, C
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. D
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, E
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 F
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 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 G
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 H
536 SUPREME COURT REPORTS [2009] 2 S.C.R.

A dispute that the Circular intimating Clause 18 and issued on
r--~
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
B 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 •·
c is allowed and the 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
D of the High Court and to appoint an Arbitrator in compliance
with Clause 64 of the General CondiUons of Contract entered r-:·
I
....
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
E to costs.
,_

D.G. Appeal party allowed.
-Joe
"""

I

l