Bombay High Court
Chimera Industrial And Development ... vs Indian Oil Corporation Limited Head ... on 21 March, 2023
Author: Bharati Dangre
Bench: Bharati Dangre
2023:BHC-OS:2475
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM. ARBITRATION APPLICATION NO.167 OF 2021
Chimera Industrial and Development .. Applicant
Pvt. Ltd.
Versus
Indian Oil Corporation Limited .. Respondent
...
Mr.Gautam Ankhad with Mutahhar Khan, Navdeep Dahiya,
Surbhi Ahuja, Kenneth Martin, Ms.Ria Garg, Hiral Thakkar
and Nishtha Garg i/b Advani & Co. for the Applicant.
Mr.Chirag Mody with Ashok Purohit, Nikunj Mehta, Nikita Lad
and Nirjala Mishra i/b Ashok Purohit & Co. for the
Respondent.
...
CORAM: BHARATI DANGRE, J.
RESERVED ON : 22nd FEBRUARY, 2023
PRONOUNCED ON : 21st MARCH, 2023
JUDGMENT:-
1. The respondent-Indian Oil Corporation Limited ("IOCL"), having it's Head Offce at Bandra, Mumbai, foated tender for manufacture and supply of Dispensing Units ("DUs"). The applicant, previously known as MIDCO Limited (in short, "MIDCO") submitted it's offer and on being declared as a successful bidder, was awarded various Purchase Orders ("POs") with respect to various tenders, including various repeat orders for the manufacture of DUs. The distinct POs placed on record are dated 19/01/2012, 18/07/2012 and 02/11/2012.
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The PO contemplated that it shall be read in continuation with General conditions of Contract for supply of equipments, as stipulated in the tender. It describes IOCL as the 'Purchaser' and the present applicant as a 'Tenderer' . Various conditions were stipulated in the said PO, which included the terms and conditions as to quantity, payment, guarantee/warranty etc. It also contemplate that on dispatch of the equipment, by way of Bank Guarantee, the vendor shall guarantee that any and all materials used in execution of the PO shall be in strict compliance with characteristics, requirements and specifcations agreed upon and the same shall be free from any defects. It was imperative for the vendor to furnish Performance Bank Guarantee ("PBG") for 20% value of the PO at the time of despatch of equipment, which was to remain in force for 90 months, from the actual date of receipt of last consignment of materials at distinct locations. The responsibility was cast upon the vendor to keep the Bank Guarantee ("BG") fully subscribed.
The distinct POs also contained an arbitration clause identically worded, in form of clause 22, which contemplated that, in the event of question or dispute arising under the conditions or in connection with the contract, the matter shall be referred to the Sole Arbitration of the Director (Marketing) of the IOCL and if he is unable or unwilling to act as such, the matter shall be referred to some other person, appointed by the Director. The award of the Arbitrator, so appointed, was to be considered as fnal and conclusive and binding on all the parties, subject to the provisions of the Arbitration and Conciliation Act, 1996 and the rules thereunder. The venue of M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 3/24 CARAP-167-21.odt arbitration was decided to be in India with Indian Law being made applicable.
2. The discord between the parties arose when the respondent issued a show cause notice to the applicant on 12/05/2017, informing that on conducting inspection of various retail outlets by Special Task Force and Committee comprising of several offcials, it was noticed that the DUs were delivering short quantity of diesel and petrol and several other defciencies were pointed out, indicating that the DUs supplied were not in conformity with the tender conditions.
The show cause notice contemplated a response within a period of 7 days, failing which it was communicated that as per the provisions of the agreement, the applicant shall be subjected to an action.
The show cause notice was responded by the applicant on 22/05/2017, wherein all the allegations were denied.
