Madras High Court
M/S.The Bank Of Baroda vs Tambaram City Municipal ... on 15 July, 2025
Author: Abdul Quddhose
Bench: Abdul Quddhose
2025:MHC:1727
Arb.O.P.(Com. Div.) No.562 of 2024
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 15.07.2025
CORAM
THE HON'BLE MR. JUSTICE ABDUL QUDDHOSE
Arb.O.P.(Com. Div.) No.562 of 2024
and
O.A. Nos.724 and 725 of 2023
M/s.The Bank of Baroda.
Rep by its Assistant General Manager,
Mr.M.B.Raju,
Zonal Stressed Assets Recovery Branch,
Mehar Chambers, Ground Floor,
Dr.Sunderalal Belmarg,
Ballard Estate,
Mumbai 400 001.
Also at
No.13,Vasmani Chambers,
264/265,Dr.AB Road,
Worli,Mumbai-30. ... Petitioner
Vs.
1. Tambaram city municipal corporation(Pallavapuram)
New Colony III Main Road,
Chromepet,
Chennai-600044
2. M/s.Pallavapuram tambaram msw pvt ltd.
B-10, Essel House,
Lawrence Road,
Industrial Area,
New Delhi -110 035
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Arb.O.P.(Com. Div.) No.562 of 2024
3. M/s.Essel infra projects limited
B-10, Essel House,
Lawrence Road,
Industrial Area,
New Delhi-110 035. ... Respondents
PRAYER: To Appointing an Arbitrator for the purpose of adjudicating
upon the dispute which has arisen between the petitioner and
respondents, pursuant to substitution agreement dated 26.09.2013
b)Award cost of the petition
For Petitioner : Ms. SAVITHA NANGARE
Mr. VINOD NAGULA
For Respondents : Mr. SURESH KUMAR, AAG
FOR D. BALARAMAN
P. SRINIVAS
PURUSHOTHAMAN R.
B.LAKSHMAN PRASAD
ORDER
This petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (in short “the Act”) seeking for appointment of an Arbitrator by this Court.
2. There seems to be a dispute between the parties arising out of the following contracts:-
a) Concession Agreement dated 18.01.2013 2/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 entered into between the petitioner and the respondents.
b) Substitution Agreement dated 26.09.2013 entered into between the petitioner and the respondents 1 and 2.
3. The second respondent is a Special Purpose Vehicle (SPV) formed by the third respondent. The respondents 2 and 3 were awarded a contract by the first respondent for solid waste management under the Concession Agreement dated 18.01.2013. The petitioner has lent substantial sums of money to the respondents 2 and 3 for the project covered under the Concession Agreement dated 18.01.2013. In furtherance of the Concession Agreement, the petitioner, the respondents 1 and 2 have entered into Substitution Agreement dated 26.09.2013. According to the petitioner, as per the Substitution Agreement dated 26.09.2013, the respondents 1 and 2 have irrevocably agreed that upon termination of the concessionaire, the petitioner shall have the right to seek substitution of the concessionaire by a selectee for the residual concession period under the Concession Agreement in accordance with the terms of the Substitution Agreement. The petitioner claims that they came to know that the first respondent had terminated the contract 3/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 awarded to the respondents 2 and 3 from the second respondent, who had informed the petitioner that they had received a termination notice dated 23.11.2018 from the first respondent and that the second respondent through their letter dated 27.11.2018 had also replied to the same.
4. The petitioner claims that thereafter they were following up with the respondents 1 and 2 to know the current status of the solid waste management project and the payments recoverable under the Substitution Agreement dated 26.09.2013 and the Concession Agreement dated 18.01.2013. According to the petitioner, there was no response received from the first respondent. The petitioner also claims that since March, 2020, on account of Covid-19 pandemic and ensuing lockdown, the petitioner could not follow up with the first respondent on the said termination of the contract of the respondents 2 and 3 by the first respondent and the payments thereof. According to the petitioner, upon easing of the lockdown, sometime after February, 2022, the petitioner vide a letter dated 21.05.2022, had once again reiterated its contentions and made a demand for Rs.80,33,21,773.88/- due as on 21.05.2022 in terms of the aforesaid Concession and Substitution Agreements. 4/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024
5. The petitioner claims that the first respondent has neglected the demand of the petitioner and did not reply to the letter of the petitioner dated 21.05.2022 claiming that a sum of Rs.80,33,21,773.88/- is due and payable to the petitioner in respect of the loan facilities availed by the respondents 2 and 3. The petitioner claims that not only the first respondent has unilaterally terminated the Concession Agreement executed by them in favour of the respondents 2 and 3, but, has also failed to comply with the terms of the said Concession and Substitution Agreements dated 18.01.2013 and 26.09.2013, thereby depriving the petitioner to exercise its right of substitution. According to the petitioner, the first respondent though has terminated the Concession Agreement on 20.02.2019, till date, they have failed to make the termination payment to the petitioner as per the terms and conditions of the Substitution Agreement dated 26.09.2013. According to the petitioner, as on 21.05.2022, a sum of Rs.80,33,21,773.88/- along with further interest is due and payable by the respondents in terms of the aforesaid Concession and Substitution Agreements towards termination payment.
