Karnataka High Court
Ncc Limited vs Abb India Limited on 24 April, 2018
Equivalent citations: AIRONLINE 2018 KAR 885
Author: S.Sujatha
Bench: S.Sujatha
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 24TH DAY OF APRIL, 2018
BEFORE
THE HON'BLE MRS.JUSTICE S.SUJATHA
M.F.A.No.1235/2018 c/w
M.F.A.Nos.1236/2018, 1237/2018 & 1238/2018 [AA]
IN M.F.A.Nos.1235, 1236, 1237 & 1238/2018:
BETWEEN :
NCC LIMITED,
A COMPANY INCORPORATED
UNDER THE PROVISIONS OF
THE COMPANIES ACT, 1956,
HAVING ITS REGISTERED
OFFICE AT NCC HOUSE,
MADHAPUR, HYDERABAD - 560 081, INDIA
REP. BY ITS AUTHORIZED
REPRESENTATIVE Mr. RAVI A.G. ...APPELLANT
[COMMON]
(BY SRI AJAY J.N., ADV.)
AND :
IN MFA No.1235/2018:
1 ABB INDIA LIMITED,
[FORMERLY KNOWN AS ABB LIMITED],
A COMPANY INCORPORATED
UNDER THE PROVISIONS OF
THE COMPANIES ACT, 1913,
HAVING ITS REGISTERED OFFICE
AT 21ST FLOOR, WORLD TRADE CENTER,
BRIGADE GATEWAY, No.26/1,
Dr. RAJKUMAR ROAD
MALLESHWARAM WEST,
BENGALURU - 560 055
REP. BY ITS AUTHORIZED
REP Mr. P.ASHOK KUMAR
-2-
2 IDBI BANK LTD.,
CORPORATE BRANCH,
102, K.H. ROAD,
BANGALORE - 560 027 ...RESPONDENTS
(BY SRI K.G.RAGHAVAN, SENIOR COUNSEL FOR
SRI ANIND THOMAS, ADV. FOR C/R-1;
NOTICE TO R-2 DISPENSED WITH VIDE COURT ORDER DATED
21.03.2018)
IN MFA No.1236/2018:
1 ABB INDIA LIMITED,
[FORMERLY KNOWN AS ABB LIMITED],
A COMPANY INCORPORATED
UNDER THE PROVISIONS OF
THE COMPANIES ACT, 1913,
HAVING ITS REGISTERED OFFICE
AT 21ST FLOOR, WORLD TRADE CENTER,
BRIGADE GATEWAY, No.26/1,
Dr. RAJKUMAR ROAD
MALLESHWARAM WEST,
BENGALURU - 560 055
REP. BY ITS AUTHORIZED
REPRESENTATIVE
Mr. P.ASHOK KUMAR
2 IDBI BANK LTD.,
CORPORATE BRANCH,
102, K.H. ROAD,
BANGALORE - 560 027 ...RESPONDENTS
(BY SRI K.G.RAGHAVAN, SENIOR COUNSEL FOR
SRI ANIND THOMAS, ADV. FOR C/R-1;
NOTICE TO R-2 DISPENSED WITH VIDE COURT ORDER DATED
21.03.2018)
IN MFA No.1237/2018:
1 ABB INDIA LIMITED,
[FORMERLY KNOWN AS ABB LIMITED],
A COMPANY INCORPORATED
UNDER THE PROVISIONS OF
THE COMPANIES ACT, 1913,
-3-
HAVING ITS REGISTERED OFFICE
AT 21ST FLOOR, WORLD TRADE CENTER,
BRIGADE GATEWAY, No.26/1,
Dr. RAJKUMAR ROAD
MALLESHWARAM WEST,
BENGALURU - 560 055
REP. BY ITS AUTHORIZED
REPRESENTATIVE
Mr. P.ASHOK KUMAR
2 ICICI BANK LTD.,
COMMERCIAL BRANCH,
I FLOOR, ICICI BANK TOWERS,
No. COMMMISSARIAT ROAD
BANGALORE - 560 025 ...RESPONDENTS
(BY SRI K.G.RAGHAVAN, SENIOR COUNSEL FOR
SRI ANIND THOMAS, ADV. FOR C/R-1;
NOTICE TO R-2 DISPENSED WITH VIDE COURT ORDER DATED
21.03.2018)
IN MFA No.1238/2018:
1 ABB INDIA LIMITED,
[FORMERLY KNOWN AS ABB LIMITED],
A COMPANY INCORPORATED
UNDER THE PROVISIONS OF
THE COMPANIES ACT, 1913,
HAVING ITS REGISTERED OFFICE
AT 21ST FLOOR, WORLD TRADE CENTER,
BRIGADE GATEWAY, No.26/1,
Dr. RAJKUMAR ROAD
MALLESHWARAM WEST,
BENGALURU - 560 055
REP. BY ITS AUTHORIZED
REPRESENTATIVE
Mr. P.ASHOK KUMAR
2 ICICI BANK LTD.,
COMMERCIAL BRANCH,
I FLOOR, ICICI BANK TOWERS,
No. COMMMISSARIAT ROAD
BANGALORE - 560 025 ...RESPONDENTS
-4-
(BY SRI K.G.RAGHAVAN, SENIOR COUNSEL FOR
SRI ANIND THOMAS, ADV. FOR C/R-1;
NOTICE TO R-2 DISPENSED WITH VIDE COURT ORDER DATED
21.03.2018)
M.F.A.No.1235/2018 IS FILED UNDER SECTION 37[i)[a]
OF THE ARBITRATION AND CONCILIATION ACT, 1996, AGAINST
THE ORDER DATED 16.12.2017, PASSED ON I.A. No.2 IN O.S.
