Delhi High Court
M/S Ilfs Engineering And Construction ... vs M/S Indian Strategic Petroleum ... on 15 April, 2021
Equivalent citations: AIRONLINE 2021 DEL 534
Author: C. Hari Shankar
Bench: C. Hari Shankar
$~2
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 15th April, 2021
+ ARB.P. 578/2020
M/S ILFS ENGINEERING AND CONSTRUCTION
COMPANY LIMITED ..... Petitioner
Through: Mr. Hrishikesh Baruah, Ms.
Aditi Mittal, Mr. Aditya Narayan Mahajan,
Mr. Siddhant Tripathi and Mr. Jatin Kumar,
Advs.
versus
M/S INDIAN STRATEGIC PETROLEUM RESERVES
LIMITED ..... Respondent
Through: Mr. Dinesh Pardasani, Adv.
with Ms. Shania Elias, Advs.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
% J U D G M E N T (ORAL)
(Video-Conferencing)
1. By this petition under Section 11 (6) of the Arbitration and
Conciliation Act, 1996 ("the 1996 Act"), the petitioner seeks reference
of its dispute with the respondent to arbitration.
2. The issue in controversy being limited, equally limited need be
the reference to the factual fasciculus in which the dispute arises.
3. By contract dated 9th September, 2014, respondent entrusted, to
the petitioner, the work of laying of a pipeline from Land Fall Point
(LFP) to Mangalore/Padur Cavern for the Strategic Storage of Crude
Signature Not Verified
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By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
Oil at Padur. The contract contained General and Special Conditions,
i.e. the GCC and the SCC, respectively.
4. Vide letter dated 9th February, 2018, the petitioner raised claims
for compensation towards cost escalation borne by it in performing of
the contracted work. The claims were rejected by the respondent vide
letter dated 16th February, 2018. The petitioner rejoined vide letter
dated 3rd April, 2018.
5. At this juncture, it would be appropriate to reproduce Clauses
1.0.34.0, 6.2.5.0, 6.3.3.0, 6.6.0.0, 6.6.1.0, 6.6.2.0, 6.6.3.0, 6.6.3.1 and
9.1.0.0 of the GCC, governing the contract between the parties, thus:
"1.0.34.0 "Notified Claim" shall mean a claim of the
CONTRACTOR notified in accordance with the provisions of
Clause 6.6.1.0."
*****
6.2.5.0 Payments of the amount(s) due on the Final Bill to
the extent certified by the Engineer-in-Charge, shall be made
within 84 (Eighty Four) days from the due date as specified in
Clause 6.2.4.0 hereof, subject to the deductions provided in
Clause 6.2.5.1.
*****
6.3.3.0 The rates stated in the Price Schedule and the lump
sum price(s) shall not be subject to escalation or increase for
any reason whatsoever."
*****
6.6.0.0 CLAIMS BY THE CONTRACTOR
6.6.1.0 Should the CONTRACTOR consider that he is
entitled to any extra payment or compensation in
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By:SUNIL SINGH NEGI
Signing Date:19.04.2021
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respect of the works or supplies over and above the
amounts due in terms of the Contract as specified in
Clause 6.3.1.0 hereof, the CONTRACTOR shall give
notice in writing of its claim in this behalf to the
Engineer-in-Charge and the OWNER within 14
(Fourteen) days from the date of the issue of orders or
instructions relative to any work(s) for which the
CONTRACTOR claims such additional payment or
compensation, or from the date of the happening of any
other event upon which the CONTRACTOR bases
such claim, as the case may be. Such notice shall give
full particulars of the nature of such claim, grounds on
which it is based, and the amount claimed. The
OWNER shall not anywise [sic] be liable in respect of
any claim by the CONTRACTOR unless notice of
such claim shall have been given by the
CONTRACTOR to the Engineer-in-Charge and the
OWNER in the manner and within the time aforesaid,
and the CONTRACTOR hereby waives and
relinquishes any and all claims and all his rights in
respect of any claim which is not notified by the
CONTRACTOR to the Engineer-in-Charge and the
OWNER in writing in the manner and within the time
aforesaid.
6.6.2.0 The Engineer-in-Charge and/or the OWNER
shall be under no obligation to reply to any notice of
claim given or claim made by the CONTRACTOR
within the provisions aforesaid or otherwise, or to
otherwise reject the same, and no omission or failure
on the part of the Engineer-in-Charge or the OWNER
to reject any claim made or notified by the
CONTRACTOR nor any consideration thereof or
dealing therewith shall be deemed to be an admission
by the OWNER of the validity of such claim or waiver
by the OWNER of the provisions of Clause 6.6.1.0
hereof.
6.6.3.0 Any or all claims of the CONTRACTOR
notified in accordance with the provision of Clause
6.6.1.0 hereof as shall remain/ persist at the time of
preparation of the Final Bill by the CONTRACTOR
shall be separately included in the Final Bill prepared
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By:SUNIL SINGH NEGI
Signing Date:19.04.2021
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by the CONTRACTOR in the form of a Statement of
Claims attached thereto, giving particulars of the
nature of such claim, grounds on which it is based, and
the amount claimed, and shall be supported by
copy(ies) of the notice(s) sent in respect thereof to the
Engineer-in-Charge and the OWNER under Clause
6.6.1.0 hereof. In so far as such claim shall in any
material particular be at variance with the claim
notified by the CONTRACTOR within the provisions
of Clause 6.6.1.0 hereof, it shall be deemed to be a
claim different from the notified claim with
consequence in respect thereof indicated in Clause
6.6.1.0 hereof, and with consequence in respect of the
notified claim as indicated in Clause 6.6.3.1 hereof.