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6. There exists an arbitration clause in the Substitution Agreement dated 26.09.2013, to which the petitioner is a party, along with the respondents 2 and 3. The said arbitration clause is re-produced hereunder:-
“(e) Any dispute, difference or claim arising out of or in connection with or in relation to this Agreement which is not resolved amicably shall be decided finally by arbitration by a Board of Arbitrators comprising of a nominee of each party to the dispute. Such arbitration shall be held in accordance to and shall be subject to the provisions of the Arbitration and Conciliation Act, 1996. The arbitrators shall issue a reasoned award. The venue of such arbitration shall be Mumbai, India. The Award shall be final and binding on the Parties. The Parties agree and undertake to carry out the award of the arbitrators (the "Award") without delay.
(f) This Agreement and rights, and obligations of the Parties shall remain in full force and effect pending the Award in any arbitration proceeding hereunder.
The Courts in PMC alone shall have jurisdiction over all matters arising out of or relating to the arbitration agreement contained 6/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 herein or proceedings arising out of or relating to the arbitration proceedings thereunder.”
7. The petitioner has invoked arbitration in accordance with the arbitration clause contained in the Substitution Agreement by issuing notice to the respondents dated 16.02.2023 nominating their Arbitrator. The respondents have not replied to the arbitration invocation notice sent by the petitioner.
8. The petitioner also claims that the first respondent has now initiated process for substituting the second respondent for the said project, but, however, the petitioner apprehends that the first respondent will conclude the process of substitution and appoint a new concessionaire for the said project without complying with the terms of the said Concession and Substitution Agreements and invoke the Performance Bank Guarantee of Rs.2 crores. The petitioner has therefore filed this petition under Section 11 of the Act seeking for appointment of an Arbitrator by this Court as per the arbitration clause contained in the Substitution Agreement dated 26.09.2013.
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9. The respondents 2 and 3 have already been set exparte by this Court as they chose not to enter appearance despite having received the notice in this petition. The first respondent alone has filed a counter affidavit in this petition raising the following objections:-
(a) They are noway liable for the breach of the loan contracts committed by the respondents 2 and 3 and they cannot be made liable to pay any amount in respect of the alleged amounts due and payable by the respondents 2 and 3 to the petitioner under the aforesaid loan contracts.
(b) They are not party to any of the loan contracts entered into by the respondents 2 and 3 with the petitioner. They have also never stood as guarantor to the loan transaction between the respondents 2 and 3, and the petitioner.
(c) Clause 3.2(b) of the Substitution Agreement dated 26.09.2013 makes it clear that the first respondent has not provided any surety, guarantee or counter guarantee whether directly or indirectly for the recovery of amounts advanced by the petitioner to the respondents 2 and 3.
(d) The claim of the petitioner is barred by the law 8/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 of limitation.
(e) According to the first respondent, the section 21 notice dated 16.02.2023 said to have been signed by the petitioner was never received by the first respondent. It is their case that even as seen from the section 21 notice alleged to have been sent by the petitioner, the said notice was addressed to Pallavaram Municipality, when, on that date, Pallavaram Municipality was not in existence, as it had already got merged with Tambaram Corporation/first respondent herein.
10. Heard Ms.Savitha Nangare and Mr.Vinod Nagula, learned counsels for the petitioner, and Mr.Suresh Kumar, learned Additional Advocate General, assisted by Mr.D.Balaraman and Mr.P. Srinivas, learned counsels, for the first respondent.
