Delhi High Court
Mahindra Susten Private Limited vs Nhpc Limited on 17 February, 2021
Equivalent citations: AIRONLINE 2021 DEL 217
Author: C. Hari Shankar
Bench: C. Hari Shankar
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 3rd February, 2021
Pronounced on: 17th February, 2021
+ ARB.P. 217/2020 and I.A.6503/2020
MAHINDRA SUSTEN PRIVATE LIMITED ..... Petitioner
Through: Mr. K.V. Viswanathan, Mr.
Sanjeev Kapoor, Mr. Prateek Kumar, Ms.
Sneha Janakiraman, Mr. Apoorv Singhal,
Ms. Smriti Nair, Advs.
versus
NHPC LIMITED ..... Respondent
Through: Mr. Tejas Karia, Mr.Gauhar
Mirza, Mr. Prakhar Deep and Mr.Nishant
Doshi, Advs.
+ O.M.P.(I) (COMM.) 162/2020 and I.A.6502/2020
MAHINDRA SUSTEN PRIVATE LIMITED ..... Petitioner
Through: Mr. K.V. Viswanathan, Mr.
Sanjeev Kapoor, Mr. Prateek Kumar, Ms.
Sneha Janakiraman, Mr. Apoorv Singhal,
Ms. Smriti Nair, Advs.
versus
NHPC LIMITED ..... Respondent
Through: Mr. Tejas Karia, Mr. Gauhar
Mirza, Mr. Prakhar Deep and Mr. Nishant
Doshi, Advs.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 1 of 76
Signing Date:19.02.2021
09:08:48
% JUDGMENT
1. This judgment disposes of Arb. P. 217/2020 and OMP (I)
(Comm) 162/2020.
2. Arb. P. 217/2020 seeks reference of the disputes, between the
petitioner and respondent, to arbitration, under Section 11(6) of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the
1996 Act"). OMP (I) (Comm) 162/2020 seeks certain pre-arbitral
interim reliefs. Mr. Viswanathan, learned Senior Counsel for the
petitioner submitted, at the outset, that, if Arb. P. 217/2020 were to be
allowed, and the disputes between the petitioner and the respondent
referred to arbitration as prayed therein, he would have no objection to
OMP (I) (Comm) 162/2020 being also referred for adjudication to the
arbitrator, treating it as an application under Section 17 of the 1996
Act. As such, the necessity of adjudicating, on merits, OMP (I)
(Comm) 162/2020 would arise only if Arb. P. 217/2020 were not to be
allowed.
3. Mr. Tejas Karia, learned counsel for the respondent, vehemently
opposed Arb. P. 217/2020. The ground for opposition would become
clearer from the recital that follows. Suffice it to state, at this stage,
that I am of the opinion that the opposition of Mr. Tejas Karia is
without substance and that, therefore, the dispute between the
petitioner and the respondent ought to be referred to arbitration. As
such, in view of the submission made by Mr. Viswanathan, noted
supra, OMP (I) (Comm) 162/2020 would also be decided by the
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SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 2 of 76
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Arbitral Tribunal under Section 17 of the 1996 Act. The necessity of
this Court adjudicating on the said petition, thereby, stands obviated.
Facts
4. A notice, dated 5th July, 2018, was issued by the respondent-
NHPC, inviting tenders for "Engineering Procurement Construction
(EPC) Contract for 10 MW capacity Floating Solar Power Project at
West Kallada in the State of Kerala with its Comprehensive Operation
and Maintenance for 10 years". For the sake of convenience, the
notice would be referred to, hereinafter, as "the NIT".
5. The following Clauses of the NIT are relevant:
"3.2.A.1.2
The bidder should have experience of having successfully
completed a project of any nature involving floating
structures/platform/ deck/ underwater cable works, in last five
(5) years on Engineering, Procurement and Construction
(EPC) basis.
Note:-
Floatation Device Technology Provider: The bidder should
propose name of the float technology provider with whom
they expect to tie-up for supply of the floats. Bidder may
propose any number of vendors (including bidders own
design) along with their credentials as part of their technical
bid. However, prior to signing of the contract agreement, the
successful bidder shall communicate their finalised float
vendor."
*****
"3.2.A.4 Bidders with Sub-contractors:
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SINGH NEGI
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In case the Sole Bidder does not have all the required
experience and also does not wish to enter into a joint-venture
or wants to restrict the joint-venture partnership, he can
associate Sub-contractor for specified activities (in case of
Floatation Device Technology Provider or experience of
installation of floating structures) in which he does not have
the relevant experience. The criteria to be met by such Bidder
shall be as follows:
(i) The Bidder himself to fully meet the following:
• Technical criteria specified in para
3.2.A.1.1 and 3.2.A.1.3
• All criteria mentioned under financial
capacity.
(ii) The number of sub-contractors not to exceed
one for meeting the technical experience Criteria as
specified in para 3.2.A.1.2
(iii) The proposed sub-contractor to meet the
specified criteria for the component work listed
Technical experience Criteria as specified in para
3.2.A.1.2
(iv) The Bidder and his sub-contractor should
submit separate undertakings that the Bidder/sub-
contractor shall be responsible for execution of that
item of work for which they claim to have specific
construction experience.
(v) The Applicant and his proposed sub-contractor
should collectively satisfy as a whole all the specified
experience requirements.
(vi) Sub-contractor shall submit Performance Bank
Guarantee equivalent to 5% of value of Work sublet in
addition to the Performance Bank Guarantee for whole
contract submitted by the Bidder on award of Work."
*****
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Digitally Signed By:SUNIL
SINGH NEGI
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"4. TIME FOR COMPLETION
The successful bidder shall complete the entire work within
the time specified under S.No.-1 above, to be reckoned from
the date of issue of Letter of Acceptance"
6. Annexed to the NIT were the "Bid Documents", in six volumes,
numbered Volume 0 to Volume 5.
7. Volume 0 constituted the "Instructions to Bidders" (hereinafter
referred to as "ITB"). Though many of the clauses of the ITB were
reproductions of the clauses of the NIT, in the interests of completion,
the relevant clauses of the ITB may be reproduced thus:
"3.2.A.1.2 The bidder should have experience of having
successfully completed a project of any nature involving
floating structures/platform/ deck/ underwater cable works, in
last five (5) years on Engineering, Procurement and
Construction (EPC) basis.
Note:-
Floatation Device Technology Provider: The bidder should
propose name of the float technology provider with whom
they expect to tie-up for supply of the floats. Bidder may
propose any number of vendors (including bidders own
design) along with their credentials as part of their technical
bid. However, prior to signing of the contract agreement, the
successful bidder shall communicate their finalised float
vendor.
3.7 To improve transparency and fairness in tendering
process the Employer is implementing Integrity Pact as per
Clause 33 of this ITB. The bidder must submit the Integrity
Pact as per Annexure- 3 duly signed as per clause 33 of ITB.
Pre- contract Integrity Pact is to be executed on plain paper at
the time of submission of Bid. The successful bidder
(contractor) shall submit duly executed Integrity Pact on non-
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SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 5 of 76
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judicial stamp paper of appropriate value prior to signing of
Notification of Award.
*****
27. AWARD CRITERIA
27.1) a) Subject to Clause 28, the Employer will award the
contract to the successful bidder whose bid has been
determined to be substantially responsive as per the
"Conditions for conducting e- RA after e-tendering" which is
enclosed as per Part-IV to the ITB. The Employer may
request the substantially responsive lowest evaluated bidder to
attend the pre-award discussions / Post Tender Negotiations
(PTN), if required.
b) The mode of contracting with the successful bidder will be
as per stipulation outlined in relevant GCC/SCC
Clauses..........
*****
29. NOTIFICATION OF AWARD
29.1 Prior to the expiration of the period of bid validity, the
Employer will notify the successful Bidder in writing by
registered letter/ speed post / fax,, that its bid has been
accepted. The notification of award will constitute the
formation of the contract and will be considered for all
purposes of execution of contract provisions till such time the
signing of the Contract Agreement.
29.2 Upon the successful Bidder's furnishing of the
performance security pursuant to ITB Clause 31, the
Employer will promptly return/discharge the Bid Security to
each unsuccessful Bidder, pursuant to ITB Sub-Clause 14.4.
29.3 The unsuccessful Bidders shall also be informed
simultaneously about their status of Bids.
30. SIGNING OF CONTRACT AGREEMENT
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SINGH NEGI
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After notifying the successful bidder that its bid has been
accepted, the Employer will prepare the Contract Agreement
as per Format provided in Volume 5: Forms &Procedures,
incorporating all the correspondence exchanged between the
parties, which have a bearing on the Contract.
Within 14 days of receipt of notice of readiness of the
Contract Agreement by the Employer, the Employer and the
successful bidder shall sign the Contract Agreement.
31. PERFORMANCE SECURITY
31.1 Within twenty-eight (28) days after receipt of the
notification of award, the successful Bidder shall furnish the
performance security as per GCC clause 13.3 and in the form
provided in the section "Forms and Procedures" of the
Bidding Documents or in any other form acceptable to the
Employer.
31.2 Failure of the successful Bidder to comply with the
requirements of ITB Clause 30 or Clause 31.1 shall constitute
sufficient grounds for the annulment of the award and
forfeiture of the bid security.
32. CORRUPT OR FRAUDULENT OR COLLUSIVE OR
COERCIVE PRACTICES
32.1 It is expected from the Bidders / suppliers / contractors
that they will observe the highest standard of ethics during the
procurement and execution of such contracts. In pursuance of
this policy:
(a) for the purposes of this provision, the terms set
forth below shall mean as under:
i) "Corrupt practice" means the offering,
giving, receiving or soliciting directly or
indirectly of anything of value to influence the
action of a public official in the procurement
process or in contract execution; and
ii) "Fraudulent practice" means a
misrepresentation/omission of facts in order to
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SINGH NEGI
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influence a procurement process or the
execution of a contract to the detriment of the
Employer, and includes collusive practice
among Bidders (prior to or after bid submission)
designed to establish bid prices at artificial non-
competitive levels and to deprive the Borrower
of the benefits of free and open competition;
iii) "Collusive Practice" means a scheme or
arrangement between two or more bidders, with
or without the knowledge of Employer,
designed to establish bid prices at artificial, non-
competitive levels.
iv) "Coercive Practice" means harming or
threatening to harm, directly or indirectly,
person or their property to influence their
participation in a procurement process or affect
the execution of Contract.
(b) An agreement called Integrity Pact between the
prospective bidders and the Employer shall be signed
committing the persons /officials of both the parties,
not to exercise any corrupt influence on any aspect of
the Tender / Contract. The Independent External
Monitor(s) (IEM) appointed by Employer shall oversee
the compliance of obligation under the Integrity Pact.
(c) A Bid may be rejected by the Employer if it is
determined at any stage that the respective Bidder has
engaged in corrupt or fraudulent or collusive or
coercive or undesirable or restrictive practices or
default commitment under Integrity Pact in competing
for the contract in question.
(d) The Employer may declare a firm ineligible,
either indefinitely or for a stated period of time, if it at
any time determines that the firm has engaged in
corrupt or fraudulent or collusive or coercive practices
in competing for or default commitment under
Integrity Pact or in executing the contract.
(e) Banning of Business Dealings: It is not in the
interest of NHPC to deal with Agencies who commit
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SINGH NEGI
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deception, fraud or other misconduct in the tendering
process. The grounds on which Banning of Business
Dealings can be initiated are as follows:
i) If the security consideration, including
questions of loyalty of the Agency to NHPC so
warrants;
ii) If the director/owner of the Agency,
proprietor or partner of the firm, is convicted
by a court of law for offences involving moral
turpitude in relation to its business dealings
with the Government or any other public sector
enterprises, during last five years;
iii) If the Agency has resorted to Corrupt,
Fraudulent, Collusive, Coercive practices
including misrepresentation of facts and
violation of the any provisions of the Integrity
Pact provided in the Contract.
iv) If the Agency uses intimidation /
threatening or brings undue outside pressure on
NHPC or its official for acceptance /
performances of the job under the contract:
v) If the Agency misuses the premises or
facilities of the NHPC, forcefully occupies or
damages the NHPC's properties including land,
water resources, forests / trees or tampers with
documents/records etc.
vi) If the Agency does not fulfill the
obligations as required under the Contract and
Violates terms & conditions of the contract
which has serious affect for continuation of the
Contract.
vii) If the work awarded to the agency has
been terminated by NHPC due to poor
performance of the contract in the preceding 5
years.
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SINGH NEGI
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viii) If the Central Vigilance Commission,
Central Bureau of Investigation or any other
Central Government investigation Agency
recommends such a course in respect of a case
under investigation or improper conduct on
agency's part in matters relating to the
Company (NHPC) or even otherwise;
ix) On any other ground upon which
business dealings with the Agency is not in the
public interest.
x) If business dealings with the Agency
have been banned by the Ministry of Power,
Government of India OR any PSU/ any other
authority under the MOP if intimated to NHPC
or available on MOP Website, the business
dealing with such agencies shall be banned
with immediate effect for future business
dealing except banning under Integrity Pact
without any further investigation.
(Note: The examples given above are only illustrative
and not exhaustive. The Competent Authority may
decide to ban business dealing for any good and
sufficient reason).
The procedure for banning of Business Dealings shall
be governed as per NHPC's "Policy and Procedure for
Banning Business Dealings". This policy is published
in NHPC website under Integrity corner.
32.2 Furthermore, Bidders shall be aware of the provision
stated in Sub-Clause 42.2 of the General Conditions of
Contract and return their bid security as per Clause 13.4 of
ITB.
33. INTEGRITY PACT
To improve transparency and fairness in the tendering process
the Employer is implementing Integrity Pact.
The Integrity Pact, signed by all the prospective Bidders and
the Employer, shall commit the persons/officials of both the
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SINGH NEGI
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parties, not to exercise any corrupt/
fraudulent/collusive/coercive practices in the Tendering
process and also during implementation of the Contract. All
Applicants shall enter into an Integrity Pact (to be executed on
plain paper) with the Employer at the time of submission of
their Bids. Only those Bidders who have entered into Integrity
Pact with the Employer shall be eligible to participate in the
bidding process. Entering into Integrity Pact as per Performa
provided in the Section Forms & Procedure is a basic
qualifying requirement.