No.7648/2017, ON THE FILE OF THE XIX ADDITIONAL CITY
CIVIL AND SESSIONS JUDGE, BENGALURU CITY [CCH.18]
DISMISSING THE SUIT FILED UNDER SECTION 8 OF
ARBITRATION AND CONCILIATION ACT.
M.F.A.No.1236/2018 IS FILED UNDER SECTION 37[i)[a]
OF THE ARBITRATION AND CONCILIATION ACT, 1996, AGAINST
THE ORDER DATED 16.12.2017, PASSED ON I.A. No.2 IN O.S.
No.7649/2017, ON THE FILE OF THE XIX ADDITIONAL CITY
CIVIL AND SESSIONS JUDGE, BENGALURU CITY [CCH.18]
DISMISSING I.A. No.2 FILED U/S. 8 OF THE ARBITRATION AND
CONCILIATION ACT.
M.F.A.No.1237/2018 IS FILED UNDER SECTION 37[i)[a]
OF THE ARBITRATION AND CONCILIATION ACT, 1996, AGAINST
THE ORDER DATED 16.12.2017, PASSED ON I.A. No.2 IN O.S.
No.7650/2017, ON THE FILE OF THE XIX ADDITIONAL CITY
CIVIL AND SESSIONS JUDGE, BENGALURU CITY [CCH.18]
DISMISSING I.A. No.2 FILED U/S. 8 OF THE ARBITRATION AND
CONCILIATION ACT.
M.F.A.No.1238/2018 IS FILED UNDER SECTION 37[i)[a]
OF THE ARBITRATION AND CONCILIATION ACT, 1996, AGAINST
THE ORDER DATED 16.12.2017, PASSED ON I.A. No.2 IN O.S.
No.7651/2017, ON THE FILE OF THE XIX ADDITIONAL CITY
CIVIL AND SESSIONS JUDGE, BENGALURU CITY [CCH.18]
DISMISSING THE SUIT FILED UNDER SECTION 8 OF
ARBITRATION AND CONCILIATION ACT.
THESE APPEALS HAVING BEEN RESERVED FOR ORDERS
ON 21.03.2018, COMING ON FOR PRONOUNCEMENT OF
JUDGMENT, THIS DAY, THE COURT DELIVERED THE
FOLLOWING:
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JUDGMENT
Since common issue is involved in these appeals, the same are clubbed, heard together and disposed of by this common Judgment.
2. The appellant has called in question the order passed by the 19th Addl. City Civil and Sessions Judge at Bengaluru (CCH-18) ['trial court' for short'] on interim applications in O.S.Nos.7648, 7649, 7650 and 7651 of 2017, filed by the appellant under Section 8 of the Arbitration and Conciliation Act, 1996 ['Act' for short] and consequently allow the interim applications.
3. Facts in brief are, 1st respondent filed Civil Suits bearing O.S.Nos.7648, 7649, 7650 and 7651 of 2017 before the trial court against the appellant and 2nd respondent herein, inter alia seeking permanent injunction restraining the appellant from invoking the Bank Guarantees issued under Letter of Award [LOA] and the 2nd respondent from taking any action in -6- relation to the said Bank Guarantees. The contract was entered by the appellant with the 1st respondent herein vide LOA dated 15.5.2013 inter alia for design, supply, erect, test and commission the electrical balance of Plant for 2x660 MW Power plant project. The 1st respondent issued unconditional Bank Guarantees in terms of the aforesaid LOA. The appellant has invoked some of the Bank guarantees for 1st respondent's breach of terms of the LOA and the same were honoured by the 2nd respondent-Bank. The 1st respondent filed Civil Suits before the trial court seeking permanent injunction restraining the defendant No.1/appellant from encashing the Bank guarantees and restraining the defendant No.2/respondent No.2-Bank from acting on the basis of the letter of invocation issued by the appellant demanding invocation of Bank Guarantees. The appellant entered appearance before the trial court and filed application/s IA-2 under Section 8 of the Act seeking reference of parties to arbitration. The trial -7- court dismissed the said application/s. Being aggrieved, the appellant has preferred these appeals.
