Gujarat High Court
Priyanka Constructions (Baroda) P.L. ... vs Vadodra Mumicipal Corporation on 24 March, 2017
Author: Akil Kureshi
Bench: Akil Kureshi
O/IAAP/84/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN. UNDER ARBITRATION ACT NO. 84 of 2016
With
PETN. UNDER ARBITRATION ACT NO. 85 of 2016
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PRIYANKA CONSTRUCTIONS (BARODA) P.L. THRO CHAIRMAN AND CEO
UTKARSH DIWAKAR MEHTA....Petitioner(s)
Versus
VADODRA MUMICIPAL CORPORATION....Respondent(s)
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Appearance:
AAYOG Y DOSHI, ADVOCATE for the Petitioner(s) No. 1
MR SP MAJMUDAR, ADVOCATE for the Petitioner(s) No. 1
MR. PARTH H BHATT, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
Date : 24/03/2017
ORAL ORDER
1. These arbitration petitions have been filed by the petitioner (hereinafter to be referred to as the contractor company) seeking appointment of an arbitrator to resolve the disputes between the petitioner and the respondent-Vadodara Municipal Corporation.
2. Facts being common, we may record them from Arbitration Petition No. 84 of 2016 which are as under:
The petitioner-contractor company is engaged in the business of construction related activities and is registered as Class A contractor with the State Government. The respondent Page 1 of 11 HC-NIC Page 1 of 11 Created On Tue Aug 15 05:32:35 IST 2017 O/IAAP/84/2016 ORDER Vadodara Municipal Corporation had floated a tender for construction of storm water drain in various areas within the limits of the Corporation. The petitioner turned out to be successful bidder and a work order for such purpose, was therefore, issued on 30.01.2010. A detailed agreement was executed on 24.03.2010.
3. The said agreement dated 24.03.2010 contained clause in following terms:
"10. In all cases of dispute or disagreement between the parties hereto as any matter arising out of or relating to engagement and provided no understanding between the parties can be reached for the settlement of the difference, the matter shall be finally decided by arbitration as per the provisions of the Indian Arbitration and Conciliation Act, 1996 or any modification or substantiations thereof. The decision of the Arbitration shall be binding on both the parties."
4. According to the petitioner, there were certain modifications made by the authorities during the course of execution of the work and further that the respondent had withheld unjustly a sum of Rs. 43.92 lacs (rounded off) from the various running bills citing penalty clauses. According to the petitioner, the Corporation had committed default in releasing the work which also resulted into losses to the petitioner.
5. The petitioner therefore wrote a letter dated 04.03.2016 to the Corporation and took up various contested issues with the Corporation for resolution. When the petitioner did not receive Page 2 of 11 HC-NIC Page 2 of 11 Created On Tue Aug 15 05:32:35 IST 2017 O/IAAP/84/2016 ORDER response from the Corporation, the petitioner issued a further communication dated 28.03.2016 and requested the Corporation to agree to appointment of a sole arbitrator who was named in the said notice to resolve such disputes. This notice also remained unreplied upon which, the present arbitration petition came to be filed.
6. In response to the notice issued, the Corporation has appeared and filed affidavits and produced documents. The principal stand of the Corporation is that no arbitrable dispute survives. According to the Corporation, the petitioner had accepted the final bill by way of full and final settlement and that therefore, now the petitioner cannot resort to arbitration. In an affidavit dated 25.11.2016, it is stated that the petitioner had settled final bill on 12.05.2014 of an amount of Rs. 8,58,64,850/-. The petitioner also collected the performance guarantee bond on 24.01.2015 and had also accepted in writing that no further claim will be raised.
7. The petitioner filed a rejoinder affidavit in which, signing of the final bill with full and final settlement clause on 12.05.2014 was disputed. The petitioner reiterated that there were several defaults on part of the Corporation and that therefore, the arbitrable disputes had arisen.