3. While the action of the respondent was in progress, the applicant took a decision for transferring of it's business in favour of one 'Gilbarco Veeder Root India Private Limited (hereinafter referred to as, "the Gilbarco/GVR"), by passing of a resolution in the Board Meeting of the applicant on 15/05/2018. The resolution refer to a Business Transfer Agreement ("BTA") to be entered between the company and Gilbarco for the sale and transfer of the business of the company consisting of the design, development, manufacture and supply of fuel, DUs and Liquefed Petroleum Gas ("LPG"), M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 4/24 CARAP-167-21.odt dispensers, turnkeys projects for commissioning auto LPG dispensing stations and post-sale maintenance services and for upgradation of the fuel dispensing units and LPG dispensers and manufacturing of spares thereof, as a whole as a going concern as and by way of slump sale for a lump sum consideration. As a consequence of the resolution, a BTA was executed on 14/06/2018 between Gilbarco, the applicant and the Chief Promoters, who exercised ultimate control as they were holding 100% of the issued, subscribed and paid-up share capital of the applicant/seller. The agreement contained various clauses, which resulted in transfer of movable assets, undertaking, records, immovable properties, employees etc. It also comprised of a clause for transfer of liabilities, worded as under :-
"(viii) Transfer of Liabilities. All the liabilities relating to the Undertaking (other than the Excluded Liabilities) resulting from the operations and/or the ownership of the Undertaking from and with effect from the Closing Date, and which liabilities do not relate to the period prior to the Closing Date shall be transferred or assigned by the Seller to the Purchaser along with the rights, benefts and obligations in relation thereto, by execution of such documents in the Agreed Form by the Seller in this regard, on and with the effect from the Closing Date. Notwithstanding any provision contained in this Agreement, the Purchaser has not, and shall not, assume or be deemed to have assumed, or otherwise be responsible for, and the Seller shall retain and remain responsible for, any and all of the Excluded Liabilities."
The agreement also contemplated transfer/assignment of licenses in favour of the purchaser on the closing date.
Even this agreement comprised of an arbitration clause in form of clause No.9.4(b) which provided that, in the event of any dispute or difference in connection with the interpretation or implementation of the agreement or the transaction M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 5/24 CARAP-167-21.odt document or in connection with the breach or alleged breach of the agreement between promoters and the Seller on one part and purchaser on the other, the dispute shall be referred to arbitration, to be conducted in accordance with London Court of International Arbitration Rules ("LCIA Rules"). Suffce it to note that the closing date was described in the said agreement as 12/12/2018, as set out in clause 5.
4. The respondent-IOCL, on the pretext that the DUs supplied were not in accordance with the tender conditions, encashed 20 Bank Guarantees furnished by the applicant amounting to Rs.13,55,61,222/- on 29/06/2018 under the POs. The encashment of the Bank Guarantees was on the ground that the applicant has breached the terms and conditions of the contract and, therefore, payment of Rs.13,55,61,222/- as per the terms of the Bank Guarantee was prayed for.
5. The applicant, on 09/07/2018, informed the respondent about the proposed sale of it's business and sought their consent for assignment of it's POs in favour of Gilbarco. Even Gilbarco issued a letter of confrmation, accepting the rights and obligations of the applicant under the IOCL MIDCO Agreement on the closing date.
6. On 12/09/2018, the respondent issued a letter to the applicant, inter alia, requiring the applicant to provide additional Bank Guarantees worth Rs.13,55,61,222/-, since the contractual performance period of the DUs was still in force. The applicant responded to the said communication by M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 6/24 CARAP-167-21.odt stating that it was in process of providing an additional Bank Guarantee, since it was awaiting nod for the BTA and it was reiterated that MIDCO has supplied DUs in conformity to IOCL's tender specifcations and also provided upgrades in the feld. It was assured that the same team of engineers and managers will be migrating to Gilbarco and the trained manpower for providing support in the automation rollout in MIDCO DUs shall be with Gilbarco.
Regarding provision of additional Bank Guarantee, it was clarifed that only for the purpose of receiving consent for the sale and transfer of MIDCO's business and without prejudice to any interest, rights and claims that may have in relation to the BGs, they would provide the additional BGs in a short while.
As per the commitment, additional BGs were also forwarded to the respondent.
7. Ultimately on 03/10/2018, Gilbarco entered into correspondence with IOCL with reference to the letter dated 21/09/2018 and expressed that it will be able to initiate production and deployment of magnetic pulsars in the feld only post transaction closure. On 16/10/2018, the applicant ensured that the plan shall be immediately taken ahead upon completion of the business transfer and related formalities and the project would be completed by second quarter of 2019, which would be within the time-lines provided for in the IOCL POs.
The consent was specifcally sought for the BTA by informing that the applicant has already received the consent M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 7/24 CARAP-167-21.odt from all their customers, so that a deal can be closed between the applicant and Gilbarco, who can then take over the work of providing smooth and trouble free services to IOCL.
