Karnataka High Court
M/S Devi Constructions vs M/S Fowler Westrup (India) Private ... on 20 June, 2019
Author: B.Veerappa
Bench: B. Veerappa
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 20TH DAY OF JUNE, 2019
BEFORE
THE HON'BLE MR. JUSTICE B. VEERAPPA
CIVIL MISCELLANEOUS PETITION NO.207/2017
BETWEEN:
M/S. DEVI CONSTRUCTIONS
NO.810, 1ST CROSS,
7TH MAIN, H.A.L, 2ND STAGE,
INDIRANAGAR,
BENGALURU-560038.
REPRESENTED BY ITS PARTNER
SHRI. S. PALANISAMY
... PETITIONER
(BY SRI. MAHESH.S, ADVOCATE FOR
SRI. CHINTAN CHINNAPPA, ADVOCATE)
AND:
M/S. FOWLER WESTRUP (INDIA) PRIVATE LIMITED
RAJ MAHAL BUILDING
4TH FLOOR, NO.84, VEER NARIMAN ROAD,
MUMBAI - 400024.
AND ALSO AT
PLOT NO.60-63
KIADB INDUSTRIAL AREA, IV PHASE
MALUR - 563130.
REPRESENTED BY ITS MANAGING DIRECTOR
SHRI. KILAR B VIJAYAKUMAR
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... RESPONDENT
(BY SRI. M.S.RAJENDRA, ADVOCATE FOR
SMT. MAYA HOLLA, ADVOCATE)
THIS CIVIL MISCELLANEOUS PETITION IS FILED
UNDER SECTION 11(6) OF THE ARBITRATION AND
CONCILIATION ACT, 1996, PRAYING TO APPOINT HON'BLE
(RETD.) JUSTICE G.PATRI BASAVANA GOUD RESIDING AT
NO.58, 'GANGA', ISRO ROAD, JUDICIAL OFFICERS
LAYOUT, R.M.V. II STAGE, SANJAYNAGAR, BENGALURU-
560094 AS THE SOLE ARBITRATOR IN RESPECT OF THE
DISPUTES BETWEEN THE PETITIONER AND THE
RESPONDENT ARISING UNDER THE AGREEMENT DATED:
22/10/2011 (ANNEXURE D) AND REFER THE DISPUTES
TO THE SAID ARBITRATOR AND ALSO PASS SUCH OTHER
DIRECTIONS OR ORDERS AS THIS HON'BLE COURT MAY
DEEM IF FIT AND NECESSARY IN THE CIRCUMSTANCES
OF THE CASE AND IN THE INTEREST OF JUSTICE.
THIS PETITION COMING ON FOR ADMISSION, THIS
DAY, THE COURT MADE THE FOLLOWING:
ORDER
The petitioner has filed a present Civil Miscellaneous Petition under the provisions of Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short the 'Act') for appointment of Sole Arbitrator to adjudicate the dispute between the parties in terms of 3 clause 1.5.4.36 of the agreement entered into between the parties on 22/10/2011.
2. It is the case of the petitioner that the petitioner is a Partnership Firm engaged in the business of construction and property development. The respondent was desirous of having its factory constructed in Malur, Karnataka and consequently had floated a tender on 17/08/2011 inviting bids for the construction project. The petitioner's Associate Company by name M/s. URC Constructions Private Limited., had participated in the tender and submission of tender was made on 26/08/2011 and final offer was finalized on 26/09/2011 and M/s. URC Constructions Private Limited was declared as a successful bidder. Thereafter, the successful bidder has requested the respondent that the contract be executed by the petitioner in their final offer letter dated 26/09/2011. 4 Accordingly, both the parties have entered into an agreement (construction contract agreement) dated 22/10/2011. The details of the work to be executed and the manner it had to be carried out were detailed in the said agreement. Clause 16(b) of the said agreement makes it clear that all other conditions governing the relationship between the petitioner and the respondent would be as per the tender document. In addition to the work order dated 22/10/2011, the petitioner and the respondent entered into an agreement, which clearly stated that all previous contract documents floated by the petitioner in conjunction with addendum to the tender document would be deemed to form and be read and construed to be a part of the agreement dated 22/10/2011.