11. The learned counsel for the petitioner drew the attention of this Court to the Substitution Agreement, which contains an arbitration clause, and would submit that since the first respondent is a party to the arbitration agreement, this Court has to appoint an Arbitrator as prayed for in this petition. She would also submit that, under the Substitution 9/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 Agreement, the petitioner is empowered to appoint a new investor as a substitute for the respondents 2 and 3, in case the Concession Agreement dated 18.01.2013 gets terminated by the first respondent. She would also submit that as per the substitution agreement, the petitioner is entitled to recover the termination payments from the first respondent. She would also submit that the claim of the petitioner is within the period of limitation as she would submit that the cause of action for the arbitral claim arose only on the date when the respondents 2 and 3 were declared as NPA in the petitioner's books of accounts. According to her, the respondents 2 and 3 were declared as NPA as on 31.03.2019. She would also submit that the period from 15.03.2020 to 28.02.2022 stood excluded for the purpose of saving limitation on account of COVID-19 as per the directions of the Honorable Supreme Court. Therefore, she would submit that since the petitioner has invoked arbitration through the arbitration invocation notice dated 16.02.2023, to comply with the requirements of Section 21 of the Act, the arbitral claim made by the petitioner is within the period of limitation.
12. On the other hand, the learned Additional Advocate General appearing for the first respondent would reiterate the contents of the counter filed before this Court by the first respondent. At the outset, he 10/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 would submit that the first respondent is no way liable for the arbitral claim made by the petitioner through their arbitration invocation notice dated 16.02.2023. He would refer to clause 3.2(b) of the Substitution Agreement, to which the first respondent is a party, and would submit that, as seen from the said clause, it has been made clear that the first respondent is not liable monetarily for any claim made against them by the petitioner.
13. By relying upon clause 2.1 of the Substitution Agreement, the learned Additional Advocate General would also submit that only in respect of the residual concession period under the Concession Agreement, the Substitution Agreement will get attracted to the first respondent. According to him, since the contract has already been terminated, the arbitral claim cannot be made against the first respondent as per the terms and conditions of the Substitution Agreement. The learned Additional Advocate General appearing for the first respondent would also submit that the claim of the petitioner is barred by the law of limitation.
DISCUSSION:
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14. The law is now well settled that the scope of enquiry under Section 11 of the Act is limited to a prima-facie scrutiny of the existence of the arbitration agreement and does not include a contested or laborious enquiry. It is left for the Arbitral Tribunal to rule under Section 16 of the Act. The prima-facie view on existence of the arbitration agreement taken by the referral court does not bind either the Arbitral Tribunal or the court enforcing the arbitral award.
15. In SBI General Insurance Co. Ltd. Vs. Krish Spinning [2024 (6) ALD 69]; and Interplay between arbitration agreements under the Arbitration and Conciliation Act, 1996, and the Indian Stamp Act, 1899 [AIR 2024 SC 1], the Hon'ble Supreme Court has made it clear that the scope of judicial interference under Section 11(6-A) of the Act is only confined to the limited scrutiny of “prima-facie existence of the arbitration agreement, nothing more and nothing less” and the competence of the Arbitral Tribunal under Section 16 of the Act confers complete arbitral autonomy to rule, determine and act on the issues pertaining to impleadment or deletion of a party, signatory or non- signatory, arbitrability or non-arbitrability, necessary or not necessary party, joinder or non-joinder to the arbitration in depth even if the ruling is contrary to that of the referral court under Section 11 of the Act. 12/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024
16. Therefore, while deciding a petition under Section 11 of the Act, as seen from the decisions referred to supra, the referral court will have to look only the prima-facie existence of the arbitration clause and once the court is satisfied that there exists an arbitration clause, necessarily, the court will have to refer the dispute to arbitration. In the case on hand, admittedly, the Substitution Agreement dated 26.09.2013 entered into between the parties contains an arbitration clause. It is also not in dispute that the respondents 2 and 3 had availed loan facilities from the petitioner for the solid waste management project awarded by the first respondent in favour of the respondents 2 and 3. It is also not in dispute that the first respondent has terminated the Concession Agreement dated 18.01.2013, which was executed in favour of the respondents 2 and 3. It is also not in dispute that the first respondent had entered into Substitution Agreement with the petitioner on 26.09.2013 along with the second respondent. As per the said Substitution Agreement, the petitioner is empowered to substitute another party if the contract awarded to the respondents 2 and 3 is terminated by the first respondent. The petitioner is also entitled to receive the terminal amounts from the first respondent, in case the first respondent terminates the contract awarded to the respondents 2 and 3. The petitioner claims 13/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 that the first respondent has committed breach of the Substitution Agreement dated 26.09.2013 by not fulfilling their obligations under the Substitution Agreement dated 26.09.2013.