8. On 08/12/2018, a tripartite Assignment-cum-Novation Agreement came to be executed between the applicant, respondent and Gilbarco for assignment of the agreements and POs issued upon the applicant by the respondent in favour of Gilbarco.
The said agreement referred to the applicant and Gilbarco collectively as 'the Obligors' on one part and IOCL referred to as 'the Obligee' on the other part. The agreement made reference to the IOCL agreements/arrangements, valid and subsisting from the year 2012 to 2018. It refers to the various agreements as regards AMC contracts as well as upgradation of the Pulsar Units and other features of DUs supplied by the applicant.
The background of the arrangement was set out by narrating that MIDCO had entered into an BTA dated 14/06/2018 with Gilbarco, where it agreed to sell and transfer the undertaking as a whole and as a going concern on slump sale basis to Gilbarco, on the terms and conditions set out therein. Under the said agreement, Gilbarco agreed to purchase and take over the Undertaking, as per the terms and conditions set out in the BTA.
Apart, the agreement recorded as under :-
"(i) In the facts as mentioned above, the Obligors and Obligee hereby have agreed and decided to execute the present Assignment cum Novation Agreement whereby MIDCO confrms that MIDCO shall transfer the Undertaking along with rights and obligations of Midco under the M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 8/24 CARAP-167-21.odt applicable terms and conditions of the IOCL Agreements to GVR consequent to the BTA on the date of the completion under the BTA ("Completion"), which date shall be communicated by MIDCO and GVR to the Obligee one day prior to the date of the Completion (hereinafter referred to as the "Effective Date") and GVR hereby confrms the same and GVR has agreed that it shall perform the obligations/responsibilities of MIDCO under the applicable terms and conditions of the IOCL Agreements in light of the BTA with effect from the Effective Date.
(j) By way of the present Assignment cum Novation Agreement, GVR and MIDCO hereby confrm that the IOCL Agreements shall stand assigned and transferred in favour of GVR on and from the Effective Date and GVR shall abide by all the applicable terms and conditions of the IOCL Agreements (which are more particularly mentioned hereinabove and also in the list at Annexure-A hereto), and further GVR undertakes to fulfll and comply with the obligations as per the applicable terms and conditions of the IOCL Agreements.
(k) Consequent to BTA between MIDCO and GVR, the parties have decided and agreed to execute the present Assignment cum Novation Agreement to agree to the assignment and novation of the IOCL Agreements as contained herein."
9. On part of IOCL, the agreement recorded as under :-
"1. IOCL hereby consents to and represents that it has no objections whatsoever in respect of the assignment and transfer of the IOCL Agreements by MIDCO in favour of GVR as per the terms of this Assignment cum Novation Agreement and in accordance with the provisions of the BTA. To the extent that there is any prohibition/restriction under the IOCL Agreement/(s) prohibiting/restricting MIDCO from transferring, assigning or novating the IOCL Agreement/(s), IOCL, by executing this Assignment cum Novation Agreement, hereby expressly waives such prohibition/restriction.
2. Midco will be transferring the rights in respect of the current Security Deposits to GVR on Completion and all rights in respect of the current Security Deposits that were given by Midco, will remain valid and subsequently transferred to GVR on and from the Effective Date in terms of the BTA."
M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 9/24 CARAP-167-21.odt As regards the invocation of BGs in terms of the IOCL, it was agreed as under :-
"4. Notwithstanding anything contained in this Assignment cum Novation Agreement, Midco hereby agrees and confrms that it shall have no objection to IOCL invoking the existing performance bank guarantees (including bank guarantees under the existing AMC contracts), to be transferred by Midco to GVR under the BTA, on account of any breach by GVR of the provisions of the IOCL Agreements and strictly in accordance with the provisions of the respective IOCL Agreements, until the said performance bank guarantees are novated/transferred by the lenders from Midco to GVR. Further, amendment to existing performance bank guarantees on appropriate stamp paper regarding transfer of the performance bank guarantees from Midco to GVR consequent to the transfer of the business under the BTA shall be provided by Midco/GVR consequent to the transfer of the business under the BTA shall be provided by Midco/GVR within 60 days from the Effective Date."