3. It is further case of the petitioner is that the work order dated 22/10/2011 stipulates that the 5 commencement of work was 15 days from the date of issue of work order and date of completion was 13/07/2012 i.e., 250 days from the date of issue of work order including mobilization period. The contract amount as per the work order was Rs.30,65,51,682/-. It is also the terms of the contract under 2.9 of the conditions of the contract clause-9 that the contractor shall also conform exactly, fully and faithfully to the designs, drawings and instructions in writing relating to the work signed by the project consultant or other competent Authority.
4. It is further case of the petitioner that in view of the disputes with regard to delay of the project, there was Memorandum of Understanding (MoU) between the petitioner and respondent and in terms of MoU dated 01/08/2014, parties entered into as a pre condition for releasing the legitimate dues of the petitioner. In any 6 event, the petitioner is entitled to receive various payments for the works executed for the respondent and merely because the MoU was entered into, the acceptable claims of the petitioner cannot be rejected citing the said MoU. Ultimately the petitioner issued legal notice dated 26/07/2016 to the respondent under the provisions of Section 7(5) of the Act. The same was replied by the respondent. Therefore, the present petition is filed as relief sought for.
5. The respondent filed statement of objections denying the averments made in the petition and contended that the very petition is not maintainable. It is further contended that the petitioner who was appointed as the contractor for construction of the factory building of the respondent herein, after completion of the contractual obligation and the expiry of the defect liability period, entered into MoU dated 7 01/08/2014 with the respondent, wherein the petitioner who had certain claims against the respondent received the entire balance amount receivable by aggregating to Rs.10 lakhs towards full and final settlement of their claims against the respondent herein. Subsequently, MoU, dated 01/08/2014 supersedes the earlier agreement dated 22/10/2011 and therefore, the petitioner is not entitled to invoke the earlier agreement dated 22/10/2011. The MoU has no arbitration clause, on that ground the petition is liable to be rejected. It is further contended that the petitioner has issued the protest letter only after one year two months, once the parties entered into MoU and after receiving entire amount, the very petition filed as relief sought for appointment of Sole Arbitrator would not arise.
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6. I have heard the learned counsel for the parties to the lis.
7. Sri. A.S.Mahesh, learned counsel for the petitioner reiterating the grounds urged in the civil miscellaneous petition contended that it is a undisputed fact that there was an agreement as construction contract agreement dated 22/10/2011 between the parties and there exists clause 1.5.4.36 with regard to dispute if any between the parties to resolve the same. He would further contended that since there was a delay in completion of work about 250 days from date of issue of work order including mobilization period, the parties entered into MoU only for settlement of LD (Liquidity Damage) claim and not in respect of the claim made in the agreement dated 22/10/2011, in fact, the petitioner has issued the protest letter on 07/10/2015.
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8. He further contended that MoU never supersedes the earlier agreement dated 22/10/2011 and still in view of the arbitration clause an agreement exists and the present petition is maintainable. Therefore, he sought to allow the petition.
9. In support of his contentions, the learned counsel for the petitioner relied upon the judgment of Hon'ble Supreme Court in the case of CHAIRMAN AND MD, NTPC LTD. vs. RESHMI CONSTRUCTIONS, BUILDERS & CONTRACTORS reported in (2004) 2 SCC 663. Paragraph 18 of the said judgment reads as under:
"18. Normally, an accord and satisfaction by itself would not affect the arbitration clause but if the dispute is that the contract itself does not subsist, the question of invoking the arbitration clause may not arise. But in the event it be held that the contract survives, recourse to the arbitration clause may be taken. (See Union of India v. Kishorilal Gupta7 and Naihati Jute Mills Ltd.
v. Khyaliram Jagannath8.) 10
10. Per contra, learned counsel for the respondent while justifying the statement of objections filed, contended that once MoU dated 01/08/2014 entered into between the parties the earlier agreement dated 22/10/2011 entered by the parties supersedes. Therefore, learned counsel contends that the petitioner cannot maintain the present civil miscellaneous petition. In fact, he draws the attention of this Court about clause-9 of the MoU dated 01/08/2014, where it is stated that "This agreement represents full and final settlement between Devi Constructions and FWL of matters pertaining to the Malur Factory constructions under the POs and amendments referred above".
