Delhi High Court
M/S. Valecha Engineering Lim. vs M/S. D.S. Constructions Ltd. & Anr. on 6 April, 2009
Author: Manmohan Singh
Bench: Manmohan Singh
* HIGH COURT OF DELHI : NEW DELHI
+ Arb. Petition No.90/2008
Judgment reserved on: 24th February, 2009
% Judgment decided on : 6th April, 2009
M/s. Valecha Engineering Limited ......Petitioner
Through : Mr. Chetan Sharma, Sr. Adv. with
Mr. Sanjeev Narula, Adv.
Versus
M/s. D.S. Constructions Ltd. & Anr. .....Respondents
Through: Mr. A.S. Chandiok, Sr. Adv. with
Mr. Ashish Dholakia and Mr. Adarsh
Priyadarshi, Advs.
Coram:
HON'BLE MR. JUSTICE MANMOHAN SINGH
1. Whether the Reporters of local papers may
be allowed to see the judgment? Yes
2. To be referred to Reporter or not? Yes
3. Whether the judgment should be reported Yes
in the Digest?
MANMOHAN SINGH, J.
1. This petition is filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short „the Act‟) for appointment of an independent Arbitrator.
2. Factual matrix of the case is that Valecha Engineering Limited (VEL), petitioner herein is a company duly incorporated under the Companies Act, 1956 having its registered office at Valecha Chambers, 7th Floor, Plot No. B-6, New Link Road, Andheri (West), Mumbai-400053. M/s. D.S. Constructions Limited (DSC), respondent Arb. P. No.90/2008 Page 1 of 15 no.1 herein is also a registered company having its office at C-66, South Extension Part II, New Delhi -110049.
3. The National Highways Authority of India (NHAI) awarded the contract for Delhi-Gurgaon Access Controlled Highway NH-8 to Jaypee DSC Venture Limited (JDVL). In order to execute the works of the project relating to execution of Pile Foundation, JDVL invited bids in response to which petitioner submitted a bid dated July 14, 2005. The said bid was accepted by Respondent No.1 and vide letter dated July 19,2005, it awarded the work to the petitioner at the bid price of Rs.5,37,58,100/-. VEL also submitted another bid dated October 11, 2005 regarding construction of RTR Palam elevated structure on NH-8 Civil work for substructure and superstructure. Respondent No.1 awarded the said work to VEL at the bid price of Rs.25,91,38,559/-.
4. In both the contracts stated above, Clause 26 and Clause 30 respectively deals with the arbitration clause as under:-
"The decision of the M.D. DSCL shall be final and binding on any dispute or difference which may arise between the parties out of or in connection with this Contract."
5. Certain disputes arose between the parties regarding the outstanding bills. By relying on the aforesaid arbitration clause without protest or demur, the petitioner herein preferred two separate petitions under Section 9 of the Arbitration and Conciliation Act being OMP No. 524/2007 and 562/2007 before this Court. Both the petitions are pending in this Court. VEL preferred an appeal registered as FAO (OS) No.391/2007 against an order dated 28 th September, 2007 in OMP Arb. P. No.90/2008 Page 2 of 15 No.524/2007 which was disposed of vide order dated 1.10.2007. In OMP No.562/2007, interim order has been passed and the petitioner has been allowed to remove its material and equipment from the site.
6. After obtaining orders in the aforesaid petitions from this Court, the petitioner vide letter dated 08.01.2008 wrote to the MD,DSC i.e. arbitrator named in the contract and required him to, inter alia, appoint an independent arbitrator.
7. The said named arbitrator, vide letter dated 25.01.2008 entered into the reference in view of the fact that he had been named as arbitrator in the contract.
8. However, in February, 2008 the petitioner filed the present petition under Section 11(6) (c) of the Act for appointment of arbitrator.
9. The learned counsel for the petitioner relied upon Section 11(6)(c) of the Arbitration and Conciliation Act, 1996. It is alleged that the arbitrator has failed to perform his function entrusted to him and also failed to perform any functions under the procedure set out in the clause relating to settlement disputes. The petitioner alleged that the Arbitrator named in the arbitration clause in both the contracts executed between the parties is biased as he is also involved in stopping the certified bills of the petitioner and stopped releasing the payments to the petitioner. It is argued that referring the present disputes between the parties wherein the named arbitrator is in close relation of the respondent company is totally impermissible and against the principles of equity, justice and good conscience. In fact the respondent No.1 is a closely held company of the Narula family. The structure of Respondent No.1 clearly denotes Arb. P. No.90/2008 Page 3 of 15 that it stands on the family pyramid. The respondent No.2 cannot be Arbitrator in his own actions, he is an interested party being the Managing Director of Respondent no.1 more so, in the context of the dispute relating to the encashment of the bank guarantees, settlement/ certifying of the bills, demobilization of equipment, release of outstanding payment etc, the respondent No.2 is not impartial and is biased against the petitioner. Besides the respondent No. has been actively and personally involved in respect of the disputes and differences between the parties at each and every stage. The respondent No.2 has in fact acted as an opposite party and rejected the claims of the petitioner, as orally conveyed in the meetings.
