Delhi High Court
Madhucon Projects Ltd. vs Indian Oil Corporation Ltd. on 27 April, 2007
Equivalent citations: 2007(2)ARBLR227(DELHI), 140(2007)DLT654, AIR 2007 (NOC) 1949 (DEL.)
Author: Vikramajit Sen
Bench: Vikramajit Sen
JUDGMENT Vikramajit Sen, J.
1. This Petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as A and C Act) praying for the appointment of an Arbitrator to adjudicate upon disputes that have arisen between the parties arising out of an Agreement dated 21.6.2000 which contains an Arbitration Clause. It inter alia contemplates that disputes pertaining to 'any notified claim of the contract included in its Final Bill' shall be referred to arbitration by a Sole Arbitrator selected by the Contractor from a panel of three persons nominated by the General Manager of Indian Oil Corporation Limited (IOCL for brevity). Although the Petition has been strenuously contested, in its Reply to the Petition the Respondent/IOCL has already mentioned the names of three persons for selection as the Sole Arbitrator.
2. Mr. Kaura, learned Counsel for the IOCL has resisted the reference to arbitration on the ground that it was imperative for the Petitioner to have notified its claims in consonance with Section 9 of the Agreement which is the Arbitration Clause and since this has not been done, no arbitrable disputes are in existence. Secondly, it is his argument that the claims which have now been raised stood settled by application of the principles of accord and satisfaction, and hence no disputes remain which require resolution through arbitration. At the very commencement of the hearing it had been conveyed to Mr. Kaura that a complete answer to these Objections can be found in Chunni Lal v. RPG Home Finance Pvt. Ltd. in that a definitive decision ought to be directed by the Court to be taken by the Arbitrator after detailed discussion.
3. In Chunni Lal I had arrived at a prima facie satisfaction of the existence of arbitrable disputes. Consequently the parties had been referred to arbitration leaving it open to the Arbitrator to finally rule on this aspect of the dispute also. The Respondents have stoutly resisted this understanding of the law, which in my view has been enunciated by the Seven Judges Bench of the Hon'ble Supreme Court in S.B.P. and Co. v. Patel Engineering Ltd. . Their Lordships had recorded these twelve conclusions, of which the fourth is relevant for the present purposes:
(i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power.
(ii) The power under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief Justice of the High Court only to another judge of that court and by the Chief Justice of India to another judge of the Supreme Court.
(iii) In case of designation of a judge of the High Court or of the Supreme Court, the power that is exercised by the designated judge would be that of the Chief Justice as conferred by the statute.
(iv) The Chief Justice or the designated judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be, his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the judge designated would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the judge designate. (underlining added)
(v) Designation of a district judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted in the scheme of the Act.
(vi) Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would not interfere with orders passed by the arbitrator or the arbitral tribunal during the course of the arbitration proceedings and the parties could approach the court only in terms of Section 37 of the Act or in terms of Section 34 of the Act.
(vii) Since an order passed by the Chief Justice of the High Court or by the designated judge of that court is a judicial order, an appeal will lie against that order only under Article 136 of the Constitution of India to the Supreme Court.
(viii) There can be no appeal against an order of the Chief Justice of India or a judge of the Supreme Court designated by him while entertaining an application under Section 11(6) of the Act.
(ix) In a case where an arbitral tribunal has been constituted by the parties without having recourse to Section 11(6) of the Act, the arbitral tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Act.
(x) Since all were guided by the decision of this Court in Konkan Railway corporation Ltd. v. Rani Construction P. Ltd. [2000] 8 SCC 159 and orders under Section 11(6) of the Act have been made based on the position adopted in that decision, we clarify that appointments of arbitrators or arbitral tribunals thus far made, are to be treated as valid, all objections being left to be decided under Section 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act.
(xi) Where District Judges had been designated by the Chief Justice of the High Court under Section 11(6) of the Act, the appointment orders thus far made by them will be treated as valid; but applications, if any, pending before them as on this date will stand transferred, to be dealt with by the Chief of the concerned High Court or a judge of that court designated by the Chief Justice.
(xii) The decision in Konkan Railway Corporation Ltd. v. Rani Construction P. Ltd. [2000] 8 SCC 159 is overruled.
