M/S.CHERIAN VARKEY CONSTRUCTION CO.(P)LTD v. THE COCHIN SHIPYARD LIMITED

P.R. RAMACHANDRA MENON, J.---------------------------------------A.R. No. 38 of 2012 ----------------------------------------Dated this the 27th day of September, 2012JUDGMENT The applicant who was awarded a contract by therespondent, has approached this Court seeking for release of theamount retained by the respondent in respect of delay incompletion of the works without causing the same to beadjudicated by the Arbitrator to be appointed in terms ofAnnexure A1 agreement. The applicant seeks for appointing aSole Arbitrator to adjudicate the disputes between the parties,based on Annexure A1 agreement as set out in paragraph '6' ofthe arbitration request. 2. The factual position as narrated in the arbitrationrequest reveals that a total sum of Rs.96,39,503/-(Rupees ninetysix lakhs thirty nine thousand five hundred and three) has beenretained at the hands of the respondent, as thepenalty/compensation for the delay. According to the applicant,there is absolutely no rhyme or reason for retaining the saidamount and even otherwise, by virtue of the specific terms as A.R. No. 38 of 2012-2-contained in Clause 44 and 45 of Annexure A1 agreement, theamount so withheld can be retained by the Awarder of thecontract only till the claim arising out of or under the contract isdetermined by the Arbitrator or competent Court or settledotherwise by mutual agreement. The request made by theapplicant Company for appointment of an Arbitrator, so as tofinalize the issue, turned to be rejected by the respondent videAnnexure A6 dated 22.8.2012, which in turn is under challenge.3. Heard the learned counsel for the petitioner as well asthe learned Standing Counsel for the respondent at length.4. The clauses 44 and 45 of Annexure A1 agreement reliedon by the applicant read as follows:“CLAUSE 44: (1) Wheneverany claim or claims for payment of asum money arises out of or underthe contract against the contractor,Cochin Shipyard Limited shall beentitled to withhold and also have alien to retain such sum or sumsfirstly from the security depositedwith the Cochin Shipyard Limited,secondly if insufficient or if nosecurity taken, to withhold and havea lien to retain to the extent of theclaimed amount from any sum foundpayable or becoming payable to the A.R. No. 38 of 2012-3-contractor whether under the samecontract any other contract withCochin Shipyard Limited. Should thissum be not sufficient to cover the fullamount recoverable, the contractorshall deposit with Cochin ShipyardLimited, on demand the balanceremaining due.It is an agreed term of the contractthat the sum of money or moneys sowithheld or retained under the lienreferred of above, by CochinShipyard Limited will be keptwithhold or retained as such byCochin Shipyard Limited till the claimarising out or under the contract isdetermined by the arbitrator or bythe competent Court or otherwisesettled by mutual agreement andthat the contractor will have no claimfor interest and damage whatsoeveron any account in respect of suchwithholding under the lien referred tosupra and duly notified in respect ofsuch to the contractor. For thepurpose of this clause, where thecontractor is partnership firm or alimited company Cochin ShipyardLtd., shall be entitled to withhold andalso have a lien to retain towardssuch claimed amounts in whole or inpart from any sum found payable toany partner/limited company as the A.R. No. 38 of 2012-4-case may be, whether in hisindividual capacity or otherwise.(2) Cochin Shipyard Limited shallhave the right to cause an audit andtechnical examination to the worksand the final bills of the contractorincluding all supporting vouchers,abstract etc. to be made afterpayment of the final bill and if as aresult of such audit and technicalexamination any sum found to havebeen overpaid in respect of any workdone by the contractor under thecontract or any work done by thecontractor claimed by him to havebeen done by him under the contractand found not have been executed,the contractor shall be liable torefund the around of overpaymentand it shall be law full for CochinShipyard Limited to recover the samefrom him in the manner prescribed inthe sub-clause (1) of this clause or inany other manner legally permissibleand if it is found that the contractorwas paid less than what was due tohim under the contract in respect ofany work executed