11. He would further submits that the petitioner cannot enforce the arbitration clause 1.5.4.36 of the agreement dated 22/10/2011, as agreement is not existing as on today. It is his further contention that 11 the petitioner has entered into MoU on 01/08/2014 but he has issued the protest letter only on 07/10/2015 after lapse of one year two months, it is only an afterthought. Therefore, the present petition is not maintainable.
12. In support of his contentions, learned counsel for the respondent relied upon the judgment of Hon'ble Supreme Court in the case of NATHANI STEELS LTD. vs. ASSOCIATED CONSTRUCTIONS reported in 1995 Supp (3) SCC 324, paragraphs 3 and 4 to the effect that once there is full and final settlement in respect of any particular dispute or difference in relation to a matter covered under the Arbitration clause in the contract and that dispute or difference is finally settled by and between the parties, such a dispute or difference does not remain to be an arbitrable dispute and the Arbitration clause cannot be invoked even though for 12 certain other matters, the contract may be in subsistence.
13. He also further relied upon another judgment of Hon'ble Supreme Court in the case of NEW INDIA ASSURANCE COMPANY LIMITED vs. GENUS POWER INFRASTRUCTURE LIMITED reported in (2015) 2 SCC 424, paragraphs 9 and 10 to the effect that there was no protest or demur raised around the time or soon after the letter of subrogation was signed, that the notice dated 31-3-2011 itself was nearly after three weeks and that the financial condition of the respondent was not so precarious that it was left with no alternative but to accept the terms as suggested, we are of the firm view that the discharge in the present case and signing of letter of subrogation were not because of exercise of any undue influence. Upon the execution of the letter of subrogation, there was full and final settlement of the 13 claim. Therefore, there was no arbitrable dispute existed so as to exercise power under Section 11 of the Act. Hence, he sought for dismissal of the present petition.
14. Having heard the learned counsel for the parties, it is an undisputed fact that the petitioner and the respondent have entered into an agreement (construction contract agreement) dated 22/10/2011 in respect of certain work to be executed and the manner it had to be carried out were detailed in the said agreement. Clause 16(b) of the said agreement makes it clear that all other conditions governing the relationship between the petitioner and the respondent would be as per the tender document. Since there was a delay in completion of project, the parties entered into MoU on 01/08/2014, duly signed by both the parties. The MoU clearly depicts that "Subject: Settlement of LD claim and 14 Reference: (i) Tender Document and Devi Constructions' final offer dated 26/09/2011;
(ii) Fowler Westrup (India) Private Limited, (henceforth abbreviated to FWL) P.O.No.4600001107 dated 22/10/2011 on Devi Constructions (henceforth abbreviated to DC) and its subsequent amendment made on 30/03/2013;
(iii) Various letter/mail correspondence between Devi Constructions and FWL between 13/10/2014 pertaining to Liquidity Damage and settlement of balance payment. The background also clearly stated in MoU that whereas FWL has raised the LD claim on Devi Constructions vide letter dated 11/02/2014 for the delay in completion of the project as per the provisions of the above referred tender document and purchase order. Whereas Devi Constructions has replied vide 15 letter dated 21/02/2014 stating that the delay in completing the project is due to late receipt of drawings from the Architect and a few additions from the client company and requested FWL for waiver of LD. Thereafter, parties agreed for payment of Rs.30 lakhs of liquidity damage payable by petitioner to the respondent."