4. The Judgment does not state that a final conclusion must mandatorily be arrived at by the Judge seized with a petition under Section 11; on the contrary it postulates a prima facie satisfaction. This is obvious from a perusal of the Judgment wherein it has been opined that it was necessary to "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". Since Parliament specifically reposes this power on the Arbitrator, as per Section 16 of the Act, principles of statutory interpretation ordinarily would commend the Court from rendering the provision otiose by returning a definitive pre-decision on this question. The seven Judge Bench in Patel Engineering had been constituted to settle the question of whether the appointment of an Arbitrator constitutes a ministerial or administrative or adjudicatory action. The answer that was given was that the Chief Justice or his designate is not bereft of judicial powers and that he can adjudicate upon fundamental issues going to the very root of the existence of an Arbitration Clause or of an arbitral dispute; that the decision is the outcome of judicial exercise. The purpose of Section 16 is to clarify that disputes which pertain to the jurisdiction of the Arbitrator can conveniently and appropriately be decided by the Arbitrator himself. Their Lordships resoundingly rejected the argument that the designate appointed by virtue of Section 11 cannot decide disputed questions including the existence or validity of the Arbitration Agreement or whether the claim was a dead one sought to be resurrected; or whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. The decision in Rodemadan India Limited v. International Trade Expo Centre Limited 2006(2) Arb.LR 83 (SC) is a binding precedent. Justice B.N. Srikrishna had referred the parties to arbitration, specifically declining to record evidence on the bidding of the Objector/Respondent which would have the effect of converting the designate of the Chief Justice into a trial Court.
5. In Sanjeev Sharma v. Gurdeep Singh 2006 IV AD (Delhi) 21 my learned Brother, A.K. Sikri, J. had, on being prima facie satisfied that the Agreement placed on the record contained an Arbitration Clause, referred the parties to the arbitration of a retired Additional District Judge, Delhi, specifically permitting the Respondent to take all defenses available to it with regard to its binding nature or validity. By doing so the Court does not render itself 'subservient' to the Arbitrator for the simple and obvious reason that it has considered it expedient not to return a definite and unequivocal finding on the said issue. The Court can certainly and indisputably record a final finding on such aspects, and in that event the power of the Arbitrator under Section 16 of the Act to arrive at a contrary conclusion stands foreclosed. A harmonious statutory construction, in consonance with the views articulated in Patel Engineering, is that the Judge exercising jurisdiction under Section 11 must be prima facie satisfied that an Arbitration Clause exists and that disputes for arbitral adjudication also exist. If in the opinion of the Judge it is imperative to consider the matter threadbare and to return a definitive, binding and conclusive decision on any jurisdictional aspect, distinct from an adjudication of the claims sought to be decided through arbitration, he may do so.
6. There can be no gainsaying that there is abundant wisdom in stipulating that certain claims must be notified before the Contractor can insist that they be referred to arbitration. Attention has been drawn to the decision dated 6.7.2006 of my learned Brother, A.K. Sikri, J. in B.K. Singh & Co. v. Dy. General Manager, IOCL, Mathura-Jalandhar Pipeline Bijwasan, New Delhi on the necessity of existence of 'notified claims' as the sine qua non for such claims to be referred to Arbitrator. He had referred to Uttam Singh Duggal & Co.(P) Ltd. v. Indian Oil Corporation Ltd. 2nd (1985) II Delhi 131 in which the Court had not accepted the contention of the Petitioner that claims had been duly notified. After discussing all the precedents on the subject Sikri, J. concluded that the claims raised before him were not arbitrable and were even time-barred, and that the claims raised in that case were not covered by the Arbitration Agreement. It is palpably clear that correspondence and documents exchanged by the adversaries had been looked into by the Court to arrive at the unequivocal conclusion that no claims had been notified as contemplated by the Arbitration Clause. However, as I shall discuss in greater detail below, keeping in view the correspondence exchanged between the parties before me it is not possible for me to affirmatively come to such a conclusion. In Suit No. 2399-A of 1985 titled Associated Hybilds Pvt. Ltd. v. Indian Oil Corporation Ltd. decided on 15.10.1987 B.N. Kirpal, J., as the learned Chief Justice of India then was, was called upon to construe an identical Arbitration Clause. It was noted that the Petitioner had not recorded any Notified Claims as contemplated by Clause 6.6.1.0., which postulates claims regarding extra work done or alleged wrongful deductions made; and that admittedly the Petitioner had not even submitted a Final Bill as contemplated by Clause 6.6.3.0. A similar conclusion was arrived at by another Single Bench in Bansal Construction Co. v. Indian Oil Corporation Ltd. 1991(2) ALR 409 where the petition under Sections 8 and 20 of the Arbitration Act, 1940 (1940 Act for short) was dismissed. In International Building and Furnishing Co. (Cal) Pvt. Ltd. v. Indian Oil Corporation Ltd. 1995(1) ALR 548 the Division Bench was also called upon to apply Section 20 of the Arbitration Act. It was found that no claims had been notified and hence the petition was dismissed. In Sarup Lal Singhla v. National Fertilizers Ltd. the Final Bill had been cleared and a No Claim Certificate had been