4. Learned counsel Sri.Ajay.J.N, appearing for the appellant contended that in terms of Clause 21 of the LOA, the appellant and the 1st respondent agreed to settle all the disputes whatsoever within the said LOA by way of arbitration. The arbitration clause as contained in General Conditions of Contract (GCC) has been incorporated by reference as between the appellant and 1st respondent. In terms of clause 19 of GCC, the parties agreed to constitute an arbitral Tribunal as per the procedure expressly stipulated therein. The 1st respondent filed Civil Suits before the trial court against the appellant and 2nd respondent inter alia seeking permanent injunction restraining the appellant from invoking the Bank Guarantees issued under Letter of Award [LOA] and the 2nd respondent from enchashing the same on the ground that the 1st respondent had not -8- breached the terms of contract/LOA. The trial court dismissed the IA-2 filed by the appellant without appreciating clause 21 of LOA and clause 19 of the GCC. Clause 19 of the GCC has been expressly incorporated in the arbitration clause in the LOA and 1st respondent has agreed to the contractual terms and cannot be allowed to renege from the same. The trial court evidently misconstrued GCC to be a company; ignored the terms of GCC produced before it vide appellant's memo dated 17.11.2017; merely on the ground that clause 19 of "GCC Company" has not been produced by both the parties. It was submitted that when the parties expressly and unequivocally agreed to settle the disputes arising out of the LOA by way of arbitration, the trial court ought to have referred the matter for arbitration and hence, the impugned order is liable to be set-aside. It was further submitted that as per the pleadings, 1st respondent did not dispute the arbitration clause contained in clause 19 of the GCC -9- stood incorporated by reference into arbitration clause in the LOA, however erroneously contended that respondent No.1 is not bound by clause 19 of the GCC since it was not a party. The impugned order is based on an erroneous understanding of the contractual terms and conditions of the disputes between the parties inasmuch the trial court holding the commission of the Unit would tantamount to completion of the project as per the requirements of LOA and the arbitration clause does not survive for consideration, while it is not even the pleadings of the 1st respondent before the trial court. Thus, it was contended that there is no discussion about Section 8 of the Act by the trial court while examining about the arguments advanced by the learned counsel for the parties. On the basis of the application filed under Section 8 of the Act, contract was completed between the parties. Thus filing suits for injunction to restrain the defendant No.1/appellant from invoking the Bank Guarantees is unsustainable.
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The trial court without appreciating these vital aspects proceeded to reject the application on some flimsy grounds which cannot be upheld in these appeals.
5. Learned counsel in support of his contentions placed reliance on the following decisions:
1. Hindustan Petroleum Corporation Ltd. vs. Pink City Midway Petroleum - (2003) 6 SCC 503;
2. P.Anand Gajapati Raju and others vs. PVG Raju and others - (2004) 4 SCC 539;
3. Ananthesh Bhakta and others vs. Nayana S. Bhakta and others - (2017) 5 SCC 185;
4. Sreteel vs. The Manager, Federal Bank Ltd., Nagercoin Branch - 2017 SCC online MAD 366;
5. Utkarsh Tubes and Pipes vs. Simplex Infrastructure Limited - 2016 (2) CHN (CAL) 666;
6. WPIL vs. NTPL Ltd., and others - 2009 (1) ARBLR 378 (Delhi)
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7. Jhansi - Ori Tollyway Pvt. Ltd. vs. Bank of India Bhilai mid Corporate Branch and others - 2017 (a) CGLJ 345;