10. It is further alleged that though the clause 26 and 30 of the contracts satisfy the ingredients of Section 7(4) of the Act and thus constitute an arbitration agreement, but normally the connotation and sequence of an arbitration clause is distinct and different. Following averment has been made by the petitioner in this context :
"7. A bare look at the Arbitration clause reveals the following salient characteristics :
(i) Normally, the arbitration clause is worded as follows :
" Any dispute or difference that may arise between the parties arising out of the contract or in relation thereto shall be referred to arbitration of ____(nominated arbitrator-name/designation), whose decision shall be final and binding.
(ii) The said clause i.e. "Settlement of Dispute" is notably different in its character and tenor from the normal arbitration clauses.
(iii) It is styled and nomenclature as "Settlement of Disputes".
(iv) It makes no reference as to the appointment of the Arb. P. No.90/2008 Page 4 of 15 arbitrator.
(v) The said clause in no manner identifies the procedure for reference.
(vi) The said clause makes the decision of the Managing Director of the Respondent as final."
11. It is further alleged that the Managing Director of DSCL failed to take a decision on time and instead invoked the bank guarantees. It is averred that a person who has acted personally against the petitioner cannot now act as non-partisan and thus cannot be permitted to be the Judge or Jury as well as and the audience. The petitioner relied upon the case of Alcove Industries Limited vs. Oriental Structural Engineers Lim., 2008 (1) Arb. LR 393 and, Delhi and Interstate Constructions Vs. NPCC Limited, 114(2004) DLT 746.
12. The learned counsel for the respondent submitted that Section 11(6) (c) has no application in the facts of the present case. Section 11 (6) (c) reads as under:-
"11. Appointment of arbitrator-
xxxxxx (6) Where under an appointment procedure agreed upon by the parties, xxxxx
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment."
13. It is submitted that the aforesaid provision is not attracted because when the petitioner invoked arbitration/sought appointment of Arb. P. No.90/2008 Page 5 of 15 arbitrator, the named arbitrator promptly entered upon the reference within 30 days. Consequently, there was no occasion for invoking Section 11 (6) (c) and the present petition is liable to be dismissed on this ground alone.
14. The present petition is not maintainable as the conditions precedent to the invocation of jurisdiction of this Court to appoint arbitrator have not been fulfilled. It is settled law that in case of a named arbitrator, reference has to be made to him and a party is precluded from approaching the Court for appointing an arbitrator other than the named arbitrator. In this regard, reliance is placed on the following judgments:
(i) The Iron and Steel Company Ltd. vs. M/s Tiwari Road Lines AIR 2007 SC 2064
(ii) Sterlite Optical Technologies Ltd. vs. Bharat Sanchar Nigam Ltd. 2009 (1) Arb. LR 139 (Delhi)
(iii) Yashwith Constructions (P) Ltd. vs. Simplex Concrete Piles India Ltd & Anr. (2006) 6 SCC 204
15. It is further submitted that in the two petitions filed by the petitioner, the petitioner has invoked the jurisdiction of this Court while stating that:-
"3. .....The agreement stipulated that any dispute or difference which may arise between the parties out of or in connection with the contract would be subject to the decision of the Managing Director of DSC, who is based in Delhi. Thus, this Hon‟ble Court has the jurisdiction to entertain the petition and grant prayers made herein."
It is submitted that the petition is barred by principles of Arb. P. No.90/2008 Page 6 of 15 estoppel/waiver. Having obtained reliefs granted under the previous petitions based on the above mentioned averment, it cannot be permitted to take a contradictory stand and file the present petition.
16. On the allegation of arbitrator being biased, it is submitted that the remedy against a plea of bias as raised by the petitioner is available only under Sections 12, 13 and 34 of the Act. It has no application in a petition filed under Section 11(6) of the Act. Reliance in support of the above proposition is placed on:
(i) Ace Pipeline Contracts (P) Ltd. vs. Bharat Petroleum Corpn. Ltd. (2007) 5 SCC 304 @ para 21
(ii) Ahluwalia Contracts (India) Ltd. vs. Housing & Urban Development Corporation & Anr. (2008) 100 DRJ 461 @ para 16
(iii) Dharam Prakash vs. Union of India & Anr.(138) 2007 DLT 118(DB)@ para 5.