6.6.3.1 Any and all notified claims not specially
reflected and included in the Final Bill in accordance
with the provisions of Clause 6.6.3.0 hereof shall be
deemed to have been waived and relinquished by the
CONTRACTOR, and the CONTRACTOR hereby
waives and relinquishes all rights to raise or include in
the Final Bill any claim(s) other than a notified claim
conforming in all respects to and in accordance with
the provisions of Clause 6.6.3.0 hereof.
*****
9.0.0.0 ARBITRATION
9.1.0.0 Subject to the provisions of Clauses 6.7.1.0,
6.7.2.0 and 9.1.1.0 hereof, any dispute arising out of a
Notified Claim of the CONTRACTOR included in the
Final Bill of the CONTRACTOR in accordance with
the provisions of Clause 6.6.3.0 hereof, if the
CONTRACTOR has not opted for the Alternative
Dispute Resolution Machinery referred to in Clause
9.2.0.0 in respect thereof, and any dispute arising out
of an amount claimed by the OWNER against the
CONTRACTOR shall be referred to the arbitration by
an Arbitral Tribunal comprised of 3 (three) arbitrators
selected in accordance with the provisions of the
Arbitration & Conciliation Act, 1996. It is specifically
agreed that the OWNER may prefer its Claim(s)
against the CONTRACTOR as counterclaim(s). The
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By:SUNIL SINGH NEGI
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CONTRACTOR shall not, however, be entitled to raise
as a setoff, defence or counter-claim any claim which
is not a Notified Claim included in the
CONTRACTOR's Final Bill in accordance with the
provisions of Clause 6.6.3.0 hereof."
6. On 9th February, 2018, the petitioner addressed a
communication to M/s Engineers India Limited (appointed by the
respondent as the Engineer-in-Charge of the project and referred to,
hereinafter, as "EIL"), notifying the following claims as payable to it
by the respondent:
S. Description Amount (Rs.)
No.
I Plant and Machinery Costs which are 17,21,48,149
deployed during the overstay period
from July, 2015 to 15th Nov 2017
II Overhead Expenses incurred in the 25,01,73,689
prolonged period of forced overstay
from July, 2015 to 15th Nov 2017
III Head Office Overheads expenditure 14,95,70,375
incurred from July, 2015 to 15th Nov
2017
IV Compensation for the losses of 50,58,75,000
opportunity incurred due to delay in
execution for the reasons not
attributable to the contractor from
July, 2015 to 15th Nov 2017
V Compensation for losses against 27,19,078
margin money deposited for the bank
guarantees from July, 2015 to 15th
Nov 2017 due to prolongation of
Project.
VI Compensation for the losses against 14,54,27,797
the interest on working capital and
profits blocked up during the
stipulated completion of Contract
due to delay in handing over of land
and other reasons from July 2015 to
15th Nov 2015
Total 1,22,59,14,088
Signature Not Verified
Digitally Signed ARB.P. 578/2020 Page 5 of 29
By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
7. The controversy in the present case essentially revolves around
three communications addressed by the petitioner to EIL on 16th July,
2018, 5th September, 2018 and 20th September, 2018 respectively.
8. Given the vehemence of opposition, by the respondent, to the
reference of disputes between the parties to the arbitration, predicated
entirely on these three documents, it is necessary, at the cost of
brevity, to reproduce these three communications in their entirety,
thus:
Petitioner to EIL dated 16th July, 2018
"Ref: CS-ES /6979/L/412/2018
Date: 16th July, 2018
To,
Mr. Vijay Shahri,
Resident Construction Manager,
Engineers India Limited,
SSCD-Padur Post, Via Kaup,
Udupi - 574106
Sub: Pipe Line Laying from LFP to Mangalore /Padur
Cavern via Intermediate Valve Station (lVS) for ISPRL
Project: Submission of RA Bill No.-35/ Final Bill
Ref: AS /6979-003-MK-TN-1010/1001- Pipeline Laying
from LFP to Mangalore / Padur cavern,
Dear Sir,
Please find enclosed herewith the RA Bill No.35/Final
for an amount of INR. 27,23,12,488.00/- (Indian Rupees
Twenty Seven Crore Twenty Three lakhs Twelve Thousand
Four Hundred Eighty Eight only) against Work Done value
Signature Not Verified
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By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
including Goods & Service Tax (GST) in terms-of Clause
6.2.1.0 of GCC for your kind verification and certification for
payment along with Contract Closing Documents and
Notified Claims.
As per Clause 5.3.5 of Special Conditions of Contract
(Part A, Sub Section A-2.2) Contractor is entitled for payment
against statutory variation in respect of change in service tax
rate after the submission of final price bid. Accordingly the
Contractor herewith submit the claim against service tax
variation payable till RA-35/Final Bill for an amount of
Rs.38,132,366/·
As per Clause 14.0; the Contractor is entitled for Price
Variation and accordingly the Claim for Price Variation for an
amount of Rs.4,12,390/- is submitted herewith for your
certification and further release of payment.
As per Clause 21.0; the Contractor is entitled for
reimbursement of Fee paid for obtaining Statutory approvals
and accordingly we are herewith submitting our claim for
reimbursement of Statutory Approvals fees amounting to
Rs.7,03,916/- for your certification and further release of
payment.
You are requested to kindly certify the RA Bill -
35/Final bill and release our due and eligible payments as per
the terms and conditions of the Contract.
This is without prejudice to our right and privileges
under the contract and applicable law.
Thanking you and assuring our best services at all
times.
Thanking you,
For IL&FS Engineering Construction Co. Ltd.
