Arbitration Clause In The Original Contract Would Also Apply To Inseparable Additional Work Carried Out Without Execution Of A Formal Agreement: J&K&L High Court

The bench of Chief Justice N. Kotiswas Singh held that when a contractor, initially tasked with constructing a single-lane bridge, is subsequently directed by the employer to expand the scope to build a two-lane bridge without formalizing a new agreement or amending the original contract, the terms of the initial contract, including the arbitration clause, extend to cover the additional work.

Facts

The respondent issued a Notice Invited Tender (NIT) dated 11.01.2014 for the construction of single lane bridge. Pursuant thereto, the petitioner was selected as the successful bidder and the parties entered into an agreement dated 26.04.2014.

The agreement contained an arbitration clause. However, before commencement of the project work, the respondent increased the scope and cost of work but this was done without any formal amendment to the original agreement or a separate agreement. Accordingly, the petitioner constructed a two-lane bridge instead of the originally agreed single lane bridge.

A dispute arose between the parties related to the payments for the execution of the work which led the petitioner to file a writ petition which was disposed of by the High Court with a direction upon the respondent to consider the claim within 6 weeks, however, upon the failure of the respondent to make any payments to the petitioner, it invoked the arbitration clause and approached the Court for the appointment of the arbitrator under Section 11 of the A&C Act.

Objections

The respondent objected to the maintainability of the petition on the following grounds:

• That no valid contract existed beyond the initial agreement for a Single Lane 100 mts bridge, rendering the application non-maintainable for arbitration. Emphasized the absence of a written contract for the additional Two-Lane Bridge construction, preventing the invocation of arbitration.
• It relied upon article 299 of the Constitution of India to assert that there cannot be a contract by implication.
• It also relied upon section 7 of the A&C Act to submit that even if assuming that there was an agreement by implication, the arbitration clause has to be in writing only, therefore, the dispute cannot be referred to arbitration.

The petitioner made the following counter-arguments:

• that the petitioner did not undertake the work solely based on a public announcement during the foundation stone laying ceremony, as asserted by the respondents.
• It highlighted the administrative actions taken after the public announcement, including the revision of the DPR, approval of the design for a two-lane bridge, and execution of the work according to the revised DPR.
• It relied upon Section 7(4)(b) of the Arbitration and Conciliation Act, 1996, arguing that the exchange of communications clearly establishes the existence of a written agreement, and, therefore, the respondents cannot rely on Article 299 of the Constitution to dispute the existence of a contract.
• that even if it is assumed that no additional contract exists, the respondents cannot take advantage of the alleged non-existence of a contract after acknowledging the completion of work with their consent and approval.
• Referred to Section 70 of the Contract Act, arguing that, according to this section, the respondents cannot escape liability as the petitioner was not executing the work pro bono.

Analysis by the Court

The Court observed that originally, the petitioner was required to construct a single-lane bridge, however, the scope of the work was increased and it was made to construct a two-lane bridge instead. It also observed that though no agreement was executed for the additional work nor any amendment was made to the original work, however, the respondent took administrative actions including the revision of the DPR, approval of the design for a two-lane bridge, and execution of the work according to the revised DPR.

The Court held that the arbitration clause contained in the original contract would also govern any dispute arising out of an additional work carried out without execution of a formal agreement.

The Court held that when a contractor, initially tasked with constructing a single-lane bridge, is subsequently directed by the employer to expand the scope to build a two-lane bridge without formalizing a new agreement or amending the original contract, the terms of the initial contract, including the arbitration clause, extend to cover the additional work.

Accordingly, the Court allowed the petition and appointed Justice (Retd.) M.K. Hanjura as the sole arbitrator.

Case Title: A K Engineers and Contractors Pvt Ltd v. Union Territory of J&K

Citation: 2023 LiveLaw (JKL) 283

Date: 01.11.2023

Counsel for the Petitioner: Mr. R K Gupta, Sr. Advocate with Mr. Udhay Bhaskar, Advocate.

Counsel for the Respondent: Mr. Raja M. Bucha, Advocate. Mr. Ravinder Gupta, AAG.

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