Madras High Court
M/S.T.S.Kisan & Company Pvt. Ltd vs Union Of India on 31 October, 2008
Arb.O.P.No.399 & 400 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
D AT E D : .01.2022
C O RAM :
The Hon'ble Mr. Justice SENTHILKUMAR RAMAMOORTHY
Arb.O.P.Nos.399 & 400 of 2021
M/s.T.S.Kisan & Company Pvt. Ltd.,
Registered Office at C-420,
Defence Colony, New Delhi – 110 024.
Rep. by its Director, Mr.J.K.Thapar ... Petitioner
(in both petitions)
Vs
1.Union of India
Rep. by the Senior General Manager,
Heavy Vehicles Factory,
Avadi, Chennai – 600 054.
2.The Director General,
Ordnance Factory Board,
10-A, Shaheed Khudi Ram Bose Marg,
Kolkata – 700 001. ... Respondents
(in both petitions)
PRAYER in O.P.No.399 of 2021: This Petition has been filed under
Sections 11(6) of the Arbitration and Conciliation Act, 1996 praying to
appoint a Sole Arbitrator to decide the claim of the Petitioner in accordance
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Arb.O.P.No.399 & 400 of 2021
with the terms & conditions attached to the acceptance of Tender in SO No:
HVF/LP/03080014/2008-09/T 90/CASTING/Armor dated 31.10.2008.
PRAYER in O.P.No.399 of 2021: This Petition has been filed under
Sections 11(6) of the Arbitration and Conciliation Act, 1996 praying to
appoint a Sole Arbitrator to decide the claim of the Petitioner in accordance
with the terms & conditions attached to the acceptance of Tender in SO No:
HVF/LP/03080013/2008-09/T 90/CASTING/Armor dated 31.10.2008.
For Petitioner : Mr.S.R.Raghunathan
For Respondents : Mr.R.Sankaranarayanan
ASGI
Assisted by
Mr.Venkataswamy Babu
CO M M O N O R D E R
These two petitions are filed by the contractor seeking appointment of a sole arbitrator to adjudicate the dispute arising out of two separate but connected contracts between the said contractor and the employer, i.e. the respondents herein.
2. The respondents floated tenders for the supply of thermo- pressed armour plates to the Heavy Vehicles Factory, Avadi. The petitioner _____________ https://www.mhc.tn.gov.in/judis Page No.2 of 17 Arb.O.P.No.399 & 400 of 2021 was the successful bidder in respect of two separate contracts for light and heavy thermo-pressed armour plates, respectively, in such regard. Consequently, two supply orders, both dated 31.10.2008 and bearing S.O.No.HVF/03080013/2008/08-09/T-90/CASTING/ARMOUR (light armour plates) and S.O.No.HVF/03080014/ 2008/08-09/T- 90/CASTING/ARMOUR (heavy armour plates), were issued to the petitioner. Each contract was for a term of 18 months and the relevant goods were to be delivered to the respondents on or before 30.04.2010. After the petitioner and the respondents commenced performance of their respective obligations under the contracts, the petitioner states that the Joint General Manager, Ordnance Factory, issued a letter on 03.06.2009 and put the contracts on hold. According to the Petitioner, this caused financial losses to it. Subsequently, the 'on hold' order was lifted pursuant to an order passed by the Hon'ble Delhi High Court on 05.03.2010. Thereafter, the first respondent issued two show cause notices, both dated 22.12.2010, alleging breach of Clause 22 of the tender conditions, which pertained to illegal gratification, by the Petitioner. After replying to the show cause notices, by communication dated 31.05.2011, the petitioner invoked Clause 18 of the contracts, which provided for dispute resolution through arbitration. By _____________ https://www.mhc.tn.gov.in/judis Page No.3 of 17 Arb.O.P.No.399 & 400 of 2021 order dated 05.03.2012, the respondents cancelled the contracts and also issued an order blacklisting the petitioner for a period of 10 years. Each supply order was also cancelled separately by issuing communication dated 23.07.2012. The disputes arising in these facts and circumstances were adjudicated by a sole Arbitrator. The arbitral proceedings were concluded by Arbitral Award dated 13.11.2017 (the Award). The Award was challenged by filing O.P.No.523 of 2018. O.P.No.523 of 2018 was allowed by order dated 28.02.2020. As a result, the Award was set aside. On the assertion that live disputes subsist between the parties, the petitioner has filed the present petitions seeking appointment of an arbitrator.