Oil & Gas Project -Mangalore"
Petitioner to EIL dated 5th September, 2018
"Ref: CS-ES /6979/L/412/2018
Date: 5th September, 2018
Signature Not Verified
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By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
To,
Mr. Vijay Shahri,
Resident Construction Manager,
Engineers India Limited,
SSCD-Padur Post, Via Kaup,
Udupi - 574106
Sub: Pipe Line Laying from LFP to Mangalore /Padur
Cavern via Intermediate Valve Station (lVS) for ISPRL
Project: Submission of RA Bill No.-35/ Final Bill
Ref: AS /6979-003-MK-TN-1010/1001- Pipeline Laying
from LFP to Mangalore / Padur cavern,
Dear Sir,
Please find enclosed herewith the RA Bill No.35/Final
for an amount of INR. 27,19,36,236.00/- (Indian Rupees
Twenty Seven Crore Nineteen lakhs Thirty Six Thousand'two
Hundred Thirty Six only) against Work Done value including
Goods & Service Tax (GST) in terms-of Clause 6.2.1.0 of
GCC for your kind verification and certification for payment
along with Contract Closing Documents and Notified Claims.
As per Clause 5.3.5 of Special Conditions of Contract
(Part A, Sub Section A-2.2) Contractor is entitled for payment
against statutory variation in respect of change in service tax
rate after the submission of final price bid. Accordingly the
Contractor herewith submit the claim against service tax
variation payable till RA-35/Final Bill for an amount of
Rs.38,113,877/·
As per Clause 14.0; the Contractor is entitled for Price
Variation and accordingly the Claim for Price Variation for an
amount of Rs.4,12,390/- is submitted herewith for your
certification and further release of payment.
As per Clause 21.0; the Contractor is entitled for
reimbursement of Fee paid for obtaining Statutory approvals
and accordingly we are herewith submitting our claim for
reimbursement of Statutory Approvals fees amounting to
Rs.7,03,916/- for your certification and further release of
payment.
Signature Not Verified
Digitally Signed ARB.P. 578/2020 Page 8 of 29
By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
You are requested to kindly certify the RA Bill -
35/Final bill and release our due and eligible payments as per
the terms and conditions of the Contract.
This is without prejudice to our right and privileges
under the contract and applicable law.
Thanking you and assuring our best services at all times.
Thanking you,
For IL&FS Engineering Construction Co. Ltd.
Oil & Gas Project -Mangalore"
Petitioner to EIL dated 20th September, 2018
"Ref: CS-ES /6979/L/415/2018
Date: 20th September, 2018
To,
Mr. Vijay Shahri,
Resident Construction Manager,
Engineers India Limited,
SSCD-Padur Post, Via Kaup,
Udupi - 574106
Sub: Pipe Line Laying from LFP to Mangalore /Padur
Cavern via Intermediate Valve Station (lVS) for ISPRL
Project: Submission of RA Bill No.-35/ Final Bill
Ref: AS/6979-003-MK-TN-l0l0/l00l- Pipeline Laying from
LFP to Mangalore/Padur Cavern,
Dear Sir,
Please find enclosed herewith the RA Bill No.35/Final
for an amount of INR. 27,19,36,236.00/- (Indian Rupees
Twenty Seven Crore Nineteen Lakhs Thirty Six Thousand
Two Hundred Thirty Six only) against Work Done value
including Goods & Service Tax (GST) in terms of Clause
6.2.1.0 of GCC for your kind verification and certification for
payment along with Contract Closing Documents. With this
we are withdrawing our earlier submission vide our letter no.
Signature Not Verified
Digitally Signed ARB.P. 578/2020 Page 9 of 29
By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
CS-ES /6979/l/412/2018, dated 08th September 2018.
As per Clause 5.3.5 of Special Conditions of Contract
(Part A, Sub Section A-2.2) Contractor is entitled for payment
against statutory variation in respect of change in service tax
rate after the submission of final price bid. Accordingly the
Contractor herewith submit the claim against service tax
variation payable till RA-35/Final Bill for an amount of
Rs.38,113,877/- As per Clause 14.0; the Contractor is entitled
for Price Variation and accordingly the Claim for Price
Variation for an amount of Rs. 4,12,390/- is submitted
herewith for your certification and further release of payment.
As per Clause 21.0; the Contractor is entitled for
reimbursement of Fee paid for obtaining Statutory approvals
and accordingly 'we are herewith submitting our claim for
reimbursement of Statutory Approvals fees amounting to
Rs.7,03,916/- for your certification and further release of
payment. You are requested to kindly certify the RA Bill -
35/Final bill and release our due and eligible payments as per
the terms and conditions of the Contract.
This is without prejudice to our rights and privileges
under the contract and applicable law.
Thanking you and assuring our best services at all
times.
Thanking you
For IL&FS Engineering & Construction Co.Ltd.
Oil & Gas Project -Mangalore"
9. According to Mr. Hrishikesh Baruah, learned counsel for the
petitioner, the following list of notified claims were annexed to the
first of the aforesaid three communications, dated 16th July, 2018:
PROJECT: PIPELINE LAYING FROM LFP TO MANGALORE/FADUR CAVERNS
CLIENT:CLIENT: INDIAN STRATEGIC PETROLEUM RESERVES LTD.
NOTIFIED CLAIMS
ENGINEERING IN-CHARGE ENGINEERS INDIA LTD. (EIL)
CONTRACTOR: IL&FS ENGINEERING AND CONSTRUCTION COMPANY LTD.
Signature Not Verified
Digitally Signed ARB.P. 578/2020 Page 10 of 29
By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
FOA NO : ISPRL/MG/RPA/34 Dated 03.07.2014
LOA NO ISPR/MG/RPA/35/Dated 11.08.2014
Sr.
Item No. ITEM DESCRIPTION Rate(INR) REMARKS
No.