8. South East Asia Shipping Co. Ltd. vs. NAV Bharat Enterprises Pvt. Ltd., (1996) 3 SCC 443;
9. Hellinic Electricity Distribution Network Operator vs. Bharat Heavy Electrical Ltd.
- 2016 SCC 443;
10. M.R.Engineers and Contractors Private Limted vs. Som Datt Builders Limited - (2009) 7 SCC 696;
6. Learned Senior counsel Sri.K.G.Raghavan for Sri.Anind Thomas, learned counsel appearing for respondent No.1 submitted that indeed there were three contracts, first one between the appellant and Sembcopor Gayatri Power Limited, to which respondent No.1 was not a party. Trial court considered the said Sembcopor Gayatri Power Limited as "GCC company". Second contract was between the appellant and the 1st respondent; sub-contract in which arbitration clause
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was referred to, in terms of clause 21.0 incorporating Article 19.0 of GCC; third contract between the appellant and the 2nd respondent, pertaining to the Bank Guarantees executed by the 1st respondent in terms of LOA to which 1st respondent was not a party. Thus, learned Senior counsel contended that these three contracts are independent and separate, unless a special reference to arbitration clause is mentioned in the Bank guarantee, the same cannot be read into a Bank gurantee and when there is no arbitration clause in the Bank Guarantee, the application under Section 8 of the Act is not maintainable. Thus, it was submitted that if the two contracts are separate, arbitration clause in the original contract cannot be imported in the contract of Bank guarantee. The original arbitration agreement may be very wide or general in terms but that certainly does not include a dispute arising under a separate agreement with a separate party, i.e. Bank guarantee and the Bank. It was contended that the
- 13 -
memo along with clause 19 of GCC filed before trial court by the appellant does not bear the signature of the parties. Hence, the court below proceeded to decide the matter as no clause 19 of the GCC was placed on record. It was argued that while considering the application for referring the parties to arbitration, the contents of the plaint as also the arbitration agreement and in which the applicant wants the court to read the averments has to be examined. Respondent No.1 had made it clear in the plaint before the trial court that the Bank guarantee had not incorporated the arbitration clause. Thus, it was submitted that the order of the trial court in its entirety has to be examined rather than finding fault with some abbreviations i.e. GCC, construing it as a company. Harmonious reading of the Judgment impugned would disclose the mind of the court in arriving at a decision. The trial court on appreciation of the material facts rightly rejected the application filed by the appellant as no case was made
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out for referring the matter to arbitral Tribunal inasmuch as invoking of the Bank guarantees by the appellant. According to the learned Senior counsel, there was no occasion for the appellant to invoke the Bank Guarantees of the concluded contract. It was submitted that application under Section 8 of the Act was considered by the trial court. There is no defects/deficiencies as pointed out by the learned counsel for the petitioner in dismissing the applications. Thus, he seeks for dismissal of the appeals.
7. In support of his arguments, learned Senior counsel placed reliance on the following Judgments:
1. BEFESA AGUA AND ANOTHER -V- IVRCL INFRASTURCTURE AND PROJECTS LTD. AND OTHERS (OA Nos.610& 611 of 2011 DD 2.4.2013) ;
2. HINDUSTHAN PAPER CORPORATION LTD., v.
KENEILHOUSE ANGAMI' reported in 1989 SCC OnLine Cal 208;
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3. INDOWIND ENERGY LIMITED -V- WESCARE (INDIA) LIMITED AND ANOTHER reported in AIR 2010 SC 1793;
4. SUKANYA HOLDINGS (P) LTD. -V- JAYESH H.PANDYA AND ANOTHER reported in (2003) 5 SCC 531;
8. Section 8 of the Act contemplates that Judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any court, refer the parties to the arbitration unless it finds that prima facie no valid arbitration agreement exists. Invoking this provision learned counsel for the appellant herein had filed applications to refer the matter to the Arbitral Tribunal
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on the ground that LOA dated 15.5.2013 was signed by the parties herein, in terms of Clause 21 of LOA, in case of any dispute arise between them, the same shall have to be referred to arbitration. Clause 21.0 of the LOA reads thus:
"21.0 SETTLEMENT OF DISPUTES AND ARBITRATION:
It is specifically agreed that all disputes or differences whatsoever, arising out of this Contract between the parties whether during the progress of the work or after its completion, shall be settled by process of settlement and arbitration as specified in ARTICLE 19.0 of GCC."
9. Article 19 of the GCC deals with dispute resolution which runs thus:
"19.1. Informal Dispute Resolution.
(a) Each party shall designate in writing to the other party a representative who shall be authorized to resolve any disagreement,
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dispute, controversy of claim arising under this Agreement in an equitable manner, and, unless otherwise provided herein, to exercise the authority of the Party to make decisions by agreement. If the designated representatives are unable to resolve any such disagreement, dispute, controversy or claim within 20 (twenty) days, such dispute shall be referred by such representatives to a senior officer designated by Purchaser and a senior officer designed by Supplier, respectively, who shall attempt to resolve the dispute within a further period of 20 (Twenty) days.
(b) The Parties agree to use their efforts to attempt to resolve all disagreements, disputes, controversies or claims arising hereunder promptly, equitably and in good faith, and further agree to provide in a timely manner each other with reasonable non- privileged records, information and data pertaining to any such disagreement, dispute, controversy or claim.
(c) When a Party has determined it has exhausted opportunities to settle any such
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disagreement, dispute, controversy or claim in accordance with Article 19.1(a) and (b) has determined that it desires to commence arbitration, it shall initiate arbitration in accordance with Article 19.2 hereof by serving upon the other Party a formal demand for arbitration.