17. The respondents denied that the named arbitrator had already determined the claims of the petitioner. It is submitted that the said allegation is false to the knowledge of the petitioner since if this were so, it would certainly not have written to the named arbitrator after the alleged determination of the petitioners‟ claims had been made.
18. Regarding the contention of the petitioner that the arbitration clause in the present case is worded differently from the wording "normally" used in arbitration clauses contained in other contracts, it is submitted that by filing petitions under Section 9 of the Act and the present petition under Section 11 of the Act, the petitioner has admitted Arb. P. No.90/2008 Page 7 of 15 that there exists a valid and subsisting arbitration clause, which is wide enough to cover the disputes between the parties.
19. It is apparent from the provision of Section 11 (6) of the Act that it applies only when a party or person concerned have failed to act in terms of the arbitration agreement. In the case of Yashwith Constructions (P) Ltd. vs. Simplex Concrete Piles India Ltd. & Anr., (2006) 6 SCC 204 following observations were made in para 4 :
"4......... There was no failure on the part of the party concerned as per the arbitration agreement, to fulfil his obligation in terms of Section 11 of the Act so as to attract the jurisdiction of the Chief Justice. Obviously, Section 11(6) of the Act has application only when a party or the person concerned had failed to act in terms of the arbitration agreement.
20. In the case of Ace Pipeline Contracts (P) Ltd. vs. Bharat Petroleum Corpn. Ltd., (2007) 5 SCC 304, it was held that on failure of the appointing authority to appoint arbitrator within a reasonable time, mandamus can be issued under Section 11(6) to authority concerned to appoint arbitrator, as far as possible as per arbitration clause. However, in large number of cases, it is found that it would not be conducive in the interest of parties or for any other reasons to be recorded in writing and that the choice of arbitrator can go beyond the designated persons or institutions in appropriate cases. But the court should normally adhere to the terms of arbitration clause except in exceptional cases for reasons to be recorded or where both parties agree for a common name. It was held that once a party has entered into an agreement with eyes wide open it cannot wriggle out of the situation on the claim that the designated person being an officer of the other side Arb. P. No.90/2008 Page 8 of 15 would be not be impartial or objective. However, if appellant feels that the arbitrator has notched independently or impartially, or it has suffered any bias, it will always be open to it to make application under S. 34 to set aside the award on ground that arbitrator acted with bias or malice in law or fact.
21. In the case of The Iron and Steel Company Ltd. v. M/s. Tiwari Road Lines, AIR 2007 Supreme Court 2064, it was observed that the legislative scheme of Section 11 is very clear. If the parites have agreed on a procedure for appointing the Arbitrator or Arbitrators as contemplated by sub-section (2) thereof, then the dispute between the parties has to be decided in accordance with the said procedure and recourse to the Chief Justice or his designate cannot be taken straightway. A party can approach the Chief Justice or his designate only if the parties have not agreed on a procedure for appointing the Arbitrator as contemplated by sub-section (2) of Section 11 or in case the various contingencies provided for in sub-section (6) have arisen. In this case, the agreement executed between the parties contains an arbitration clause and Cl. 13.1 clearly provides that all disputes and differences whatsoever arising between the parties out of or relating to the construction, meaning and operation or effect of the contract or the breach thereof shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties. This clause is in accordance with sub-section (2) of S. 11. There being an agreed procedure for resolution of disputes by arbitration in accordance with Arb. P. No.90/2008 Page 9 of 15 the Rules of Arbitration of the Indian Council of Arbitration sub-sections (3), (4) and (5) of S. 11 can have no application. The stage for invoking sub-section (6) of S. 11 had also not arrived. In these circumstances, the application for appointment of Arbitrator moved by the respondent before the City Civil Court, which was a Designated Authority in accordance with the scheme framed by the Chief Justice was held to be not maintainable at all and the City Civil Court had no jurisdiction or authority to appoint an Arbitrator.