8. Two more affidavits came to be filed one each by the respondent and the petitioner. However, it is not necessary to Page 3 of 11 HC-NIC Page 3 of 11 Created On Tue Aug 15 05:32:35 IST 2017 O/IAAP/84/2016 ORDER dwell into the contents thereof. I may only refer to the documents produced by the Corporation along with such affidavit dated 02.02.2017 in which, while accepting the bill payment of Rs. 24,14,830/- on the reverse side of the document carrying the date of 22.04.2013, a stamp endorsement is made that the details of measurements and rates have been checked. The bill is found to be in order and no future disputes will be raised.
9. From the above discussion, it can be seen that the principal opposition of the Corporation to appointment of an arbitrator is that the petitioner having accepted the final bill and all other payments under full and final settlement clauses, no arbitrable dispute survives and therefore, there is no need to appointment of an arbitrator. It is further contended that the contract having come to an end by mutual conduct of the parties, arbitration, in any case, can not take place.
10. A Constitution Bench judgement in case of SBP & Co. vs. Patel Engineering Ltd. reported in (2005) 8 SCC was discussed at length. The nature of powers and duties of the Chief Justice or his designate while considering an application for appointment of an arbitrator under section 11 of the Arbitration and Conciliation Act, 1996 and make following observations:
38. It is true that finality under Section 11 (7) of the Act is attached only to a decision of the Chief Justice on a matter Page 4 of 11 HC-NIC Page 4 of 11 Created On Tue Aug 15 05:32:35 IST 2017 O/IAAP/84/2016 ORDER entrusted by sub-Section (4) or sub-Section (5) or sub-Section (6) of that Section. Sub- Section (4) deals with the existence of an appointment procedure and the failure of a party to appoint the arbitrator within 30 days from the receipt of a request to do so from the other party or when the two appointed arbitrators fail to agree on the presiding arbitrator within 30 days of their appointment. Sub-Section (5) deals with the parties failing to agree in nominating a sole arbitrator within 30 days of the request in that behalf made by one of the parties to the arbitration agreement and sub-Section (6) deals with the Chief Justice appointing an arbitrator or an arbitral tribunal when the party or the two arbitrators or a person including an institution entrusted with the function, fails to perform the same. The finality, at first blush, could be said to be only on the decision on these matters. But the basic requirement for exercising his power under Section 11(6), is the existence of an arbitration agreement in terms of Section 7 of the Act and the applicant before the Chief Justice being shown to be a party to such an agreement. It would also include the question of the existence of jurisdiction in him to entertain the request and an enquiry whether at least a part of the cause of action has arisen within the concerned State. Therefore, a decision on jurisdiction and on the existence of the arbitration agreement and of the person making the request being a party to that agreement and the subsistence of an arbitrable dispute require to be decided and the decision on these aspects is a prelude to the Chief Justice considering whether the requirements of sub-Section (4), sub-
Section (5) or sub-Section (6) of Section 11 are satisfied when approached with the request for appointment of an arbitrator. It is difficult to understand the finality to referred to in Section 11(7) as excluding the decision Page 1820 on his competence and the locus standi of the party who seeks to invoke his jurisdiction to appoint an arbitrator. Viewed from that angle, the decision on all these aspects rendered by the Chief Justice would attain finality and it is obvious that the decision on these aspects could be taken only after notice to the parties and after hearing them.
39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is Page 5 of 11 HC-NIC Page 5 of 11 Created On Tue Aug 15 05:32:35 IST 2017 O/IAAP/84/2016 ORDER to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral tribunal."
11. This judgement thus made a clear distinction between the issues which the Chief Justice or his designate must decide before accepting a request for appointment of an arbitrator and those which would be optional to go into, if so advised in given set of facts. Whether the claim is a long time barred claim or one where the party accepted the payment by way of full and final settlement, are issues which are optional for the Chief Justice or his designate to go into. If the facts are not entirely Page 6 of 11 HC-NIC Page 6 of 11 Created On Tue Aug 15 05:32:35 IST 2017 O/IAAP/84/2016 ORDER clear, it would be advisable to leave such dispute to be judged by the arbitrator also.
