Bhagheeratha Engineering Limited vs . North Eastern Electric Power on 20 May, 2024

[Cites 14, Cited by 0]

Meghalaya High Court

Bhagheeratha Engineering Limited vs . North Eastern Electric Power on 20 May, 2024

1. By way of this application under Section 11 (6) of the Arbitration and Conciliation Act, 1996, (hereinafter referred to as the 'Act') the petitioner company is seeking the appointment of an Arbitrator on behalf of the respondents, to act along with the arbitrator nominated by the petitioner under the Act for adjudication of all disputes between the parties.

2. The brief facts are that the petitioner had entered into a contract with the respondent corporation, and during the execution of the Arb. Pet. No. 8 of 2023 Page 1 of 15 same, as certain disputes had arisen, the same were referred to arbitration under the terms of the contract. During the arbitral proceedings, the respondent had then filed an application under Section 16 of the Act, contending that the disputes were not arbitrable. After the application of the respondents had been heard by the Arbitral Tribunal, it was held that the same would be decided along with the award that was to be passed. The arbitral award was then declared allowing a few claims of the petitioner but, the application filed by the respondents though reserved to be passed along with the award, was not decided. Thereafter, both the petitioner and the respondents challenged the award before the Commercial Court at Shillong.

3. The learned Commercial Court then by order dated 28-06-2022 set aside the award on the ground that the Section 16 application should have been decided by the Arbitral Tribunal. While setting aside the award, opportunity was also given to the petitioner to avail of Section 43 of the Act, as it was not to blame for the non-passing of the order under Section 16 of the Act by the Tribunal. The petitioner then invoked arbitration, vide a letter dated 15-07-2022, and though there were attempts made thereafter on the suggestion of the respondents for conciliation, the same did not bear fruit as the respondents were not willing to conciliate the referred claims, Arb. Pet. No. 8 of 2023 Page 2 of 15 on the ground that the claims were contrary to the contract. As the conciliation failed, the petitioner continued with the arbitration as invoked by it vide notice dated 15-07-2022, and the same was notified vide letter dated 26-06-2022. The petitioner then notified about the appointment of its nominee Arbitrator and requested the respondents to appoint its Arbitrator within a period of 21 days. The respondents however, did not appoint its nominee Arbitrator even though a reminder and added time of 15 days was granted, and instead vide letter dated 18-08-2023 informed the petitioner that once the petitioner had agreed for conciliation, it has lost its rights to proceed with arbitration. As such, in view of this stale mate, the petitioner is before this Court for the appointment of the nominee Arbitrator on behalf of the respondent under Section 11 (6) of the Act.

4. Mr. George Thomas, learned counsel on behalf of the petitioner has submitted that this Court in adjudicating a petition under Section 11 (6) of the Act, is exercising summary jurisdiction limited to examining as to whether there is a written agreement between the parties for the resolution of disputes through arbitration, whether the aggrieved party has made out a prima facie case, and whether the respondents have failed to act as required as per procedure. He submits that there should be no impediment in allowing the petition, as it can be seen that the Arb. Pet. No. 8 of 2023 Page 3 of 15 respondents have admitted all the ingredients required for disposal of the petition, such as the existence of the contract and arbitration agreement, the disputes related to the contract and the admission of the receipt of notice dated 15-07-2022 and 26-06-2023, for appointment of an Arbitrator. In this context, the learned counsel has referred to the judgment of this Court in the case of Mala Bhattacharjee vrs. Indusind Bank Limited & Anr. reported in 2023 (1) ARBLR 68 (Meghalaya), which he submits has reiterated the law regarding jurisdiction of the Court to refer parties to arbitration and further submits that petitions under Section 8 and Section 11 (6) are almost identical.

5. He then contends that the stand taken by the respondents, that the award was set aside on merits and therefore resjudicata will apply, making a second reference impermissible, is misplaced and incorrect, inasmuch as, the order of the learned Commercial Court had set aside the award due to the procedural irregularity committed by the Arbitral Tribunal and in fact, had also granted liberty to the petitioner to take appropriate action in accordance with law, apart from allowing the benefit of Section 43 of the Act. He further submits that it is settled law that when an award is set aside for procedural irregularity, the same disputes can be referred to a Arb. Pet. No. 8 of 2023 Page 4 of 15 newly constituted Arbitral Tribunal and in support of his arguments has relied upon the following decisions:

i) Juggilal Kamlapat Vs. General Fibre Dealers Ltd., AIR 1962 Supreme Court 1123.

ii) The Baranagore Jute Factory Co. Ltd., Vs. M/s. Hulasehand Rupchand AIR 1958 Calcutta 490 (Para 11, 12).

iii) Firm Gulab Rai Girdhari Lal and Others Vs. Firm Bansi Lal Hansraj AIR 1959 Punjab 102 (Para 5 and 6).

iv) B.S.Jaireth Vs. Sri. S.P.Sinha - AIR 1994 Calcutta 68 (Para 2, 9, 10).