10. The agreement also specifcally noted that upon executing the present Assignment cum Novation Agreement, on and from the Effective Date as provided in the BTA, all references to MIDCO in each of the IOCL agreements shall be read as references to Gilbarco and all the rights, title, interests and obligations of MIDCO under the terms of each of the IOCL agreements shall be assumed by Gilbarco in accordance with Assignment cum Novation Agreement. The Obligee agreed to bind by the terms of each of the IOCL agreements and terms of each of the IOCL agreements were modifed to the extent provided under the agreement. The agreement specifcally provided as under :-
"8. ....Except so far as amended hereof, and save to the extent it is inconsistent herewith, each of the IOCL Agreements shall remain in full force and effect save that every reference therein to each of the IOCL Agreements shall M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 10/24 CARAP-167-21.odt be construed as a reference to such agreement as assigned/novated as provided herein and amended by this Assignment Cum Novation Agreement."
11. The agreement further records thus :-
"10. All amounts payable by IOCL under the invoices raised by Midco in terms of the IOCL Agreements for the period up to the Effective Date (as set out in the List of Outstanding Amounts) shall be paid by IOCL to Midco.
11. The parties agree that, Midco shall be entitled to raise invoices for all the work that has been performed and is invoiceable as per the terms of the relevant IOCL Agreement up to the Effective Date. On and from the Effective Date, GVR alone shall be entitled to raise invoices for (i) all work performed prior to the Effective Date but not invoiced by Midco, and (ii) all work performed for the Effective date"
12. The applicant felt aggrieved by the action of the IOCL encashing PBG on the false and baseless grounds, which it projected, being the DUs supplied by the applicant were not in accordance with the software/frmware of the pulsar units and as per the specifcations of the Tender Documents and due to which the DUs were compromised causing loss of reputation and proft to IOCL. The respondent encashed the PBG amounting to Rs.13,55,61,222/- under the pretext of the alleged tampering and non-conformity of tender specifcations by the applicant. This encashment was objected as unjustifed and unreasonable by the applicant, as according to it, the respondent had been satisfactorily operating the DUs manufactured by the applicant for several years and no issues were raised about it's performance. Further, according to the applicant, it was carrying out upgradation work in accordance with warranty stipulations enumerated in the tender documents and the POs.
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The encashment of the PBG was claimed to be false and baseless, as according to the applicant, before delivery of the DUs to the respondent, a third party inspection was carried out to certify that the applicant had manufactured the DUs as per technical specifcations of the POs and that is specifc reason why from 2012 to 2015, the respondent never raised issue with performance of the DUs supplied by the applicant, which were operating satisfactorily. As per the applicant, it was not responsible for tampering of the DUs and rather it attributed the act to a third party intervention and, therefore, the applicant claimed itself to be entitled for return of PBG's sum of Rs.13,55,61,222/- alongwith interest at the rate of 18% from the date of encashment till realization.
13. In accordance with the arbitration clause in form of clause No.22 of the PO, the applicant invoked a notice for arbitration, calling upon the respondent to nominate a sole Arbitrator for resolving the said issue of wrongful encashment of PBGs, but in the wake of the willful silence and neglect, it approached this Court, seeking appointment of the sole Arbitration in exercise of power conferred under sub-section (6) of Section 11 of the Act of 1996.
SUBMISSIONS ADVANCED
14. On the application being fled, the respondent IOCL through it's counsel Mr.Chirag Mody, would vehemently oppose the maintainability of the application at the instance of the applicant, by submitting that the respondent is not a party to the BTS and, therefore, it is not bound by any of the terms M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 12/24 CARAP-167-21.odt and conditions. By relying upon clause 2(viii) contained in the BTA dated 14/06/2018, it is submitted that all the liabilities relating to the Undertaking resulting from the operations and/ or the ownership of the Undertaking from and with effect from the Closing Date, stand transferred or assigned in favour of Gilbarco. It is submitted that in any event, the above clause only excludes the liabilities from and with effect from the Closing Date and the applicant remain liable for the liabilities prior to the Closing Date i.e. 12/12/2018. But, according to the learned counsel, the right of reimbursement of the amounts encashed as per the BGs cannot be termed as 'liability'. It is also submitted that no 'rights' prior to the Closing Date have been excluded from the transfer by the applicant in favour of Gilbarco.