19.2. Arbitration. In the event the Parties are unable to resolve any disagreement, dispute, controversy or claim in accordance with Article 19.1, such disagreement, dispute, controversy or claim shall be resolved in accordance with the following:
(a) Submission of Dispute. Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation hereof or any arrangements relating hereto or contemplated herein or the breach, termination or invalidity hereof shall be finally settled exclusively and by arbitration in accordance with this Article 19.2.
(b) Arbitration Rules. Notwithstanding the provisions of Article 22.2 hereof, (i) any
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arbitration proceedings or award rendered hereunder and the validity, effect and interpretation of this Article 18 shall be governed by the laws of India and (ii) the enforcement of this Article 18 and any award rendered hereunder shall be governed by the Arbitration & Conciliation Act, 1996. Each arbitration shall be conducted in the date of this Agreement (the "Arbitration Rules").
(c) Number of Arbitrators. The arbitral shall consist of three arbitrators.
(d) Place of Arbitration. The arbitration shall be conducted in Hyderabad, India.
(e) Language of Arbitration. The language to be used in the arbitration shall be the English language exclusively, and any award shall be made in the English language only.
(f) Finality and Enforcement of Award. Any decision of award of the arbitral tribunal shall be final and binding upon the Parties. The Parties hereby waive any rights to appeal or to review of such award by any court or tribunal. The Parties agree that the arbitral award may be enforced against the Parties to
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the arbitration proceedings or their assets wherever they may be forced and that a judgment upon the arbitral award may be entered in any court having jurisdiction thereof.
(g) Appointing Authority. The arbitrators shall be appointed in accordance with the Arbitration Rules, provided, however, if the third arbitrator is to be appointed by the Indian Council for Arbitration, it shall appoint only a person who is an attorney or former judge with experience in international commercial agreements and, in particular, the implementation and interpretation of engineering, procurement and construction contracts for power plants.
(h) If any disagreements, dispute, controversy or claim to be referred to arbitration under this Agreement raised issues which are substantially the same as or connected with issue raised in a related dispute between Purchaser and any or all of Construction Contractor, Engineer and Supplier (FOR), and if the related dispute has already been referred to arbitration for
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determination, purchaser and Supplier hereby agree that the disagreement, dispute, controversy or claim under this Agreement shall be referred to the arbitrators appointed to determine the related dispute. Such arbitrators shall have power to deal with both such disputes as they thin just and convenient.
19.3 Continuation of Performance.
Pending final resolution of any dispute, the Parties shall continue to perform their respective obligations hereunder to the extent such obligations are not being disputed in good faith, subject to the provisions of Article 13.1.1 hereof.
19.4. Time Limitation. The Party requesting arbitration to the other Party promptly hereof shall give any notice of arbitration pursuant to Article 19.2. In no event shall any notice of such arbitration be given after the date that is 60 days after the expiration of the Warranty Period."
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10. It is the contention of the appellant that Article 19 of the GCC has to be incorporated in terms of clause 21.0 of LOA. Much emphasis is placed by the learned counsel for the appellant on this GCC said to have been submitted before the trial Court which has not been considered. The said GCC filed along with memo as per Annexure-F in MFA No.1235/2018 bears the seal and signature of the appellant-company. Except the seal and signature of the appellant-company, this document does not bear the signature of other company with whom this GCC has been executed. In such circumstances, placing reliance on this document would not lend any assistance to the appellant. Subsection (2) of Section 8 mandates that the application referred to in Subsection (1) of Section 8 shall not be entertained unless it is accompanied by original arbitration agreement or duly certified copy thereof. Further the proviso appended thereto provides that original arbitration agreement or certified copy
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thereof is not available with the party applying for reference to arbitration under Subsection (1) and the said agreement or certified copy retained by the other party to that agreement, then, the party so applying shall file such an application along with copy of the arbitration agreement and a petition praying the court to call upon the other party to produce the original agreement or its duly certified copy before that court. It is manifest that neither original arbitration agreement or duly certified copy thereof was accompanied with the application filed by the appellant in terms of Subsection (1) of Section 8 nor it is the case of the appellant coming within the ambit of the proviso thereof. It is obligatory on the court to refer the dispute to arbitration if the parameters specified in Subsection (2) and the proviso thereof are complied with. Hence, trial court has categorically observed that no clause 19 of the GCC was furnished by either of the parties to examine the applicability of arbitration clause by reference in terms
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of LOA. Though no explicit reference is made to Section 8 of the Act, the reasoning/finding of the trial court is in conformity with the said provision. Hence, it cannot be held that there was no application of mind by the trial court in rejecting the applications. The pith and substance relating to the provision gains credence rather than quoting a provision
11. It is true that the trial court referred GCC as a company perhaps for the reason that said GCC was executed between the appellant and M/s Sembcopor Gayatri Power Limited, a company. However, the reasons assigned and decision arrived denotes that plaintiff/ respondent No.1 was not a party to the said GCC. It has been observed that Clause 19 referred to in the GCC was not made available before the court. However, respondent No.1 in paragraph 23 of the plaint has admitted about the arbitration clause in LOA, stated that the same is not applicable and invoked, as
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the Defendant No.2/respondent No.2, which is an integral and inextricable part of the cause of action and against whom reliefs have been expressly sought, is not party to LOA and the cause of action cannot be bifurcated.