6. It is also submitted that under the Act, there is no such power for supersession of reference when an award is set aside for procedural irregularity or for technical default, and that jurisdiction is conferred on a new Arbitral Tribunal so constituted, who is also to decide the arbitrability of the disputes in the first instance itself. Learned counsel has referred to a judgment of Mcdermott International Inc. vrs. Burn Standard Co. Ltd. & Ors. reported in (2006) 11 SCC 181 on the point that the jurisdictional question was required to be determined as a preliminary ground. The petitioner has also placed reliance on the following judgments:

     i)           M/s B.K. Gupta & Co. Vs. Union of India
                  AIR 2008 Gauhati 60 (Para 10, 11)

     ii)          Govind Singh Vs. Satya Group Pvt. Ltd and Anr.
                  2023 (1) ARBLR 570 DB Delhi High Court (Para 25)


Arb. Pet. No. 8 of 2023                                         Page 5 of 15
      iii)   KRR Infra Projects Pvt. Ltd. Vs. Union of India
            OMP (COMM) 87/2018 High Court of Delhi (Para 11)

     iv)    Mohana Rao Dandamudi Vs. The Government of Tamil

Nadu O.P. No. 549 of 2016, High Court of Judicature at Madras (Para 21)

7. Mr. V.K. Jindal, learned Senior counsel assisted by Ms. B. Jyrwa, learned counsel on behalf of the respondents submits that the Arbitral Tribunal had passed a reasoned award dated 18-01-2020, but however, did not deal with the plea of the respondents that the claims were not maintainable in view of the non-compliance of the prerequisites of the arbitration clause. However, he submits, since both the parties were not satisfied with the award dated 18-01-2020, they filed petitions under Section 34 of the Act, but before arguments could be commenced, the counsel for the petitioner had made a prayer to set aside the award, as the Tribunal had committed a procedural irregularity by not first deciding the issue raised by the respondents. After the award was set aside by the Commercial Court, he submits that the seeking of a fresh reference by the petitioner vide letter dated 15-07-2022, was unsustainable, as the claims sought to be referred were already adjudicated and decided by a competent Tribunal, under a valid reference. He contends that the instant application under Section 11 (6) of the Act, is not maintainable, inasmuch as, after the Arb. Pet. No. 8 of 2023 Page 6 of 15 award was set aside, the arbitration agreement ceased to have any effect with regard to the claims which had been referred to a duly constituted Arbitral Tribunal and that the disputes were no longer arbitrable, on the ground of the principles of res-judicata and constructive res-judicata.

8. The learned Senior counsel further submits that the case put up by the petitioner, that since the Arbitral Tribunal failed to decide the application filed by the respondents under Section 16 of the Act made the award defective and unenforceable, is incorrect as the award was not only set aside on the ground of procedural irregularity, but also on other grounds. Further, it is submitted, the issue raised that the Section 16 application having been heard at length, but no final order passed amounted to procedural irregularity, is of no consequence because, if an issue or claim is raised or made by a party and heard by the Tribunal, but not finally decided, the same should be deemed to be rejected. Coupled with this fact, learned Senior counsel submits that the issue raised in the Section 16 application also no longer survives, in view of the amendment of Section 28 of the Indian Contract Act. It is further argued that the appointment sought by the petitioner for appointment of fresh Arbitrator, and not for continuation, amounts to a second reference or de novo trial, as can be made out from the letter dated 15-07-2022 which is not tenable, as Arb. Pet. No. 8 of 2023 Page 7 of 15 there exists no provision in the contract agreement between the parties, or in the arbitration clause for having a second reference or a continuation of the first reference, in the event the award is set aside. It is also submitted that a second reference or continuation of the first reference, is permissible only when the first reference is itself invalid, or the Arbitral Tribunal was not properly constituted, or there exists a provision in the contract agreement or arbitration clause. He contends that in the instant case, none of the conditions aforementioned were the reason for the award being set aside and as such, the petitioner is not entitled for a second reference or even a continuation of the first reference. The learned Senior counsel has then placed reliance upon the following judgment in support of his arguments:

i) The Baranagore Jute Factory Company Ltd. vs. M/s Hulaschand Rupchand, AIR 1958 Cal 490 (Para 10.1 , 17 and

19)

ii) Juggilal Kamlapat Vs. General Fibre Dealers Ltd.