Uncertified Extra Claim
Interim Claim for compensation
against losses/damages incurred
due to extremely slow progress of Submitted Vide
1 EX-03 Works due to various reasons not 1,225,914,088.00 letter No. 405,
attributable to the Contractor. 09th Feb, 2018
From July 2015 to November
2017
Submitted Vide
Letter No. 180,
2 EX-04 Boring - Silver Gate Xing 3,751,110
09th October,
2015
Submitted Vide
Letter No. 248,
3 EX-05 Boring - IVS 1,811,649
09th October,
2015
Submitted Vide
4 EX-06 Boring - ELF Junction 1,112,182 Letter No. 249,
25th April, 2016
Submitted Vide
Extra Claim for 20 Nos. LR Letter No. 293,
5 EX-07 10,198,842
Bends 11th August,
2016
Submitted Vide
Extra Claim for Additional Cold
6 EX-08 29,196,813 Letter No. 278,
Bend
12th July, 2016
Submitted Vide
Cost Incurred for Supply of 42" Letter No. 399,
7 EX-09 5,888,362
& 48" Piping 09th January,
2018
Total Amount (INR) 1,277,873,046
Rent Payment at Soorianje Deducted in
8 - (Deducted in RA - 29, 30, 31,32, 1,522,500 Running Bills
33 & 34) by ISPRL
Payment
9 - Police Protection 15,450
Details attached
Payment
10 - Blasting Payment at Kalathur 4,784,928
Details attached
BSNL Payment for Leased Line Payment
11 - 389,400
at Padur Details attached
BSNL Payment for Leased Line Payment
12 - 105,238
at Mangalore Details attached
Total Amount (INR) 6,817,416
Sub Total Amount (INR) 1,284,690,462
Signature Not Verified
Digitally Signed ARB.P. 578/2020 Page 11 of 29
By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
10. As these claims remained outstanding, the petitioner invoked
the provision for arbitration contained in Clause 9.1.0.0 of the GCC,
vide letter dated 5th December, 2019 addressed to the respondent. The
notice also nominated Hon'ble Mr. Justice A.P. Shah, an eminent
retired Chief Justice of this Court and former Chairman of the Law
Commission of India, as the petitioner's arbitrator. The respondent
was called upon to appoint its arbitrator, so that the two learned
arbitrators could appoint a third Presiding Arbitrator and the coram of
the Arbitral Tribunal could be completed.
11. The respondent, however, replied on 23rd December, 2019,
denying the arbitrability of the disputes and also denying that any
amount was payable to the petitioner.
12. It is in these circumstances that the petitioner has moved this
Court by the present petition under Section 11(6) of the 1996 Act,
praying that this Court appoint a nominee arbitrator for the
respondent, so that the two learned arbitrators could proceed to
appoint the third arbitrator and the arbitral proceedings could take off.
The respondent has filed reply to the petition and the petitioner has
filed his rejoinder thereto.
13. Mr. Hrishikesh Baruah, learned counsel for the petitioner, and
Mr. Dinesh Pardasani, learned counsel for the respondent, have been
heard at length.
14. Mr. Baruah submits that the claims had been notified by the
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By:SUNIL SINGH NEGI
Signing Date:19.04.2021
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petitioner in accordance with Clause 6.6.1.0 and that there is no
dispute regarding the fact that this notification had taken place within
the period of 14 days stipulated in the said clause. He also invited my
attention to the days entered in the "Remarks" column in the list of
notified claims attached to the letter dated 16th July, 2018, which also
bear out the fact that the claims were notified within the aforesaid 14
days period. Though Mr. Pardasani, learned counsel for the
respondent, sought to submit that he was disputing the contention of
Mr. Baruah that the invocation of the claims was within the 14 day
period contemplated by Clause 6.6.3.0, he acknowledges that no such
specific challenge has been raised in the reply filed by the respondent
in response to the present petition. To a query from the court as to
when, according to him, the 14 day period stipulated in Clause 6.6.1.0
had expired, Mr. Pardasani submits that the claims related to delay and
that, therefore, the said period of 14 days was required to be reckoned
from the date of delay. To my mind, prima facie, such an argument
would amount to re-writing Clause 6.6.1.0 which specifically states
that the period of 14 days has to be from the "date of the issue of
orders or instructions relative to the work for which the contractor
claims additional payment or compensation". This being a statutory
prescription, it would bind the parties to the contract. Inasmuch as the
disputes are being referred to arbitration, I do not see to state anything
further in this regard. It would be open to the parties to agitate the
point before the learned Arbitral Tribunal, which is eminently
competent to adjudicate thereon.
15. The objection of Mr. Pardasani essentially revolves around the
Signature Not Verified
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By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
Clause 6.6.3.0, 6.6.3.1, 6.2.3.0 and 6.2.5.0 of the GCC. He submits
that Clause 6.6.1.0 cannot be read in isolation. Clause 6.6.3.0, he
points out, is in clear continuation of Clause 6.6.1.0, and requires
claims, notified under Clause 6.6.1.0, remaining unpaid at the time of
preparation of the final bill to be separately included in the final bill
prepared by the contractor, i.e. by the petitioner in the form of
statement of form attached thereto, giving particulars of such claims,
the grounds on which it was based, the amount claimed and supported
by copies of notices sent in respect thereof to the EIC and the
respondent. In the event of variance with the claims notified in Clause
6.6.1.0, Mr. Pardasani points out that Clause 6.6.3.0 deems the claims
to be different from the notified claims. Mr. Pardasani also emphasises
the effect of Clause 6.6.3.1, as deeming claims not specifically
reflected and included in the final bill in accordance with Clause
6.6.3.0 to be deemed to have been waived and relinquished. Such
disputes, therefore, points out Mr. Pardasani, cannot be referred to
arbitration and are, ex-facie, not arbitrable in nature.