12. The Arbitration and Conciliation Act, 1996 came to be amended extensively by the Arbitration and Conciliation (Amendment) Act, 2015. One of the amendments was to introduce sub section (6A) of section 11 which provides that the Supreme Court or, as the case may be the High Court while considering any application under sub section (4) or sub section (5) or sub section 6 shall notwithstanding any judgement, decree or order of any court, confine to the examination of the existence of the arbitration agreement. The fact that the amendment applies to the present proceeding is not in dispute. With the amendment, while deciding whether to appoint an arbitrator the emphasis now is on examination of the existence of an arbitration agreement.
13. The facts of the present case do not present a clear picture that the entire claim was resolved, settled and the petitioner agreed not to raise any future claims. The petitioner had called upon the respondent to produce the said letter of full and final settlement dated 12.05.2014 which has not been done. The reliance is instead, in the further affidavit, placed on the above noted document carrying a date of 22.04.2013. The amount accepted in the said acknowledgment is of Rs. 24,14,830/-. Thus, even the factum of the acceptance of the Page 7 of 11 HC-NIC Page 7 of 11 Created On Tue Aug 15 05:32:35 IST 2017 O/IAAP/84/2016 ORDER final bill with the full and final settlement itself is open to interpretation and argument.
14. In a recent judgement dated 17.03.2017 passed in Arbitration Petition No. 101 of 2016, on somewhat similar issue, after referring to paragraphs 38 and 39 (of SCC) of the judgement of the Supreme Court in case of SBP & Co. vs. Patel Enginerring Ltd and anr(supra) following observations were made:
"13 This aspect has been reiterated by the Supreme Court in number of later decisions including the above referred case and case of National Insurance Company Ltd. vs. Boghara Polyfab Private Limited (supra). After referring to the decision in case of SBP & Co. vs. Patel Engineering Ltd. and anr. It was held and observed as under:
"17. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under section 11 of the Act into three categories, that is (i) issues which the Chief Justice or his Designate is bound to decide; (ii) issues which he can also decide, that is issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.
17.1) The issues (first category) which Chief Justice/his designate will have to decide are:
(a) Whether the party making the application has approached the appropriate High Court.Page 8 of 11
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(b) Whether there is an arbitration agreement and whether the party who has applied under section 11 of the Act, is a party to such an agreement.
17.2) The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the arbitral tribunal) are:
(a) Whether the claim is a dead (long barred) claim or a live claim.
(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.
17.3) The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal are :
(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).
(ii) Merits or any claim involved in the arbitration. It is clear from the scheme of the Act as explained by this Court in SBP & Co., that in regard to issues falling under the second category, if raised in any application under section 11 of the Act, the Chief Justice/his designate may decide them, if necessary by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice of his Designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue.Page 9 of 11
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18. What is however clear is when a respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercion or under influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under section 11 of the Act or by the arbitral Tribunal as directed by the order under section 11 of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant."
14. The issue can be looked from a slightly different angle. The notice for appointment of an arbitrator was issued on 08.09.2016 i.e. after the Arbitration and Conciliation (Amendment) Act, 2015 came into force. Under the said amendment Act, sub section (6A) was added to section 11 of the Arbitration and Conciliation Act, 1996 which provides that the Supreme Court, or as the case may be, the High Court while considering any application under sub section (4) or sub section (5) or sub section (6) of section 11 shall notwithstanding any judgement, decree or order of any court confine to the examination of the existence of an arbitration agreement. The scrutiny of the High Court while considering applications under sub section (4) or (5) or (6) of section 11 thus post the amendment has become much narrower and would be largely confined to the examination of the existence of an arbitration agreement.
15. Looking to the factual legal and statutory position noted above, I would make the reference to the arbitrator while leaving the question of the effect of the full and final settlement signed by the petitioner open for the arbitrator to decide."
15. Under the circumstances, I would request the parties to present declaration of Shri A.S.Sanghvi, retired City and Page 10 of 11 HC-NIC Page 10 of 11 Created On Tue Aug 15 05:32:35 IST 2017 O/IAAP/84/2016 ORDER Sessions Judge by the next date of hearing.
S.O. to 31.03.2017.
(AKIL KURESHI, J.) Jyoti Page 11 of 11 HC-NIC Page 11 of 11 Created On Tue Aug 15 05:32:35 IST 2017