AIR 1962 SC 1123, (Para 8, 10 and 15)

9. The learned Senior counsel has also supplemented his main submissions by contending that the petition is barred by the principles of res-judicata and constructive res-judicata, as the disputes claims which are now being sought to be referred to another Tribunal were already directly Arb. Pet. No. 8 of 2023 Page 8 of 15 and substantially in issue before the previous Arbitral Tribunal, which was constituted in accordance with the arbitration clause and decided accordingly. With regard to the objections raised by the petitioner to the applicability of the CPC, the learned Senior counsel has cited the following cases:

i) K.V. George vs. Secretary to the Government , Water and Power Department, Trivandrum & Anr. (1989) 4 SCC 595(Para 16-18)

ii) Dore Sangma; John Sangma; Mega Marak & Ors. vs. Chief Executive Member, GHADC & Ors. (1988) 2 GLR 120 (Para

22)

10. Learned counsel for the petitioner in reply to the arguments, has submitted that it is settled law that when an award of an Arbitral Tribunal is set aside for any reason other than on the merits of the disputes referred, the reference will subsist for adjudication. He further submits that the respondent counsel could not point out any law or precedent that when an award is set aside for procedural irregularity, the disputes cannot be adjudicated under the same reference. With regard to the point raised by the respondents that there should be provision in the contract or in the arbitration clause, stipulating for a second reference of the same disputes or the continuation of the first reference, learned counsel submits that there is no basis for such a proposition of law, inasmuch as, when the arbitration Arb. Pet. No. 8 of 2023 Page 9 of 15 agreement stipulates that the disputes are to be settled by arbitration, any dispute which does not attain finality in an award, could therefore be again subjective to arbitration. It is lastly submitted that the principles of res judicata and constructive res-judicata are not relevant for the reason that there is no enforceable award in existence. As such, he prays that the petition be allowed, and appropriate orders be passed for appointment of an Arbitrator.

11. Heard learned counsels for the parties. In normal circumstances, this application under Section 11(6) of the Act, would not have deserved lengthy arguments for consideration, as the jurisdiction of this Court under this provision is limited only to examining as to whether an agreement exists between the parties for resolution of disputes through arbitration and whether in the prevalent circumstances therein, a prima facie case has been made out for arbitration.

12. In the instant case, the disputes between the parties herein, had been put to arbitration as far back as on 12.02.2003, when the respondent finally rejected the claims of the petitioner vide a letter dated 05.03.2003. The Arbitral Tribunal which was constituted as per clause 66 of the contract, commenced its proceedings on 08.05.2004, published the award on 18.01.2020, after a period of nearly 16 years had elapsed, which was Arb. Pet. No. 8 of 2023 Page 10 of 15 then challenged by both parties by way of a Section 34 application before the learned Commercial Court. As noted from the facts and submissions, the respondents had filed an application under Section 16 of the Act on the question of the Arbitral Tribunal's jurisdiction to adjudicate upon certain claims, which was never decided in the final award.

13. An application under Section 16 of the Act, vests the Arbitral Tribunal with the competence to rule on its own jurisdiction and the arbitrators are entitled to be the first to determine their jurisdiction which is later reviewable by the Court, when there is action to enforce or set aside the arbitral award. In the instant case, an application under Section 16 had been filed by the respondents before the Arbitral Tribunal and as recorded in the order of the learned Commercial Court, the Arbitral Tribunal had framed issues number 2 and 3, which were the issues raised by the respondent under Section 16 of the Act. These two issues were never decided by the Arbitral Tribunal in the award as it was wont to do, though they were clubbed together at the final hearing. Further, as noted from the judgment of the learned Commercial Court, the challenge to the award at Ground G of the application, is on the failure of the Arbitral Tribunal to decide on the Section 16 application, thus vitiating the award which was not substantially rebutted by the respondent.

