Karnataka High Court
Bangalore Streetlighting vs Bruhat Bengaluru Mahanagara Palike on 1 February, 2023
Author: R Devdas
Bench: R Devdas
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CMP No. 650 of 2022
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 1ST DAY OF FEBRUARY, 2023
BEFORE
THE HON'BLE MR JUSTICE R DEVDAS
CIVIL MISC. PETITION NO. 650 OF 2022
BETWEEN:
BANGALORE STREETLIGHTING
PRIVATE LIMITED
HAVING ITS REGISTERED OFFICE
AT SP CENTRE, 41/44
MINOO DESAI MARG
COLABA MUMBAI-400005
REPRESENTED BY ITS
POWER OF ATTORNEY HOLDER
MR TAPAS CHATTERJEE
...PETITIONER
(BY SRI. G.VIJAY ANAND, ADVOCATE
SRI. VENUGOPAL M S., ADVOCATE)
Digitally
AND:
signed by
JUANITA BRUHAT BENGALURU MAHANAGARA PALIKE
THEJESWINI
Location:
HAVING ITS PRINCIPAL OFFICE
HIGH AT N R SQUARE
COURT OF BENGALURU-560002
KARNATAKA
REPRESENTED BY ITS COMMISSIONER
...RESPONDENT
(BY SRI. SATYANAND B S., ADVOCATE)
THIS CIVIL MISCALLENEOUS PETITON IS FILED UNDER
SECTION 11(5) OF THE ARBITRATION AND CONCILIATION ACT
1996, PRAYING TO APPOINT AN ARBITRATOR UNDER SECTION
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CMP No. 650 of 2022
11 AND SECTION 5 OF THE INDIAN ARBITRATION AND
CONCILIATION ACT, 1996 FOR RESOLVING THE DISPUTE
BETWEEN THE PETITIONER AND THE RESPONDENT ARISING
OUT OF THE ENERGY PERFORMANCE CONTRACT DATED
01/03/2019 R/W THE NOVATION AGREEMENT DATED
01/06/2019 AND ETC.
THIS PETITION, COMING ON FOR ADMISSION, THIS DAY,
THE COURT MADE THE FOLLOWING:
ORDER
R.DEVDAS J., (ORAL):
The petitioner has filed this Civil Miscellaneous Petition under Section 11(5) of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator to resolve the dispute between the parties arising out of the Energy Performance Contract dated 01.03.2019 in terms of clause 25.2 and 25.3 r/w the Novation Agreement dated 13.06.2019 in terms of clause 6.
2. Certain undisputed facts are that pursuant to a tender process initiated by the respondent Bruhat -3- CMP No. 650 of 2022 Bengaluru Mahanagara Palike (BBMP) to develop an energy efficient public lighting system in Bengaluru city on a Public-Private Partnership basis (for short 'PPP'), the petitioner which is a consortium of Shapoorji Pallonji and Company Pvt. Ltd., SMC Infrastructures Pvt. Ltd., and Samudra Electronic System Pvt. Ltd., participated in the tender process and was awarded the contract. The parties entered into a contract on 01.03.2019 stipulating the terms and conditions of the entire project (in short which shall be referred to as 'Energy Performance Contract' or EPC). The consortium was required to incorporate a special purpose vehicle i.e., an Energy Service Company (for short 'ESCO'). Accordingly, the petitioner company was incorporated for that purposes on 28.03.2019. The parties also entered into a Novation Agreement on 13.06.2019 under which all the liabilities, obligations and duties as per the EPC was entrusted to the petitioner.
3. It is not disputed that as per the EPC, the petitioner was to complete the works within a period of 30 -4- CMP No. 650 of 2022 months effective from 13.06.2019. However, at this stage learned counsel for the petitioner submits that effective date was agreed to be 18.06.2020 as per the Annexures-F and G. The petitioner was required to install 4,85,246 street lights, in a phased manner i.e., in 5 phases. In each of the first four phases 1,00,000 of public lights and in the 5th phase 85,246 lights. The 1st phase was to be completed within 10 months and each of the other phase was required to be completed within 5 months gap thereafter.
4. Learned counsel for the petitioner submits that after the outbreak of the Covid-19 pandemic during March, 2020, both the parties were prevented from keeping up the time schedule. Therefore, it appears that there were subsequent deliberations between the parties and the effective date was shifted to 18.06.2020.
