Railway Accounts Department Examinations

Tuesday, October 19, 2021

Arbitration & Conciliation


Arbitration & Conciliation

  • Settlement of Disputes - 3 Stages

  1. Conciliation.  If it fails, then


  1. Arbitration. If this one too fails, then

  1. Judicial proceedings


●     Authority: Click for Indian Arbitration & Conciliation Act, 1996. New Act is “Indian Arbitration & Conciliation Act, 1996 - Simple, straight and easy in its understanding & implementation. It repeals the Arbitration Act, 1929. 

●     Source: Clauses 63 & 64  Click for GCC for Works, 2020 July  

  • 90 days - If the Contractor does not prefer his claims in writing within a period of 90 days of receiving the intimation from the Railways that the final bill is ready for payment, he will be deemed to have waived hi claim and the Railways shall be discharged and released all liabilities and under the contract in respect of these claims. 

What is Conciliation ?

  1.    The action of mediating between two disputing people.

2.    An alternative out of court dispute resolution instrument.

3.    An alternative to Arbitration too.

4.    The parties seek to reach an amicable dispute settlement.

5.    The Conciliator, a neutral third party assists the conciliation process.

6.    Voluntary proceedings. Both parties are free to agree to it.

7.    The process is flexible, allowing parties to define the time, structure and content of the conciliation proceedings.

8.     The ultimate decision to agree on the settlement remains with the parties. 



  1. Notice of Dispute:   By Contractor to Railways  - Within 30 days from the date of issue of Completion Certificate by Chief Engineer.

  2. Notify the name(s) of Conciliator(s) to the Contractor  - Within 30 days from the date of receipt of “Notice of Dispute”

  3. Conciliator(s) shall assist the parties to reach an amicable settlement in an independent and impartial manner within the terms of contract.

  4. During Conciliation proceedings - Parties shall not initiate any arbitral or judicial proceedings.  

  5. If parties reach an agreement due to the above efforts of Conciliator - Draw up and Sign a Written Settlement Agreement by all parties and Conciliator and it is final and binding for all.  

  6. Termination of Conciliation proceedings (Section 76 of ‘The Arbitration and Conciliation Act, 1996)   

  • By the signing of the settlement agreement by the parties, or

  • By a written declaration of the conciliator, after consultation with the parties, to the effect that further efforts at conciliation are no longer justified, or

  • By a written declaration of the parties addressed to the conciliator to the effect that the conciliation proceedings are terminated,  or

  • By a written declaration of a party to the other party and the conciliator, if appointed, to the effect that the conciliation proceedings are terminated.

 ● What is Arbitration?


1.    Use of an Arbitrator to settle a dispute between parties arising out of contract.

2.    An inbuilt mechanism in Contracts.

3.    Without going through the judiciary.


Who is an Arbitrator ?

 An Independent person or body officially appointed to settle a dispute.


Reasons for Arbitration cases


1.     Site not handed over in time due to delayed land acquisition.

2.    Non removal of Powerline crossings

3.    Non availability of P.Way materials

4.    Delay in obtaining clearances from Forest Dept, Environment ministry etc

5.    Not preparing plans/drawings/designs in advance.

6.    Inadequate delay in issuing instructions.

7.    Frequent changes in Scope, Design, Plans of work during the tenure of contract.

8.    Non finalization of variation statements

9.    Delay in making measurements and arranging passing of bills

10.  Inadequate funds availability leads to delay in payments

11.  Non attending grievances of contractor promptly

12.  Improper fixation of completion of time leading to number of extensions.

●     Excepted matters are not arbitrable. Clauses 8, 18, 22(5), 39, 43(2), 45(a), 55, 55-A(5), 57, 57A,61(1), 61(2) and 62(1) of Standard General Conditions of Contract or in any Clause (stated as excepted matter) of the Special Conditions of the Contract)  -  Decision of the Railway authority shall be final and binding on the Contractor.


  1. Clause 7(j) - Assignment or Subletting of Contract: Further, in case Engineer is of the view that subcontractor’s performance is not satisfactory, he may instruct the Contractor to remove the subcontractor from the work and Contractor has to comply with the above instructions with due promptness. Contractor shall intimate the actual date of discontinuation of subcontract to Engineer. No claim of Contractor whatsoever on this account shall be entertained by the Railway and this shall be deemed as ‘excepted matter’ (matter not arbitrable). 

  2. Clause 8 - Assistance by Railway for the Stores to be obtained by the Contractor:

  3. Clause 18 -Illegal Gratification, bribe, commission, gift or advantage provided by Contractor to the Railway Official.