issued. However, the Plaintiff thereafter claimed compensation for extra work done on verbal orders. It was found that Notified Claims were not in existence and hence the Arbitration Clause could not be invoked. Mr. Kaura has also relied on the decision in FAO No. 54/2004 decided on 27.4.2005 titled Blue Star Limited v. Indian Oil Corporation Ltd. This, however, militates against the inflexible stand adopted by him, namely, that it is essential and mandatory for the Court to invariably return a final ruling in contradistinction to a prima facie satisfaction, upon the existence of Notified Claims before parties can be referred to arbitration. The challenge in Blue Star concerned the interim Award passed by the Arbitrator holding that the claims had not been duly notified in consonance with the Arbitration Clause. It is also necessary to underscore the fact that the decisions relied upon by Mr. Kaura pertain to the 1940 Act, the syntax of which did not discourage Civil Courts to intervene in arbitration matters. These precedents would now not possess equally enduring persuasion and weightage in the context of A & C Act which, in terms of its Section 5, endeavors to minimize the interference of Civil Courts in the progress of adjudication of disputes through arbitration. In the A & C Act regime parties to an Arbitration Clause should normally be persuaded to decide all their differences through arbitration. Accordingly, if the Courts come to a prima facie conclusion that an Arbitration Clause exists, or that it would require the reception and appreciation of evidence, documentary or otherwise to come to a particular conclusion, further adjudication should normally be relegated to the realm of arbitration. This analysis should not be construed to return a finding to the effect that Notified Claims are, in fact, in existence in the present case, since the procedure that commends itself is to leave this decision to the Arbitrator.
7. In P.K. Ramaiah & Co. v. Chairman and Managing Director, NTPC their Lordships were satisfied that there was no existing arbitrable dispute for reference to the Arbitrator since, admittedly, full and final satisfaction was acknowledged by a receipt in writing and the amount was received unconditionally. In State of Maharashtra v. Nav Bharat Builders 1994 Supp (3) SCC 83 it was opined that there was full and final settlement of the claim since the contractor had acknowledged the receipt of the amount unconditionally and had undertaken to withdraw his claim in the suit in respect of labour escalation. In Damodar Valley Corpn. v. K.K. Kar although payment had been received, the Respondent had not given a receipt in the nature of full and final settlement. Both "Russel on Arbitration" and "Mulla's Indian Contract and Specific Relief Acts" accept that accord and satisfaction constitutes a good defense to a claim. If this is so, then a detailed hearing, such as in a suit or before an Arbitrator, would become necessary.
8. Where there is doubt as to whether accord and satisfaction has been arrived at by the parties, the legal nodus should be referred to arbitration as observed by the Division Bench of this Court in Navbharat Dal Mills v. Food Corporation of India . In similar vein the Division Bench of the Bombay High Court has opined, in Union of India v. Ajit Mehta and Associates, Pune , that even where there has allegedly been a "full and final settlement of the claim, the arbitration clause in the contract may subsist where the party invoking it alleges that in fact there was no accord and satisfaction for some reasons such as the final bill was submitted or receipt was given under coercion, mistake or misrepresentation, without prejudice, under protest etc. For then that itself becomes a dispute arbitrable under the clause". Similarly, in Jiwani Engineering Works (P) Ltd. v. Union of India it has been noted that very often a 'No Claim Certificate' is demanded before payment is made, and the claimant should not be shut out or precluded from pleading to the contrary. Recently, this very question had arisen in Bharat Coking Coal Ltd. v. Annapurna Construction and their Lordships were of the view that acceptance of the Final Bill would not foreclose the raising of Claims unless it could be shown that the Respondent had unequivocally stated that he would not raise any further claims; in the absence of such a declaration the claimant cannot be held to be estopped or precluded from raising a claim.
9. The legal phrase 'accord and satisfaction' is an elementary concept of contract jurisprudence and in this country is normally discussed under Section 63 of the Contract Act. It appears to me that the legal progression and ramifications of a receipt in full and final settlement is most often glossed over. It is axiomatic that the precursor of such receipts is the existence of a contract which has given cause to colliding claims. Take for instance a detailed contract for construction of a building wherein all specifications are spelt out and the consideration is specifically stated. It is common experience that as work progresses, changes may be ordered such as the mosaic flooring mentioned in the contract is required to be substituted for high-quality marble. If this novation occurs after the mosaic flooring has been laid, its cost as well as removal expenses may become difficult to substantiate in the absence of contemporaneous evidence. The wisdom of notifying such claim cannot be over-emphasised. However, the principal may have changed the requirements much before any work had been carried out by the contractor, and therefore it would be prudent from his perspective to insist that he would not be liable to make payment unless a claim for laying and removing the mosaic is lodged by the contractor within a stipulated period. Therefore, insistence on notifying claims contemporaneously is indubitably salutary from all standpoints.