Although this is sought to be disputed at the hands of the learned counsel for the respondent, nevertheless, at this stage it would be irrelevant to consider the submission. -5- CMP No. 650 of 2022
5. It is contended on behalf of the petitioner that in a meeting held on 23.08.2021, the respondent insisted that the petitioner should procure and stock 1,00,000 luminaries and to complete the financial closure of the project within 30 days from the said date, failing which, the respondent would invoke the Novation Agreement and terminate the contract at the peril of the petitioner. The respondent issued a notice dated 30.08.2021 as a final reminder to the petitioner to comply with the contractual obligation or face termination of the contract. It is contended that the petitioner got issued suitable reply to the notice dated 30.08.2021 citing reasons as to why the contract cannot be terminated by the respondent. Nevertheless, since the petitioner was apprehensive of the action on the part of the respondent, which was threatening to terminate the contract, it approached the commercial court and filed an application in Commercial A.A No.168/2021 invoking Section 9 of the Arbitration and Conciliation Act, 1996, seeking an injunction against the -6- CMP No. 650 of 2022 respondent not to terminate the contract. Learned counsel for the petitioner submits that the respondent participated in the proceedings before the Commercial Court, and the Commercial Court was clearly of the opinion that since the respondent is a statutory body, the apprehension of the petitioner herein was unfounded. The Commercial Court noticed that the procedure for termination was contained in the contract itself, and the consequences of the termination was also provided in Clause 22.4 and 23.1. It was noticed that according to the relevant clauses, if the respondent terminated the contract it was liable to pay compensation. Ultimately, the Commercial Court proceeded to dismiss the application filed under Section 9 for the reasons stated in its order dated 02.12.2021. Learned counsel submits that the conduct of the respondent stands exposed from the fact that the very next day after the Commercial Court passed an order on 02.12.2021, the respondent issued a termination notice dated 03.12.2021.
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6. Per contra, learned counsel for the respondent would submit that, although it is not disputed that the parties are governed by the arbitration clause contained in the EPC, nevertheless, the prayer made by the petitioner for appointment of an arbitrator should not be granted since the petitioner has not complied with the requisite provision both in accordance with the terms and conditions of the contract as well as the specific provision contained in Section 11(2) of the Act. Learned counsel for the respondent would submit that in the statement of objections filed by the respondent, the respondent has raised the following three questions for the consideration of this Court :
"a. Whether the petitioner has followed the procedure as prescribed under Clause 25 of the Energy Performing Contract dated 01.03.2019 and Clause 6, of the Novation Agreement dated 13.06.2019, prior to raising the Arbitration Dispute?
b. Whether the entire Dispute in its
Notice dated 01.10.2021, raised by the
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CMP No. 650 of 2022
petitioner has become infractuous by virtue of subsequent events that have taken place?
c. Consequently whether the dispute that is raised by the petitioner is not arbitrable in nature?"
7. Learned counsel for the respondent contends that it is evident from the arbitration notice issued by the petitioner at Annexure-Q dated 01.10.2021 which was issued prior to the termination notice issued by the respondent, that the premise on which the appointment of an arbitrator was sought by the petitioner was that although the petitioner was seeking to stall the action of the respondent in proceeding to terminate the contract and it has approached the Commercial Court seeking an order of injunction against the respondent not to terminate the contract, however, since the petitioner was justified in anticipating that the respondent would terminate the contract, it has sought the appointment of an arbitrator to decide the dispute between the parties. More particularly, the learned counsel for the respondent seeks to submit -9- CMP No. 650 of 2022 that there is no claim raised by the petitioner in the arbitration notice. Moreover, in law, the petitioner was required to issue a notice of demand or claim to say what was its claim against the respondent. Such a procedure not having been followed as provided in Sub Section 2 of Section 11, the appointment of arbitrator on the basis of the arbitration notice dated 01.10.2021 cannot be permitted. Learned counsel would also draw the attention of this Court to Clause A of sub-Section 4 of Section 11 which provides that unless notice of appointment of an arbitrator is given by a party and 30 days time is given to the other side to comply with the requirement of the appointment of an arbitrator, a civil miscellaneous petition calling upon this Court to appoint an arbitrator should not be entertained.