3. The petitioner contends that Clause 18 of the terms and conditions annexed to each supply order contains the arbitration clause. The petitioner submits that the said clause provides for dispute resolution by a sole arbitrator to be appointed by the Director General of Ordnance Factory, Government of India. It also provides that the venue of arbitration shall be Avadi, Chennai. The petitioner also points out that the notice invoking arbitration was issued on 31.05.2011. After O.P.No.523 of 2018 was allowed, the petitioner filed a petition under Section 11 of the Arbitration _____________ https://www.mhc.tn.gov.in/judis Page No.4 of 17 Arb.O.P.No.399 & 400 of 2021 and Conciliation Act, 1996(the Arbitration Act) seeking appointment of an arbitrator. The said petition was listed for maintainability before this Court. The Court directed the Petitioner to issue a notice under Section 11 to the respondents indicating the intention to resolve the dispute through arbitration before filing a petition under Section 11. Consequently, the petitioner issued such communication on 06.03.2021. In spite of receiving such communication on 09.03.2021, the respondents did not consent to the constitution of an arbitral tribunal. The petitioner contends that these petitions are liable to be allowed in these facts and circumstances.
4. The petitioner asserts that the dispute between the parties was not resolved by the order setting aside the Award. The Court concluded that the petitioner did not commit breach of contract and that the cancellation of the contracts by the respondents was invalid. However, the compensation claims of the petitioner were not adjudicated in view of the limited jurisdiction exercised under Section 34 of the Arbitration Act. As a corollary, the petitioner contends that such claims should be adjudicated by constituting an arbitral tribunal for such purpose in accordance with the contracts.
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5. As regards the appeal filed by the respondents against the order dated 28.02.2020 in O.P.No.523 of 2018, the petitioner contends that no stay was granted in the said appeal. Therefore, there is no impediment to the consideration of these petitions. In the event that the appeal of the respondents is allowed, arbitral proceedings would have to abide by the out come of such appeal.
6. These contentions are strongly refuted by the respondents. The respondents assert that the petitioner resorted to corrupt practices in relation to the award of these contracts. Therefore, an inquiry was instituted and the contracts were put on hold. The relevant hold order was lifted on account of the order passed by the Hon'ble Delhi High Court on 05.03.2020. While passing such order, the Hon'ble Delhi High Court permitted the respondents to proceed with the inquiry and take a final decision. Upon conclusion of the inquiry, the cancellation-cum-blacklisting order dated 05.03.2012 was issued. According to the respondents, in light of the cancellation-cum- blacklisting order, the dispute is not arbitrable. To put it differently, the respondents contend that an order of blacklisting can only be subjected to judicial review under Article 226 of the Constitution. It cannot be tested in _____________ https://www.mhc.tn.gov.in/judis Page No.6 of 17 Arb.O.P.No.399 & 400 of 2021 arbitral proceedings. Indeed, the respondents state that the blacklisting order is the subject matter of two writ petitions which are pending before this Court. The respondents further submit that the illegal procurement of contracts is the subject matter of criminal proceedings, and that a charge sheet was filed in respect thereof naming the petitioner as an accused.
7. The respondents further submit that the order dated 28.02.2020 in O.P.No.523 of 2018 did not permit the petitioner to institute de novo arbitral proceedings. Such order was not appealed against by the petitioner. Therefore, it is contended that the petitioner is not entitled to institute de novo arbitral proceedings. In conclusion, the respondents reiterate that the dispute is not arbitrable inasmuch as the termination of the contracts was not on account of non-performance of obligations under the contract, but was on account of the unlawful procurement of the contracts by the petitioner.
8. The petitioner, in rejoinder, submitted that the respondents have taken two contradictory pleas: on the one hand, the respondents allege that the petitioner provided illegal gratification; on the other, the respondents cite non-performance of contractual obligations. The petitioner _____________ https://www.mhc.tn.gov.in/judis Page No.7 of 17 Arb.O.P.No.399 & 400 of 2021 further contends that even the question of illegal gratification may be decided by the arbitral tribunal independent of criminal proceedings in such regard. As regards the order of blacklisting, it is submitted that the said order pertains to future contracts of the respondents and not to the contracts which form the subject matter of the present proceedings. In effect, the contention is that the writ petitions pertaining to the blacklisting order are irrelevant for purposes of arbitral proceedings.