The Integrity Pact digitally signed on behalf of the Employer
is provided as Annexure-3 in ITB. The Integrity Pact shall be
downloaded, printed and signed by the Applicant and the hard
copy shall be submitted.
Successful bidder shall submit duly executed Integrity pact on
Non-Judicial Stamp paper of appropriate value prior to
signing of Contract Agreement.
To oversee the compliance of obligation under the Integrity
Pact, Sh. Rajan Nair and Sh. Sudhir Krishna has been
appointed as Independent External Monitor (IEM) by the
Employer. The Contact address of IEM is as under:
Sh. Rajan Nair and
Sh. Sudhir Krishna,
Independent External Monitor for NHPC Ltd.,
NHPC Ltd.
NHPC Office Complex,
Sector -33 Faridabad - 121003"
8. Annexure 2 to the ITB constituted the pre-contract Integrity
Pact (hereinafter referred to as the "Integrity Pact"), to be executed in
accordance with the covenants of the NIT and ITB already reproduced
hereinabove. The relevant clauses thereof may be set out thus:
i) Clause 1.0 set out the commitments of the employer and
the various other sub-clauses of Clause 3.0 set out the
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SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 11 of 76
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commitments of the bidders/contractors under the Integrity Pact
and they read thus:
"1.0 Commitments of the Employer
1.1 The Employer undertakes that no official of the
Employer, connected directly or indirectly with the
contract, will demand, take a promise for or accept,
directly or through intermediaries, any bribe,
consideration, gift, reward, favour or any material or
immaterial benefit or any other advantage from the
Bidder/Contractor, either for themselves or for any
person, organization or third party related to the
contract in exchange for an advantage in the bidding
process, bid evaluation, contracting or implementation
process related to the contact.
1.2. The Employer will, during the pre-contract stage,
treat all the Bidders/Contractors alike, and will provide
to all the Bidders/Contractors the same information
and will not provide any such information to any
particular Bidder/Contractor which could afford an
advantage to that particular Bidder/Contractor in
comparison to other Bidders/Contractors.
1.3. All the officials of the Employer will report to the
appropriate Authority any attempted or completed
breaches of the above commitments as well as any
substantial suspicion of such a breach.
*****
3.0 Commitments of the Bidder(s)/Contractor(s)
The Bidder(s)/Contractor(s) commits itself to take all
measures necessary to prevent corrupt practices, unfair
means and illegal activities during any stage of its bid
or during any pre-contract or post-contract stage in
order to secure the contract or in furtherance to secure
it and in particular commit itself to the following:-
3.1. The Bidder(s)/Contractor(s) will not offer, directly
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or through intermediaries, any bribe, gift,
consideration, reward, favour, any material or
immaterial benefit or other advantage, commission,
fees, brokerage or inducement to any official of the
Employer, connected directly or indirectly with the
bidding process, or to any person, organization or third
party related to the contract in exchange for any
advantage in the bidding, evaluation, contracting and
implementation of the contract.
3.2 The Bidder/Contractor further undertakes that it
has not given, offered or promised to give, directly or
indirectly any bribe, gift consideration, reward, favour,
any material or immaterial benefit or other advantage,
commission, fees, brokerage or inducement to any
official of the Employer or otherwise in procuring the
Contract or forbearing to do or having done any act in
relation to the obtaining or execution of the contract or
any other contract with Employer for showing or
forbearing to show favour or disfavour to any person
in relation to the contract or any other contract with
Employer.
3.3 The Bidder(s)/Contractor(s) shall disclose the
name and address of agents and representatives and
Indian Bidder(s)/Contractor(s) shall disclose their
foreign principals or associates.
3.4 The Bidder(s)/Contractor(s)shall disclose the
payments to be made by them to agents/brokers or any
other intermediary, in connection with this
bid/contract.
3.5 Deleted.
3.6 The Bidder, either while presenting the bid or
during pre-contract negotiations or before signing the
contract, shall disclose any payments he has made, is
committed to or intends to make to officials of the
Employer or their family members, agents, brokers or
any other intermediaries in connection with the
contract and the details of services agreed upon for
such payments.
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SINGH NEGI
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3.7 The Bidder/Contractor will not collude with other
parties interested in the contract to impair the
transparency, fairness and progress of the bidding
process, bid evaluation, contracting and
implementation of the contract.
3.8 The Bidder/Contractor will not accept any
advantage in exchange for any corrupt practice, unfair
means and illegal activities.
3.9 The Bidder/Contractor shall not use improperly,
for purposes of competition or personal gain, or pass
on to others, any information provided by the
Employer as part of the business relationship,
regarding plans, technical proposals and business
details, including information contained in electronic
data carrier. The Bidder/Contractor also undertakes to
exercise due and adequate care lest any such
information is divulged.
3.10 The Bidder(s)/Contractor(s) commits to refrain
from giving any complaint directly or through any
other manner without supporting it with full and
verifiable facts.
3.11 The Bidder(s)/Contractor(s) shall not instigate or
cause to instigate any third person to commit any of
the actions mentioned above.
3.12 If the Bidder/Contractor or any employee of the
Bidder/Contractor or any person acting on behalf of
the Bidder/Contractor, either directly or indirectly, is a
relative of any of the officers of the Employer, or
alternatively, if any relative of an officer of the
Employer has financial interest/stake in the
Bidder(s)/Contractor(s) firm(excluding Public Ltd.
Company listed on Stock Exchange), the same shall be
disclosed by the Bidder/Contractor at the time of
filling of tender.
The term 'relative' for this purpose would be as defined
in Section 2(77) of the Companies Act 2013.
3.13 The Bidder(s)/Contractor(s) shall not lend to or
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borrow any money from or enter into any monetary
dealings or transactions, directly or indirectly, with any
employee of the Employer.
3.14 The representative of the Bidder(s)/ Contractor(s)
signing Integrity Pact shall not approach the Courts
while representing the matters to IEMs and he/she will
wait their decision in the matter.
3.15 In case of sub-contracting, the bidder/principal
contractor shall take the responsibility of the adoption
of IP by the sub-contractor."
ii) Clause 6.0 set out the sanctions for violations committed
by the bidder/contractor, as per the Integrity Pact, and sub-
clause 6.1 thereunder read thus:
"6.1 Any breach of the aforesaid provisions by the
Bidder/Contractor or anyone employed by it or acting
on its behalf shall entitle the Employer to take action
as per the procedure mentioned in the "Guidelines on
Banning of Business Dealings" attached as Annex-3A
and initiate all or anyone of the following actions,
wherever required:-
(i) To immediately call off the pre contract
negotiations without assigning any reason or
giving any compensation to the
Bidder/Contractor. However, the proceedings
with the other Bidder(s)/Contractor(s) would
continue.
(ii) The Earnest Money Deposit (in pre-
contract stage) and/or Security
Deposit/Performance Bond (after the contract is
Signed) shall stand forfeited either fully or
partially, as decided by the Employer and the
Employer shall not be required to assign any
reason thereof.
(iii) To immediately cancel the contract, if
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already signed, without giving any
compensation to the Contractor. The
Bidder/Contractor shall be liable to pay
compensation for any loss or damage to the
Employer resulting from such
cancellation/rescission and the Employer shall
be entitled to deduct the amount so payable
from the money(s) due to the Bidder/Contractor.
(iv) Deleted.
(v) To encash the Bank guarantee, in order to
recover the dues if any by the Employer, along
with interest as per the provision of contract.
(vi) Deleted
(vii) To debar the Bidder/Contractor from
participating in future bidding processes of
NHPC Ltd., as per provisions of "Guidelines on
Banning of Business Dealings" of NHPC
Ltd.(Annex-3A), which may be further extended
at the discretion of the Employer.
(viii) To recover all sums paid in violation of
this Pact by Bidder(s)/Contractor(s) to any
middleman or agent or broker with a view to
securing the contract.
(ix) In cases where irrevocable Letters of
Credit have been received in respect of any
contract signed by the Employer with the
Bidder/ Contractor, the same shall not be
opened/operated.
(x) Forfeiture of Performance Security in
case of a decision by the Employer to forfeit the
same without assigning any reason for imposing
sanction for violation of this Pact."
(iii) Clause 10.0 stipulated, regarding the "law and place of
jurisdiction", as under:
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"10.0 Law and Place of Jurisdiction
This Pact is subject to Indian Law. The place of
performance and jurisdiction is the Registered Office
of the Employer, i.e. Faridabad (Haryana). The
arbitration clause provided in the tender
document/contract shall not be applicable for any
issue/dispute arising under Integrity Pact."
9. Annexure 2A to the ITB contained the "Guidelines on Banning
of Business Dealings", to which Clause 6.1 of the Integrity Pact
referred. In as much as the merits of the disputes between the parties
are not being examined by me in the present judgment, it is not
necessary to refer to the specific clauses of the said guidelines.
10. In accordance with the covenants of the NIT and the ITB, the
petitioner submitted the Integrity Pact on 3rd September, 2018, its
online bid on 4th September, 2018 and its offline bid on 6th September,
₹ 9 7 lakhs was also submitted , by the
2018. Security deposit of
petitioner, with a bank guarantee dated 31st August, 2018, which was
extended from time to time.
11. As required by Clause 3.2.A.1.2, read with Clause 3.2.A.4 of
the NIT and the ITB, the petitioner, vide communication dated 31st
October, 2018, recommended the names of four suppliers as potential
Float Device Technology Providers. The respondent responded thus,
on 30th November, 2018:
"Date: 30.11.2018
Email:[email protected]/shubham.pratyush
@mahindra.com
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 17 of 76
Signing Date:19.02.2021
09:08:48
M/s Mahindra Susten Pvt. Ltd.,
6th floor, AFL House,
Lok Bharati Complex,
Marol Maroshi Road,
Mumbai, Maharashtra-400059
Kind Attention: Mr. Ankit Jain, General Manager
Subject: Engineering Procurement and Construction (EPC)
contract for development of 10MW Floating Solar Power
Project including evacuation arrangements at West Kallada
Site, Dist.- Kollam in the state of Kerala, along with its
comprehensive operation and maintenance for 10 (ten) years.
Ref: (i) E-TENDER NO. 2018_NHPC_355399_1
Dear Sir,
This is with reference to your Bid submitted against aforesaid
Tender.
In this regard, it is informed that your bid has been found
Techno-commercially responsive on the basis of following
proposed sub-contractor as per Clause- 3.2.A.l.2 of ITB/NIT:
1. M/s Yellow 2 Gen Energy Pvt. Limited. Gurugram
Thanking you,
Yours faithfully,
Sd/-
General Manager (Civil Contracts-III)
Telephone No. : +91 (129) 2270974"
12. In the e-reverse auction which took place consequent to the
aforesaid NIT, the petitioner emerged as the successful bidder. Clause
13.1 of the ITB stipulated that bids would remain valid for 120 days
from the last date of submission of online bids, and required the
respondent to issue letters of award within the said period, subject to
the right to seek extension from the petitioner for exceptional
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 18 of 76
Signing Date:19.02.2021
09:08:48
circumstances, vide Clause 13.2. The normal period, as per Clause
13.1, therefore, expired on 2nd January, 2019. The respondent,
however, requested for extension of time for notification of the award
of the tender to the petitioner vide letters dated 26th December, 2018,
23rd January, 2019, 25th March, 2019, 15th April, 2019, 19th June,
2019, 15th July, 2019, 26th July, 2019 and 19th August, 2019, to all of
which the petitioner consented. Ultimately, the tender was awarded to
the petitioner vide three Letters of Award (hereinafter referred to as
"LOAs"), issued on 20th September, 2019, by the respondent. These
three LOAs were for
(i) supply of plant and equipment and materials,
(ii) providing services such as port handling, insurance,
inland transportation, site handling, installation, testing,
commissioning etc., and
(iii) operation and maintenance for a period of ten years,
including 24 months' defect liability period, from the date of
commissioning of the project.
13. Para 5.0 of the of the first of the aforesaid three LOAs, for
supply of plant and equipment and materials, stipulated thus:
"5.0 The Sub-contractor for the Float Device Technology
provider shall be M/s Yellow 2 Gen Energy Pvt. Limited.
Gurugram. The Sub-contractor shall submit Performance
Bank Guarantee equivalent to 5% of value of work sublet in
addition to the Performance Bank Guarantee for whole
contract submitted by the Contractor.
The Contractor shall also submit a joint deed of undertaking
(as per Annexure-B) from the proposed subcontractor and
Contractor for joint and several responsibility of execution of
work sub-contracted by the sub-contractor."
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 19 of 76
Signing Date:19.02.2021
09:08:48
14. The petitioner addressed several communications to the
respondent, requesting the respondent to permit engagement of
additional/alternative float technology providers, in view of the
advancement in design and technology of the floater device that had
taken place during the time consumed by the respondent in awarding
the contract to the petitioner.
15. On 15th November, 2019, M/s Yellow 2 Gen Energy Private
Limited (hereinafter referred to as "Y2G"), the float technology
provider approved by the respondent, informed the respondent that it
was unable to meet the project schedule requirements of the petitioner
and suggested that a different float technology provider be engaged by
the respondent for the remainder capacity which Y2G had been unable
to provide. Admittedly, however, the 5% bank guarantee, which was
required to be submitted by Y2G, vide Clause 3.2.A.4 of the NIT and
ITB, was never so submitted.
16. On or around 3rd March, 2020, the respondent invoked the bank
guarantees submitted by the petitioner towards earnest money deposit.
At around the same time, on 2nd March, 2020, the respondent
addressed the following communication to the petitioner:
"Date: 02.03.2020
Emoil;[email protected]/shubham.pratyush@mahindr
a.com
M/s Mahindro Susten Pvt. Ltd.,
Mahlndro Towers G. M. Bhosle Road
P. K. Kurne Chowk,
Mumbai, Maharashtra -400018
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 20 of 76
Signing Date:19.02.2021
09:08:48
Kind Attention: Mr. Ankit Jain, General Manager
Subject; "Engineering Procurement and Construction (EPC)
contract for development of 10MW Floating Solar Power
Project including evacuation arrangements of West Kallada
site, Dist.- Kollam in the state of Kerala, along with its
comprehensive operation and maintenance for 10 (ten) years"
- Cancellation of Award of work.