12. Learned counsel for the appellant mainly argued that the suit is not maintainable or in other words, an obligation was cast on the trial court to examine the ouster of the Civil Court where an arbitration clause has been contemplated in the LOA. The cause of action in the suits filed by respondent No.1 is relating to the Bank Guarantees, as such the crucial question would be whether the Bank guarantee is a separate contract to which the plaintiff/respondent No.1 is not a party and contains any arbitration clause to refer the matter to the Arbitral Tribunal in terms of Section 8 of the Act. To answer this question, it would
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be beneficial to refer to the relevant Judgments referred to by the learned counsel for the parties.
13. In the case of Befesa Agua's case (supra), the High court of Madras has held thus:
45. Further, as per Clause 14.2, the Second Applicant, who is the Contractor shall deliver to the Company, namely the Second Respondent, a Performance Guarantee' of all obligations and responsibility, which may derive from the execution of the contract, which shall be issued by a Bank, which is acceptable for the Second Respondent.
Similarly, under Clause 15.2, the Performance Guarantee has to be executed in connection with the obligations and responsibilities, which may derive from the execution of the Supply Contract. Therefore, having regard to the execution of these Bank Guarantee as per Clause 14.2 of the ECC contract and Clause 15.2 of the Supply Contract, the question is
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whether the Arbitration Clause in those contracts can be incorporated into the Bank Guarantee.
14. High Court of Madras has referred to the case of 'M.R. ENGINEERS supra. It is held in paragraph 48 as under:
48. Thereafter, the scope and intend of Section 7(5) of the Arbitration and Conciliation Act, was summarized by the Hon'ble Supreme Court as follows:
(i) An Arbitration Clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled: (i) the contract should contain a clear reference to the documents containing Arbitration Clause, (ii) the reference to the other documents should clearly indicate an intention to incorporate the Arbitration Clause into the contract, (iii) the Arbitration Clause should be appropriate, that is capable of Application in respect of disputes under the contract and should not be repugnant to any term of the contract.
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(ii) When the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating that Arbitration Clause from the referred document into the contract between the parties. The Arbitration Clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to Arbitration Clause.
(iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by Arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the Arbitration Agreement in the referred contract, unless there is special reference to the Arbitration Clause also.
(iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution
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(as for example the Standard Terms and Conditions of a Trade Association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for Arbitration in such Standard Terms and Conditions, shall be deemed to the incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions.
(v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where that Government is a party), the Arbitration Clause forming part of such general conditions of contract will apply to the contract between the parties. Therefore, we will have to see, whether Arbitration Clause mentioned in the ECC contract and supply contract and Memorandum of Understanding can be incorporated into the Bank Guarantee, in the
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light of the law laid down by the Hon'ble Supreme Court as stated above. In my opinion, having regard to the law laid down by the Hon'ble Supreme Court explaining the scope of Section 7(5) of the Arbitration and Conciliation Act, 1996 in these cases Arbitration Clause cannot be incorporated in the Bank Guarantees.
