Telangana High Court
Kirloskar Brothers Limited vs M/S Navayuga Engineering Company ... on 5 July, 2022
Author: A.Abhishek Reddy
Bench: A.Abhishek Reddy
THE HON'BLE SRI JUSTICE A.ABHISHEK REDDY
ARBITRATION APPLICATION Nos.86 and 169 of 2021
COMMON ORDER:
These applications are filed under the provisions of the Arbitration and Conciliation Act, 1996 (for short 'the Act'), seeking appointment of an Arbitrator.
2. It is the case of the applicant that three companies, namely, SEW Infrastructure Limited (respondent in AA.No.86 of 2021), M/s. Navayuga Engineering Company Limited (respondent in AA.No.169 of 2021) and IVRCL Infrastructure & Projects Limited, formed a Consortium and entered into a joint venture agreement for executing the portion of electro- mechanical work pertaining to various pump houses relating to Sripada Sagar Project Stage-II Phase-I. The Consortium, in turn, has initially awarded a work to the applicant for carrying out survey, design, model, study, manufacturing, supply, erection, testing, commissioning, operation and maintenance of complete Electro Mechanical works relating to the Project, vide work order dated 27.12.2008, and the same has been accepted by the applicant in terms thereof. Accordingly, the applicant has started execution of the work on time and has raised Running Account (RA) bills. However, the Consortium, despite several reminders and requests, has failed to release the 2 amounts due to the applicant even after receiving the same from its employer. Therefore, with the intervention of the employer, the Consortium and the applicant entered into a Settlement Agreement and pursuant thereto, the respondents have made part payments. While so, on 16.04.2016 the Consortium has issued a fresh work order for supervision charges in favour of the applicant and again committed default in payment of supervision charges. Despite several reminders, the respondents herein did not respond. Therefore, the applicant has issued notices to the respondents invoking arbitration clause. The respondent in AA.No.86 of 2021, after receipt of the notice issued reply dated 22.12.2020, denying the allegations raised by the applicant and rejecting the nomination of senior advocate as Sole Arbitrator and instead, sought consent to nominate and appoint a former Judge of High Court of Madras as Sole Arbitrator to adjudicate the dispute. Whereas, the respondent in AA.No.169 of 2021, after receipt of the notice, did not issue any reply, however gave its consent to appoint an Arbitrator or in alternate to nominate an Arbitrator of its choice. In those circumstances, the applicant has filed the present Arbitration Applications.
3. Learned counsel for the applicant has stated that as per the Settlement Agreement dated 11.03.2016 entered into 3 between the parties, in particular Sub-Clause (12) of Clause 8, in case there is any dispute between the parties, the same shall be referred to a Sole Arbitrator. Learned counsel has also drawn the attention of the Court to Sub-Clause (10) of Clause 8 the Settlement Agreement and has laid special emphasis on the word "severally" to buttress his contention that even though the Settlement Agreement is between the applicant on the one hand and the Consortium of three companies, consisting of M/s. IVRCL Limited, M/s. Navayuga Engineering Company Limited and M/s. SEW Infrastructure Limited on the other hand, the present arbitration applications are filed only against M/s. SEW Infrastructure Limited (respondent in AA.No.86 of 2021) and M/s. Navayuga Engineering Company Limited (respondent in AA.No.169 of 2021). Learned counsel has further stated that the liability of the individual members of Consortium has been clearly segregated and defined in Clause (6) of the Settlement Agreement, which provides that the individual partner shall pay its respective portion of the retention amount to the applicant within seven days from the date of receipt the same. Learned counsel has stated that the applicant has rightly invoked the arbitration clause and moreover the respondents while agreeing for arbitration, have suggested a different Arbitrator other than the one proposed by 4 the applicant, however subsequently, after filing of the present Arbitration Applications, the respondents have taken a somersault and are opposing the same stating that the Settlement Agreement is entered into between all the constituents of the Consortium jointly on the one hand and the applicant on the other hand and not between the individual constituents of the Consortium, therefore, the arbitration clause cannot be invoked, as against the individual member of the Joint Venture and the same is legally untenable in view of the Clause (6) and Sub-Clause (12) of Clause (8) of the said Settlement Agreement.
4. Per contra, learned counsel appearing on behalf of the respondents has vehemently opposed the arbitration applications in the present form and stated that there is no written agreement between the individual constituents of the Consortium/Joint Venture and therefore, there is no liability of the single constituent against whom the Agreement can be invoked. The applicant cannot invoke the arbitration clause against the individual constituents of the Consortium but only against the Joint Venture. He submits that the remedy available to the applicant is to file a Civil Suit before the Civil Court against the Individual Member of the Consortium and not the present arbitration applications. Learned counsel has laid 5 special emphasis on Section 7 of the Act and has also relied on the judgment of the Bombay High Court in the case of Larsen & Toubro Ltd. vs. Mumbai Metropolitan Region1 to buttress his contention that the present applications are not maintainable and are liable to be dismissed.