15. Though Sri. Rajendra.M.S., learned counsel for the respondent stresses the clause-9, wherein the agreement represents full and final settlement between Devi Constructions and FWL of matters pertaining to the Malur Factory constructions under the POs and amendments referred above. The entire document does not depicts the wiping of the agreement dated 22/10/2011 or supersedes the arbitrary clause entered between the parties. Though in the legal notice issued by the petitioner to the respondent it is stated that the 16 MoU was with regard to LD claim but he has not stated that he made a protest, but the fact remains, the petitioner want to invoke the provisions of Section 7(5) of the Act for appointment of Sole Arbitrator to resolve the dispute between the parties in terms of clause 1.5.4.36 of the agreement dated 22/10/2011 is also not in dispute for which reply was issued by respondent. In fact, the correspondence made by the respondent at Annexure-R2 dated 11/02/2014, it is clearly stated that claim under LD clause of work order and nowhere in the correspondence the respondent has stated that in view of the subsequent MoU entered into between the parties supersedes the earlier agreement dated 22/10/2011 including existence of arbitration clause.
16. Though Sri. Rajendra.M.S., learned counsel for the respondent stresses his argument with regard to full and final settlement between the parties in clause-9 of 17 MoU dated 01/08/2014 and with reference to the judgment of the Hon'ble Supreme Court as stated supra in the case of NATHANI STEELS LTD. vs. ASSOCIATED CONSTRUCTIONS reported in 1995 (3) SCC 324, it was a case that once dispute is amicably settled between the parties finally, arbitration clause cannot be invoked by a party to resolve the same on ground of mistake in the settlement. No doubt, it is well settled law that once there is a full and final settlement in respect of any particular dispute or difference in relation to a matter covered under the arbitration clause in the contract and that dispute or difference is finally settled by and between the parties, such a dispute or difference does not remain to be an arbitrable dispute. Admittedly, in the present case there is no full and final settlement between the parties in respect of dispute under the construction contract agreement dated 22/10/2011 and arbitration clause referred therein. 18 The MoU was only with respect to settlement of LD claim for the delay of the construction period. Therefore, there is no full and final settlement between the parties with regard to construction contract agreement dated 22/10/2011. Hence, the said judgment has no application to the facts of the present petition.
17. Insofar as other judgment of Hon'ble Supreme Court in the case of NEW INDIA ASSURANCE COMPANY LIMITED vs. GENUS POWER INFRASTRUCTURE LIMITED reported in (2015) 2 SCC 424 stated supra, it was a case that there was no protest or demur raised around the time or soon after the letter of subrogation was signed, upon execution of the letter of subrogation, there was full and final settlement of the claim. Whether there was really accord and satisfaction? No arbitrable dispute existed 19 so as to exercise power under Section 11 of the Act. Admittedly, in the present case in the MoU dated 01/08/2014 entered into between the parties, nowhere the present petitioner has admitted the full and final settlement as per agreement dated 22/10/2011. The MoU pertains only settlement of LD claim and does not pertain to full and final settlement of construction contract agreement dated 22/10/2011. Therefore, the said judgment has also no application to the facts of the present petition.
18. The Hon'ble Apex Court while considering the provisions of Sections 13, 20 and 33 of the Arbitration Act, 1940 and provisions of Sections 16, 19-A, 15, 19, 50, 37 and 62 of the Contract Act, 1872 in the case of the CHAIRMAN AND MD, NTPC LTD. vs. RESHMI CONSTRUCTIONS, BUILDERS & CONTRACTORS 20 reported in (2004) 2 SCC 663 at paragraphs 13, 27 and 39 held as under:
"13. On the arguments of learned counsel for the parties, the questions that arise for our consideration are:
(i) Whether after the contract comes to an end by completion of the contract work and acceptance of the final bill in full and final satisfaction and after issuing a No-Demand Certificate by the contractor, can any party to the contract raise any dispute for reference to arbitration?
(ii) Whether in view of letter dated 20-12-1990 sent by the respondent contractor the arbitration clause contained in the agreement can be invoked?
(iii) Whether the arbitration clause in the agreement has perished with the contract?
27. Even when rights and obligations of the parties are worked out, the contract does not come to an end inter alia for the purpose of determination of the disputes arising thereunder, and, thus, the arbitration agreement can be invoked. Although it may not be strictly in place 21 but we cannot shut our eyes to the ground reality that in a case where a contractor has made huge investment, he cannot afford not to take from the employer the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a "No-Demand Certificate" is signed. Each case, therefore, is required to be considered on its own facts.