Ref:
(i) E ·TENDER ID. 2018NHPC_355399_1
iii) LOA No. NH/CCW/CC-III/Floating-Solar/
LOA/2019/613, 614, 615 dated 20.09.2019
iv) Your acceptance vide No. MSPL/NHPC/FSPV-
l0MW/2019/OO1 dated 30.09.2019
v) Our letter No. NH/CCW/CC-III/Floating-
Solar/EPC/2019/675 dated 10.10.2019
vi) Your letter MSPL/NHPC/FSPV-l0MW/2019/005 dated
16.10.2019
vii) Your mail dated 18.10.2019
(vi) Our letter No. NH/CCW/CC-lll/Floating-
Solar/EPC/2019/754 dated 25.10.2019
viii) Your mail dated 05.11.2019
ix) Our letter No. NH/CCW/CC-III/Floating-
Solar/EPC/2019/781 doted 20.11.2019
x) Our letter No. NH/CCW/CC-III/Floating-
Solar/EPC/2019/839 doted 25.11.2019
Dear Sir,
This has reference to our letter of award no.
NH/CCW/CC-III/Floating-Solar/LOA/2019/613, 614, 615
dated 20.09.2019 vide which subject cited work was awarded
to you.
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 21 of 76
Signing Date:19.02.2021
09:08:48
As you have failed to submit the Performance Bank
Guarantee @ 5% from the Sub-contractor for the value of
work sublet to the sub-contractor along with Joint Deed of
Undertaking from the Sub-contractor i.e. M/s Yellow 2 Gen,
signed integrity Pact between the Contractor and Sub-
contractor and could not sign the contract agreement within
the extended time for signing of Contract Agreement, the
award of work is hereby cancelled and further action shall be
initiated against you and your Sub-contractor as per bid
conditions.
Thanking you
Yours faithfully,
Sd/-
General Manager (Civil Contracts-III)"
17. This was succeeded by the following communication, dated 9th
March, 2020, from the respondent to the petitioner:
"Date: 09.03.2020
To,
MAHINDRA SUSTEN PVT.LTD.
G.M. BHOSLE ROAD
P.K. KURNE CHOWK, WORLI
MUMBAI, MAHARASHTRA-400018
Attention: Shri Ankit Jain, General Manager
Subject: Intimation of Suspension of Business Dealings
Dear Sir,
Whereas the work of "Engineering Procurement and
Construction (EPC) contract for development of 10MW
Floating Solar Power Project including evacuation
arrangements at West Kallada site, Dist.- Kallam in the state
of Kerala, along with its comprehensive operation and
maintenance for 10 (ten) years" was awarded to your firm
vide Letter of Award No. NH/CCW/CC-III/Floating-
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 22 of 76
Signing Date:19.02.2021
09:08:48
Solar/LOA/2019/613, 614, 615 dated 20.09.2019 amounting
to Rs. 59.70 Crores (Rs. Fifty Nine Crore Seventy Lac Only)
with M/s Yellow 2 Gen Energy Pvt. Ltd., Gurugram as
approved Sub-contractor for the "Float Device Technology
Provider".
Whereas the conduct of your firm in respect of the following
is under investigation:
Brief of the default: M/s Mahindra Susten Pvt. Ltd. have
failed to submit Performance Guarantee @5% from the sub-
contractor for the value of work sublet to the Sub-contractor
along with Joint Deed of Undertaking from the sub-contractor
i.e. M/s Yellow 2 Gen, signed Integrity pact between the
Contractor & sub-contractor and could not sign the Contract
agreement within the extended time for Singing of contract
agreement even after giving adequate opportunity to sign the
same by extending the date of signing of contract agreement
thrice at M/s Mahindra Susten Pvt. Ltd. request.
"Whereas the Competent Authority prima facie considered the
allegations (under investigation) are of a serious nature and
decided pending investigation, it is not in the interest of the
corporation to continue business dealing with your firm.
This order shall have the following effects:
i) Further business dealings with your firm is Suspended
within NHPC. The order of Suspension is effective with
immediate effect and would operate for a period of six months
or till the investigation is completed and whole process of
final order is over within such period. However, if
investigations are not completed in six months' time, the
Competent Authority may extend the period of Suspension
ii) During the period of Suspension, no business dealing
shall be held with your firm. No enquiry / bid / tender shall be
issued to your firm nor will the bids submitted by your firm
be entertained.
iii) In cases where tenders have already been issued to you
and price bids are yet to be opened, the Price Bid submitted
by you shall not be opened and BG/EMD, if any, submitted
by you shall be returned.
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 23 of 76
Signing Date:19.02.2021
09:08:48
iv) In cases where tenders have already been issued to you
and Price Bids have already been opened, the tendering
process shall be continued.
v) In case of ongoing contracts between you & NHPC,
(including cases where contract has already been awarded
before the issue of Suspension order) you will be required
to continue with the execution and perform as per terms of the
contract.
vi) a) In case the Firm is in Joint Venture the following
would also be applicable:
i) Participation of Agency in Joint Venture:
Tenders in which your firm has been proposed as Joint
Venture Partner by any of the bidders and price bids
have been opened prior to Suspension of your firm in
such cases the tendering process shall not be annulled
on this ground and the Agency shall be permitted to
continue as Partner in the Joint Venture for such
bidding. However where event of Price Bid opening
has not taken place prior to Suspension/Banning of
Agency then in such case Agency shall not be
permitted to participate as Partner in the Joint Venture.
ii) Banning of joint Venture:
As the Joint Venture is Banned, your firm intends to
bid as Partner(s) of Joint Venture in bidding process
then it shall be permitted to participate in the bidding
process if it has not been Banned on grounds of its role
and responsibility in the tendering process for which
the Joint Venture has been Banned in Past. In case if
the Joint Venture which has been Banned does not
indicate the roles and responsibility of individual
Partner(s) then, the partner of the Banned Joint Venture
shall only be allowed to participate in the bidding
process if its participation share is less than 35%.
b) Your firm shall not be allowed to participate as Sub-
Vendor/Sub-Contractor in the tenders. Further if your firm is
an approved Sub-vendor under any Contract for such
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 24 of 76
Signing Date:19.02.2021
09:08:48
equipment/component/service, the Main Contractor shall not
be permitted to place work order/Purchase order/Contract on
your agency as a Sub-Vendor/Sub-Contractor after the date of
Suspension/ Banning even though the name of the party has
been approved as a Sub-Vendor/Sub-Contractor earlier.
c) There would be no bar on procuring the spares and
awarding Contracts towards Annual Maintenance (AMC)/
O&M/ Repair works on Agencies pertaining to the packages
for which they have been Banned provided the Equipment has
been supplied by such Agency.
d) Banning of business dealing shall not be applicable to
the Subsidiary company of the Banned agency provided
subsidiary company has not participated on the strength
of the Banned agency.
On expiry of the above period of Suspension/Banning, you
may approach Contracts Civil Division, with request for
revocation of the order mentioning inter-alia the steps taken
by you to avoid recurrence of misconduct which has led to
Suspension.
Yours faithfully,
Sd/-
General Manager (Contracts Civil -III)"
18. Disputing the legitimacy of the aforesaid communications dated
2nd March, 2020 and 9th March, 2020, the petitioner addressed a
detailed notice to the respondent on 4th May, 2020, refuting all
allegations made by the respondent against the petitioner, and seeking
reference of the disputes to arbitration in accordance with Clause 6.3
of the GCC, which read thus:
"6.3 Arbitration
Except as otherwise provided, in GCC clause-6.2
hereinbefore, all questions, dispute or difference in respect of
which the decision has not been final and conclusive arising
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 25 of 76
Signing Date:19.02.2021
09:08:48
between the contractor and the Employer, in relation to or in
connection with the contract shall be referred for arbitration in
the manner provided as under:
6.3.1 Either of the parties may give to the other notice in
writing of the existence of such question, dispute or difference
which shall be settled in accordance with the Arbitration and
Conciliation Act, 1996, as amended up to date.
6.3.2 Any dispute or difference what so ever arising between
the parties and of or relating to the construction,
interpretation, application, meaning, scope, operation /or
effect of this contract or the validity of the breach thereof,
shall be settled by arbitration in accordance with the rules of
arbitration of the Delhi High Court Arbitration Centre and
the award made in the pursuance thereof shall be final and
binding on the parties. It is a term of the Contract that the
Party invoking arbitration shall specify all disputes to be
referred to arbitration at the time of invocation of arbitration
and not thereafter.
6.3.3 The cost and expenses of arbitration proceedings will
be borne by each party as per terms of Delhi High Court
Arbitration Centre in equal shares. However, the expenses
incurred by each Party in connection with the document
preparation, presentation etc. to produce to arbitral tribunal on
its behalf shall be borne by each Party itself. Majority award
rendered by arbitral tribunal shall be final and binding on the
Parties."
19. The petitioner also suggested the name of a learned retired
Chief Justice of the High Court of Punjab and Haryana as the
arbitrator to arbitrate on the disputes.
20. The respondent replied to the aforesaid communication dated 4th
May, 2020 of the petitioner, on 22nd May, 2020, thus:
"M/s Mahindra Susten Pvt. Ltd.,
7th floor, We Work Raheja Platinum,
Marol Co-operative Industrial Estate Road,
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 26 of 76
Signing Date:19.02.2021
09:08:48
Sag Baug, Marol, Andheri East Mumbai,
Maharashtra-400059
Sub: Request for Arbitration in the matter between M/s.
Mahindra Susten Private Limited and NHPC Limited.
Ref: Your email dated 04/05/2020
Sir,
This is in reference to the above referred email whereby a
request on your behalf for RFA has been received from legal
firm Khaitan & Co. In this regard at the outset it is submitted
that there is no arbitration agreement between the parties in
terms of section 7 of A&C Act, 1996. Moreover terms of bid
document does not confer power upon DIAC to act as Arbitral
Institution, as Clause 6.3 of GCC does not confer power upon
DIAC to act as Arbitral Institution. It only stipulates that
dispute shall be settled by arbitration in accordance with the
rules of DIAC.
However, without prejudice to above it is also submitted that
the Claimant has unilaterally proposed the name Hon'ble
Justice (Retd.) Vijender Jain as sole arbitrator, which is being
opposed vehemently. In this regard it is brought within your
kind notice that Hon'ble Justice (Retd.) Vijender Jain is an
arbitrator in four cases either as NHPC's nominee arbitrator or
as Presiding Arbitrator or as nominee arbitrator of the
claimant. As such he is ineligible as per the provisions of
Arbitration and Conciliation Act, 1996. Moreover in terms of
recent decision of Hon'ble Supreme Court a person interested
in outcome of the dispute cannot appoint a sole arbitrator.
In view of the above, your request for invocation of
arbitration cannot be accepted.
Thanking you,
Yours faithfully,
Sd/-
General Manager (CC-III)"
21. The petitioner replied on 18th June, 2020, asserting that an
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 27 of 76
Signing Date:19.02.2021
09:08:48
arbitration agreement did exist between the petitioner and the
respondent, and that Clause 6.3.2 of the GCC required the arbitration
to be in accordance with the rules of arbitration of the Delhi
International Arbitration Centre (DIAC). However, as there was an
objection to the name suggested by the petitioner as the arbitrator to
arbitrate on the disputes, the petitioner suggested the name of another
learned retired Judge of this Court, in place of the name earlier
suggested.
22. The respondent responded by issuing, on 19th June, 2020, a
Show Cause Notice to the petitioner, which read thus:
"M/s Mahindra Suslen Pvt. Ltd .,
G.M. BHOSLE ROAD.
P.K. KURNE CHOWK. WORLI
MUMBAI. Maharashtra-400018.
Attn.: Sh. Anklt Jain. General Manager
Subject: Show Cause Notice.
Ref: 1. LOA No. NH/CCW/CC-III/Floating-
Solar/EPC/2019/613-615 Dated: 20.09.2019.
2. NHPC Letter No. NH/CCW/CC-III/Floating-
Solar/EPC/2020/253 Dated: 02.03.2020.
3. NHPC Letter No. NH/CCW/CC-III/Floating-
Solar/EPC/2020/289 Dated: 09.03.2020.
Dear Sir,
You are hereby required to Show Cause in writing
within 15 days from the date hereof why Business Dealing
with your firm should not be banned / your firm is placed in
the Banning List (as the case may be) and be debarred from
entering into any contracts with NHPC for the following
reasons:
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 28 of 76
Signing Date:19.02.2021
09:08:48
1. Non submission of Performance Guarantee @5% from
the approved subcontractor for the value of work sublet to the
sub-contractor along with Joint Deed of Undertaking from the
Sub contractor i.e. Yellow 2Gen, signed Integrity Pact
between Contractor & Sub Contractor for the work of "EPC
Contract for development of 10 MW Floating Solar Power
Project including evacuation arrangements, at West Kallada
Site. Dist. - Kollam in the state of Kerala, along with its
comprehensive O&M for 10 years" as per LOA/ Bid
Conditions.
2. Non signing of Contract Agreement within extended
time even after giving adequate opportunity by extending the
date of Signing of Contract Agreement thrice at M/s Mahindra
Susten Pvt. Ltd. request.
Your reply (if any) should be supported by documents
and documentary evidence which you wish to rely in support
of your reply. In case you desire to present your case in
person to NHPC, an Oral Healing shall be conducted on 29th
June,2020 at 15:00 Hours for which prior intimation be
furnished to this office. Should you fail to reply to this Show
Cause Notice within the time and manner aforesaid, it will be
presumed that you have nothing to say and we shall proceed
accordingly.
Your reply, if any, and the documents / documentary
evidence given in support shall be taken into consideration
prior to arriving at a decision.