10. Let us assume that there is no extra, reduced or defective work. On the completion of the work, the contractor would become entitled to payment mentioned in the contract and on its receipt the contract would stand completed, executed, fulfillled and performed. There would be no scope for using the phrase 'accord and satisfaction' in such a situation. However, there may be rival stances pertaining to extra or reduced work leading to claims above or below the stipulated consideration. By mutual negotiations a compromise or settlement may be arrived at, thus bringing about 'accord and satisfaction'. It will be obvious that in the latter case the completeness of the accord and satisfaction can be determined only on appreciation of evidence. With rare exception, the Court would be ill advised to trespass into and transgress upon the Arbitrators duties in such circumstances. Statutory compulsions as well as expediency should prompt the Court to direct the adversaries towards arbitration. The nebulous and uncertain nature of such events has recently been cogitated upon by their Lordships in Bhagwati Prasad Pawan Kumar v. Union of India , a perusal whereof fortifies the wisdom of the Court in not proceeding beyond a prima facie view only. It will be advantageous to reproduce the concise and perspicuous Judgment of the Supreme Court in Bharat Heavy Electricals Limited, Ranipur v. Amar Nath Bhan Prakash which reads thus:
It appears from the order of the High Court impugned in the appeal that the High Court has not correctly appreciated the position that the question whether there was discharge of the contract by accord and satisfaction or not, is a dispute arising out of the contract and is liable to be referred to arbitration and hence the application of the respondent under Section 20 of the Indian Arbitration Act should have been allowed and the matters in dispute between the parties including the question whether or not there was discharge of the contract by accord and satisfaction should have been referred to arbitration. We, therefore, set aside the finding of the High Court that there was no accord and satisfaction of the contract and direct that the matters in dispute between the parties including the question whether or not there was discharge of the contract by accord and satisfaction be referred to the arbitration of Mr. V.S. Deshpande, retired Chief Justice of the Delhi High Court, under the arbitration clause contained in the contract between the parties. The arbitrator will make his award within three months from the date of entering upon the reference. He will first determine the question whether there was accord and satisfaction between the parties and/or whether the contract was discharged and if the decision on this issue is in favor of the appellant, the arbitrator will not proceed further in the matter and dismiss the claim of the respondent. But, if, on the other hand, he finds that there was no discharge of the contract by accord and satisfaction or otherwise, he will proceed to determine the claim of the respondent against the appellant on merits. The fees of the arbitrator will be deposited initially, by the parties in equal shares and the arbitrator will ultimately decide as to who should bear the cost of the arbitration. This order will not be treated as a precedent in case of any other dispute between the appellant and any other party. There will be no order as to costs of the appeal.
11. It is essential for the peaceful and cohesive continuance of society that an effective, efficient and expeditious dispute resolution system should be available. Arbitration was conceived as one such machinery, but like Courts, it has been drawn into the morass of procedural wrangles leading to excruciating delays in the disposal of disputes. Arbitration has, therefore, substantially lost its effectiveness partially because of repeated recourse to the Courts which arbitration was intended to replace. Experience has shown that when disputes arise the litigant seeking redress through Civil Courts system is confronted with stay applications predicated on the alleged existence of an arbitration agreement. Had such a litigant first attempted to initiate arbitration, in all likelihood he would be confronted with the obstacle that an Arbitration Clause had not been agreed upon by the parties, or that no arbitrable disputes are in existence etc., etc. Delays occur because the Respondent always stands to gain by the deferment of a decision. Jural endeavor should be, especially in the changed regime of the A & C Act, to expeditiously direct parties governed by an Arbitration Clause to proceed to resolve differences through the aegis of arbitration. Sufficient safeguard and remedy has been provided by the A & C Act against legally incorrect orders passed by Arbitral Tribunals. Furthermore, it is also firmly entrenched in jurisprudence that 'standard form agreement' should be construed against the drafting parties in case any doubt or ambiguity occurs. This is what the term contra proferentem dictates. It would not be appropriate for the Courts to make an in-depth enquiry into such conundrums at the stage of appointing arbitrators.