In short, the submission is, any contractual right pertaining to the BGs, including a right to raise a dispute and make a claim stands assigned in favour of Gilbarco, would not permit the present applicant to invoke arbitration. Further, it is submitted that as a condition for giving it's consent to the applicant for assignment and novation in favour of Gilbarco, the respondent had expressly called upon the applicant to supply fresh BGs in place of the encashed BGs, and accordingly, such BGs were provided. It is further submitted that all the POs conferred upon the applicant were transferred to Gilbarco and from the effective date, it is only Gilbarco which is capable of enforcing the terms and conditions of the IOCL agreements.
Reliance is placed upon a decision of the Delhi High Court in the case of Birla Vxl Limited Vs.Dlf Universal Limited1 in 1 2002 SCC OnLine Del 1005 M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 13/24 CARAP-167-21.odt support of the proposition that it is only the assignee, who can and must enforce it's claim through arbitration, once there is legal assignment in his favour. Reliance is also placed upon another decision of Delhi High Court in the case of Bestech India Private Ltd. Vs. MGF Developments Ltd. & Ors. 2, which has held that if a contract is assignable, an arbitration clause will follow the assignment of the contract.
The learned counsel Mr.Mody would submit that Gilbarco can sue the respondent on the basis of the legal assignment as the clauses in the BTA or the Assignment-cum-Novation Agreement do not exclude transfer of rights of the applicant prior to the Closing Date and clause 11 only deals with the invoiceable work and the BTA or the Assignment-cum- Novation Agreement do not foreclose the issue of assignment.
15. On the aspect of novation, Section 62 of the Indian Contract Act, 1872 is pressed into service, by submitting that if a party to the contract agreed to substitute a new contract, for it, the original contract need not be performed. Illustration A to Section 62 is pressed into service to illustrate, how a new contract can give way to a new contract, whereupon an earlier contract come to an end.
It is also submitted that in the wake of the Assignment- cum-Novation Agreement, there is no subsisting contract between the applicant and the respondent and in respect of the consequences of novation, an arbitration clause contained in the original contract, which has been novated, reliance is placed upon the Hon'ble Apex Court in the case of The Union of 2 2009 SCC OnLine Del 698 M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 14/24 CARAP-167-21.odt India Vs. Kishorilal Gupta & Bros.3. The learned counsel would also place reliance upon the decision of the Hon'ble Apex Court in the case of Damodar Valley Corporation Vs. K.K. Kar4 In short, the learned counsel would seek dismissal of the present application on the ground that the invocation of arbitration at the instance of the applicant is not legally tenable and, hence, this Court should not exercise it's power to appoint an arbitrator to adjudicate upon such claim, since there is no existing contract between the applicant and the respondent, in the wake of BTA and Assignment-cum- Novation Agreement.
16. Dealing with the said preliminary issue, the learned counsel Mr.Ankhad would submit that it is not in dispute that pursuant to the tenders foated by the respondent for manufacture and supply of DUs, the respondent issued the POs upon the applicant. Contesting the objection raised, that the applicant is no longer party to the PO and, therefore, has no right to invoke arbitration, relying upon the arbitration agreement in the PO, Mr.Ankhad would submit that the effect of novation and/or assignment by virtue of the Assignment- cum-Novation Agreement dated 08/12/2018 is an issue beyond the scope of inquiry under Section 11 of the Act of 1996 and this will have to be adjudicated by the Arbitrator.
To support his submission, he would place reliance upon the decision of the Hon'ble Apex Court in the case Vidya Drolia & Ors. Vs. Durga Trading Corporation5, where it is 3 AIR 1959 SC 1362 4 (1974) 1 SCC 141 5 (2021) 2 SCC 1 M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 15/24 CARAP-167-21.odt categorically held that the issue as to whether an agreement which contains an arbitration clause, has or has not been novated, cannot possibly decided in exercise of a limited prima facie review, as to whether an arbitration agreement exists between the parties. He would also place reliance upon the latest decision of the Hon'ble Apex Court in the case of Meenakshi Solar Power Pvt. Ltd. Vs. M/s. Abhyudaya Green Economic Zones Pvt . Ltd. & Ors. 6 , where the role of the Court at the reference stage has been clearly unclasped and it is ruled that at the reference stage, the Court can interfere only if it is manifest that the claims are ex-facie time barred and dead or there is no subsisting dispute and all the issues, including of novation are left to be determined by the Tribunal.