49. According to me, mere reference to ECC Contract or Supply Contract or the execution of the Bank Guarantees, pursuant to the requirement as per the ECC Contract and Supply Contract will not make the Arbitration Clause to be read into Bank Guarantees. According to me, the Bank Guarantees, which are subject matter of the interpretation in these cases fail under the Category 3 of Paragraph 13 as stated above. Therefore, unless a special reference to Arbitration Clause is mentioned in the Bank Guarantee, the same cannot be read into the Bank Guarantee and when there is no Arbitration Clause in the Bank Guarantee, the Application under Section 9 if the Arbitration
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and Conciliation Act, 1996 is not maintainable." 15. In the case of 'HINDUSTHAN PAPER
CORPORATION LTD' (supra) High Court of Calcutta has held thus:
"12. In our opinion, the point is now well- settled. A bank guarantee may be furnished in terms of a particular contract between two parties. In terms of the conditions of the contract, a bank guarantee may be provided by a bank in favour of one of the parties to the original contract (hereinafter called "the beneficiary"). As to the question of enforcement of the bank guarantee by the beneficiary against the bank, the rights and liabilities are to be governed by the bank guarantee itself and not by the terms and conditions of the original contract. The bank guarantee itself is a contract separate from the original contract pursuant to which the bank guarantee is furnished. The bank is not a party to the original contract. Similarly, the party at whose instance the bank guarantee is furnished pursuant to the
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agreement, is not a party to the bank guarantee. The bank guarantee is to be enforced if it complies with the terms and conditions of the bank guarantee itself and not when there is any default or breach of the terms and conditions of the main contract. If the condition for payment under the bank guarantee is fulfilled, then such payment is to be made to the beneficiary though ultimately it may be open to the party at whose instance the bank guarantee was furnished to file a suit for damages against the other parties to the contract. It is open to such parties also to file any suit against the bank for recovery of any amount, if any, if the bank has acted contrary to the transaction between the bank and such other parties. That is no ground for holding that the original contract is to be treated as part of the guarantee or that the arbitration agreement in the original contract can be incorporated in the bank guarantee. If the two contracts are separate, the arbitration clause in the original contract cannot be imported in the contract of bank guarantee. In that event, the arbitration clause in the parent contract cannot include the question as to whether the terms
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and conditions of the bank guarantee have been fulfilled. Whether the bank guarantee is enforceable or not does not depend on the terms and conditions of the original contract. In this particular case, Clause (b) as such makes it quite clear that the alleged dispute sought to be raised therein is the dispute regarding the right of the beneficiary under the bank guarantee to enforce the bank guarantee as against the bank. It has nothing to do with any breach of contract by the beneficiary under the parent contract. A claim arising out of a bank guarantee is not a dispute arising out of the original contract. As we have pointed out, Clause (b) as such relates to the right of the beneficiary against the bank on the basis of the said bank guarantee and not the right of the beneficiary as such against the other party to the contract under the said original contract. The original arbitration agreement may be very wide or general in terms, but that certainly does not include a dispute arising under a separate agreement with a separate party, that is, the bank guarantee and the bank."
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16. The Hon'ble Apex Court in the case of Indowind Energy Limited's case (supra) has observed thus:
"15. Wescare puts forth the agreement dated 24.2.2006 as an agreement signed by the parties containing an arbitration agreement but the said agreement is signed by Wescare and Subuthi and not by Indowind. It is not in dispute that there can be appointment of an arbitrator if there was any dispute between Wescare and Subuthi. The question is when Indowind is not a signatory to the agreement dated 24.2.2006, whether it can be considered to be a `party' to the arbitration agreement. In the absence of any document signed by the parties as contemplated under Clause (a) of Sub-Section (4) of Section 7, and in the absence of existence of an arbitration agreement as contemplated in Clauses (b) or (c) of Sub-
Section (4) of Section 7 and in the absence of a contract which incorporates the arbitration agreement by reference as contemplated under Sub-Section (5) of Section 7, the
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inescapable conclusion is that Indowind is not a party to the arbitration agreement. In the absence of an arbitration agreement between Wescare and Indowind, no claim against Indowind or no dispute with Indowind can be the subject- matter of reference to an arbitrator. This is evident from a plain, simple and normal reading of Section 7 of the Act."
17. Much emphasis is placed by the learned counsel for the appellant on the Judgment of the Hon'ble Apex Court in the case of Ananthesh Bhakata (supra), wherein while examining the issue that when all the parties are not parties to the retirement deed/partnership deed, the court shall not be entitled to make the reference relying on the arbitration agreement, the Hon'ble Apex Court has held that the plaintiffs admittedly being parties to the arbitration agreement, it does not lie in their mouth to contend that since some of the defendants whom they have impleaded was not party to the arbitration agreement, no reference can be
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made to the Arbitrator. In the facts of the case, it was held that, it cannot be said that merely because one of the defendants i.e. defendant No.6 therein was not a party to the arbitration agreement, the dispute between the parties which essentially relates to the benefits arising out of the retirement deed and partnership deed cannot be referred.
18. In the case of Utkarsh Tubes and Pipes, the High court of Calcutta has held thus:
"27. The real cause of action in the plaint is recovery of the price of goods sold and delivered. Under the said agreement, the plaintiff has furnished a bank guarantee. The said bank guarantee is still valid. The bank guarantee is a separate contract. The said contract has nothing to do with the underlying contract of supply of materials under the purchase order. It may have a connection in the sense that the said bank guarantee was furnished as a part of the agreement under which the goods were supplied, but for all intents and purposes, it is a separate contract. A contract of bank guarantee is to be seen as an independent of the insulate the matter covered thereby from the disputes that may arise under the underlying contract.