Yours faithfully,
Sd/-
General Manager (CC-III)"
23. It is in these circumstances that the petitioner has moved this
Court by means of the two petitions which are being disposed of by
the present judgment, i.e. Arb. P. 217/2020, under Section 11(6) of the
1996 Act, seeking appointment of an arbitrator and OMP (I) (Comm)
162/2020 under Section 9 of the 1996 Act, seeking certain pre-arbitral
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 29 of 76
Signing Date:19.02.2021
09:08:48
interim reliefs. As already noted at the commencement of the present
judgment, Mr. Viswanathan, learned Senior Counsel for the petitioner
agreed to OMP (I) (Comm) 162/2020 being adjudicated by the
Arbitral Tribunal, to be constituted in accordance with the prayer
contained in Arb P 217/2020, treating the OMP as an application
under Section 17 of the 1996 Act.
24. This Court, therefore, is only required to adjudicate on Arb P
217/2020. Pleadings have been completed in the petition, and detailed
written submissions have also been filed by learned Counsel.
Rival Contentions
25. The respondent opposes, in writing as well as orally through
Mr. Tejas Karia, Arb. P. 217/2020, on the following grounds:
(i) The only concluded contract between the parties was the
Integrity Pact. The GCC had not been signed by both parties.
The Integrity Pact conferred jurisdiction exclusively on Courts
at Faridabad. As such, this Court does not possess territorial
jurisdiction to entertain the present matter.
(ii) The petition was not maintainable, as it was based on a
"proposed EPC contract", which had never come into existence,
as it was never signed by the respondent. Reference has been
invited, in this context, to the following passages, from
OMP(I)(COMM) 162/2020:
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 30 of 76
Signing Date:19.02.2021
09:08:48
"2. The brief facts pertaining to the present
petition are that on 05.07.2018, the Respondent
issued a Notice Inviting Tender ("NIT") for the
purpose of inviting bids for "Engineering
Procurement Construction (EPC) Contract for 10
MW capacity Floating Solar Power Project at West
Kallada in the State of Kerala with its
Comprehensive Operation and Maintenance for 10
Years" ("Proposed EPC Contract"). In response to
the NIT, the Petitioner duly submitted the Pre-
Contract Integrity Pact on 03.09.2018 ("Integrity
Pact"), its online bid on 04.09.2018 and its offline
bid on 06.09.2018 in compliance with the terms of
the NIT and submitted bid security/Earnest Money
Deposit ("EMD") amounting to INR 97,00,000
(Indian Rupees Ninety Seven Lacs Only) by way
of a Bank Guarantee No. 136GM07182430001
dated 31 August 2018 issued by Yes Bank Limited
("EMD Guarantee"), which guarantee was
extended from time to time basis requests from the
Respondent.
3. It is the case of the Petitioner that the terms
of the NIT and the Instruction to Bidders ("ITB")
contained in the Bid Document for the Engineering
Procurement Construction (EPC) Contract for 10
MW Capacity Floating Solar Power Project at
West Kallada, Kollam District in the State of
Kerala with its Comprehensive Operation and
Maintenance for 10 Years ("Bid Document")
stipulate that the bidder must propose the name of
the float technology provider with whom the
bidder expects to tie-up for the supply of floats for
the 10 MW Capacity Floating Solar Power Project
at West Kallada, Kollam District in the State of
Ker ala ("Project"). Accordingly, the Petitioner
proposed the names of four float solar vendors
namely, M/s. Ciel et Terre, M/s. Hefei Jntech New
Energy Co. Ltd., M/s. Quant Solar Technologies
Pvt. Ltd., and Yellow 2 Gen Energy Pvt. Ltd.
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 31 of 76
Signing Date:19.02.2021
09:08:48
("Y2G"). The Petitioner emerged as the successful
bidder and was awarded three letters of award for
the Proposed EPC Contract by the Respondent.
4. The First LoA (defined below) stated that
Y2G shall be the subcontractor for the purposes of
supplying Float Device Technology ("Float
Provider") and shall submit performance bank
guarantee equivalent to 5% of the value of work
sublet ("5% PBG"), in addition to the performance
bank guarantee that was to be submitted for the
entire Proposed EPC Contract by the Petitioner.
Further, a joint undertaking was to be submitted by
the Petitioner and Y2G for joint and several
responsibilities of execution of work sub-
contracted by the Petitioner to Y2G as the sub-
contractor.
5. However, despite the Petitioner's repeated
attempts at negotiations and sending reminders to
expedite closure, Y2G refused to co-operate and
failed to respond to the Petitioner's requests in
respect of the same, for reasons best known to
them. Consequently, the Petitioner was unable to
enter into the Proposed EPC Contract with the
Respondent on account of the failure of Y2G to
submit the 5% PBG and joint undertaking by Y2G
despite the Petitioner's best efforts to close all
issues regarding the same with Y2G. In fact, Y2G
itself informed the Respondent that it is unable to
meet the project schedule requirements of the
Petitioner and in fact even suggested that if the
schedule proposed by the Petitioner is to be met
then a different vendor be engaged for the
remainder capacity that Y2G is unable to provide
within the project schedule and that the 5% PBG
may be accordingly split between the
subcontractors."
(Emphasis supplied)
Signature Not Verified
Digitally Signed By:SUNIL
SINGH NEGI
ARB.P. 217/2020 & O.M.P.(I) (COMM.) 162/2020 Page 32 of 76
Signing Date:19.02.2021
09:08:48
(iii) Clause 10.0 of the Integrity Pact specifically stipulated
that the arbitration clause in the tender documents/contract
would not be applicable to any issue/dispute arising under the
Integrity Pact. As such, there was no arbitration agreement
between the petitioners and the respondent.
(iv) In its e-mail dated 18th October, 2019 supra, the
petitioner had admitted that the submission of performance
bank guarantee from Y2G was a pre-requisite for signing of the
contract. The said bank guarantee having not been submitted by
Y2G till date, the petitioners could not seek to contend that a
concluded contract existed between the petitioners and the
respondent. The relevant paragraphs from the letter dated 18th
October, 2019 from the petitioner to the respondent, read thus:
"With reference to our letter
th
MSPL/NHPC/FSPV‐10MW/2019/005 dated 16 Oct
2019, MSPL had submitted PBG worth 10% of
contract value, in original, in accordance with clause
13.3 of GCC and proposed the date of 22nd Oct 2019
for signature of the contract as per clause no 30 (ITB).
In the said letter, we also proposed submission of
performance bank guarantee from the float device
technology provider upon finalization of floater
subcontractor.
It is however understood that submission of
performance bank guarantee from floater subcontractor
is prerequisite for signing of the contract. As we are
still in the process of discussion and finalization of
floater subcontractor in light of our letter no.
MSPL/NHPC/FSPV‐10MW/2019/002 dated 30 th Sep
2019, some more time will be required for submission
of performance bank guarantee from floater
subcontractor."
(v) Vide its letter dated 20th November, 2019, the respondent
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had informed the petitioners that final extension for execution
of the contract was granted only till 30th November, 2019 and
that if the conditions under the LOAs were not complied with,
the respondent would cancel the LOAs, forfeit the bank
guarantee furnished towards EMD and suspend business
dealings with the petitioner and Y2G, as well as initiate action
for banning of business dealings. As the joint undertaking and
5% performance bank guarantee was not submitted by Y2G, no
contract was executed/signed by the respondent. Ultimately, on
2nd March, 2020, the respondent was constrained to issue a
notice of cancellation of the award of the work.
(vi) It was understood between the parties that mere issuance
of LOAs did not result in a concluded contract, unless and until
the prerequisite of the LOAs were complied with by the
petitioners and Y2G. Consensus, ad idem, on all material
terms, is a prerequisite for a concluded contract.
(vii) Under Section 7 of the Indian Contract Act, 1972
(hereinafter referred to as "the Contract Act"), absolute and
unqualified acceptance of an offer is necessary to convert a
proposal into a promise. As there was no compliance by the
petitioners, with the conditions stipulated in the LOAs dated
20th September, 2019, no concluded contract could be said to
have come into being, between the petitioners and respondent,
in view of Section 7 of the Contract Act.
(viii) All actions taken by the respondent against the
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petitioners, including cancellation of the LOAs, suspension of
business activities and issuance of Show Cause Notice were
taken under the Integrity Pact, and not under the EPC contract.
(ix) By concealing the fact that Y2G was incapable of
performing the contract, and by insisting on the respondent to
add/substitute subcontractors, in violation of the covenants of
the NIT and ITB, the petitioners had breached Clause 3.7 of the
Integrity Pact, thereby justifying the invocation, against the
petitioner, of the Guidelines for Banning of Business Dealings.
26. As against this, the petitioners in its first written submissions,
dated 1st July, 2020, contended thus:
(i) Clause 6.3.2 of the GCC specifically required any dispute
relating to the contract to be settled by arbitration in accordance
with the rules of arbitration of the DIAC. Clause 1.1 of the
GCC defined "contract" to mean the contract entered into
between the employer and the contractor, and included the
"contract documents". "Contract documents" in turn, included,
by definition, the GCC.
(ii) Clause 6.1 of the ITB specifically stipulated that the GCC
formed part of the bid documents. The GCC was also
communicated, electronically, by the respondent to the
petitioners, with the bid documents and the NIT, and was
accepted by the petitioners by submission of its bid in response
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thereto.
(iii) The issuance of the three LOAs dated 20th September,
2019, issued by the respondent to the petitioners for proposed
EPC contract, clearly vouchsafed the acceptance by the
respondent, of the petitioners' bid, in accordance with the terms
of the Bid Documents, including, specifically, the GCC.
(iv) It was trite, in law, that where the tender documents
themselves contained an arbitration clause and had been
accepted, a valid arbitration agreement existed between the
parties. Clause 6.3 of the GCC satisfied the requirement of
Section 7 of the 1996 Act and constituted a valid, binding and
enforceable arbitration agreement between the petitioners and
the respondent. Reliance was placed, in this context, on the
judgment of the Supreme Court in Unissi (India) Pvt. Ltd. v.
Post Graduate Institute of Medical Education and Research 1
and State of U.P. v. Combined Chemicals Co. (P) Ltd. 2.
27. In response to the aforesaid submissions of the petitioners, the
respondent further contended thus:
(i) Clause 29.1 of the ITB could not be read in isolation. The
Court had to examine whether a contract existed and whether
non-signing of the contract vitiated the entire contract, including
the LOAs.
1
(2009) 1 SCC 107
2
(2011) 2 SCC 151
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(ii) Section 7 of the 1996 Act applied only where there was a
defined legal relationship between the parties. Prior to applying
Section 7 of the 1996 Act, therefore, it had to be examined
whether a concluded contract existed between the parties, in
terms of the Contract Act, for which purpose reliance was
placed, by Mr. Karia, on the judgment of this Court in Benara
Bearing & Pistons Ltd v. Mahle Engineering Components
India Pvt. Ltd. 3.
(iii) Acceptance of a contract, while proposing variations
therefrom, did not constitute acceptance in the eyes of law, but
was in the nature of a counter proposal. A concluded contract
came into being only when such counter proposal was accepted
by the original proposer. Reliance has been placed, in this
context, on Padia Timber Company (P) Ltd. v. Board of
Trustees of Visakhapatnam Port Trust 4, as well as the
judgment of this Court in National Aluminum Co. Ltd. v.
Subhash Infraengineers Pvt. Ltd. and Ors. 5. The
communication dated 20th September, 2019 (supra), from the
respondent to the petitioners was in the nature of a conditional
acceptance and, therefore, a counter proposal, as it required a
joint undertaking from Y2G as well as furnishing by Y2G, of
5% performance bank guarantee. The LOAs were, therefore, in
the nature of a counter offer. Compliance of the aforesaid
3
(2018) SCC OnLine Del 8272
4
2021 SCC OnLine SC 1
5
MANU/PH/2107/2016
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conditions contained in the LOAs by the petitioners, alone
would result in a concluded contract between the parties. These
conditions were never complied with; ergo, no concluded
contract came into being between the petitioners and the
respondent.
(iv) The Suspension Order dated 9th March, 2020 and the
Show Cause Notice dated 19th June, 2020 were issued by the
respondent in exercise of the authority conferred by Clause 6 of
the Integrity Pact, specifically Clause 6.1(i) (which empowered
the respondent to call off the pre-contract negotiations and
forfeit the bank guarantee provided by the petitioners at the
contract stage and Clause 6.1(vii) (which empowered the
respondent to debar the petitioners in accordance with the
guidelines for Banning of Business Dealings).
(v) Clause 13.3 of the GCC was required to be read in
conjunction with Clause 3.2.A.4 of the ITB, which required
submission of 5% performance bank guarantee by the float
device service provider, i.e. Y2G.
(vi) The respondent wrote to the petitioners on 13th
November, 2019 and, again, on 20th November, 2019 calling on
the petitioners to sign the contract agreement. Both
communications evinced the intention and readiness of the
respondent to proceed with the contract. The petitioners,
however, demurred from signing the contract and fulfilling the
covenants of the LOAs, resulting in the respondent cancelling
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the LOAs vide letter dated 2nd March, 2020, annulling the award
of the contracts to the ` in consequence. Mr. Karia was
emphatic in pointing out that the respondent annulled the award
and not the contract, the contract itself never having come into
being in the first place.
(vii) Unissi1 and Combined Chemicals2, on which Mr.
Viswanathan relied, were distinguishable. In Unissi1, the
products were delivered by M/s. Unissi (India) Pvt. Ltd.
(hereinafter referred to as "Unissi"), pursuant to a purchase
order issued by the Post Graduate Institute of Medical
Education and Research (hereinafter referred to as "PGIMER")
and delivery of the products was accepted by PGIMER. In
these circumstances, the Supreme Court held that the parties
had acted upon the terms of the contract though it was signed by
only one party and not by the other. In the present case, though
the Letters of Award dated 20th September, 2019 were issued by
the respondent to the petitioners, the petitioners failed to take
steps in accordance with the said Letters of Award, resulting in
non-conclusion of the contract. In Combined Chemicals Co.
(P) Ltd.2, the bid documents itself included an arbitration
agreement, and the letter of acceptance stipulated that, if so
required, the successful tenderer would have to execute a formal
agreement deed within the time fixed by the director of
industries. Execution of a formal contract in that case was,
therefore, optional, and by issuance of the letter of acceptance,
the arbitration agreement had become enforceable. In the
present case, there was no arbitration agreement in the LOAs.