16. Mr. Pardasani also draws my attention to Clause 6.2.3.0 to
submit that the final bill drawn in accordance with Clause 6.2.1.0 was
required to be submitted along with the completion certification to EIL
for certification, and that EIL was required to certify the final bill. Mr.
Pardasani submits that the "final bill" submitted with the letter dated
16th July, 2018 was only a draft final bill, as it was not accompanied
by any completion certificate. He points out that the only final bill
submitted by the petitioner was the bill attached to the letter dated 20th
September, 2018, after the completion certificate had been issued. It
Signature Not Verified
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By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
was precisely for this reason, submits Mr. Pardasani, that though the
bill attached to the letter dated 16th July, 2018 was submitted to EIL,
EIL did not certify it or forward it to the respondent. (Significantly,
however, Mr Pardasani does not seek to contend that EIL returned the
bill dated 16th July, 2018 to the petitioner as not having been
submitted in accordance with the provisions of the GCC.)
17. In these circumstances, Mr. Pardasani submits that the only
final bill submitted by the petitioner, in accordance with the contract,
was the bill attached to the communication dated 20th September,
2018. No statement of notified claims was attached to that bill. As
such, submits Mr. Pardasani, the list of notified claims submitted with
the bill of 16th July, 2018 could not come to the help of the petitioner
and ought to be treated as having been waived by the petitioner. There
being no list of notified claims attached to the final bill submitted with
the letter dated 20th September, 2018, as was required by Clause
6.6.1.0, Mr. Pardasani submits that the claims of the petitioner cannot
be referred to arbitration, in view of the strict protocol prescribed in
Clause 9.1.0.0 of the GCC.
18. Mr. Pardasani relies on the judgment of this Court in Brilltech
Engineers Pvt. Ltd. v Darrameks Hotels and Developers Pvt. Ltd 1.
19. In rejoinder, Mr. Baruah invites my attention to a
communication, dated 21st June, 2018, from the respondent to the
petitioner, which reads thus:
1
MANU/DE/2093/2020
Signature Not Verified
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By:SUNIL SINGH NEGI
Signing Date:19.04.2021
21:42:56
"Dear Sir,
As discussed with Planning engineer M/s ILFS is
advised to submit the final bill by 22.06.2018.
This is for your information & necessary action please.
Regards,
Dharuman Meyyazhagan
For Vijay Shahri
Resident Construction Manager
Engineers India Limited
Strategic Storage of Crude Oil Project-Padur
Mob: 9008071836"
20. Mr. Baruah also relies on the judgment of the Supreme Court in
Vidya Drolia v. Durga Trading Corporation2, and a coordinate Single
Bench of this Court in NCC Ltd. v. IOCL3.
Analysis
21. The scope of examination by this Court, exercising jurisdiction
under Section 11(6), is extremely limited and stands authoritatively
delineated by the Supreme Court in its decision in Vidya Drolia2.
22. There is no dispute, by the respondent, in the present case, of
the existence of an arbitration agreement between the parties. The
contest is only regarding the arbitrability of the dispute raised by the
petitioner. Mr. Pardasani's contention is that no arbitrable dispute,
within the meaning of Clause 9.1.0.0 of the GCC, exists. This Court
2
2020 SCC OnLine SC 1018
3
2019 SCC OnLine Del 6964
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By:SUNIL SINGH NEGI
Signing Date:19.04.2021
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has, in its recent judgment in Mahindra Susten Pvt. Ltd. v NHPC
Ltd.4 had occasion to study, in detail, the principles relating to the
scope of examination by the court exercise jurisdiction under Section
11(6) of the 1996 act, into the aspect of arbitrability of the dispute, vis-
a-vis the jurisdiction statutorily vested by Section 16 on the arbitral
tribunal in that regard, as enunciated by the Supreme Court in Vidya
Drolia2. After extracting, in extenso, the relevant passages from Vidya
Drolia2, this Court arrived at the following conclusions:
"31. The import of the above passages from Vidya Drolia2
is clear and unmistakable. Section 11(6A) of the 1996 Act
has been held to continue to apply, as a guiding principle to
be followed by courts at the referral stage, even after its
omission. Even while holding that the "arbitrability" of the
dispute, along with the aspect of existence of an arbitration
agreement between the parties, could be examined, to a
limited extent, by the Court exercising jurisdiction under
Section 8 or Section 11 of the 1996 Act, the Supreme Court
has been circumspect, many times over, in emphasising the
limitations of the Court in this regard. It has been made
unmistakably clear that, in exercise of its limited scope of
authority, to examine the questions of existence of the
arbitration agreement and arbitrability of the dispute, at the
referral stage, the Court has to be careful not to usurp the
jurisdiction of the arbitral tribunal which, ideally, should
examine these aspects. The scope of examination by the
referral court under Section 11(6), into the aspects of
existence of the arbitration agreement, or arbitrability of the
dispute, is, strictly, prima facie. In other words, it is only if,
prima facie, the Court finds that no valid arbitration
agreement exists, that it would refuse to refer the dispute to
arbitration. In undertaking this exercise, the Court should
not get lost in thickets, or enter into debatable factual issues.
Unless there are good and substantial reasons to the
contrary, the Court is required to compel the parties to abide
by the arbitration agreement. It is only in the case where the
arbitration agreement is "ex facie non-existent or invalid",
or the dispute is ex facie non-arbitrable, that the court would
4
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refuse to refer the dispute to arbitration. The intention is "to
cut off the deadwood and trim off the side branches in
straightforward cases where dismissal is barefaced and
pellucid and when on the facts and law the litigation must
stop at the first stage", and to ensure that "vexatious and
frivolous matters get over at the initial stage". This would
also "save costs and check harassment of objecting parties
when there is clearly no justification and a good reason not
to accept the plea of non-arbitrability". "Senseless and ill-
considered claims" and "ex facie meritless, frivolous and
dishonest litigation" were required to be weeded out, as, "on
the other side of a very irresponsible and senseless claim",
there was an innocent sufferer. Certainty, in the mind of the
Court, that no valid arbitration agreement exists or that the
disputes/subject matter are not arbitrable, is the sine qua non
for rejection of the prayer for referring the dispute to
arbitration, whether made under Section 8 or Section 11. The
scope of examination at this stage is preliminary and
summary and not in the nature of a mini-trial.