12. In Chairman and M.D., NTPC Ltd. v. Reshmi Constructions, Builders and Contractors 2004(1) Arb. LR 156(SC) the legal provision in focus was Section 20 of the Arbitration Act. Their Lordships opined that the finding of the High Court that , prima facie, friable issues has arisen which warranted referring the parties to arbitration could not be seen as perverse or unreasonable. It had been noted that disputes as regards the Final Bill had arisen prior to its acceptance and it had not been pleaded that a Final Settlement had taken place as a result whereof the Final Bill had been unreasonably accepted by the Respondents. This decision has been applied very recently by their Lordships in Ambica Construction v. Union of India 2006(4) Arb. LR 288 (SC) by recognising the commercial reality that unless a Discharge Certificate is given in advance, payment of Bills is generally delayed, if not declined. It was observed that although Clause 43(2) has been included in the General Conditions of Contract, the same was intended to safeguard as against frivolous claims after final measurement; such a Clause would not be an absolute bar to a contractor raising claims which are genuine, even after the submission of such no claim certificate.
13. On a perusal of the documents filed in these proceedings it is not possible for me to unequivocally hold either that accord or satisfaction had been reached by the parties, or that the claims mentioned in these proceedings had not been "notified" by the Petitioner as postulated by the Agreement. So far as the facts of the present dispute are concerned the Respondent has itself filed a copy of the letter dated 14.8.2002 containing the Petitioner's Final Bill for Rs. 5,75,38,552/- together with the claims for Rs. 3,89,97,935/-. Nine pages have, however, not been enclosed. It is indeed inexplicable why the Respondent has withheld these pages even though Mr. Kaura has contended that the Petitioner ought to have filed complete communication. The Petitioner has filed Annexure A-1, a copy of letter dated 5.8.2004, in which it had inter alia been recorded that it had "submitted claims along with Final Bill and inspite of repeated requests neither the claims have been settled nor Final Bill payment has been made". It was in these circumstances that by means of the said letter the Respondent had been called upon to prepare its panel of three Arbitrators. Annexure-A to the amended Reply filed on behalf of the Respondent is the Final Bill, containing abstract sheets 01 to 11. This communication is stated by Mr. Taneja, learned Senior Counsel for the Petitioner, to have included nine pages apart from those filed by the Respondent. According to Mr. Taneja these pages contain the Notified Claim, a position which has not been controverter by Mr. Kaura. It is only to be expected that the party who chooses to file a document must not withhold portions thereof. If it does so an adverse inference should be drawn against it. If a complete copy is unavailable, its discovery from the adversary should be applied for. It is no defense that the complete copy could have been filed by the opposing party. It has been emphasised by Mr. Taneja that a perusal of the documents filed by the Respondent can, at the highest, lead to the inference that the measurements submitted in the Measurement Book had been accepted by the Petitioner. Annexure-C to the amended Reply contains the money receipt which reads thus - "Received sum of Rs. 8208840/- (eighty two lakhs eight thousands eight hundred forty only) vide Cheque No. CAO 00/86 072163 dt 25/4/03 against our final R/A Bill". At this stage of the proceedings there is no substance in the contention of Mr. Taneja that this payment reflects agreement viz-a-viz that Bill alone since claims allegedly raised in the nine pages not filed by the Respondent had not been adverted to. Furthermore, the letter of Engineers India Limited (Respondent's Project Management Consultant), dated 31.1.2003, is of no legal significance since they have not been vested or reposed with the power to decide on the validity of claims raised by the Petitioner. Otherwise, preparation of panel of arbitrators would be an unnecessary and futile exercise. These contested questions of fact should, therefore, be conveniently and correctly decided only by the Arbitrator after appreciation of evidence brought on record. On an appreciation of the Respondent's defense in these proceedings there appears to me to be no justification for them to resist the appointment of an arbitrator, a path which both parties has agreed to pursue. It has led to delay, and to needlessly exhausting the time of the Court, which is in scant supply, especially where the Arbitrator is fully empowered to return each finding that the Court has been called to rule upon.
14. I appoint Hon'ble Mr. Justice S.S. Chadha (Retd.) as the Sole Arbitrator from the panel constituted by the Respondent itself. He shall determine his own Fee. Nothing stated or discussed above shall preclude the learned Arbitrator from deciding any issue brought into contention by either of the parties, including the absence of 'notified claims' and whether accord and satisfaction had been reached by the parties. Parties to appear before the Arbitrator on 21st May, 2007 at 4:00 P.M. and thereafter as directed by the learned Arbitrator. In my opinion the detailed arguments that have been addressed on behalf of the Respondent were unnecessary in view of the Judgment in Chunni Lal. Hence, the Respondent is burdened with costs, quantified at Rs. 10,000/-.
15. A copy of this Judgment be sent to the learned Arbitrator forthwith.