Mr.Ankhad would also rely upon the decision of the Hon'ble Apex Court in the case of Sanjiv Prakash Vs. Seema Kukreja & Ors.7 and by relying upon paragraphs 17 to 22, he would submit that the issue, whether an agreement stood novated or not require a detailed consideration of full facts and the Court in proceedings under Section 11 ought not to entertain such an inquiry, since it would amount to a mini trial or elaborate review of the facts and law, which would amount to usurping the jurisdiction of the arbitral tribunal.
17. Apart from the above submission, Mr.Ankhad by referring to the conjoint reading of the terms of the Assignment-cum-Novation Agreement dated 08/12/2018, would submit that the transaction in relation to the submission and invocation of BGs is pertaining to the period 6 2022 SCC OnLine SC 1616 7 (2021) 9 SCC 732 M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 16/24 CARAP-167-21.odt prior to "Effective Date" and, hence, the rights of the applicant continue to subsist.
In the facts of the case, he would submit that by keeping the objection in respect to novation and limitation open, the Court can appoint the Sole Arbitrator to adjudicate the dispute that has arisen between the applicant and the respondent on account of wrongful encashment of the BGs.
ANALYSIS OF THE FACTS AND ARGUMENTS
18. The chronology and sequence of events being not in dispute, it appear that by a document in form of the Assignment-cum-Novation Agreement signed between the obligors and the IOCL, approval was granted for transfer of the undertaking by MIDCO, alongwith it's rights and obligations, under the applicable terms and conditions of the IOCL Agreement in favour of Gilbarco, consequent to the execution of BTA, on the date of completion, which date was to be communicated by MIDCO to Gilbarco, one day prior to the completion referred to as the effective date. It was also agreed that by the Assignment-cum-Novation Agreement, the IOCL Agreement stand assigned and transferred in favour of Gilbarco, from the effective date and it shall abide by all the terms and conditions imposed by IOCL and it shall fulfll and comply all it's obligations. Paragraph 11 of the said Agreement, however, reserve a right in MIDCO to raise invoices for the work that is being performed and is invoiceable as per the terms of the IOCL agreement upto to the effective date and, thereafter, only Gilbarco will be entitled to raise invoices.
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A pertinent clause in the BTA, i.e. the agreement between the Gilbarco and MIDCO, which provide for transfer of liabilities, however, has kept one window open, by prescribing that all liabilities in relation to the undertaking (other than excluded liability), resulting from the operations and/or the ownership of the undertaking from and with effect from the closing date and which liability do not relate to the period, prior to the closing date, shall be assigned by the seller to the purchaser and seller shall retain and remain responsible for all the excluded liabilities.
19. It is in this background, when the performance bank guarantees to the tune of Rs.1,35,56,122/- furnished by MIDCO were encashed by IOCL, without any prior warning, on the pretext that the DUs supplied were not in accordance with the software/frmware of the pulsar units and as per the specifcations of the Tender Documents, MIDCO raises a dispute. It specifcally take a stand that all these specifcations and technicalities were already ascertained and as per the procedure, on being considered as successful bidder, the approvals for the performance of manufactured DUs is confrmed. It is specifc case of MIDCO that they have scrupulously ensured that the DUs were in accordance with the technical specifcations and terms and condition in the tender and they were maintained throughout the warranty period, by the vendor in accordance with the warranty terms and post the warranty period, through execution of Annual Maintenance of Contract (AMC). According to MIDCO, the invocation of the PBGs is highly illegal as when the DUs were M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 18/24 CARAP-167-21.odt delivered to IOCL, they were inspected and approved by the third party inspection (TPI) and the IOCL offcers during their visit. The encashment of the bank guarantees with reference to the seven purcahse orders was thus clamped to be without any justifcation and the conduct of the IOCL is described as illegal. In these circumstances, by invoking arbitration, MIDCO called upon IOCL to return the PBG sum of Rs.13,55,61,222/-, as the bank guarantees were wrongly invoked and that is how it is claimed that the disputes have arisen purely between MIDCO and IOCL and the dispute pertain to a period, prior to the effective date, by virtue of exception carved out in clause 2(vii) of the BTA, and as such it fall within the excluded liabilities.