5. In order to appreciate the various contentions raised by the learned counsel for the parties, it is necessary to extract the relevant portion of the Settlement Agreement, more particularly Clauses (6) and Sub-Clauses (10) and (12) of Clause (8), which read as under:-
"(6). It is further clarified that each of the JV partners shall pay to KBL its respective portion of the said Retention amount, as more particularly described in this Agreement, within 7 days from the day the individual Partner receives it from the department namely I & CADD.
8(10). This Agreement shall be legally enforceable and valid till the completion of the Project and release of all the above stated amounts to KBL by the said IVRCL, NEC and SEW, as the case may be severally- and this Agreement shall not be terminated by either Party for whatsoever reasons.
8(12). In the case of any dispute between the Parties herein with respect to the interpretation of the contents of this Agreement, then the Senior Executives of the Parties herein shall endeavour to settle the dispute through a mutual dialogue. If, however the dispute remains unresolved for a period of 15 days, the same will be referred to Arbitration under Arbitration & Conciliation Act, 1996, and/or any modifications and amendments thereto and the same shall be conducted by a sole Arbitrator appointed mutually by all the Parties 1 2016 SCC OnLine Bom 13348 6 herein within the next 10 days. If the parties are not able to decide upon a single Arbitrator within these 10 days, then they will approach a court of competent jurisdiction, for appointment of this sole Arbitrator. The language of Arbitration shall be English. It is agreed that the Award of the Arbitrator shall be binding on all the Parties herein."
(Emphasis added)
6. A combined reading of the above Clauses clearly shows that irrespective of the fact whether the present arbitration applications are filed against the individual constituents of the Consortium or against the Consortium as a whole, a plain reading points to the fact that the arbitration clause can be invoked against the individual constituent of the Consortium, more so as the liability of the individual partner is segregated, quantified and defined in the Settlement Agreement and as per Sub-Clause (10) of Clause (8) of the Settlement Agreement which provides that the agreement is legally enforceable "severally". Moreover, in reply to the notices issued by the applicant invoking the arbitration clause, the respondents have themselves agreed for appointment of Arbitrator but only sought for appointment of a different person from the one proposed by the applicant.
7. Having regard to the above, the contention of the learned counsel for the respondents that there is no enforceable written agreement between the parties and the only remedy available to 7 the applicant is to file a Civil Suit before the Civil Court is not correct. Even the judgment relied on by the learned counsel for the respondents in Larsen & Toubro Ltd.'s case (supra) is clearly distinguishable with that of the facts in the present case and the same has no application. As a matter of fact, the learned Single Judge in that very same judgment, relying on the judgment rendered by that very High Court in the case of Oil and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd., has held as under:-
"...wherein similar objection has been turned down by this Court by holding that the petition filed by one of the members of the consortium was maintainable. In the judgment cited this Court at paras 12 and 13, extensively referred to the terms for the contract between the parties before it and on the basis thereof concluded that the claim in the arbitral proceedings was restricted. The constituents of the consortium in fact under the agreement itself were entitled to different and exclusive payments for each. As such the claim in the arbitral proceedings was restricted to the claim to which the constituent of the Consortium alone was entitled to. It did not form part of the claim relating to any amount which was due and outstanding to the other constituent of the Consortium. Hence, the arbitral proceedings were held to be correctly initiated by a constituent. The facts of the case on hand are exactly contrary."
Therefore, the contention of learned counsel for the respondents that the arbitration clause cannot be invoked against the individual constituent of the Joint Venture/Consortium is without any legal basis, more so, as the individual liability of the Joint Venture partners is clearly defined.
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8. In the aforesaid fact situation, and in view of Section 10 of the Act, a sole Arbitrator is required to be appointed. Since the parties are not in agreement as to the identity of the Arbitrator, this Court has to take requisite measure under Section 11(6) of the Act to make such appointment.
9. In the result, the Arbitration Applications are ordered appointing Sri Justice A. Rajasheker Reddy, retired Judge of the High Court for the State of Telangana, as the sole Arbitrator to arbitrate on the disputes between the applicant and the respondents and the said Arbitrator shall enter on reference and proceed with, as enjoined by the Act.
10. The learned Arbitrator shall fix his remuneration as per the statutory provisions. He shall also fix the costs and expenses of the secretarial assistance for the arbitration proceedings upon deliberation and consultation with the parties. All the costs and expenses of the arbitration proceedings shall be borne by both the parties in equal share. The Learned Arbitrator is requested to complete arbitration proceedings, and pass an award at the earliest, preferably within six months from the date of commencement of the arbitral proceedings.
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Miscellaneous Applications, if any, pending in the Arbitration Applications, shall stand closed. No order as to costs.
_________________________ A.ABHISHEK REDDY, J 05.07.2022 JSU