by him under it,the amount of such underpaymentshall be duly paid by Cochin ShipyardLimited to the contractor.Provided that Cochin ShipyardLimited shall not be entitled to A.R. No. 38 of 2012-5-recover any sum overpaid, nor thecontractor shall be entitled topayment of any sum paid shortwhere such payment has beenagreed upon between the Engineer-in-charge on the one hand and thecontractor on the other under anyterm of contract permitting paymentfor work after assessment by theEngineer-in-charge.CLAUSE 45: Any sum of money dueand payable to the contractor(including Security Depositreturnable to him) under thiscontract may be withheld or retainedby way of lien by Cochin ShipyardLimited and set off against any claimof the Cochin Shipyard Ltd., for thepayment of a sum of money arisingout of under any other contractormade by the contractor with theCochin Shipyard Ltd.It is an agreed term of the contractthat the sum of money or money sowithheld or retained under the lienreferred to above, by CochinShipyard Limited will be keptwithheld or retained as by CochinShipyard till the claim arising out ofor under the contract is determinedby the arbitrator or by the competentCourt or otherwise settled by mutualagreement and that the contractor A.R. No. 38 of 2012-6-will have no claim for interest anddamages whatsoever on this accountor on any other ground in respect ofany sum of money withheld orretained under this clause and dulynotified as such to the Contractor.” With reference to the contents of the said clause, the learnedcounsel for the petitioner submits that the respondent is boundby the same, and that the matter requires to be adjudicated byan Arbitrator. As such, the Arbitration Request made by theapplicant vide Annexure A5 had to be dealt with positively by therespondent, instead of which, the same is rejected as perAnnexure A6. 5. The learned counsel however concedes that, but for theabove clauses, there is no other clause which refers to theinstance of 'Arbitration'. The stand taken by the respondent asrevealed from Annexure A6 is that, there is no clause to have anArbitration and as such, the request of the applicant to refer thematter for Arbitration and appointment of a Sole Arbitrator is notliable to be entertained. 6. The contents of above clauses sought to be pressed intoservice by the applicant only stipulate that the amount detainedby the awarder of the contract has necessarily to be released, A.R. No. 38 of 2012-7-subject to the finalization of the issue as per the Award passed bythe Arbitrator or pursuant to the verdict passed by a competentCourt or if otherwise settled by mutual agreement. There is nodispute that, there is no Court verdict or mutual agreement torelease the amount. The petitioner has of course expresseddesire to have the same adjudicated by an Arbitrator; for whichthe arbitration request has been made. Question is, whether therespondent is bound to nominate a Sole Arbitrator, to have sucha course. 7. It is settled law, that an Arbitrator can be appointed onlyif the agreement enables to have such a course by wayArbitration. But for the clauses 44 and 45, it is conceded thatthere is no other clause in the agreement, which refers to thecourse of Arbitration. In view of the nature of the differentcourses provided under the general terms of the contract, thecourse by way of Arbitration can be pressed into service, only ifsuch a course is mutually agreed and has been clearly provided inthe agreement; which is conspicuously absent in the instant case.This Court finds that the applicant cannot seek for a direction tobe given to the respondent to appoint a Sole Arbitrator in theabsence of any specific enabling clause in the agreement. It is A.R. No. 38 of 2012-8-always open for the petitioner to pursue the other two courses asprovided in the General Conditions; i.e., either by approachingcompetent Court of law or by causing the matter to be settledotherwise, if the same is agreeable to the respondent. 8. In the said circumstance, this Court finds that, the ideaand understanding of the applicant to have the issue referred forArbitration is quite wrong and misconceived. Leaving open therights and liberties of the applicant to approach the competentCourt of law or pursue steps for settlement in terms of clauses 44and 45, interference is declined and the Arbitration Request isdismissed. P.R. RAMACHANDRA MENON, JUDGE.Kp/-