20. Mr.Ankhad is justifed in relying upon the decision of the Apex Court in the Case of Meenakshi Solar Power Pvt. Ltd. (supra), where it has been categorically held that the issue, whether the performance of contract has come to an end or whether it is still in existence for certain purposes, under it or in connection with it, is a matter for determination by the Arbitrator, if so appointed, in the wake of an existing arbitration clause. It is not open for the Court at a referral stage, where appointment of Arbitrator is sought to record a fnding of implicit/deemed novation, as scope of the Court under Section 11 of the Arbitration and Conciliation Act, 1996 is restricted only in examining whether an arbitration agreement exists between the parties. In Sanjiv Prakash (supra), by referring to it's earlier decision in Vidya Drolia's case, in para 22, it is held as under :-
M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 19/24 CARAP-167-21.odt "22. Judged by the aforesaid tests, it is obvious that whether the MoU has been novated by the SHA dated 12-4-
1996 requires a detailed consideration of the clauses of the two Agreements, together with the surrounding circumstances in which these Agreements were entered into, and a full consideration of the law on the subject. None of this can be done given the limited jurisdiction of a court under Section 11 of the 1996 Act. As has been held in para 148 of Vidya Drolia, detailed arguments on whether an agreement which contains an arbitration clause has or has not been novated cannot possibly be decided in exercise of a limited prima facie review as to whether an arbitration agreement exists between the parties. Also, this case does not fall within the category of cases which ousts arbitration altogether, such as matters which are in rem proceedings or cases which, without doubt, concern minors, lunatics or other persons incompetent to contract. There is nothing vexatious or frivolous in the plea taken by the Appellant. On the contrary, a Section 11 court would refer the matter when contentions relating to non-arbitrability are plainly arguable, or when facts are contested. The court cannot, at this stage, enter into a mini trial or elaborate review of the facts and law which would usurp the jurisdiction of the Arbitral Tribunal."
21. The decision in the case of Meenakshi Solar Power Pvt. Ltd. (supra) has once again examined the scope of the Court under Section 11 of the Arbitration and Conciliation Act, 1996, by reiterating the principle in Vidya Drolia (supra) and it was held as under :-
"16. In Vidya Drolia (supra), it has been further observed in relation to the aforesaid three categories in Boghara Polyfab Pvt. Ltd. (supra). The frst category of issues, namely, whether the party has approached the appropriate High Court, whether there is an arbitration agreement and whether the party who has applied for reference is party to such agreement would be subject to a more thorough examination in comparison to the second and third categories/issues which are presumptively, save in exceptional cases, for the arbitrator to decide. In the frst category, the question or issues are relating to whether the cause of action relates to action in personam or rem; whether the subject-matter of the dispute affects third-party rights, have erga omnes effect, requires centralised adjudication; whether the subject-matter relates to inalienable sovereign M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 20/24 CARAP-167-21.odt and public interest functions or by necessary implication non- arbitrable as per mandatory statutes. On the other hand, issues relating to contract formation, existence, validity and non-arbitrability would be connected and intertwined with the issues underlying the merits of the respective disputes/claims. They would be factual and disputed and for the Arbitral Tribunal to decide.
17. Further, this Court observed that the court at the referral stage can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute. In the context of issue of limitation period, it should be referred to Arbitral Tribunal for decision on merits. Similar would be the positions in case of disputed "no- claim certifcate" or defence on the plea of novation and "accord and satisfaction."
22. Their Lordship of the Apex Court also referred to it's earlier decision in the case of Damodar Valley Corporation (supra), where it was held that however, comprehensive the terms of the arbitration clause may be, the existence of the contract is a necessary condition for it's operation; as it perishes with the contract.
The observations in the case of Damodar Valley Corporation (supra) contemplating two specifed situations with another category, lying in between them was reproduced as under :
"(3) the contract may be non est in the sense that it never came legally into existence or it was void ab initio;
(4) though the contract was validly executed, the parties may put an end to it as if it had never exited and substitute a new contract for it solely governing their rights and liabilities thereunder;
(5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void; in the latter case, as the original contract is extinguished by the M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 21/24 CARAP-167-21.odt substituted one, the arbitration clause of the original contract perishes with it; and (6) between the two falls many categories "of dispute in connection with a contract, such as the question of repudiation, frustration, breach, etc. In those cases, it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes."