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28. The plaintiff can have a separate cause of action against the bank if the bank has acted in breach of the said guarantee or has committed any fraud. The Court has to see the real purpose in joining the bank in this proceeding. The cause of action against the plaintiff No.1 and the cause of action against the plaintiff No.2 are different. The Court can direct a separate trail. The joinder of cause of action or joinder of parties are only enabling provisions. The Court, in my view, having regard to the object of the Arbitration and Conciliation Act, 1996, in such a situation, is required to find out the real controversy between the parties and if the Court is of the view that the other party has been impleaded in order to avoid arbitration, the Court should ignore such addition and refer the parties to arbitration. In the instant case, I have already held that the real controversy is between the plaintiff and the defendant No.1. The joinder of the defendant No.2 is made obviously to avoid arbitration since the plaintiff perceived bias or impartially in the appointment of an arbitrator under the arbitration clause."
19. In Sukanya Holdings (P) Ltd. -v- Jayesh H.Pandya and Another reported in (2003) 5 SCC 531 the Hon'ble Apex Court has held thus:
"15. The relevant language used in Section 8 is "in a matter which is the subject matter of an arbitration agreement", Court is
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required to refer the parties to arbitration. Therefore, the suit should be in respect of 'a matter' which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The words 'a matter' indicates entire subject matter of the suit should be subject to arbitration agreement.
16. The next question which requires consideration is even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act? In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would
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be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed."
20. In the case of WPIL -v- NTPC's case (supra), the High court of Delhi distinguished the Judgment of the Hon'ble Apex Court. It is observed that the question which confronts this court is a bit different- the non parties to the two sets of arbitration agreement are neither necessary, nor proper for the adjudication of disputes. No attempt is made by the plaintiff to show how defendant Nos.3, 4 and 5 have any concern or are connected with the dispute relating to termination of contract, or the dispute with Alstom for its alleged breach of terms of the Project agreement. It is held that in these circumstances, the inescapable inference is
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that they were included in the suit, as defendant, to circumvent and possibly to defeat the arbitration clause. It is held that so far as adjudication of the two sets of disputes i.e. between the plaintiff and Alstom on the one hand and the plaintiff and NTPC are concerned, none of the other defendants i.e. defendant Nos.3, 4 and 5 are necessary parties. It was the case where Bank guarantee had been encashed and concession was made to that extent besides this concession, the plaintiff has not shown how it had- or can have any cause of action against the Bank. The plaint was bereft of any averments concerning the Banks breach of any legal duty or contractual obligations, or with the encashment of the Bank guarantee, by NPTC was tainted by fraud. In the circumstances, the said Judgment is not applicable to the facts of the present case.
21. Learned counsel appearing for the appellant has placed on record the copies of Bank guarantees
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which has been carefully perused. It is not in dispute that no arbitration clause is provided in the said Bank guarantees. Thus, the Bank Guarantees executed between the appellant and respondent No.2-Bank being a separate contract, no arbitration clause can be invoked, placing reliance on clause 21.0 of LOA referring to clause 19.0 of GCC. It is well settled principle that arbitration agreement between the appellant and respondent No.1 cannot be deemed or construed to be an arbitration agreement in respect of another guarantor who was not party to the arbitration agreement. The arbitration agreement as defined under Section 7(4)(a)(b) of the Act is sine qua non for invoking the arbitration clause. Indisputably, an arbitration clause in another document would get incorporated into a contract by reference, provided the contract should contend a clear reference to the documents containing arbitration clause and an intention to incorporate the arbitration clause into the contract must be explicit.
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22. In the light of the law enunciated by the Hon'ble Apex Court in SUKANYA HOLDINGS'S case (supra) as well as M.R. ENGINEERS AND CONTRACTORS PRIVATE LIMITED'S case (supra) with reference to scope of Section 7(5) of the Act as well as bifurcation of subject matter of an action brought before the Court, not being permissible, arbitration clause cannot be incorporated in the Bank guarantees or matter cannot be referred to Arbitrator under Section 8 of the Act. As discussed above, Bank guarantees are separate and distinct agreement and the terms of the Bank guarantee alone should be considered inasmuch as the claim in the suit. The applications filed under Section 8 of the Act are not maintainable. Consequently, no exception can be found with the orders impugned. The scope of arbitration clause vis-à-vis the Bank guarantee would clearly establish that suit filed by respondent No.1-plaintiff cannot be ousted on the
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ground of arbitration clause as contended by the appellant.
23. For the aforesaid reasons, rejection of the interim applications filed by the appellant cannot be faulted with.
Appeals are dismissed.
No order as to costs.
Sd/-
JUDGE ln.