*****
33. It has been made further clear that the dispute would
be regarded as "non-arbitrable", at the Section 8 or Section
11 stage, only where the nature of the dispute is ex facie non-
arbitrable, or where the dispute does not relate to the
arbitration agreement. The situation has to be "chalk and
cheese" or, alternatively, "black and white... without shades
of grey". In all other cases, the Section 11 court should
follow the more conservative course of allowing the parties
to have their say before the arbitral tribunal. Cases where
the dispute is, by law, ex facie non-arbitrable, would, for
example, be criminal cases, cases involving exercise of
sovereign power, cases which, by statutory fiat, are required
to be determined by courts, cases in which the cause of
action is in rem, or where the subject matter of the dispute
affects third parties or has erga omnes effect, requiring
centralised adjudication. "On the other hand, issues relating
to contract formation, existence, validity and non-
arbitrability ... would be factual and disputed and for the
arbitral tribunal to decide". Questions involving mixed
issues of fact and law have to be left to the arbitral tribunal.
34. In order to underscore the limitations of the Section 8,
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or Section 11 Court, in entering into debatable issues of
existence of the arbitration agreement or arbitrability, the
Supreme Court has emphasised the purpose behind
conferring a limited jurisdiction, on the referral court, to
examine these aspects. The conferral of such limited
jurisdiction is intended "to prevent wastage of public and
private resources", and to protect parties from being forced
to arbitrate when the matter is clearly non-arbitrable. Where,
however, prima facie review appears to be inconclusive, or
inadequate as it requires detailed examination, the matter
has to be left for determination by the arbitral tribunal.
Parties should not be allowed to use the referral proceedings
as a ruse to delay or obstruct resolution of the dispute.
Unjustified impairment of the referral proceedings should
not be permitted. Even in cases which may fall under one of
the limited categories where prima facie examination is
permitted under Section 8 or Section 11, the Court may,
nevertheless, decide that allowing the arbitrator to rule first
on her, or his, competence would be best for the arbitration
process.
35. This position was alternately exposited, by the
Supreme Court, as clarifying that the requirement of the
court was "to see if the underlying contract contains an
arbitration clause for arbitration of the disputes which have
arisen between the parties-nothing more, nothing less". The
court was permitted to interfere at the referral stage "only
when it is manifest that the claims are ex facie time-barred
and dead, or there is no subsisting dispute", all other cases
requiring to be referred to the arbitral tribunal for decision on
merits. The position was summed up by holding that "in case
of debatable and disputable facts and good reasonable
arguable case, etc., the court would force the parties to
abide by the arbitration agreement as the arbitral tribunal
has primary jurisdiction and authority to decide the disputes
including the question of jurisdiction and non-arbitrability".
36. Significantly, the Supreme Court opined that, in the
case of pure commercial disputes, the more appropriate
principle of interpretation would be one of liberal
construction, as there was a presumption in favour of one-
stop adjudication.
37. On the aspect of examination of the arbitrability of
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the dispute at the referral stage, the Supreme Court held that
"the court by default would refer the matter when
contentions regarding to non-arbitrability are plainly
arguable; when consideration in summary proceedings
would be insufficient and inclusive; when facts are
contested; when the party opposing arbitration adopts
delaying tactics or impairs conduct of arbitration
proceedings", cautioning the court not to usurp the
jurisdiction of the arbitral tribunal, but to affirm and uphold
the integrity and efficacy of arbitration as an alternative
dispute resolution mechanism."
(Italics and underscoring supplied)
23. The position in law which emerges from Vidya Drolia2 is that,
while the arbitrability of the dispute may also be examined by the
Section 11 court, the examination has strictly to be prima facie in
nature, with an intention to trimming off the side branches and
weeding out the deadwood. The Court must recognize and respect the
fact that pre-eminent jurisdiction, even to decide the question of
arbitrability of the dispute, stands statutorily conferred, under Section
16 of the 1996 Act, on the arbitral tribunal. Usurping of that
jurisdiction has, at all costs, to be avoided. It is only in a case where
dispute is ex facie non-arbitrable in nature that the court can refuse to
refer the dispute to arbitration.
24. Clause 9.1.0.0 of the GCC in the present case stipulates, at best,
the following three pre-requisites, for a dispute to be arbitrable
thereunder:
(i) that the dispute must arise out of a notified claim of the
contractor,
(ii) that the notified claim must be included in the final bill of
the contractor and
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(iii) that such inclusion must be in accordance with the
provisions of Clause 6.6.3.0 of the GCC.
If these three conditions are satisfied, the dispute is arbitrable under
Clause 9.1.0.0.
25. The extent to which this Court can wade into the morass of
facts, while exercising jurisdiction in a case such as the present, can
only be such as would enable it to arrive at a prima facie view
regarding the arbitrability of the dispute, and no more.
26. Viewed thus, I fail to see how it can be contended that the
dispute raised by the petitioner is not arbitrable in nature.
27. The disputes were notified by the petitioner, firstly in its letter
dated 9th February, 2018, and, later, in the list of notified claims
attached to the letter dated 16th July, 2018, alongwith the final bill,
annexed with the said letter (though Mr. Pardasani disputes that the
bill could be treated as "final" at all).