In paragraphs 19 and 20, it was held as under :-
"19. Even if the performance of the contract has come to an end, the contract can still be in existence for certain purposes in respect of disputes arising under it or in connection with it.
20. In view of the aforesaid discussion, we fnd that High Court was not right in dismissing the petition under Section 11(6) of the Act of 1996 fled by the appellant herein by giving a fnding on novation of the Share Purchase Agreement between the parties as the said aspect would have a bearing on the merits of the controversy between the parties. Therefore, it must be left to the Arbitrator to decide on the said issue also. Hence, the impugned judgment and order passed by the High Court has to be set-aside."
23. In the wake of the above enunciation of law, considering the limited jurisdiction of the Court under Section 11, whether an agreement between the parties by it's assignment has been novated or not, would be a matter to be determined by the Arbitrator and in my limited scope under Section 11, I cannot deal with the said submission, which is left for determination by the Arbitrator.
24. As far as the point of delay and the reliance upon the the decision in the case of Bharat Sanchar Nigam Ltd. & Anr. Vs. M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 22/24 CARAP-167-21.odt M/s.Nortel Networks India Pvt. Ltd.8 is concerned, it deal with a situation, where the claim is ex-facie time barred and the authoritative pronouncement in the peculiar facts of the case, where emphasis was upon a claim, which is "dead wood" and in the factual background that the notice invoking arbitration was issued after fve and half years after rejection of the claim, the notice was held to be ex-facie time barred. Such not being the case here, I do not think that the argument of delay is applicable to the respondent herein.
25. In the aforesaid scenario, I deem it appropriate to allow the application for appointing the Arbitrator, who shall be governed by the following terms and conditions.
TERMS OF APPOINTMENT
(a) Appointment of Arbitrator :
Mr.Justice Anilkumar Menon (Retd.) is hereby appointed as a Sole Arbitrator to decide the disputes and differences between the parties under the Lease Agreement.
(b) Communication to Arbitrator of this order :-
(i) A copy of this order will be communicated to the learned Sole Arbitrator by the Advocates for the applicant/ petitioner within one week from the date this order is uploaded.
(c) Disclosure : The learned Arbitrator, within a period of 15 days before entering the arbitration reference, shall forward a statement of disclosure as per the requirement of Section 11(8) read with Section 12(1) of the Arbitration and Conciliation Act, 1996, to the Prothonotary & Senior Master of this Court, to be placed 8 2021(5) SCC 738 M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 ::: 23/24 CARAP-167-21.odt on record of this application, with a copy to be forwarded to both the parties.
(d) Appearance before the Arbitrator :The parties shall appear before the Sole Arbitrator within a period of two weeks from today and the learned Arbitrator shall fx up a frst date of hearing in the week commencing from 17/04/2023. The Arbitral Tribunal shall give all further directions with reference to the arbitration and also as to how it is to proceed.
(e) Contact and communication information of the parties : Contact and communication particulars are to be provided by both sides to the learned Sole Arbitrator. This information shall include a valid and functional E-mail address as well as mobile numbers of the parties, participating in the process as well as of the Advocates.
(f) Section 16 application : The respondent is at liberty to raise all questions of jurisdiction within the meaning of section 16 of the Arbitration Act. All contentions are left open.
(g) Fees : The sole Arbitrator shall be entitled to the fees prescribed under the Bombay High Court (Fee Payable to Arbitrators) Rules, 2018 and the arbitral costs and fees of the Arbitrator shall be borne by the parties in equal portion and shall be subject to the fnal Award that may be passed by the Tribunal.
(h) Venue and seat of Arbitration : Parties agree that the venue and seat of the arbitration will be in Mumbai.
(i) Procedure : These directions are not in derogation of the powers of the learned Sole Arbitrator to decide and frame all matters of procedure in arbitration.
26. All contentions of both the sides are left open, to be raised by the respective parties before the Arbitral Tribunal, in accordance with law.
M.M.Salgaonkar
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27. Comm. Arbitration Application No.167 of 2021 stands disposed off.
( SMT. BHARATI DANGRE, J.) M.M.Salgaonkar ::: Uploaded on - 06/04/2023 ::: Downloaded on - 11/06/2023 19:07:19 :::