22. As regards the submissions raised by the petitioner about the connotation and sequence of arbitration clause is concerned, it has categorically held in the case of Punjab State and Others vs. Dina Nath (2007) 5 Supreme Court Cases 28 that arbitration agreement need not be in any particular form. However, it must indicate that the parties had agreed that any dispute arising between them in respect of the subject-matter of the contract, should be referred to arbitration. Moreover, it must be in writing and must indicate the intention of the parties to treat the decision of the arbitrator as final. If those requirements are satisfied, the mere absence of the words „arbitration‟ or „arbitrator‟ therein cannot be a ground to hold that the agreement in question was not an arbitration agreement. A clause in the agreement in the Work Order providing that any dispute arising between the principal and the contractor should be referred to Superintending Engineer for his orders and that his decision would be final and binding on the parties, held, was a binding arbitration agreement. Further held, the words „any dispute‟ occurring therein were wide enough to cover all disputes relating to the Work Order including a dispute relating to non-payment Arb. P. No.90/2008 Page 10 of 15 of money after completion of the work. The word „orders‟ implied some expression of opinion by the Superintending Engineer which would be enforceable. The Supreme Court while dealing with the similar dispute in the present case made the following observations in paras 8, 10, 12 and 14 wherein the clause in dispute is as under :
"Any dispute arising between the department and the contractor/ society shall be referred to the Superintending Engineer, Anandpur Sahib, Hydel Circle No. 1, Chandigarh for orders and his decision will be final and acceptable/binding on both the parties"
"8. A bare perusal of the definition of arbitration agreement would clearly show that an arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if any dispute arises between them in respect of the subject-matter of the contract, such dispute shall be referred to arbitration. In that case, such agreement would certainly spell out an arbitration agreement. (See Rukmanibai Gupta v. Collector AIR 1981 SC 479) However, from the definition of the arbitration agreement, it is also clear that the agreement must be in writing and to interpret the agreement as an "arbitration agreement" one has to ascertain the intention of the parties and also treatment of the decision as final. If the parties had desired and intended that a dispute must be referred to arbitration for decision and they would undertake to abide by that decision, there cannot be any difficulty to hold that the intention of the parties was to have an arbitration agreement, that is to say, an arbitration agreement immediately comes into existence.
xxxxx
10. We have already noted clause 4 of the Work Order as discussed hereinabove. It is true that in the aforesaid clause 4 of the Work Order, the words "arbitration" and "arbitrator" are not indicated; but in our view, omission to mention the words "arbitration" and "arbitrator" as noted herein earlier cannot be a ground to hold that the said clause was not an arbitration agreement within the meaning of Section 2(a) of the Act. The essential requirements as pointed out herein earlier are that the parties have intended to make a reference to an arbitration and treat the decision of the arbitrator as final. As the conditions to constitute an Arb. P. No.90/2008 Page 11 of 15 "arbitration agreement" have been satisfied, we hold that clause 4 of the Work Order must be construed to be an arbitration agreement and dispute raised by the parties must be referred to the arbitrator. In K.K. Modi v. K.N. Modi (2003) 7 SCC 418, this Court had laid down the test as to when a clause can be construed to be an arbitration agreement when it appears from the same that there was an agreement between the parties that any dispute shall be referred to the arbitrator. This would be clear when we read para 17 of the said judgment and Points 5 and 6 of the same which read as under: (SCC p. 584) "(5) that the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law, and lastly (6) the agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal."
xxxx
12. Keeping the ingredients as indicated by this Court in K.K. Modi in mind for holding a particular agreement as an arbitration agreement, we now proceed to examine the aforesaid ingredients in the context of the present case:
(a) Clause 4 of the Work Order categorically states that the decision of the Superintending Engineer shall be binding on the parties.
(b) The jurisdiction of the Superintending Engineer to decide the rights of the parties has also been derived from the consent of the parties to the Work Order.
(c) The agreement contemplates that the Superintending Engineer shall determine substantive rights of parties as the clause encompasses all varieties of disputes that may arise between the parties and does not restrict the jurisdiction of the Superintending Engineer to specific issues only.
(d) That the agreement of the parties to refer their disputes to the decision of the Superintending Engineer is intended to be enforceable in law as it is binding in nature.
xxxx
14. The words "any dispute" appears in clause 4 of the Work Order. Therefore, only on the basis of the materials produced by the parties in support of their respective claims a decision can be arrived at in resolving the dispute between the parties. The use of the words "any dispute" in clause 4 of the Work Order is wide enough to include all disputes relating to the said Work Order. Therefore, when a party raises a dispute for non-payment of money after completion of the work, which is denied by the other party, such a dispute would come within the meaning of "arbitration agreement" between the parties. Clause 4 of the Work Order also clearly provides that any dispute between the department and the contractor shall be referred to the Superintending Engineer, Hydel Circle No. 1, Chandigarh Arb. P. No.90/2008 Page 12 of 15 for orders. The word "orders" would indicate some expression of opinion, which is to be carried out, or enforced and which is a conclusion of a body (in this case Superintending Engineer, Hydel Circle No. 1, Chandigarh). Then again the conclusion and decision of the Superintending Engineer will be final and binding on both the parties. This being the position in the present case and in view of the fact that clause 4 of the Work Order is not under challenge before us, the decision that would be arrived at by Superintending Engineer, Hydel Circle No. 1, Chandigarh must also be binding on the parties as a result whereof clause 4 must be held to be a binding arbitration agreement.