28. These claims were, undisputedly, notified within the period of
14 days stipulated in Clause 6.6.1.0 of the GCC. The letter dated 16th
July, 2018 expressly attached, therewith, the final bill. In this context,
I find substance in the reliance, by Mr. Baruah, on the communication
dated 21st June, 2018 from the respondent to the petitioner, requiring
the petitioner to submit the final bill by 22nd June, 2018. It cannot lie
in the mouth of the respondent to state that no final bill was submitted
by the petitioner with the letter dated 16th July, 2018, though the
petitioner was always well within its right to contest the payability of
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the final bill, or of the notified claims attached to the said final bill in
the arbitral proceedings.
29. The third requirement in Clause 9.1.0.0, for the dispute to be
arbitrable in nature, was that the inclusion of the notified claims with
the final bill was required to be in accordance with Clause 6.6.3.0. All
that Clause 6.6.3.0 states is that notified claims, remaining unpaid at
the time of preparation of final bill, were to be "separately included in
the final bill....... in the form of a statement of claim attached thereto,
giving particulars of nature of such claims, grounds on which it is
based and the amount claimed", supported by copies of notices sent in
respect thereof. Mr. Baruah has pointed out that the list of notified
claims set out the details of the claims, the documents claiming the
amounts, the amounts claimed and the dates when these claims were
first submitted to the respondent, were duly attached to the
communication dated 16th July, 2018. It cannot, therefore, be said that
the notified claims were not included in the final bill in accordance
with the provisions of Clause 6.6.3.0.
30. Thus, all three ingredients, envisaged as pre-requisites for the
dispute to be arbitrable, by Clause 9.1.0.0 stand, therefore, prima
facie, satisfied in the present case.
31. The reliance, by Mr. Pardasani, on Clause 6.2.3.0 of the GCC
cannot, in my view, militate against this factual position. Clause
6.2.3.0 requires the final bill drawn in accordance with Clause 6.2.1.0
to be submitted to the Engineer-in-Charge together with the
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completion certificate for certification. The issue, so far as Section
11(6) of the Act, juxtaposed with Clause 9.1.0.0 of the GCC, is
concerned, is not whether the final bill was submitted in accordance
with Clause 6.2.3.0 or not, but whether the notified claims were
submitted in accordance with Clause 9.1.0.0. On this issue, I have
already recorded a prima facie finding in favour of the petitioner.
32. Within the limited extent of my jurisdiction under Section 11(6)
of the 1996 Act, I seriously doubt whether I can enter into the
intricacies of whether the final bill was in accordance with clause
6.2.3.0 or not.
33. There is another aspect of the matter. Mr. Pardasani himself
admits the fact that, on 20th September, 2018, a final bill was
submitted by the petitioner. He contends, therefore, that the final bill
which was earlier submitted on 16th July, 2018 was a "draft final bill".
With the letter dated 20th September, 2018, with which, according to
him, the final bill was actually submitted by the petitioner, Mr
Pardasani points out that there were no notified claims attached.
34. This argument would throw up the issue of whether, merely
because, with the letter dated 20th September, 2018, the list of notified
claims, attached to the earlier letter dated 16th July, 2018, was not re-
attached, the petitioner could be treated as having given up the said
claims. It is relevant to note, in this context, that the letter dated 20th
September, 2018 only withdrew the earlier letter dated 8th September,
2018, and that there is no communication from the petitioner to the
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respondent withdrawing the earlier letter dated 16th July, 2018. It
merits reiteration, in this context, that the EIL, too, never deemed it
appropriate to return the letter dated 16th July, 2018 to the petitioner,
stating that it was irregular in any respect. More importantly, the
petitioner has never, expressly or by necessary implication, withdrawn
its Notified Claims, as attached to the letter dated 16th July, 2018.
35. It may, therefore, be also open to the petitioner to contend that
the notified claims attached with the letter dated 16th July, 2018
continue to remain arbitrable, as they were never withdrawn by the
petitioner by any letter or subsequent communication.
36. All these issues, clearly, would require a detailed factual
analysis, which a court exercising jurisdiction under Section 11 of the
1996 Act can hardly be expected to undertake. No doubt, Vidya
Drolia2 specifically cautions courts, exercising jurisdiction under
Section 11 from wading into these thickets. It cannot be said, at any
rate, that a prima facie case of non-arbitrability of the dispute raised
by the petitioner exists, as would justify rejection of the present
petition.
37. Before concluding this judgment, I may also refer to the
decision of this Court in Brilltech Engineers Pvt. Ltd.1, on which Mr.
Pardasani placed reliance. A bare reading of the said decision reveals
that the facts of that case are completely distinct from those of the
present case. In that case, this Court found, on facts, as under:
"11. There is no doubt that there has been a series of
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communications, between the petitioner and the respondent,
in connection with the claims of the petitioner. At the same
time, I am not able to convince myself that these
communications can suffice to constitute notification of the
said claims, in accordance with the protocol set out in the
various sub-clauses of Clause 52.1 of the GCC. It is seen that
Clause 52.1.1 and Clause 52.1.2 prescribed a rigorous
discipline, to be followed, in the matter of notification of
claims. The contractor is required to give notice in writing of
his claim within 10 days from the date of issue of orders or
instructions relating to the works for which additional
payment of compensation is sought. This notice is required to
contain full particulars of the nature of claim, the grounds on
which it is based and the amount claimed. The notice is
required to be addressed to the Project Manager and the
owner of the respondent. Clause 52.1.2 requires any such
notified claims, which remain unpaid at the time of
preparation of the final bill by the contractor, to be separately
included in the final bill in the form of a statement of claim
attached thereto, giving particulars of the nature of the claim,
grounds on which it is based and the amount claimed,
supported by copies of the notices sent in respect thereof by
the contractor to the Project Manager and owner under Clause
52.1.1. Clause 52.2.1 provides for arbitration only of notified
claims, included in the final bill in accordance with the
provisions of Clause 52.1.2.