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Rather, the petitioner, in its email dated 18th October, 2019 had
specifically acknowledged the fact that submission of the
performance bank guarantee by Y2G was a precondition for
concluding of the contract with the respondent. In these
circumstances, the petitioners could not legitimately contend
that, without a concluded signed contract coming into being
between the parties, Clause 6.3 of the GCC became applicable.
28. Without prejudice, it has been contended that the petitioners
have failed to exhaust the avenue of amicable settlement,
contemplated by Clause 6.3.2 of the GCC.
29. In rejoinder, the petitioner has submitted thus:
(i) Clause 29.1 of the ITB specifically stipulated that the
notification of award would constitute the formation of the
contract and would be considered for all purposes as execution
of the contract provisions till signing of the contract agreement.
(ii) Moreover, the respondent had directed the petitioner to
commence works under Clause 8.0 of the Letters of Award. The
Letters of Award specifically incorporated the terms of the
GCC, including Clause 6.3 thereof.
(iii) It was not open, therefore, for the respondent to contend
that there was no valid and binding contract between the parties.
(iv) Insofar as the Integrity Pact, and the proposal to ban
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business dealings, was concerned, Clause 32(e) of the NIT
stipulated intentional wrongdoing in the form of deception,
fraud or other misconduct, as a pre-requisite for banning of
business dealings. Neither the suspension order dated 9th
March, 2020, nor the Show Cause Notice, dated 19th June, 2020,
even hinted at breach of any of the "commitments", enumerated
in Clause 3.0 of the Integrity Pact. The attempt, of the
respondent, to pigeonhole the alleged infractions of the
petitioner into Clauses 3.6, 3.7 and 3.9 of the Integrity Pact,
was, therefore, a desperate attempt to invoke the Pact, ex post
facto, to defeat the case of the petitioner.
(v) Even on merits, the breaches alleged in the suspension
order dated 9th March, 2020 and the Show Cause Notice dated
19th June, 2020 could not be said to be breaches relatable to
Clauses 3.6, 3.7 and 3.9 of the Integrity Pact. The Integrity Pact
applied only in the cases of egregious default, in which the
integrity of the contractor had become suspect. This was
apparent from Clause 3 of the Integrity Pact itself.
(vi) Clause 6.2.2, or the application thereof, was never
pleaded by the respondent in its counter affidavit, filed in the
present proceedings. Even otherwise, once the petitioner had
annulled the Letters of Award, suspended dealings with the
respondent and issued Show Cause Notice, to ban all further
business dealings, any possibility of amicable resolution of the
disputes between the petitioner and the respondent stood
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foreclosed, and any such attempt would be nothing other than
empty formalities. In such a case, compliance with the
covenants could not be insisted upon. Reliance has been
placed, for this purpose, on Demerara Distilleries (P) Ltd. v.
Demerara Distillers Ltd. 6, Visa International Ltd. v.
Continental Resources (USA) Ltd. 7, , Ravindra Kumar Verma
v. BPTP Ltd. 8, Saraswati Construction Company v. East Delhi
Co-operative Group Housing Society Ltd. 9, Sikand
Construction Co. v. State Bank of India 10 and U.O.I. v. Baga
Brothers 11.
(vii) The reliance, by Mr. Karia, on Clause 31.2 of the ITB,
was also misplaced, as no violation, of any of the covenants of
Clause 30 or Clause 31.1, by the petitioner, could be said to
have taken place.
(viii) The 14-day period for signing of the contract, post receipt
of notice of readiness of contract agreement from the
respondent under Clause 30 of the ITB, would not apply, as the
respondent had itself waived the said requirement, even by the
covenants of the three Letters of Award dated 20th September,
2019.
6
(2015) 13 SCC 610
7
(2009) 2 SCC 55
8
2014 SCC Online Del 6602
9
1994 SCC OnLine Del 563
10
ILR (1976) I Delhi 364
11
2017 SCC Online Del 8989
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(ix) Even if it were to be presumed that the annulment of the
Letters of Award was valid, the arbitration agreement, being in
the nature of a separate agreement, would, nevertheless,
survive, for resolution of dispute arising under or in connection
with the contract. For this purpose, the petitioner has relied on
National Agriculture Co-op. Marketing Federation India v.
Gains Trading 12, Naihati Jute Mills Ltd. v. Khyaliram
Jagannath 13, Reva Electric Car Company v. Green Mobil 14
and Enercon (India) Ltd. v. Enercon GMBH 15.
Analysis
30. Section 11(6A) of the 1996 Act conrtains a statutory
proscription against a court, exercising jurisdiction under Section
11(6), examining any aspect other than the existence of the arbitration
agreement between the parties. A bench of three Hon'ble Judges of
the Supreme Court has, in its recent judgement in Vidya Drolia v.
Durga Trading Corpn 16, authoritatively delineated the scope and
ambit of the jurisdiction of a Court, exercising authority under Section
11 (6), to examine the aspects of existence of the arbitration agreement
and arbitrability of the dispute. The ratio decidendi of the judgement,
on these two aspects, is captured in the following passages:
"121. The courts at the referral stage do not perform
ministerial functions. They exercise and perform judicial
functions when they decide objections in terms of Sections 8
and 11 of the Arbitration Act. Section 8 prescribes the courts
to refer the parties to arbitration, if the action brought is the
12
(2007) 5 SCC 692
13
AIR 1968 SC 522
14
(2012) 2 SCC 93
15
(2014) 5 SCC 1
16
2020 SCC OnLine SC 1018
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subject of an arbitration agreement, unless it finds that prima
facie no valid arbitration agreement exists. Examining the
term 'prima facie', in Nirmala J. Jhala v. State of
Gujarat 17, this Court had noted:
"48. A prima facie case does not mean a case proved
to the hilt but a case which can be said to be
established if the evidence which is led in support of
the case were [to be] believed. While determining
whether a prima facie case had been made out or not
the relevant consideration is whether on the evidence
led it was possible to arrive at the conclusion in
question and not whether that was the only conclusion
which could be arrived at on that evidence."
122. Prima facie case in the context of Section 8 is not to be
confused with the merits of the case put up by the parties
which has to be established before the arbitral tribunal. It is
restricted to the subject matter of the suit being prima
facie arbitrable under a valid arbitration agreement. Prima
facie case means that the assertions on these aspects
are bona fide. When read with the principles of separation
and competence-competence and Section 34 of the
Arbitration Act, referral court without getting bogged-down
would compel the parties to abide unless there are good and
substantial reasons to the contrary.
123. Prima facie examination is not full review but a
primary first review to weed out manifestly and ex facie non-
existent and invalid arbitration agreements and non-
arbitrable disputes. The prima facie review at the reference
stage is to cut the deadwood and trim off the side branches in
straight forward cases where dismissal is barefaced and
pellucid and when on the facts and law the litigation must
stop at the first stage. Only when the court is certain that no
valid arbitration agreement exists or the disputes/subject
matter are not arbitrable, the application under Section 8
would be rejected. At this stage, the court should not get lost
in thickets and decide debatable questions of facts. Referral
proceedings are preliminary and summary and not a mini
trial. This necessarily reflects on the nature of the jurisdiction
exercised by the court and in this context, the observations of
17
(2013) 4 SCC 301
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B.N. Srikrishna, J. of 'plainly arguable' case in Shin-Etsu
Chemical Co. Ltd. 18 are of importance and relevance. Similar
views are expressed by this Court in Vimal Kishore Shah v.
Jayesh D. Shah 19 wherein the test applied at the pre-
arbitration stage was whether there is a "good arguable case"
for the existence of an arbitration agreement. The test of
"good arguable case" has been elaborated by the England and
Wales High Court in Silver Dry Bulk Company
Limited v. Homer Hulbert Maritime Company Limited 20, in
the following words:
"Good arguable case" is an expression which has been
hallowed by long usage, but it means different things
in different contexts. For the purpose of an application
under Section 18, I would hold that what must be
shown is a case which is somewhat more than merely
arguable, but need not be one which appears more
likely than not to succeed. It shall use the term "good
arguable case" in that sense. It represents a relatively
low threshold which retains flexibility for the Court to
do what is just, while excluding those cases where the
jurisdictional merits were so low that reluctant
respondents ought not to be put to the expense and
trouble of having to decide how to deal with arbitral
proceedings where it was very likely that the tribunal
had no jurisdiction. In this connection it is important to
remember that crossing the threshold of "good
arguable case" means that the Court has power to
make one of the orders listed in Section 18(3). It
remains for consideration whether it should do so as a
matter of discretion."
124. Appropriate at this stage would be a reference to the
judgment of the Delhi High Court in NCC Ltd. v. Indian Oil
Corporation Ltd. 21, wherein it has been held as under:
"59.1 In my view, the scope of examination as to
whether or not the claims lodged are Notified Claims
has narrowed down considerably in view of the
language of Section 11(6A) of the 1996 Act. To my
18
(2005) 7 SCC 234
19
(2016) 8 SCC 788
20
(2017) EWHC 44 (Comm)
21
Judgement dt 8th February, 2019 in Arb P 115/2018
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mind, once the Court is persuaded that it has
jurisdiction to entertain a Section 11 petition all that is
required to examine is as to whether or not an
arbitration agreement exists between the parties which
is relatable to the dispute at hand. The latter part of
the exercise adverted to above, which involves
correlating the dispute with the arbitration agreement
obtaining between the parties, is an aspect which is
implicitly embedded in sub-section (6A) of Section 11
of the 1996 Act, which, otherwise, requires the Court
to confine its examination only to the existence of the
arbitration agreement. Therefore, if on a bare perusal
of the agreement it is found that a particular dispute is
not relatable to the arbitration agreement, then,
perhaps, the Court may decline the relief sought for by
a party in a Section 11 petition. However, if there is a
contestation with regard to the issue as to whether the
dispute falls within the realm of the arbitration
agreement, then, the best course would be to allow the
arbitrator to form a view in the matter.
59.2 Thus, unless it is in a manner of speech, a chalk
and cheese situation or a black and white situation
without shades of grey, the concerned court hearing
the Section 11 petition should follow the more
conservative course of allowing parties to have their
say before the arbitral tribunal."
125. The nature and facet of non-arbitrability could also
determine the level and nature of scrutiny by the court at the
referral stage. Stravos Brekoulakis has differentiated between
contractual aspects of arbitration agreement which the court
can examine at referral stage and jurisdictional aspects of
arbitration agreement which he feels should be left to the
arbitral tribunal. John J. Barcelo III, referring to some
American decisions had divided the issue of non-arbitrability
into procedural and substantive objections. The procedurals
are 'gateway questions' which would presumptively be for
the arbitrator to decide at least at the first stage. In the Indian
context, we would respectfully adopt the three categories
in Boghara Polyfab Private Limited 22. The first category of
issues, namely, whether the party has approached the
22
National Insurance Co. Ltd v. Boghara Polyfab Pvt Ltd, (2009) 1 SCC 267
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appropriate High Court, whether there is an arbitration
agreement and whether the party who has applied for
reference is party to such agreement would be subject to
more thorough examination in comparison to the second and
third categories/issues which are presumptively, save in
exceptional cases, for the arbitrator to decide. In the first
category, we would add and include the question or issue
relating to whether the cause of action relates to action in
personam or rem; whether the subject matter of the dispute
affects third party rights, have erga omnes effect, requires
centralized adjudication; whether the subject matter relates
to inalienable sovereign and public interest functions of the
State; and whether the subject matter of dispute is expressly
or by necessary implication non-arbitrable as per mandatory
statue(s). Such questions arise rarely and, when they arise,
are on most occasions questions of law. On the other hand,
issues relating to contract formation, existence, validity and
non-arbitrability would be connected and intertwined with the
issues underlying the merits of the respective disputes/claims.
They would be factual and disputed and for the arbitral
tribunal to decide. We would not like be too
prescriptive, albeit observe that the court may for legitimate
reasons, to prevent wastage of public and private resources,
can exercise judicial discretion to conduct an intense yet
summary prima facie review while remaining conscious that
it is to assist the arbitration procedure and not usurp
jurisdiction of the arbitral tribunal. Undertaking a detailed
full review or a long-drawn review at the referral stage would
obstruct and cause delay undermining the integrity and
efficacy of arbitration as a dispute resolution mechanism.
Conversely, if the court becomes too reluctant to intervene, it
may undermine effectiveness of both the arbitration and the
court. There are certain cases where the prima
facie examination may require a deeper consideration. The
court's challenge is to find the right amount of and the context
when it would examine the prima facie case or exercise
restraint. The legal order needs a right balance between
avoiding arbitration obstructing tactics at referral stage and
protecting parties from being forced to arbitrate when the
matter is clearly non-arbitrable.
126. Accordingly, when it appears that prima facie review
would be inconclusive, or on consideration inadequate as it
requires detailed examination, the matter should be left for
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final determination by the arbitral tribunal selected by the
parties by consent. The underlying rationale being not to
delay or defer and to discourage parties from using referral
proceeding as a rue to delay and obstruct. In such cases a full
review by the courts at this stage would encroach on the
jurisdiction of the arbitral tribunal and violate the legislative
scheme allocating jurisdiction between the courts and the
arbitral tribunal. Centralisation of litigation with the arbitral
tribunal as the primary and first adjudicator is beneficent as it
helps in quicker and efficient resolution of disputes.
127. The Court would exercise discretion and refer the
disputes to arbitration when it is satisfied that the contest
requires the arbitral tribunal should first decide the disputes
and rule on nonarbitrability. Similarly, discretion should be
exercised when the party opposing arbitration is adopting
delaying tactics and impairing the referral proceedings.
Appropriate in this regard, are observations of the Supreme
Court of Canada in Dell Computer Corporation v. Union des
consommateurs and Olivier Dumoulin 23, which read:
"85. If the challenge requires the production and
review of factual evidence, the court should normally
refer the case to arbitration, as arbitrators have, for
this purpose, the same resources and expertise as
courts. Where questions of mixed law and fact are
concerned, the court hearing the referral application
must refer the case to arbitration unless the questions
of fact require only superficial consideration of the
documentary evidence in the record.
86. Before departing from the general rule of
referral, the court must be satisfied that the challenge
to the arbitrator's jurisdiction is not a delaying tactic
and that it will not unduly impair the conduct of the
arbitration proceeding. This means that even when
considering one of the exceptions, the court might
decide that to allow the arbitrator to rule first on his
or her competence would be best for the arbitration
process."