Arb. Pet. No. 8 of 2023 Page 11 of 15

14. Before the learned Commercial Court, it is extremely important to note that the learned Commercial Court at Para-13 of its order dated 28.06.2022, had recorded as follows:

"13. On perusal of the reply filed by the Respondent, this Court finds that there is no substantive rebuttal of Ground- G, referred above. Further, on close reading of the impugned Award, this Court finds that the Tribunal has not returned any findings on, Issue No. 2 and No. 3. This Court without referring to any decision, to fortify its conclusion finds that the impugned Award suffers from violation of principle of natural justice. The Applicant has been deprived of the opportunity of being heard, as such, he was not given fair opportunity to present his case. The impugned Award, dated 18.01.2020, was pleased in breach of Section 18 of the Act, 1996, as such, it suffers from the infirmity under Sub- Section 2(iii)/(2A), of Section 34 of the Act, 1996, and liable to be quashed. This Court at the recital, had mentioned that the Respondent has not resisted or defended the legality of the impugned Award, on the above mentioned ground. Rarely, the Court encounters a very fair concession made, to the admitted position of law."

15. The respondents through its counsel before the learned Commercial Court had also submitted that the impugned award does not pass the test of the statutory requirement under Section 34 of the Act, and as such it is not sustainable. This submission of the respondents is recorded by the learned Commercial Court in paragraph 5 of the judgement, which is also reproduced hereinbelow:

"5. Conventionally, the argument is commenced by the Applicant, however, in the instant case, the Ld Counsel for the Respondent has initiated the hearing of proceeding by Arb. Pet. No. 8 of 2023 Page 12 of 15 making a fair submission, that the impugned Award, does not pass the test of the statutory requirement under Section 34 of the Act, 1996, as such, it is not sustainable."

16. The learned Commercial Court then also allowed the benefit of Section 34 of the Act to the petitioner to facilitate appropriate action in accordance with law. However, without assailing the order of the learned Commercial Court, especially on the findings recorded therein, when this application has been preferred before this Court under Section 11(6) of the Act, the respondents have put up a case that the earlier award was final, had adjudicated on all the disputes and there being no provision for second reference in the term of the contract, no further claims were sustainable against the respondents by way of arbitration. This Court at this stage, and on the facts of the case as presented, fails to understand the respondent's contention that the petitioner is seeking a second reference. From the materials and the chain of events, it is amply clear that the award was set aside under Section 34 on mutual consent of the parties on account of the procedural irregularity committed by the Arbitral Tribunal. Procedural irregularity, does not touch upon the merits or substance of any dispute but is concerned strictly with the maintenance of the sanctity of the adjudicatory process as mandated by law. The respondents before this Court however, have adopted a contrary stand by seeking to advance an Arb. Pet. No. 8 of 2023 Page 13 of 15 argument that their Section 16 application should have been deemed to be rejected, whereas before the learned Commercial Court they had acceded and concurred to the fact that the Section 16 application was never decided, which was the only factor in consideration thereof, for the award being set aside.

17. The award that was passed by the Arbitral Tribunal on being set aside, has thus become unenforceable and non est in law. The same having been set aside for procedural irregularity cannot therefore preclude the disputes being adjudicated under the same reference. The judgments placed by the respondents namely; The Baranagore Jute Factory Company Ltd. vs. M/s Hulaschand Rupchand, AIR 1958 Cal 490 (supra) and Juggilal Kamlapat vs. General Fibre Dealers Ltd., AIR 1962 SC 1123 (supra) will have no application as in the considered view of this Court, the award being set aside on technical grounds, the disputes remain unresolved or undecided and it is not a question of a party seeking a second reference. The learned Commercial Court as has been discussed earlier had passed the judgment in consideration and cognition of the stand and submissions of the respective parties, and as such the grounds taken by the respondents before this Court to thwart the prayers of the petitioners is untenable and in fact deprecated. The earlier award therefore, which has Arb. Pet. No. 8 of 2023 Page 14 of 15 been set aside in effect has ceased to exist and the disputes as are present are available for adjudication under the same reference.

18. The other authorities and propositions advanced by the respondents need not be discussed, as in view of the facts and circumstances of the same, the same are misplaced and have no application.

19. Accordingly, the objections of the respondents to this application under Section 11(6), stands rejected, and in view of the stand taken by the respondents in seeking to frustrate the arbitration process, which has already been unduly delayed, and runs counter to set convention and principles in matters of commercial importance and value, the respondents are directed to pay a cost of Rs. 50,000/- (Rupees Fifty thousand only) to the petitioner within a period of 2(two) weeks from the date of this order.

20. Further orders for appointment of an arbitrator on behalf of the respondents will be taken up on the next date.

21. Accordingly list this matter on 05.06.2024.

JUDGE Meghalaya 20.05.2024 "Samantha PS"

Arb. Pet. No. 8 of 2023 Page 15 of 15

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Meghalaya High Court