9. In view of the rival contentions, the question to be decided is whether the petitioner has made out a case for reference of this dispute to arbitration. The logical starting point for such inquiry is the arbitration clause. Clause 18 of the terms and conditions annexed to each supply order contains the arbitration clause, and the said clause is as under:-
''18. ARBITRATION All disputes and differences arising out or in any way touching or concerning this agreement (except those for which specific provision has been made herein) shall be referred to Sole Arbitrator to be appointed by the Director General of Ordnance Factories, Government of India. The Arbitrator so appointed shall be a Government servant who had not _____________ https://www.mhc.tn.gov.in/judis Page No.8 of 17 Arb.O.P.No.399 & 400 of 2021 dealt with matters to which this agreement relates and in course of his duties had not expressed on all or any of the matters in dispute or differences. The Arbitration award of the sole Arbitrator shall be final and binding on the parties. The venue of the Arbitration shall be Avadi, Chennai. The award of the arbitrator so appointed shall be final and binding on the said parties and the provisions to the Arbitration and Conciliation Act 1996 or any statutory modifcation thereof for the time being in force, shall apply.'' Upon perusal of the arbitral clause, it is beyond doubt that parties agreed to resolve disputes through arbitration by a sole arbitrator. The venue of arbitration is specified as Avadi, Chennai. Although the arbitration clause provides for the appointment of a sole arbitrator by the Director General of Ordnance Factory, Government of India, the Hon'ble Supreme Court has frowned on such unilateral appointments by a party to the dispute.
Therefore, the petitions before this Court are clearly maintainable and this Court has jurisdiction to consider the same. This leads to the question of arbitrability, which is addressed next.
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10. With regard to arbitrability, two contentions are raised by the respondents. The first contention is that the petitioner is not entitled to institute de novo arbitral proceedings. According to the respondents, this Court did not leave the door open for the petitioner to institute de novo arbitral proceedings while allowing the earlier Section 34 petition. On the contrary, the petitioner contends that the mandate of the Court under Section 34 of the Arbitration Act is to decide whether the arbitral award is liable to be set aside wholly or in part. Once the arbitral award is set aside, if there are live disputes that remain unresolved, it is open to the parties to initiate proceedings in accordance with the relevant contract. The petitioner asserts that Section 43(4) of the Arbitration Act provides for the exclusion of time taken in the conduct of the first round of arbitration if a second round of arbitration is initiated. The petitioner also contends that it is not necessary for the Court to expressly advert to Section 43(4) of the Arbitration Act and grant leave in such regard.
11. As correctly contended by learned counsel for the petitioner, the mandate of the Court under Section 34 of the Arbitration Act is limited. The Court examines the arbitral award and determines whether such award _____________ https://www.mhc.tn.gov.in/judis Page No.10 of 17 Arb.O.P.No.399 & 400 of 2021 warrants interference by setting aside the same in whole or in part. The Court does not have the power to modify the Award. As a consequence of the limited mandate, it is not uncommon that live disputes remain unresolved after the relevant award is set aside. If so, the parties are entitled to institute de novo arbitral proceedings. In the absence of an indication in the order of the Court deciding the Section 34 petition as to whether a live dispute survives, the arbitral tribunal, in the second round of arbitration, would be required to decide any dispute in such regard. In other words, it would be open to the respondents in the second round of arbitration to plead res judicata. If such plea is raised, the arbitral tribunal would be required to consider and determine such plea. Nevertheless, these petitions cannot be rejected on that ground especially in view of the limited scope of Section 11 of the Arbitration Act after the amendment thereof by Act 3 of 2016.