*****
23
(2007) 2 SCR 801
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130. As observed earlier, Patel Engineering Ltd. 24 explains
and holds that Sections 8 and 11 are complementary in nature
as both relate to reference to arbitration. Section 8 applies
when judicial proceeding is pending and an application is
filed for stay of judicial proceeding and for reference to
arbitration. Amendments to Section 8 vide Act 3 of 2016 have
not been omitted. Section 11 covers the situation where the
parties approach a court for appointment of an
arbitrator. Mayavati Trading Private Ltd. 25, in our humble
opinion, rightly holds that Patel Engineering Ltd. has been
legislatively overruled and hence would not apply even post
omission of sub-section (6-A) to Section 11 of the Arbitration
Act. Mayavati Trading Private Ltd. has elaborated upon the
object and purposes and history of the amendment to Section
11, with reference to sub-section (6-A) to elucidate that the
Section, as originally enacted, was facsimile with Article 11
of the UNCITRAL Model of law of arbitration on which the
Arbitration Act was drafted and enacted. Referring to the
legislative scheme of Section 11, different interpretations, and
the Law Commission's Reports, it has been held that the
omitted sub-section (6-A) to Section 11 of the Arbitration Act
would continue to apply and guide the courts on its scope of
jurisdiction at stage one, that is the pre-arbitration stage.
Omission of sub-section (6-A) by Act 33 of 2019 was with
the specific object and purpose and is relatable to by
substitution of sub-sections (12), (13) and (14) to Section 11
of the Arbitration Act by Act 33 of 2019, which, vide sub-
section (3A) stipulates that the High Court and this court shall
have the power to designate the arbitral institutions which
have been so graded by the Council under Section 43-I,
provided where a graded arbitral institution is not available,
the concerned High Court shall maintain a panel of arbitrators
for discharging the function and thereupon the High Court
shall perform the duty of an arbitral institution for reference
to the arbitral tribunal. Therefore, it would be wrong to accept
that post omission of sub-section (6-A) to Section 11 the ratio
in Patel Engineering Ltd. would become applicable.
131. We now proceed to examine the question, whether the
word 'existence' in Section 11 merely refers to contract
24
S.B.P. Ltd v. Patel Engineering Corpn Ltd, (2005) 8 SCC 618
25
Mayavati Trading Pvt Ltd v. Pradyuat Deb Burman, (2019) 8 SCC 714
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formation (whether there is an arbitration agreement) and
excludes the question of enforcement (validity) and therefore
the latter falls outside the jurisdiction of the court at the
referral stage. On jurisprudentially and textualism it is
possible to differentiate between existence of an arbitration
agreement and validity of an arbitration agreement. Such
interpretation can draw support from the plain meaning of the
word "existence'. However, it is equally possible,
jurisprudentially and on contextualism, to hold that an
agreement has no existence if it is not enforceable and not
binding. Existence of an arbitration agreement presupposes a
valid agreement which would be enforced by the court by
relegating the parties to arbitration. Legalistic and plain
meaning interpretation would be contrary to the contextual
background including the definition clause and would result
in unpalatable consequences. A reasonable and just
interpretation of 'existence' requires understanding the
context, the purpose and the relevant legal norms applicable
for a binding and enforceable arbitration agreement. An
agreement evidenced in writing has no meaning unless the
parties can be compelled to adhere and abide by the terms. A
party cannot sue and claim rights based on an unenforceable
document. Thus, there are good reasons to hold that an
arbitration agreement exists only when it is valid and legal. A
void and unenforceable understanding is no agreement to do
anything. Existence of an arbitration agreement means an
arbitration agreement that meets and satisfies the statutory
requirements of both the Arbitration Act and the Contract Act
and when it is enforceable in law. We would proceed to
elaborate and give further reasons:
(i) In Garware Wall Ropes Ltd. 26, this Court had
examined the question of stamp duty in an underlying
contract with an arbitration clause and in the context
had drawn a distinction between the first and second
part of Section 7(2) of the Arbitration Act, albeit the
observations made and quoted above with reference to
'existence' and 'validity' of the arbitration agreement
being apposite and extremely important, we would
repeat the same by reproducing paragraph 29 thereof:
26
Garware Wall Ropes Ltd. v. Coastal Marine Construction & Engineering Ltd, (2019) 9 SCC 209
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"29. This judgment in Hyundai Engg.
case 27 is important in that what was specifically
under consideration was an arbitration clause
which would get activated only if an insurer
admits or accepts liability. Since on facts it was
found that the insurer repudiated the claim,
though an arbitration clause did "exist", so to
speak, in the policy, it would not exist in law, as
was held in that judgment, when one important
fact is introduced, namely, that the insurer has
not admitted or accepted liability. Likewise, in
the facts of the present case, it is clear that the
arbitration clause that is contained in the sub-
contract would not "exist" as a matter of law
until the sub-contract is duly stamped, as has
been held by us above. The argument that
Section 11(6-A) deals with "existence", as
opposed to Section 8, Section 16 and Section
45, which deal with "validity" of an arbitration
agreement is answered by this Court's
understanding of the expression "existence"
in Hyundai Engg. case, as followed by us.";
Existence and validity are intertwined, and arbitration
agreement does not exist if it is illegal or does not
satisfy mandatory legal requirements. Invalid
agreement is no agreement.
(ii) The court at the reference stage exercises
judicial powers. 'Examination', as an ordinary
expression in common parlance, refers to an act of
looking or considering something carefully in order to
discover something (as per Cambridge Dictionary). It
requires the person to inspect closely, to test the
condition of, or to inquire into carefully (as per
Merriam-Webster Dictionary). It would be rather odd
for the court to hold and say that the arbitration
agreement exists, though ex facie and manifestly the
arbitration agreement is invalid in law and the dispute
in question is non-arbitrable. The court is not
powerless and would not act beyond jurisdiction, if it
rejects an application for reference, when the
27
United India Insurance Co. Ltd v. Hyundai Engineering & Construction Co. Ltd, (2018) 7 SCC 607
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arbitration clause is admittedly or without doubt is
with a minor, lunatic or the only claim seeks a probate
of a Will.
(iii) Most scholars and jurists accept and agree that
the existence and validity of an arbitration agreement
are the same. Even Starvos Brekoulakis accepts that
validity, in terms of substantive and formal validity,
are questions of contract and hence for the court to
examine.
(iv) Most jurisdictions accept and require prima
facie review by the court on non-arbitrability aspects at
the referral stage.
(v) Sections 8 and 11 of the Arbitration Act are
complementary provisions as was held in Patel
Engineering Ltd. The object and purpose behind the
two provisions is identical to compel and force parties
to abide by their contractual understanding. This being
so, the two provisions should be read as laying down
similar standard and not as laying down different and
separate parameters. Section 11 does not prescribe any
standard of judicial review by the court for
determining whether an arbitration agreement is in
existence. Section 8 states that the judicial review at
the stage of reference is prima facie and not
final. Prima facie standard equally applies when the
power of judicial review is exercised by the court
under Section 11 of the Arbitration Act. Therefore, we
can read the mandate of valid arbitration agreement in
Section 8 into mandate of Section 11, that is,
'existence of an arbitration agreement'.
(vi) Exercise of power of prima facie judicial review
of existence as including validity is justified as a court
is the first forum that examines and decides the request
for the referral. Absolute "hands off" approach would
be counterproductive and harm arbitration, as an
alternative dispute resolution mechanism. Limited, yet
effective intervention is acceptable as it does not
obstruct but effectuates arbitration.
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(vii) Exercise of the limited prima facie review does
not in any way interfere with the principle of
competence-competence and separation as to obstruct
arbitration proceedings but ensures that vexatious and
frivolous matters get over at the initial stage.
(viii) Exercise of prima facie power of judicial review
as to the validity of the arbitration agreement would
save costs and check harassment of objecting parties
when there is clearly no justification and a good
reason not to accept plea of non-arbitrability.
In Subrata Roy Sahara v. Union of India 28, this Court
has observed:
"191. The Indian judicial system is grossly
afflicted with frivolous litigation. Ways and
means need to be evolved to deter litigants from
their compulsive obsession towards senseless
and ill-considered claims. One needs to keep in
mind that in the process of litigation, there is an
innocent sufferer on the other side of every
irresponsible and senseless claim. He suffers
long-drawn anxious periods of nervousness and
restlessness, whilst the litigation is pending
without any fault on his part. He pays for the
litigation from out of his savings (or out of his
borrowings) worrying that the other side may
trick him into defeat for no fault of his. He
spends invaluable time briefing counsel and
preparing them for his claim. Time which he
should have spent at work, or with his family, is
lost, for no fault of his. Should a litigant not be
compensated for what he has lost for no fault?
The suggestion to the legislature is that a
litigant who has succeeded must be
compensated by the one who has lost. The
suggestion to the legislature is to formulate a
mechanism that anyone who initiates and
continues a litigation senselessly pays for the
same. It is suggested that the legislature should
consider the introduction of a "Code of
Compulsory Costs".
28
(2014) 8 SCC 470
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(ix) Even in Duro Felguera 29, Kurian Joseph, J., in
paragraph 52, had referred to Section 7(5) and
thereafter in paragraph 53 referred to a judgment of
this Court in M.R. Engineers and Contractors Private
Limited v. Som Datt Builders Limited 30 to observe
that the analysis in the said case supports the final
conclusion that the Memorandum of Understanding in
the said case did not incorporate an arbitration clause.
Thereafter, reference was specifically made to Patel
Engineering Ltd. and Boghara Polyfab Private
Limited to observe that the legislative policy is
essential to minimise court's interference at the pre-
arbitral stage and this was the intention of sub-section
(6) to Section 11 of the Arbitration Act. Paragraph 48
in Duro Felguera specifically states that the resolution
has to exist in the arbitration agreement, and it is for
the court to see if the agreement contains a clause
which provides for arbitration of disputes which have
arisen between the parties. Paragraph 59 is more
restrictive and requires the court to see whether an
arbitration agreement exists - nothing more, nothing
less. Read with the other findings, it would be
appropriate to read the two paragraphs as laying
down the legal ratio that the court is required to see if
the underlying contract contains an arbitration clause
for arbitration of the disputes which have arisen
between the parties - nothing more, nothing less.
Reference to decisions in Patel Engineering
Ltd. and Boghara Polyfab Private Limited was to
highlight that at the reference stage, post the
amendments vide Act 3 of 2016, the court would not go
into and finally decide different aspects that were
highlighted in the two decisions.
(x) In addition to Garware Wall Ropes Limited
case, this Court in Narbheram Power and Steel
Private Limited 31 and Hyundai Engg. & Construction
Co. Ltd., both decisions of three Judges, has rejected
the application for reference in the insurance contracts
holding that the claim was beyond and not covered by
29
Duro Felguera S.A. v. Gangavaram Port Ltd, (2017) 9 SCC 729
30
(2009) 7 SCC 696
31
Oriental Insurance Co. Ltd v. Narbheram Power & Steel Pvt Ltd, (2018) 6 SCC 534
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the arbitration agreement. The court felt that the legal
position was beyond doubt as the scope of the
arbitration clause was fully covered by the dictum
in Vulcan Insurance Co. Ltd 32. Similarly, in PSA
Mumbai Investments PTE. Limited 33, this Court at the
referral stage came to the conclusion that the
arbitration clause would not be applicable and govern
the disputes. Accordingly, the reference to the arbitral
tribunal was set aside leaving the respondent to pursue
its claim before an appropriate forum.
(xi) The interpretation appropriately balances the
allocation of the decision-making authority between
the court at the referral stage and the arbitrators'
primary jurisdiction to decide disputes on merits. The
court as the judicial forum of the first instance can
exercise prima facie test jurisdiction to screen and
knockdown ex facie meritless, frivolous and dishonest
litigation. Limited jurisdiction of the courts ensures
expeditious, alacritous and efficient disposal when
required at the referral stage.
132. Section 43(1) of the Arbitration Act states that the
Limitation Act, 1963 shall apply to arbitrations as it applies to
court proceedings. Sub-section (2) states that for the purposes
of the Arbitration Act and Limitation Act, arbitration shall be
deemed to have commenced on the date referred to in Section
21. Limitation law is procedural and normally disputes, being
factual, would be for the arbitrator to decide guided by the
facts found and the law applicable. The court at the referral
stage can interfere only when it is manifest that the claims
are ex facie time barred and dead, or there is no subsisting
dispute. All other cases should be referred to the arbitral
tribunal for decision on merits. Similar would be the position
in case of disputed 'no claim certificate' or defence on the
plea of novation and 'accord and satisfaction'. As observed
in Premium Nafta Products Ltd. 34, it is not to be expected
that commercial men while entering transactions inter
se would knowingly create a system which would require that
the court should first decide whether the contract should be
32
Vulcan Insurance Co. Ltd v. Maharaj Singh, (1976) 1 SCC 943
33
PSA Mumbai Investments Pte Ltd v. Board of Trustees of the Jawaharlal Nehru Port Trust, Civil
Appeal No. 9352 of 2018, decided on 11th September, 2018
34
Filli Shipping Co. Ltd v. Premium Nafta Products Ltd, 2007 UKHL 40 : 2097 Bus LR 1719 (HL)
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rectified or avoided or rescinded, as the case may be, and
then if the contract is held to be valid, it would require the
arbitrator to resolve the issues that have arisen.
*****
136. Which approach as to interpretation of an arbitration
agreement should be adopted in a particular case would
depend upon various factors including the language, the
parties, nature of relationship, the factual background in
which the arbitration agreement was entered, etc. In case of
pure commercial disputes, more appropriate principle of
interpretation would be the one of liberal construction as
there is a presumption in favour of one-stop adjudication.
137. Accordingly, we hold that the expression 'existence of
an arbitration agreement' in Section 11 of the Arbitration
Act, would include aspect of validity of an arbitration
agreement, albeit the court at the referral stage would apply
the prima facie test on the basis of principles set out in this
judgment. In cases of debatable and disputable facts, and
good reasonable arguable case, etc., the court would force
the parties to abide by the arbitration agreement as the
arbitral tribunal has primary jurisdiction and authority to
decide the disputes including the question of jurisdiction and
non-arbitrability.