  4. Clause 22(5) - Specifications and Drawings

  5. Clause 39 - Rates for extra items of work

  6. Clause 43(2) - After signing “No Claim Certificate” by Contractor

  7. Clause 45 (i)(a) - Measurement of Works by Railway:

  8. Clause 55 A (5) - Provisions of Contract Labour (Regulation and Abolition) Act, 1970

  9. Clause 57 - Provision of Workmen Compensation Act

  10. Clause 57 (A)- Provision of Mines Act:

  11. Clause 61(1) - Right of Railway to Determine the Contract

  12. Clause 61(2) - Payment on Determination of Contract

  13. Clause 62(1) -  Determination of Contract owing to Default of Contractor


Demand for Arbitration:

  • 120 to 180 days - If Railway fails to take a decision on Contractor’s claim within 120 days, Contractor shall make demand for Arbitration after 120 days but before 180 days from the date of Contractor’s claim


  •  In Writing

  • Specify the matters and claims

  • Within 30 days from the date of appointing Arbitral tribunal  - Claimant shall submit his/her claims with supportive documents.

  • Railway’s counterclaim  - 60 days from the date of appointing Arbitral tribunal.

  • Place of Arbitration:  Within Division or Hqrs or any other place with the written consent of both the parties. 


  • No new claim during the proceedings by either party. However either of the parties can amend or supplement the original claim or defense subject to the acceptance by the Tribunal. 


Cost of Arbitration  - borne by both parties equally.   

  • A party may apply for corrections of any computational errors, any typographical or clerical errors or any other error of similar nature occurring in the award of Tribunal and interpretation of specific point of award to Tribunal within 60 days of receipt of the award. 

  • Appointment of Arbitrators - Where applicability of Section 12(5) of Arbitration & Conciliation Act, 2015 (Arbitrator’s relationship with the parties or counsel ) has been waived off 

  • The serving Officer can continue as Arbitrator  in the Tribunal even after Retirement.

  • In case of Tribunal, comprising 3 members - Award shall be made by the majority of members of Tribunal.  In the absence of such a majority, the views of the presiding arbitrator shall prevail. 


Amount of Claim

No of Arbitrators



Up to Rs. one Crore


JAG and above

Above Rs. One Crore


3 JAG Officers & above


2 JAG Officers & above & 1 Retd SAG & above

  •  Appointment of Arbitrators - Where applicability of Section 12(5) of Arbitration & Conciliation Act, 2015 (Arbitrator’s relationship with the parties or counsel ) has not been waived off

Amount of Claim

No of Arbitrators



Up to Rs. 50 Lakhs


Retired SAG & above

Above Rs. 50 Lakhs


Retired 3 JAG Officers & above

Qualifications of Arbitrators: 

  1. Serving Gazetted officers of JAG & above 

  2. Retired Railway Officers of SAG & above , one year after his date of retirement

  3. Below 70 Years.


Price Variation clause

PVC – Price Variation Clause

  • Source: 46A of GCC for works

  • Purpose: 

  • To resolve the conflicts between Contractors and Railway due to variation in prices

  • To protect the interests of Contractors as well as Railways against the rising and declining prices of

  • components of the Contract respectively.

  •  Applicability:  Contract agreement value is Rs. 5 Crores or more.

  •   However the authority competent to accept the tender or SAG officer of Executive Dept,

  • whichever is higher may decide that PVC shall not be applied to the contract’s Agreement

  • value of Rs. 5 Crores or more   OR that PVC  shall apply to the contract’s Agreement value

  • of less than 5 Crores also.  Such a decision should be taken with the concurrence of associated

  • finance and the same should be incorporated in the Special conditions of Contract

  • before issuance of NIT – Notice Inviting Tender.


  •  Example: Estimated value of Tender is Rs. 5.50 Crores  (as per NIT).  But the value of the Contract

as per Contract Agreement is  Rs. 4.75 Crores, then PVC shall not apply, even if the actual final value
is Rs.5 Crores  or more due to variation in quantities during the execution of the Contract. 
Thus variation in quantities after signing of Contract Agreement is not relevant for deciding whether
PVC is applicable to a Contract or not.

  • PVC shall not be applicable to a Works Contract which is either an AMC or a Zonal Contract.