12. The question of arbitrability on account of the subject matter being allegedly incapable of being decided in arbitral proceedings is a distinct matter which remains to be considered. The respondents contend that the contracts were cancelled because such contracts were illegally procured and not on account of the failure to perform the relevant contracts. _____________ https://www.mhc.tn.gov.in/judis Page No.11 of 17 Arb.O.P.No.399 & 400 of 2021 The petitioner refutes such contention and claims that the respondents made contradictory contentions on this issue. In any event, the petitioner contends that the arbitral tribunal has the jurisdiction to even decide whether the petitioner provided illegal gratification in order to obtain the contracts. The scope of Section 11 of the Arbitration Act was considered in considerable detail in the judgment of the Hon'ble Supreme Court in Vidya Drolia and others v. Durga Trading Corporation (2021) 2 SCC 1(Vidya Drolia). After noticing that the principal consideration in a petition under Section 11 is whether there is an arbitration agreement between the parties, the Hon'ble Supreme Court concluded that the Court is entitled to undertake a prima facie review for purposes of deciding whether the dispute is arbitrable. In fact, the Hon'ble Supreme Court held that an intense prima facie review is permissible in this regard. However, the Court further conclude that unless it is clear to the Court that no arbitration agreement exists or that the dispute is manifestly not arbitrable, the parties should be relegated to the arbitral tribunal for determination of such contentious issues. Paragraphs 154.3 and 154.4 of Vidya Drolia are of particular significance in this regard, and are, therefore, set out below:
_____________ https://www.mhc.tn.gov.in/judis Page No.12 of 17 Arb.O.P.No.399 & 400 of 2021 ''154.3. The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence-competence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of ''second look'' on aspects of non-arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act.
154.4. Rarely as a demurrer the court may interfere at 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 _____________ https://www.mhc.tn.gov.in/judis Page No.13 of 17 Arb.O.P.No.399 & 400 of 2021 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 machanism.''
13. In DLF Home Developers Limited v. Rajapura Homes Private Limited, 2021 SCC Online SC 781, the scope of inquiry under Section 11 was extended to include a prima facie examination of whether the dispute, which is sought to be referred for arbitration, is covered by the relevant arbitration clause. Thus, it is evident that the Court under Section 11 should refer the parties to arbitration unless it concludes that one of the following circumstances exist: there is no arbitration agreement between the parties; or the dispute is manifestly non-arbitrable; or the dispute is manifestly outside the scope of the arbitration agreement on prima facie review. In all the three situations outlined above, the overriding principle, as held in paragraph 244.4 of Vidya Drolia is: “when in doubt, do refer”. While the contention of the respondents that the order of blacklisting can only be tested by a constitutional court in judicial review carries considerable _____________ https://www.mhc.tn.gov.in/judis Page No.14 of 17 Arb.O.P.No.399 & 400 of 2021 merit, it cannot be said that the dispute pertaining to the cancellation of the contracts even on the ground of alleged receipt of illegal gratification is manifestly non-arbitrable or outside the scope of the arbitration clause. On this issue, it should be noticed that the arbitration clause, which reads in relevant part as: “All disputes and differences arising out or in any way touching or concerning this agreement....” is prima facie of wide amplitude. Besides, one round of arbitration took place in this case. Therefore, as instructed by the Hon'ble Supreme Court in Vidya Drolia, these contentious issues should be left to the arbitral tribunal to determine as a preliminary issue or otherwise.
14. For reasons set out above, the Petitioner is entitled to succeed. Since the disputes arise out of two separate but related contracts involving the same parties, it is appropriate to appoint the same person as sole arbitrator.
15. Accordingly, Mr. Justice M.Sathyanarayanan, a retired Judge of this Court, Old No.9, New No.5/1, 2nd Avenue, 2nd Extension, Indira Nagar, Adyar, Chennai – 600 020(Mobile No.9498022255) is appointed as _____________ https://www.mhc.tn.gov.in/judis Page No.15 of 17 Arb.O.P.No.399 & 400 of 2021 the Sole Arbitrator to adjudicate the disputes arising out of both these contracts. The Sole Arbitrator is directed to enter upon reference and adjudicate the disputes in accordance with law. The Sole Arbitrator may decide whether it is appropriate to consolidate the disputes after hearing the parties. It is open to the Sole Arbitrator to fix the fees and expenses in connection with such arbitral proceedings.
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Index :Yes
Internet :Yes
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SENTHILKUMAR RAMAMOORTHY J.,
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O.P.No.399 &
400 of 2021
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