138. Discussion under the heading 'Who decides
Arbitrability?' can be crystallized as under:
(a) Ratio of the decision in Patel Engineering
Ltd. on the scope of judicial review by the court while
deciding an application under Sections 8 or 11 of the
Arbitration Act, post the amendments by Act 3 of 2016
(with retrospective effect from 23.10.2015) and even
post the amendments vide Act 33 of 2019 (with effect
from 09.08.2019), is no longer applicable.
(b) Scope of judicial review and jurisdiction of the
court under Section 8 and 11 of the Arbitration Act is
identical but extremely limited and restricted.
(c) The general rule and principle, in view of the
legislative mandate clear from Act 3 of 2016 and Act
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33 of 2019, and the principle of severability and
competence-competence, is that the arbitral tribunal is
the preferred first authority to determine and decide
all questions of non-arbitrability. The court has been
conferred power of "second look" on aspects of
nonarbitrability post the award in terms of sub-clauses
(i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of
Section 34(2)(b) of the Arbitration Act.
(d) Rarely as a demurrer the court may interfere at
the Section 8 or 11 stage when it is manifestly and ex
facie certain that the arbitration agreement is
nonexistent, invalid or the disputes are non-arbitrable,
though the nature and facet of non-arbitrability would,
to some extent, determine the level and nature of
judicial scrutiny. The restricted and limited review is
to check and protect parties from being forced to
arbitrate when the matter is demonstrably 'non-
arbitrable' and to cut off the deadwood. The court by
default would refer the matter when contentions
relating to non-arbitrability are plainly arguable;
when consideration in summary proceedings would be
insufficient and inconclusive; when facts are
contested; when the party opposing arbitration adopts
delaying tactics or impairs conduct of arbitration
proceedings. This is not the stage for the court to enter
into a mini trial or elaborate review so as to usurp the
jurisdiction of the arbitral tribunal but to affirm and
uphold integrity and efficacy of arbitration as an
alternative dispute resolution mechanism."
(Emphasis supplied)
31. The import of the above passages from Vidya Drolia16 is clear
and unmistakable. Section 11(6A) of the 1996 Act has been held to
continue to apply, as a guiding principle to be followed by courts at
the referral stage, even after its omission. Even while holding that the
"arbitrability" of the dispute, along with the aspect of existence of an
arbitration agreement between the parties, could be examined, to a
limited extent, by the Court exercising jurisdiction under Section 8 or
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Section 11 of the 1996 Act, the Supreme Court has been circumspect,
many times over, in emphasising the limitations of the Court in this
regard. It has been made unmistakably clear that, in exercise of its
limited scope of authority, to examine the questions of existence of
the arbitration agreement and arbitrability of the dispute, at the
referral stage, the Court has to be careful not to usurp the jurisdiction
of the arbitral tribunal which, ideally, should examine these aspects.
The scope of examination by the referral court under Section 11(6),
into the aspects of existence of the arbitration agreement, or
arbitrability of the dispute, is, strictly, prima facie. In other words, it
is only if, prima facie, the Court finds that no valid arbitration
agreement exists, that it would refuse to refer the dispute to
arbitration. In undertaking this exercise, the Court should not get lost
in thickets, or enter into debatable factual issues. Unless there are
good and substantial reasons to the contrary, the Court is required to
compel the parties to abide by the arbitration agreement. It is only in
the case where the arbitration agreement is "ex facie non-existent or
invalid", or the dispute is ex facie non-arbitrable, that the court would
refuse to refer the dispute to arbitration. The intention is "to cut off
the deadwood and trim off the side branches in straightforward cases
where dismissal is barefaced and pellucid and when on the facts and
law the litigation must stop at the first stage", and to ensure that
"vexatious and frivolous matters get over at the initial stage". This
would also "save costs and check harassment of objecting parties
when there is clearly no justification and a good reason not to accept
the plea of non-arbitrability". "Senseless and ill-considered claims"
and "ex facie meritless, frivolous and dishonest litigation" were
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required to be weeded out, as, "on the other side of a very
irresponsible and senseless claim", there was an innocent sufferer.
Certainty, in the mind of the Court, that no valid arbitration agreement
exists or that the disputes/subject matter are not arbitrable, is the sine
qua non for rejection of the prayer for referring the dispute to
arbitration, whether made under Section 8 or Section 11. The scope
of examination at this stage is preliminary and summary and not in the
nature of a mini-trial.
32. The Supreme Court also clarified that the "existence" of the
arbitral agreement also included, within its scope, the enforceability
thereof, as an unenforceable agreement could not be regarded as
"existing". As such, existence and validity were intertwined. An
arbitration agreement does not exist if it is illegal or does not satisfy
the mandate of the legal requirements. An invalid agreement is no
agreement. "Existence" and "validity" were, to an extent, even
synonymous. Examples were cited, to clarify the position, as in the
case of an agreement with the minor, or a lunatic, or where the only
claim was for probate of a will.
33. It has been made further clear that the dispute would be
regarded as "non-arbitrable", at the Section 8 or Section 11 stage, only
where the nature of the dispute is ex facie non-arbitrable, or where the
dispute does not relate to the arbitration agreement. The situation has
to be "chalk and cheese" or, alternatively, "black and white... without
shades of grey". In all other cases, the Section 11 court should follow
the more conservative course of allowing the parties to have their say
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before the arbitral tribunal. Cases where the dispute is, by law, ex
facie non-arbitrable, would, for example, be criminal cases, cases
involving exercise of sovereign power, cases which, by statutory fiat,
are required to be determined by courts, cases in which the cause of
action is in rem, or where the subject matter of the dispute affects
third parties or has erga omnes effect, requiring centralised
adjudication. "On the other hand, issues relating to contract
formation, existence, validity and non-arbitrability ... would be factual
and disputed and for the arbitral tribunal to decide". Questions
involving mixed issues of fact and law have to be left to the arbitral
tribunal.
34. In order to underscore the limitations of the Section 8, or
Section 11 Court, in entering into debatable issues of existence of the
arbitration agreement or arbitrability, the Supreme Court has
emphasised the purpose behind conferring a limited jurisdiction, on
the referral court, to examine these aspects. The conferral of such
limited jurisdiction is intended "to prevent wastage of public and
private resources", and to protect parties from being forced to arbitrate
when the matter is clearly non-arbitrable. Where, however, prima
facie review appears to be inconclusive, or inadequate as it requires
detailed examination, the matter has to be left for determination by the
arbitral tribunal. Parties should not be allowed to use the referral
proceedings as a ruse to delay or obstruct resolution of the dispute.
Unjustified impairment of the referral proceedings should not be
permitted. Even in cases which may fall under one of the limited
categories where prima facie examination is permitted under Section
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8 or Section 11, the Court may, nevertheless, decide that allowing the
arbitrator to rule first on her, or his, competence would be best for the
arbitration process.
35. This position was alternately exposited, by the Supreme Court,
as clarifying that the requirement of the court was "to see if the
underlying contract contains an arbitration clause for arbitration of the
disputes which have arisen between the parties - nothing more,
nothing less". The court was permitted to interfere at the referral
stage "only when it is manifest that the claims are ex facie time-barred
and dead, or there is no subsisting dispute", all other cases requiring to
be referred to the arbitral tribunal for decision on merits. The position
was summed up by holding that "in case of debatable and disputable
facts and good reasonable arguable case, etc., the court would force
the parties to abide by the arbitration agreement as the arbitral tribunal
has primary jurisdiction and authority to decide the disputes including
the question of jurisdiction and non-arbitrability".
36. Significantly, the Supreme Court opined that, in the case of
pure commercial disputes, the more appropriate principle of
interpretation would be one of liberal construction, as there was a
presumption in favour of one-stop adjudication.
37. On the aspect of examination of the arbitrability of the dispute
at the referral stage, the Supreme Court held that "the court by default
would refer the matter when contentions regarding to non-arbitrability
are plainly arguable; when consideration in summary proceedings
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would be insufficient and inclusive; when facts are contested; when
the party opposing arbitration adopts delaying tactics or impairs
conduct of arbitration proceedings", cautioning the court not to usurp
the jurisdiction of the arbitral tribunal, but to affirm and uphold the
integrity and efficacy of arbitration as an alternative dispute resolution
mechanism.
38. Nearly two decades ago, an Hon'ble Single Judge of the
Supreme Court had, in Nimet Resources. Inc. v. Esaar Steel Ltd 35,
expressed much the same view, by holding that "in a matter where
there has been some transaction between the parties and the existence
of the arbitration agreement is in challenge, the proper course for the
parties is to thrash out such question under Section 16 of the Act and
not under Section 11 of the Act".
39. Nimet Resources16, I may note, was subsequently followed by
the Supreme Court in Unissi1, which was also a case in which the
formal contract was signed by one of the parties, on which Mr.
Viswanathan placed reliance. Unissi1 also involved a case in which
the contract had not been signed by both parties. Even so, in para 19
of the report, the Supreme Court concluded thus:
"Therefore, considering the above aspects of the matter in this
case, we must come to this conclusion that no formal
agreement was executed, the tender documents indicating
certain conditions of contract contained an arbitration clause.
It is also an admitted position that the appellant gave his
tender offer which was accepted and the appellant acted on it.
Accordingly, we are of the view that the learned Additional
District Judge, Chandigarh erred in holding that there did not
35
(2000) 7 SCC 497
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exist any arbitration agreement between the parties and,
therefore, the order passed by him is liable to be set aside."
40. Can the objection, of Mr. Karia, be regarded as so impressive,
as to reject the prayer for referring the disputes to arbitration, applying
the standards prescribed in Vidya Drolia16 ? I think not. In my view,
all the issues raised by Mr. Karia, in opposition to the case set up by
the petitioner for reference of dispute to arbitration, stand answered by
the aforesaid decisions.
41. Unquestionably, the parties - including the respondent - have
acted in accordance with the covenants of the GCC. As has been
correctly pointed out by Mr. Viswanathan, consequent to issuing of
the letters of award, the respondent called upon the petitioner to
perform in accordance with the said letters. In these circumstances, it
would be appropriate for the issue of the existence of the arbitration
agreement to be examined, not by this Court under Section 11(6), but
by the Arbitral Tribunal under Section 16 of the 1996 Act.
42. Nevertheless, given the opposition put up by Mr. Karia to the
very issue of existence of an arbitration agreement, the matter may be
examined in somewhat greater detail.
43. For this purpose, it would be appropriate to proceed
sequentially, through the various agreements and communications, in
the present case.
44. The NIT was brought out by the respondent on 5th July, 2018.
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Clause 3.2.A.1.2 required the bidder to propose the name of a Float
Technology Provider, for supply of floats for use in the project.
Clause 3.2.A.4 set out the criteria to be fulfilled by a bidder who
sought to engage the services of a Float Technology Provider as sub-
contractor. Sub-clause (vi) therein required the sub-contractor to
submit a Performance Bank Guarantee (hereinafter referred to as
PBG), equivalent to 5% of the value of work sub-let to it. This was in
addition to the PBG for the entire contract, to be submitted by the
bidder, i.e., in the present case, the petitioner. Clause 4 required the
work to be completed within 10 years of Notice of Award/Letter of
Award.
45. The covenants of the ITB were, to a large extent, overlapping
with those of the NIT. Clause 3.2.A.1.2 of the ITB replicated the
corresponding clause in the NIT. The requirement of an Integrity Pact
is to be found in Clause 3.7 of the ITB, which required the bidder to
submit an Integrity Pact, duly signed, as per Clause 33 of the ITB.
The format of the Integrity Pact was contained in Annexure 2 to the
ITB.
46. Clause 27 of the ITB set out the "Award Criteria". Clause
27.1(b) stipulated that the mode of contracting, with the successful
bidder, would be as per the relevant clauses of the GCC/SCC. Three
contracts were to be executed, the first for supply of plant, equipment
and materials, the second for providing services and the third for
comprehensive operation and maintenance after commissioning of the
project. Clause 29 dealt with notification of the award, and sub-clause
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29.1 thereunder required the employer, i.e. the respondent to notify the
successful bidder regarding acceptance of its bid prior to the expiry of
the bid validity period. The said clause went on to state in clear and
categorical terms, that "the notification of award (would) constitute
the formation of the contract and (would) be considered for all
purposes of execution of contract provisions till such time the signing
of the Contract Agreement". There can be, therefore, no manner of
doubt that the contract between the parties cannot be said to have
come into existence only when the Contract Agreement between them
was signed, but that a contractual relationship commenced from the
date of notification of award by the respondent, i.e. from the date of
issuance of the three LOAs in the present case.
47. Clause 30 of the ITB required the employer to prepare a
Contract Agreement. The second part of the said Clause required the
employer and the bidder, i.e. the petitioner and the respondent, to sign
the Contract Agreement within 14 days of receipt of notice of
readiness of the Contract Agreement. I may note that there is no other
reference, either in the NIT or in the ITB of the "notice of readiness"
of the "Contract Agreement".
48. Clause 31 of the ITB required the bidder to furnish performance
security, as per Clause 13.3 of the GCC, within 28 days of receipt of
notification of award. Clause 31.2 provided that, in the event of
failure, by the bidder, to comply with Clause 30 or Clause 31.1, the
employer i.e. the respondent could annul the award and forfeit the bid
security. According to Mr. Karia, this has already happened in the
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present case, vide letter dated 2nd March, 2020 addressed to the
petitioner.
49. Clause 32 dealt with corrupt, fraudulent, collusive or coercive
practices by the bidder. "Corrupt practice" was defined in Clause
32.1(a)(i) as meaning "the offering, giving, receiving or soliciting,
directly or indirectly of anything of value to influence the action of a
public official in the procurement process or in contract execution".
Clause 32.1(b) envisaged the signing of an Integrity Pact between the
prospective bidder and the employer, binding both parties not to
exercise any corrupt influence on any aspect of the tender/contract.