23. In State of U.P. v. Tipper Chand , (1980) 2 SCC 341, it was held that the clause in dispute in that decision between the parties did not amount to an arbitration agreement. In that decision, further held that clause under consideration before them which provided that except where otherwise specified in the contract the decision of the Superintending Engineer for the time being shall be final, conclusive and binding on all the parties to the contract upon all questions relating to the meaning of the specifications, etc. and the decision of the Superintending Engineer as to the quality, workmanship, etc. shall be final, conclusive and binding between the parties does not constitute an arbitration agreement but while arriving at such a conclusion, Apex Court referred to a decision of the Jammu and Kashmir High Court in Dewan Chand v. State of J&K, AIR 1961 J&K 58. In Dewan Chand case the relevant clause runs as follows: (AIR p. 59, para5) "For any dispute between the contractor and the Department the decision of the Chief Engineer, PWD, Jammu and Kashmir, will be final and binding upon the contractor."
24. The Supreme Court in Dewan Chand‟s case (supra) had put strong reliance on the expression "any dispute between the contractor Arb. P. No.90/2008 Page 13 of 15 and the Department" and approved the conclusions arrived at by the J&K High Court. It came to the conclusion by interpretation of that clause that there did not exist any arbitration agreement as the decision of the Superintending Engineer in connection with the work done by the contractor was meant for supervision and execution of the work and administrative control over it from time to time.
25. In Bihar State Mineral Development Corpn. v. Encon Builders (I) (P) Ltd. (2003) 7 SCC 418, Supreme Court held that:
(SCC p. 423, para 14) "14. There is no dispute with regard to the proposition that for the purpose of construing an arbitration agreement, the term „arbitration‟ is not required to be specifically mentioned therein."
26. Recently in the case of Sterlite Optical Technologies Ltd. vs. Bharat Sanchar Nigam Ltd., 2009 (1) Arb. LR 139 (Delhi), in a petition filed under Section 11(6) of the Act for the appointment of Arbitrator, the petitioner instead of approaching the arbitrator named in the arbitration agreement i.e. CMD, BSNL approached DDG(MM) for appointment of arbitrator. Rejecting the application of the petitioner, learned Single Judge of this Court held as under :
"7.........What the petitioner was required to do was to approach this CMD of the respondent with its claims and only if the said CMD had failed to either himself act as an arbitrator or to nominate/appoint anyone else as the arbitrator, could the petitioner have any cause of action for approaching this Court. The petitioner having admittedly not done so, the petition is liable to be rejected as without cause of action.
27. It is not in dispute that the petitioner itself approached this Arb. P. No.90/2008 Page 14 of 15 court under Section 9 of the Arbitration and Conciliation Act by filing O.M.P. Nos. 524/2007 and 562/2007 and obtained interim orders relying upon the clause 26 and 30 of the contracts relating to settlement of disputes. It nowhere questioned or raised any objection regarding the above stated clause. It has also written letters dated 8th January, 2008 to the MD, DSC for appointing an independent arbitrator.
28. The plea of the petitioner that the named arbitrator is impartial and biased cannot be accepted in view of Dina Nath‟s case (supra). When the petitioner itself has agreed that the dispute pertaining to both the contracts ought to be referred to MD, DSC, it cannot now take a stand that respondent no. 2 is acting in a subjective manner. The respondent no. 2 has entered into reference and initiated arbitration proceedings. If after making the award by the arbitrator, the petitioner has any objections to the award, he can file objections under Section 34 of the Act. The provisions of Section 11(6)(c) cannot be invoked in the present case. The clause referred above in both the contracts is clearly an arbitration clause though the words „arbitration‟ or „arbitrator‟ are not included (Dina Nath‟s case (supra).
29. In view of the above discussion, I find no merit in this petition. It is hereby dismissed.
MANMOHAN SINGH, J APRIL 06, 2009 sa Arb. P. No.90/2008 Page 15 of 15