39. The fact situation in the present case, would lead to the conclusion that the arbitration agreement subsists because:
(i) Disputes as regards final bill arose prior to its acceptance thereof in view of the fact that the same was prepared by the respondent but was not agreed upon in its entirety by the appellant herein.
(ii) The appellant has not pleaded that upon submission of the final bill by the respondent herein any negotiation or settlement took place as a result whereof the final bill, as prepared by the appellant, was accepted by the 22 respondent unequivocally and without any reservation therefor.
(iii) The respondent herein, immediately after receiving the payment of the final bill, lodged its protest and reiterated its claims.
(vi) Interpretation and/or application of clause 52 of the agreement would constitute a dispute which would fall for consideration of the arbitrator.
(v) The effect of the correspondences between the parties would have to be determined by the arbitrator, particularly as regards the claim of the respondent that the final bill was accepted by it without prejudice.
(vi) The appellant never made out a case that any novation of the contract agreement took place or that the contract agreement was substituted by a new agreement. Only in the event, a case of creation of new agreement is made out the question of challenging the same by the respondent would have arisen.
(vii) The conduct of the appellant would show that on receipt of the notice of the respondent through its advocate dated 21-12-1991 the same was not rejected outright 23 but existence of disputes was accepted and the matter was sought to be referred to arbitration.
(viii) Only when the clarificatory letter was issued the plea of settlement of final bill was raised.
(ix) The finding of the High Court that a prima facie case, in the sense that there are triable issues before the arbitrator so as to invoke the provisions of Section 20 of the Arbitration Act, 1940 cannot be said to be perverse or unreasonable so as to warrant interference in exercise of extraordinary jurisdiction under Article 136 of the Constitution of India.
(x) The jurisdiction of the arbitrator under the 1940 Act although emanates from the reference, it is trite, that in a given situation the arbitrator can determine all questions of law and fact including the construction of the contract agreement. [See Pure Helium India (P) Ltd. v. Oil and Natural Gas Commission17.]
(xi) The cases cited by the learned counsel for the appellant (P.K.Ramaiah and Co.1 and Nathani Steels2) would show that the decisions therein were rendered having regard to the finding of fact that the contract agreement 24 containing the arbitration clause was substituted by another agreement. Such a question has to be considered and determined in each individual case having regard to the fact situation obtaining therein."
19. In view of the aforestated reasons, it is clear that the petitioner has not received full and final settlement in terms of construction contract agreement dated 22/10/2011. The MoU dated 01/08/2014 is only with regard to settlement of LD claim. Therefore, the arbitration clause in terms of 1.5.4.36 of the agreement dated 22/10/2011 still exists and it has to be adjudicated between the parties by an Arbitrator. The petitioner has made out the existence of the agreement dated 22/10/2011, arbitration clause and has complied the provisions of Section 7(5) of the Act. There is no impediment to appoint an Arbitrator to adjudicate the dispute between the parties in terms of arbitration clause 1.5.4.36 - page 65 reads as under: 25
"1.5.4.36 RESOLUTION OF DISPUTES/ARBITRATION The Owner and the Contractor shall make every effort to resolve amicably by direct informal negotiations any disagreement or dispute arising between them under or in connection with the contract.
The Venue of arbitration proceedings shall be in Bangalore/Bangalore.
It is also a term of this Contract that if the Contractor does not make any demand for appointment of arbitrator in respect of claims in writing within 90days of receiving the intimation that his final bill is ready for payment, the claim of the Contractor will be deemed to have been waived and absolutely barred and the Owner shall be discharged and released of all liabilities under the Contract, in respect of the claims."
20. For the reasons stated above, the civil miscellaneous petition is allowed. Hon'ble Justice Sri. Gururajan, Former Judge of this Court is appointed as an Arbitrator to adjudicate the dispute between the 26 parties in terms of clause 1.5.4.36 of the agreement dated 22/10/2011 entered by the parties.
21. All the contentions urged by the parties are kept open to be urged before the learned arbitrator.
Registry is directed to send a copy of this order to Hon'ble Justice Sri. Gururajan, Former Judge, High Court of Karnataka and Arbitration Centre forthwith for reference.
Sd/-
JUDGE SMJ