12. The petitioner has filed a rejoinder, to the counter
affidavit of the respondent, which raises the specific
contention that the claims of the petitioner, which the
petitioner seeks to be referred to arbitration, have not been
notified in accordance with Clause 52.1.1, and no statement
of claim, in accordance with Clause 52.1.2, has been issued in
respect thereof. There is no traversal, of this contention, in the
rejoinder filed by the petitioner. Even during oral arguments,
Mr. Singhal, while acknowledging that the strict discipline of
Clauses 52.1.1 and 52.1.2 may not have been followed by his
client, nevertheless submits that the prayer, of his client, to
refer the disputes to arbitration, ought not to be rejected on
this ground, as the communications between the petitioner
and the respondent indicate that the respondent had
acknowledged the tenability of the petitioner's claims.
13. Reference of claims to arbitration can be made, by the
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Court, under Section 11, only if the claims are themselves
arbitrable, in accordance with the Arbitration Agreement
between the parties. The claims of the petitioner not having
been notified, and no statement of claim having been
submitted, in that regard, in accordance with the protocol set
out in Clauses 52.1.1 and 52.1.2, cannot be regarded as
arbitrable within the meaning of Clause 52.2.1 of the GCC."
(Emphasis supplied)
38. Brilltech Engineers1, therefore, involved a situation in which
the contention, of the respondent, in that case, that the claims being
sought to be referred to arbitration were not notified in accordance
with the appropriate contractual provision, and no statement of claim,
in respect thereof, was attached with the final bill, remained
untraversed in rejoinder. Even during oral arguments, it was
conceded, by learned counsel for the petitioner in that case, that the
discipline envisaged in the contractual clauses referring to notification
of claims, and inclusion thereof in the final bill, had not been followed
by the petitioner. Reference of the claims was, nevertheless, sought on
the ground that the tenability of the claims remained undisputed by the
respondent. It is in these circumstances that the court went on to hold
that the protocol for notifying claims, submitting them with the bill
and referring them to arbitration not having been followed, the prayer
for referring of dispute could not be allowed.
39. These infirmities do not attach to the claims of the petitioner in
the present case. The claims were invited within the stipulated period,
and submitted along with the final bill, in accordance with Clause
6.6.3.0 of the GCC.
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40. As such, it cannot be said that no prima facie case of non-
arbitrability of the disputes raised by the petitioner has been made out
by the respondent.
41. By way of a closing observation, para 154.4 of the judgment in
Vidya Drolia2 may be reproduced thus:
"154.4 Rarely as a demurrer the court may interfere at
the Section 8 or 11 stage when it is manifestly and ex facie
certain that the arbitration agreement is non- existent, invalid
or the disputes are non-arbitrable, though the nature and facet
of non-arbitrability would, to some extent, determine the level
and nature of judicial scrutiny. The restricted and limited
review is to check and protect parties from being forced to
arbitrate when the matter is demonstrably 'non-arbitrable' and
to cut off the deadwood. The court by default would refer the
matter when contentions relating to non-arbitrability are
plainly arguable; when consideration in summary proceedings
would be insufficient and inconclusive; when facts are
contested; when the party opposing arbitration adopts
delaying tactics or impairs conduct of arbitration proceedings.
This is not the stage for the court to enter into a mini trial or
elaborate review so as to usurp the jurisdiction of the arbitral
tribunal but to affirm and uphold integrity and efficacy of
arbitration as an alternative dispute resolution mechanism."
42. Resistance, such as that manifested in the present case by the
respondent, to arbitration of the dispute, even after admitting the
existence of the arbitration agreement in the contractual executed, ad
idem, with the petitioner, does complete disservice to the avowed
statutory objective of "affirming and upholding the integrity and
efficacy of arbitration as an alternative dispute resolution mechanism".
It is unfortunate that a public sector undertaking, such as the
respondent, is adopting such a stance. At the end of the day, reference
of the disputes to arbitration causes no prejudice to anyone and, if
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anything, aids in expeditious resolution thereof.
43. Accordingly, this Court appoints Hon'ble Mr. Justice Mukul
Mudgal, former Chief Justice of Punjab and Haryana High Court, as
the respondent's arbitrator in the present case. The contact details of
learned arbitrator are as under:
Phone No: 9818000250
Email ID: [email protected]
44. The parties are directed to contact the learned arbitrator at the
aforesaid contact details within a period of one week from today.
45. The learned arbitrator appointed by the petitioner and the
aforesaid learned arbitrator appointed by this Court on behalf of the
respondent would, thereafter, proceed to appoint a third arbitrator so
that the arbitral proceedings could commence.
46. The fees of the learned arbitrator appointed by the present
judgement would be decided by the learned arbitrator in consultation
with the parties.
47. In view of the transparent attempt, of the respondent, to thwart
the enforcement of the arbitration agreement with the petitioner, I was
inclined to mulct the respondent with costs. However, keeping in mind
the fact that the respondent is a wholly owned subsidiary of the Oil
Industry Development Board, I refrain from doing so.
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48. The petition is allowed in the aforesaid terms.
49. All findings contained in this judgment, needless to say, are
only for determining whether the prayer for referring the disputes to
arbitration was required to be allowed, under Section 11(6) of the
1996 Act. They are strictly prima facie in nature and would not inhibit
the Arbitral Tribunal, in any manner, from arriving at a different
finding, on facts or in law, during the course of the arbitral
proceedings.
C. HARI SHANKAR, J.
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