  • PVC shall not be admissible for the following items

  1. Specific payments to consultants.

  2. Materials supplied free of cost by Railways to the Contractor

  3. Fixed component.

  4. Any extra NS items included in subsequent variation

  • Base Month: Shall be taken as month 28 days prior to opening of Tender including extensions,

  • if any, unless otherwise stated elsewhere. 

Example1: 5th July, 2021 is Tender Opening Date.  In this case, June, 2021 is the Base month. 

Example2: 31st May, 2021 is Tender Opening Date.  In this case, May, 2021 is the Base month. 

  • Base Quarter: Shall commence from the month following the Base month.  

In above Example1: The Base Quarter is July to September, 2021. 

In above Example2: The Base Quarter is April to June, 2021

  • The Price Variation shall be based on the average Price Index of the Quarter under consideration.

  • The percentages of different components of various types of engineering works are as follows.

Type of work

Earth work, Ballast

supply, Tunneling

(without explosives)


(with explosives)












other material







Plant, Machinery

& Spares







Fuel & Lubricants







Detonators &








Fixed Component














  • Fixed component @15% shall not be considered for any price variation.  

  • Formulae for Labour component : 

        W x (Lq – Lb)  x Lc

        L  =     ___________     ___

                                        Lb                   100


 L = Amount of price variation in Labour

W= Gross value of Work (excludes: Specific payments to consultants, material supplied by Railways at

fixed price, Price value of Steel & Cement) 

Lq= Consumer price index number for Industrial workers – All India published by RBI for the

Average price index of the 3 months of the Quarter under consideration.

Lb= Consumer price index number for Industrial workers – All India published by RBI for the Base period.

Lc= % of Labour component

  • The above formulae is applicable for other components i.e., Other Materials, Plant & Machinery,

Fuel & Explosives.  (not applicable for Cement & Steel) 

  • Formulae for Steel : 

        Sw x (Sq – Sb)  

        S  =     ___________    


 S = Amount of price variation in Steel 

Sw= Gross value of Steel supplied by the Contractor as per the On Account Bill for the month under consideration.  

Sq= Index number of Monthly wholesale Price Index for the relevant category of mild steel  item  for the Average price index of the 3 months of the Quarter under consideration.(DIPP)

Sb= Index number of Monthly wholesale Price Index for the relevant category of mild steel  item  for the Average price index of the Base period under consideration.(DIPP)

  • Formulae for Steel is equally applied to the Cement component too. 

  • PVC – Extended period of Contract

  1. PVC applicable , if extension granted vide Clause 17-A of Standard GCC. (Due to delay on part of Railways)

  2. PVC not applicable, if extension granted vide Clause 17-B of Standard GCC. (Due to delay on part of Contractor ) But if PVC is favorable to the Railways, that is the rates under consideration are decreased, then the PVC is applicable even under the extension is granted vide clause 17-B of Standard GCC.

  • Example: Construct a PV formula from the following data of Building Contract.  Total Agreement Value is Rs.2,40,000.  ( includes: Consultant payment - Rs. 10000, Cement - Rs. 20,000, Steel - Rs.10000) 



Fixed component




Other materials


Plant, Machinery & Spares


Fuel & Lubricants




  • Base rate indices and End of Quarter figures for the Indices are as follows.


Base Quarter Period index

End of the Quarter under consideration index




Fuel (F)



Cement ( C)



Steel (S)



Workout the PV payable

W= Gross Value = Rs.2,40,000 - Rs.40,000 (Excluded items) = Rs.2,00,000


Labour component ( L):

                                   W x (Lq – Lb)  x Lc

        L  =     ___________     ___

                                        Lb                   100

      2,00,000  x ( 105 -100)  x   40

   = -------------------------------     ----  =  Plus Rs.4000

                      100                      100

Fuel Component (F):

                                   W x (Fq – Fb)  x Fc

        F  =     ___________     ___

                                        Fb                   100

     2,00,000  x ( 150 -200)  x      5

   = -------------------------------     ----  =  Minus 2500 

                     200                        100

            Cement Component (C):

                                    Cv x (Cq – Cb)  

        C  =     ___________    


                  20,000  x ( 630-600)  x        

   C  =     -------------------------------       =  Plus 1000 



            Steel Component (S):

                                        Sw x (Sq – Sb)  

        S  =          ___________    


                  10,000  x ( 535-500)  x        

   C  =     -------------------------------       =  Plus 700 


Total of variation = 4000 – 2500 + 1,000  + 700 = Rs. 3200

Revised amount to be paid to the contractor = Rs.2,40,000 + Rs. 3,200 = Rs. 2,43,200