8. Having heard the learned counsels and on perusing the civil miscellaneous petitions papers, this Court finds that insofar as the requirement of giving 30 days notice as contained in Clause A of sub-Section 4 of
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CMP No. 650 of 2022Section 11 is concerned, the requirement is fulfilled as the petitioner has called upon the respondent to appoint an arbitrator from their side within a period of 30 days as provided in paragraph No.30 of the arbitration notice. However, insofar as the other limb of the argument that the arbitration notice was not preceded by a notice of claim or dispute raised at the hands of the petitioner, this Court finds that the petitioner had already given its reply to the notice issued by the respondent which had indicated that if the petitioner does not fulfill the conditions of the contract then, it would terminate the contract. At that stage, the petitioner had approached the commercial court seeking indulgence and an injunction to the respondent not to terminate the contract. Unfortunately, the application was dismissed by the Commercial Court on 02.12.2021, while expressing its opinion that the respondent, being a statutory body, would not terminate the contract. However, the respondent proceeded to terminate the contract the very next day, i.e., on 03.12.2021.
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CMP No. 650 of 2022
9. Moreover, during the course of these proceedings, this Court had called upon the petitioner to file an affidavit by order dated 06.12.2022 giving the details of the claim that the petitioner proposes to make in the arbitral proceedings in continuation of the claim as stated in the arbitration notice. Consequently, the affidavit dated 09.12.2022 was filed on 12.12.2022 by the petitioner clearly stating its claim, including to set aside the Termination Notice dated 03.12.2021 and restoring the bank guarantee given by the petitioner towards performance security and as an alternative, the petitioner also raised a claim to declare that a Termination Notice dated 03.12.2021 was wrongfull, arbitrary, and violative of the contract between the parties. The petitioner also seeks to raise a claim for Rs.179 Crores including but not limited towards the cost of material and equipment, labour charges, overhead costs, other costs, expenses, etc. There are many other claims that are sought to be raised at the hands of the petitioner.
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CMP No. 650 of 2022
10. Having regard to these developments that have happened during the course of these proceedings, this Court is of the considered opinion that there is a live dispute between the parties, which cannot be said to be dead wood or a stale claim. The merits and demerits of the claim of the petitioner is required to be considered by the arbitrator. Having regard to the judgment of the Hon'ble Supreme Court in the case of VIDYA DROLIA AND OTHERS VS. DURGA TRADING CORPORATION reported in (2021) 2 SCC 1, wherein it was held that post the 2015 amendment, the structure of the Act was changed to bring in tune with the pro arbitration approach. It was held that under the amended provision, the Court can only give a prima-facie opinion on the existence of a valid arbitration agreement. It was also held that when in doubt, the Courts should refer the matter for arbitration.
11. That being the position, when it is not disputed that the parties have entered into agreement and are bound by an arbitration clause, the technical objections
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CMP No. 650 of 2022sought to be raised at the hands of the respondent that since the civil miscellaneous petition is filed after the termination notice was issued by the respondent, the petitioner should have issued one more notice raising a claim and thereafter issued one more notice for appointment of arbitrator giving 30 days time to the respondent, cannot be countenanced, having regard to the facts and circumstances of this case. As noticed herein above, during the course of these proceedings, the petitioner was permitted to state clearly as to what would be the claim of the petitioner. An affidavit in this regard was filed by the petitioner, and even thereafter, the respondent has not come forward to settle the claim or refer the matter for arbitration.
12. Having regard to the totality of the facts and circumstances obtained in this case, this Court is of the considered opinion that the petitioner has made out a case for the appointment of an arbitrator to resolve the
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CMP No. 650 of 2022disputes that arise between the parties in terms of the EPC dated 01.03.2019.
13. Consequently, this Courts proceeds to pass the following:
ORDER
(a) The petition is allowed appointing Hon'ble Sri. Justice T.S.Thakur, Former Chief Justice of India, as the sole arbitrator to enter reference of the disputes between the petitioner and the respondent and conduct proceeding at the Arbitration and Conciliation Centre (Domestic and International), Bengaluru according to the Rules governing the said Arbitration Centre.
(b) All contentions inter se parties are left open for adjudication in the arbitration proceedings.
(c) The office is directed to communicate this order to the Arbitration and Conciliation Centre and to Hon'ble Sri. Justice T.S.Thakur, Former Chief Justice of India
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as required under the Arbitration and Conciliation Centre Rules, 2012.
Needless to observe that all contentions are left open permitting the respondents to raise any objection as provided under Section 16 of the Act. Any observation made during the course of these proceedings shall not prejudice the case either of the parties before the arbitrator.
Sd/-
JUDGE KLY,rv