M/s. Sowil Limited v. Deputy Chief Engineer (Construction) Bhusawal

Judgment

1) This is an application under Section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) for appointment of arbitrator for adjudication of disputes and differences between the parties arising out of contract dated 7 May 2018. While there is no dispute between the parties about existence of arbitration agreement, the clause contains a restrictive condition for arbitration. The relevant clause in the contract provides for resolution of disputes by arbitration only to the extent of 20% of the value of the contract. The value of the contract was Rs.84,52,157.61/- whereas the estimated claim amount is Rs.3 crores and accordingly Railways have opposed appointment of arbitrator. _____________________________________________________________________________ PAGE NO.

1 of 36 28 JANUARY 2026 Neeta Sawant CARAP-688-2025 2) A tender notice was issued by the Respondent-Central Railways on 10 November 2017 for execution of work of preparation of design and structural drawings for major and important bridges for the upcoming Manmad- Jalgaon 3rd line project. The Applicant participated in the tender process and was a successful bidder. Letter of Acceptance dated 12 February 2018 was issued in favour of the Applicant which indicated that the total value of the contract as Rs.84,52,157.61/-. Under the contract, the Applicant was supposed to complete the entire scope of work by provision of detailed designs and drawings for 22 bridges within 9 months. Various extensions were granted in favour of the Applicant for completion of the work.

The contract has been terminated by the Respondent on 23 December 2021 and the Applicant was debarred from executing the remaining scope of work. Applicant challenged termination by filing Writ Petition No.2887/2023, which was disposed of on 11 June 2025 granting liberty to the Applicant to file application under Section 11 of the Arbitration Act. Accordingly, the Applicant has filed the present Application under Section 11 of the Arbitration Act. 3) Mr. Singh, the learned counsel appearing for the Applicant submits that the parties have agreed to resolve the disputes and differences by arbitration and that the contract contains Clause-39 providing that the stipulations under Clauses-63 and 64 of the General Conditions of Contract (GCC) would be applicable for settlement of claims of the contractor.

He would therefore submit that unreasonable condition is put in Clause 39 of the contract that provisions of Clauses 63 and 64 of the GCC are applicable only for settlement of claims of disputes between the parties for value less than or equal to 20% of the value of the contract. He submits that imposition of this condition is both _____________________________________________________________________________ PAGE NO. 2 of 36 28 JANUARY 2026 Neeta Sawant CARAP-688-2025 arbitrary, as well as discriminatory. That there is no cap for the Respondent-Railways to have its claims/counterclaims decided through arbitration and the maximum cap is arbitrarily and selectively applied to the Applicant. He would then take me through Clause-64 of the GCC in support of his contention that no restriction is imposed for decision of counterclaims by the Railways.

4)

Mr. Singh further submits that the restriction of non- arbitrability of claims exceeding 20% of the value of contract is aimed at discouraging the Contractors from raising full claims and to restrict them within the limit of 20%. That such unfair bargain between the parties cannot be permitted to operate and that therefore the restriction of 20% claim value is required to be invalidated while preserving the balance part of arbitration agreement. 5) Mr. Singh would submit that while deciding application under Section 11 of the Arbitration Act, this Court is empowered to decide on validity or reasonableness of condition stipulated in the arbitration clause. In support, he relies on judgment of the Apex Court in Lombard Engineering Limited Versus. Uttarakhand Jal Vidyut Nigam Limited 1 . He relies on judgment of the Apex Court in ICOMM Tele Limited Versus. Punjab State Water Supply and Sewerage Board and Another 2 in support of his contention that when an arbitration clause provides for unfair bargaining strength between the parties, the same can be declared invalid by the Court. That in ICOMM Tele Limited though the restriction for deposit of 10% claim amount is applied equally to both the parties, the Apex Court still declared the clause to be invalid as being arbitrary to Article 14 of the Constitution of India. Relying on Constitution bench 1 2024 4 SCC 341 2 2019 4 SCC 401 _____________________________________________________________________________ PAGE NO. 3 of 36 28 JANUARY 2026 Neeta Sawant CARAP-688-2025 judgment of Central Organisation for Railway Electrification Versus ECI SMO MCML JV A Joint Venture Company 3 (CORE), Mr. Singh submits that the principle of equality applies even at the stage of appointment of arbitrator. He would submit that in the present case, the arbitration clause creates inequality by restricting the claims of the Contractor at 20% while not imposing similar restriction on the Railways. He relies upon judgment of the Apex Court in Shin Satellite Public Company Limited Versus Jain Studios Limited 4 where stipulation in the arbitration clause for waiver of right of appeal is held to be invalid. He submits that the Apex Court has recognized the principle in Shin Satellite Public Company Limited (supra) that if the contract is in severed parts, some of which are legal and unenforceable, lawful parts can be enforced provided they are severable. 6) Mr. Singh further submits that under Section 11 Court can make appointment of arbitrator and leave the issue of jurisdiction in the form of financial cap to be decided by the arbitrator. He relies on judgment of Rajasthan High Court in Jai Salasar Balaji Construction Company Versus. Union of India 5 . Mr. Singh would accordingly pray for constitution of Arbitral Tribunal in the light of express agreement between the parties to resolve the disputes and differences by arbitration. 7) Mr. Bubna the learned counsel appearing for the Respondent-Railways would oppose the Application submitting that the parties have expressly agreed to resolve the disputes and differences between them by arbitration only if the claim is below 20% of the contract value. That Clause 39 of the contract expressly provides that if claim is above 20% of the contract value, the same