Clause 32.1(e) dealt with banning of business dealings, and
enumerated the various circumstances in which business dealings
could be banned. These were if
(i) any question of loyalty of the bidder to NHPC arose,
(ii) the director, owner, proprietor or partner of the bidder
firm was convicted by a court of law, for offences, involving
moral turpitude, during the last five years,
(iii) the bidder resorted to corrupt, fraudulent, collusive or
coercive practices, including misrepresentation of facts and
violation of any of the provisions of the Integrity Pact,
(iv) the bidder used intimidation/threatening or exercised
undue outside pressure on NHPC, for obtaining the contract,
(v) the bidder misused the premises or facilities of the
respondent,
(vi) the bidder did not fulfil the obligations as required under
the contract, and violated its terms and conditions, which
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seriously affected the continuation of the contract,
(vii) the work was terminated by the respondent due to poor
performance of the contract in the preceding five years,
(viii) banning of business dealings were recommended by any
Central Government Investigating Agency or
(ix) continuation of business dealings with the bidder was not
in the public interest or
(x) business dealings with the bidder have been banned by
the Ministry of Power or any PSU or authority under the
Ministry of Power.
50. Clause 33 specifically dealt with the Integrity Pact, which was
required to be signed by the prospective bidder, as well as by
respondent, and proscribed exercise of any corrupt, fraudulent,
collusive or coercive practice by the prospective bidder in the
tendering process and during implementation of the contract.
Execution of the Integrity Pact was a qualifying requirement for
participating in the bidding process.
51. The specifics of the Integrity Pact were to be found in
Annexure-2 to the ITB. Clause 3.0 set out the various commitments of
the bidder/contractor under the Integrity Pact, and also stands
reproduced hereinabove. Any breach of the said provisions by the
bidder entitled the employer, i.e. NHPC, to take action as per the
"Guidelines of Banning of Business Dealings", and initiate any or all
of the eight courses of action contemplated by the various sub-clauses
under Clause 6.1 of the Integrity Pact.
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52. Annexure-2A to the ITB contained the "Guidelines on Banning
of Business Dealings". Clauses 4.0 and 5.0 dealt with suspension of
business dealings and the procedure to be followed in respect thereof,
and Clauses 6.0 and 7.0 dealt with banning business dealings. Clause
7.4 contemplated issuance of a Show Cause Notice. The Annexures to
the NIT were in six volumes, of which (i) Volume 0 contained
instructions to bidders (ITB), (ii) Volume-1 contained information to
bidder (IFB), (iii) Volume-2 contained the conditions of contract, of
which Part-A contained the General Conditions of Contract (GCC)
and Part-B contained the Special Conditions of Contract (SCC), (iv)
Volume-3 contained the employer's requirement (Technical
requirement) and (v) Volume-4 contained Technical Data Sheets and
(vi) Volume-5 contained Forms & Procedures.
53. In the present case, the recital of facts hereinabove indicate,
prima facie, that the respondent has proceeded in accordance with this
procedure, by first suspending the business dealings with the
petitioner, thereafter, banning business dealings and, thereafter,
issuing the Show Cause Notice.
54. The GCC and the SCC constituted volume 2A and 2B to NIT.
The notes on the GCC read thus:
"Notes on the General Conditions of Contract
The General Conditions of Contract in Volume 2A, read in
conjunction with the Special Conditions of Contract in
Volume 2B and other documents listed therein, is a complete
document expressing all the rights and obligations of the
parties."
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55. Volume-2 to the Annexure to the NIT, as already noted
hereinabove, contained the conditions of contract, of which Part-A
contained the GCC and SCC.
56. It is not necessary to go into the various clauses of the GCC.
Suffice it to state that Clause 6.3 provided for arbitration as the mode
of resolution of dispute between the parties.
57. Vide letter dated 30th November, 2018, the respondent informed
the petitioner that its bid had been found techno-commercially
responsive treating Y2G as the sub-contractor under Clause 3.2.A.1.2
of the NIT/ITB. Thereafter, the auction took place and the petitioner
emerged as the successful bidder. After several extensions of the
period of validity of the bid of the petitioner, the respondent issued
three LOAs, on 20th September, 2019, to the petitioner, in accordance
with Clause 27 of the ITB, which contemplated the execution of three
contracts.
58. Para 2.0 of each of the said LOAs, dated 20th September, 2019,
clearly stated that the respondent accepted the petitioner's proposal
and awarded the petitioner the contract for the work. Para 3.0 of each
of the said Letters of Award made cross-reference to the award, to the
petitioner, of the other two contracts and went on to caution the
petitioner that the "breach of any one contract (would) automatically
be construed as breach of other contracts", resulting in a right, to
NHPC, to recover liquidated damages under Clause 26.2 of the GCC
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or terminate the other contracts. Para 5.0 confirmed the selection of
Y2G as the sub-contractor for providing float device technology and
required the sub-contractor to submit PBG equivalent to 5% of the
value of work sub-let to it. Para 6.0 of the LOAs called upon the
petitioner to prepare and finalise the contract documents for filing of
the formal contract document, within 28 days from the LoA - which
is, alternatively, referred to as "notification of the award".
59. Prima facie, by virtue of Clause 29.1 of the ITB, with the
communications of the aforesaid three LOAs/notification of award to
the petitioner, a contract had come into being between the petitioner
and the respondent, which would continue to remain in force till the
formal contract agreements were signed.
60. On 13th November, 2019, the respondent called upon the
petitioner to sign the Contract Agreement by 15th November, 2019.
Thereafter, vide letter dated 20th November, 2019, the petitioner was
requested to sign the Contract Agreement on or before 30th November,
2019, with the further stipulation that no further extension for signing
of the Contract Agreement, beyond 30th November, 2019, would be
granted.
61. Thereafter, vide communication dated 2nd March, 2020, the
respondent cancelled the award of work to the petitioner on the ground
that (i) the petitioner had not submitted bank guarantee equivalent to
5% of the value of work sub-let to Y2G, along with joint deed of
undertaking from Y2G, (ii) the Integrity Pact, between the petitioner
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and Y2G had not been signed, (iii) the petitioner had not signed
formal Contract Agreement with the respondent within the extended
time therefor.
62. It is in the backdrop of these facts, that I am required to
examine whether a clear case for holding that no arbitration agreement
existed between the parties, as there was no concluded Contract
Agreement between them, save and except for the Integrity Pact, as
Mr. Tejas Karia would seek to contend, exists, so as to non-suit the
petitioner entirely, or whether this issue ought to be left for decision
by an Arbitral Tribunal, to be constituted by this Court.
63. The first contention of Mr. Karia is that the invocation, by the
petitioner, of Clause 6.3 of the GCC, was unjustified in law, as the
only concluded agreement between the parties was the Integrity Pact.
The judgements cited hereinabove make it clear that the mere non-
signing of the contract by both parties does not conclude the issue,
especially where there are other correspondences and transactions
between them, or the parties have acted on the basis of the covenants
of the unsigned contract. Unissi1 appears to have dealt with a similar
situation, and the attempt of Mr Karia to distinguish the said decision
on the basis of some facts which may not obtain in the present case
may be open to debate, especially in the light of the observations
contained in para 19 of the report in the said case, already reproduced
hereinbefore. The fact that the Integrity Pact is essentially in the
nature of an Annexure to the Bid Documents, may also be relevant.
Another consideration, to which Mr. Viswanathan has correctly
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alluded, is that an arbitration agreement exists independent of the main
contract, and the unenforceability of the main contract, even if
presumed, does not invalidate, or render unenforceable, the arbitration
agreement. Besides, the effect of Clause 29.1 of the ITB also merits
examination.
64. In response to the submission, of Mr. Viswanathan, that, by
virtue of Clause 29.1 of the ITB, a contractual relationship, between
the petitioner and the respondent, was in existence consequent to the
issuance of the LOAs dated 20th September, 2019, even before signing
of the formal contract agreement, Mr. Karia sought to submit that the
respondent had withdrawn the LOAs, vide communication dated 2nd
March, 2020. Mr. Viswanathan contested, inter alia, the legality of
such annulment. The letter dated 2nd March, 2020 cites, as a
justification for the decision to annul the LOAs, (i) failure, on the part
of the petitioner, to submit the Performance Bank Guarantee @ 5%
from Y2G, for the value of work sublet, along with Joint Deed of
Undertaking, as well as the Integrity Pact signed by Y2G and (ii)
failure, on the part of the petitioner, to sign the Contract Agreement
within the extended time provided by the respondent. Annulment of
the LOAs is contemplated by Clause 31.2 of the ITB. (It may require
consideration whether, having invoked Clause 31.2 of the ITB, it is
open to the respondent to contend that the only contractual document,
signed between the parties, having effect in law, was the Integrity
Act.) Clause 31.2 permits annulment of the LOAs on failure, of the
bidder, to comply with Clause 30 or Clause 31.1 of the ITB. Clause
31.1 envisages furnishing, by the bidder, of performance security as
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per Clause 13.3 of the GCC. (Here, again, it becomes arguable
whether the respondent can, on the one hand, allege infraction of
Clause 31.1 of the ITB and, simultaneously, contend that the GCC was
not enforceable.) Clause 13.3 of the GCC does not envisage
furnishing of any bank guarantee by the subcontractor. It merits
consideration, therefore, whether non-furnishing of the 5% bank
guarantee by Y2G can be treated as constituting non-compliance with
Clause 31.1 of the ITB. Similarly, Clause 30 of the ITB undoubtedly
envisages signing of the Contract Agreement within 14 days of receipt
of notice of readiness by the employer, i.e. by the respondent. Mr.
Viswanathan has disputed the mandatory nature of the said 14-day
period, once the respondent had itself extended the period. As to
whether the said 14-day period is, therefore, of the essence of the
contractual relationship between the petitioner and respondent also,
therefore, becomes arguable. In sum, the legality of the decision, of
the respondent, to annul the LOAs, is open to debate. The
justifiability of the reliance, by the respondent, on the said
"annulment", vide the communication dated 2nd March, 2020 is also,
therefore, debatable.
65. Issues relating to formation of the contract, as well as its
existence and validity have, expressly, been held, in Vidya Drolia16,
to, ideally, merit resolution by the arbitral process, rather than by the
referral Court, especially where the contract is commercial in nature.
66. Mr. Karia next contended that the actions against the petitioner
had been taken under the Integrity Pact, and not under the main
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contract. This, in my view, is highly contestable. There is no
reference to the Integrity Pact, in the letter, dated 2nd March 2020,
proposing to annul the LOAs, the communication dated 9th March,
2020, informing the petitioner that it had been decided to ban business
dealings with it, or the Show Cause Notice dated 19th June, 2020. Nor
do the allegations, contained in these communications, prima facie,
relate to any of the commitments of the petitioner, under the Integrity
Pact, or allege, directly or indirectly, collusion, corruption, or any
other such misfeasance. The submission of Mr. Viswanathan, that the
respondent has sought to piggyback on the Integrity Pact, only in its
response to the present petition of the petitioner, so as to defeat the
petition also, therefore, merits consideration. It cannot be said that the
material on record unequivocally discloses that the communications
from the respondents to the petitioner, with which the petitioner is
aggrieved, have been issued under the Integrity Pact.
67. The objection to territorial jurisdiction being also premised on
the contention that, apart from the Integrity Pact, there was no
concluded contract between the petitioner and the respondent, I am not
convinced that the present petition can be dismissed as incompetent
before this Court.
68. Mr. Karia also sought to invoke Section 7 of the Contract Act,
in juxtaposition with his contention that the petitioner had failed to
comply with the requirements of the LOAs. This contention is,
however, premised on the assumption that the LOAs constituted offers
and that, sans any unconditional acceptance of these offers, no
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contract came into being. Mr. Viswanathan contends, per contra, that
the very issuance of the LOAs indicated acceptance of the petitioner's
bids, in terms of the Bid Documents, which included the GCC - for
which purpose reliance is placed on Clause 6.1 of the ITB. This,
again, is an arguable issue, which ought, appropriately, to be examined
by the Arbitral Tribunal.
69. All other questions on which the petitioner and respondent have
joined issue, clearly, are amenable to resolution by the arbitral
process, given the overarching jurisdiction of the Arbitral Tribunal
under the provisions of the 1996 Act, including, inter alia, Section 16.
I do not deem it necessary or appropriate to deal with all the
submissions, here. I am, nevertheless, constrained to hold that Mr.
Karia has not been able to make out a case either of clear non-
existence of the arbitration agreement, contained in Clause 6.3 of the
GCC, within the Vidya Drolia16 parameters. The issue is, at the very
least, arguable, and, especially given the fact that it relates to purely
commercial contracts, ought, in my view, to be agitated before the
learned Arbitral Tribunal which, in its kompetenz-kompetenz
jurisdiction, is well within its authority to pronounce on the existence
of the arbitration agreement as well.
70. The prayer for referring of the disputes to arbitration, as
contained in Arb. P. 217/2020, therefore, deserves to succeed.
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Conclusion
71. Accordingly, Arb. P. 217/2020 is allowed. The disputes
between the petitioner and respondent are referred for arbitration to
the Delhi International Arbitration Centre. The Delhi International
Arbitration Centre would proceed in the matter in accordance with the
various subclauses of Clause 6.3 of the General Conditions of
Contract and in accordance with the DIAC (Arbitration Proceedings)
Rules, 2018. The DIAC would appoint a suitable sole arbitrator to
arbitrate on the disputes, out of the panel maintained by it or as
otherwise agreed between the parties.
72. The learned arbitrator, appointed by the DIAC, would proceed
with the matter uninfluenced by the observations contained in this
judgement, which are only intended to address the objections, of Mr
Karia, regarding the very maintainability of the present proceedings,
especially regarding the existence, or otherwise, of the arbitration
agreement. On all aspects, including the existence of the arbitration
agreement as well as the arbitrability of the dispute, therefore, the
learned arbitrator would be free to take a view, unencumbered by this
judgement or the opinions expressed therein, which are merely prima
facie.
73. OMP (I) (Comm) 162/2020 is disposed of, by allowing the
petitioner to prefer the said petition before the Arbitral Tribunal to be
constituted by the DIAC, as an application under Section 17 of the
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1996 Act, to be decided by the Arbitral Tribunal in accordance with
law.
74. There shall be no orders as to costs.
C. HARI SHANKAR, J.
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