17. Admittedly, the Substitution Agreement dated 26.09.2013 contains an arbitration clause. The petitioner has also invoked arbitration in accordance with the arbitration clause by issuing notice to the respondents on 16.02.2023 to comply with the requirements of Section 21 of the Act. The petitioner has also pleaded in the petition that they came to know about the termination of the contract awarded to the respondents 2 and 3 by the first respondent only from the second respondent, who had informed them that the second respondent had received a termination notice dated 23.11.2018 from the first respondent, which was replied by the second respondent on 27.11.2018. The petitioner also claims that they were following up with the respondents 1 and 2 to know the current status of the solid waste management project and the payments to be made by the first respondent under the aforesaid Concession and Substitution Agreements. The petitioner also claims that there was no response received from the first respondent. According to the petitioner, since March, 2020, on account of Covid-19 pandemic and ensuing lockdown, they could not follow up with the first respondent on 14/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 the said termination and the payments thereof. Upon easing of the lockdown some time after February, 2022, the petitioner claims that vide a letter dated 21.05.2022, they had once again reiterated their contentions and made a demand for Rs.80,33,21,773.88/-, which, according to them, was due and payable as on 21.05.2022 in terms of the aforesaid Concession and Substitution Agreements.
18. The petitioner has also contended before this Court through the submissions made by the learned counsel for the petitioner that the respondents 2 and 3 were declared as Non-Performing Asset (NPA) only on 31.03.2019. She further submitted that the period from 15.03.2020 to 28.02.2022 stood excluded for the purpose of saving limitation on account of Covid-19 as per the directions of the Hon'ble Supreme Court. The said period which stood excluded for the purpose of saving limitation has also not been disputed by the learned Additional Advocate General appearing for the first respondent. The petitioner has invoked arbitration clause by issuing notice to the respondents on 16.02.2023 to comply with the requirements of Section 21 of the Act. If the period between 15.03.2020 and 28.02.2022 stands excluded for the purpose of saving limitation, on a prima-facie consideration, this Court finds that this petition is filed within the period of limitation, since, according to 15/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 the petitioner, the cause of action for making the arbitral claim starts only from 31.03.2019, when the respondents 2 and 3 were declared as NPA. Unless and until it is conclusively found by the referral court that the arbitral claim is a dead claim and is hopelessly barred by the law of limitation, the referral court cannot reject a petition filed under Section 11 of the Act. Limitation being a mixed question of fact and law and by applying Kompetenz-kompetenz principle, it is only the Arbitral Tribunal, who is having the power based on the materials placed on record to decide as to whether the claim is barred by the law of limitation or not. Therefore, the issue of limitation raised by the first respondent is left open for the Arbitrator to decide either as a preliminary issue through an application filed under Section 16 of the Act or in the arbitral award to be passed by the Arbitrator.
19. The objections raised by the first respondent cannot be adjudicated by this Court in this petition filed under Section 11 of the Act, as this Court is only having a limited scrutiny. When this Court prima-facie finds that there exists an arbitration clause and when this Court with the available materials on record on a prima-facie consideration cannot also hold that the claim is barred by limitation, necessarily, this Court will have to appoint an Arbitrator as prayed for in 16/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 this petition, leaving it open for the respondents to raise all objections before the Arbitrator, which includes the objections about the arbitrability of the dispute as well as the claim being barred by the law of limitation.
20. Since the respondents have not nominated their Arbitrator eventhough the petitioner had nominated their Arbitrator through their arbitration invocation notice, this Court, in the interest of justice and to avoid bias, deems it fit to appoint a Sole Arbitrator, eventhough the arbitration clause in the Substitution Agreement dated 26.09.2013 provides for Board of Arbitrators comprising of a nominee of each party to the dispute.
21. For the foregoing reasons, this petition is allowed by issuing the following directions:-
(a) This Court hereby appoints Hon'ble Mrs.Justice R.Banumathi, former Judge, Supreme Court of India, residing at A-417, Arjun Marg, Defence Colony, New Delhi-24, Mobile No.7042955477, as the Sole Arbitrator to adjudicate the dispute between the petitioner and the 17/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 respondents arising out of the aforesaid contracts.
(b) The Sole Arbitrator appointed by this Court shall be paid remuneration/fees as per Schedule IV of the Arbitration and Conciliation Act, 1996.
(c) The Arbitrator shall adhere to the provisions of Arbitration and Conciliation Act, 1996.
(d) The Arbitrator shall also pass the arbitral award within the stipulated period as prescribed under the Arbitration and Conciliation Act, 1996.
(e) Consequently, connected O.A.Nos.724 and 725 of 2023 are closed.
15.07.2025 Index : Yes/No Speaking Order : Yes / No Neutral Citation Case: Yes / No ab/rkm 18/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm ) Arb.O.P.(Com. Div.) No.562 of 2024 ABDUL QUDDHOSE. J., ab/rkm Arb.O.P.(Com. Div.) No.562 of 2024 15.07.2025 19/19 https://www.mhc.tn.gov.in/judis ( Uploaded on: 22/07/2025 08:39:10 pm )