Gujarat High Court
Ascend Engineering Contractors vs Elecon Epc Projects Limited on 19 August, 2016
Author: Akil Kureshi
Bench: Akil Kureshi
O/IAAP/23/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN. UNDER ARBITRATION ACT NO. 23 of 2016
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ASCEND ENGINEERING CONTRACTORS....Petitioner(s)
Versus
ELECON EPC PROJECTS LIMITED....Respondent(s)
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Appearance:
UNIVERSAL LEGAL, ADVOCATE for the Petitioner(s) No. 1
MR HARSHAD J SHAH, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
Date : 19/08/2016
ORAL ORDER
1. Petitioner seeks appointment of arbitrator to resolve disputes between the petitioner and the respondent arising out of two separate agreements both dated 2nd January, 2008.
2. Brief facts are as under.
2.1 Petitioner is a partnership firm and is engaged in the work of engineering construction. The respondent, a company registered under the Companies Act, had awarded contract to the petitioner under agreement dated 2.1.2008 for uploading, storage, intra-site handling and structural steel fabrication for the Coal Handling Plant being constructed for the National Thermal Power Corporation at Ghaziabad, Uttar Pradesh. The agreement contained Page 1 of 16 HC-NIC Page 1 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER arbitration clause in following terms.
E. Arbitration:
All disputes and differences of any kind whatsoever arising, whether during the progress of the work or after its completion, shall be referred to CMD of Elecon, who shall endeavor to resolve the dispute amicably and render a decision. The decision of Elecon shall be final and binding upon the parties. If either party is dissatisfied with the decision rendered by Elecon, then the dispute be referred to arbitration in accordance with the Arbitration and Conciliation Act 1996 subject to jurisdiction of Anand, Gujarat.
2.2 The agreement also contained clause of jurisdiction which states as under:
F. Jurisdiction:
The laws applicable to the contract shall be the laws in force in India. The Court in Anand, Gujarat state shall have exclusive jurisdiction in all matters arising under and on account shall be Anand.
2.3 On the same day, the respondent-Company also awarded another contract to the petitioner concerning the same project which envisaged that the petitioner could be carrying out the task of intra-site handling, fabricator structures, etc. providing all necessary tools, plant and machinery equipments, providing required manpower for execution and inspection which would include unskilled, semi-skilled and skilled workers, erection of structures, equipments as per drawings, erection of conveyance equipments, etc. and other related works. This agreement also contained arbitration and jurisdiction clauses which Page 2 of 16 HC-NIC Page 2 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER were identically worded as in the other contract.
2.4 The case of the petitioner is that during the course of execution of the work, the scope of work expanded considerably and as a result thereof, the petitioner ended up carrying out work far in excess of what was initially envisaged under the said agreements. The petitioner, therefore, requested respondent to revise the rates of payments and when the respondent refused to do so, activated the arbitration clause by issuing a notice dated 22.5.2015. In such notice, after giving background facts, the petitioner raised a claim of Rs.3.95 crores (rounded off) with interest and called upon the respondent to agree to one of the two arbitrators suggested by the petitioner within a 30 days from the date of receipt of notice. The petitioner conveyed as under:-
5. Therefore on behalf of my client, Ascend Engineering Contractors, nearby give you notice invoking the arbitration clause in the said agreements and for this purpose, my client hereby suggest following names for your consideration and appointment of the sole Arbitrator, for Arbitration to be held between the parties at Ahmedabad:
a. Hon'ble Mr.Justice C.K.Buch (Former Judge, High Court of Gujarat), or b. Hon'ble Mr.Justice D.A.Mehta (Former Judge, High Court of Gujarat).
6. I hereby require you within 30 days from the service of this notice to agree to appoint one of the aforesaid Hon'ble Former Judge as an Arbitrator in the matter of said disputes and differences, failing which I shall apply to the Hon. Chief Justice of the Gujarat High Court to make necessary appointment under section 11 of the Arbitration and Conciliation Act, 1996.Page 3 of 16
HC-NIC Page 3 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER 2.5 In reply to such notice, the respondent under communication dated 29.6.2015 denied any liability to pay excess remuneration to the petitioner. It was conveyed that the work was completed long back, entire amount of the work was already paid over. The respondent thus opposed any arbitration proceedings being initiated. At that stage, the petitioner filed the present petition.
3. The respondent has appeared and filed reply in which one of the grounds taken is that the claim itself is time- barred and therefore, appointment of arbitrator should not be made.
4. In this context, two questions arise before me. One is, whether the Arbitration and Conciliation (Amendment) Act, 2015 would apply in the present case? The second question is, if the said Amendment Act of 2015 does not apply, has the petitioner still made out the case good enough to appoint the arbitrator and to leave the question of the claim being time barred, open to the arbitrator to decide?
5. I may decide these questions one by one. The Arbitration and Conciliation Act, 1996 (herein after to be referred to as 'the Act of 1996') was extensively amended by the Arbitration and Conciliation (Amendment) Act, 2015 (herein after to be referred to as 'the Amending Act of 2015'). One of the provisions added was Sub-section (6-A) of Section 11 of the Act of 1996. As is well known, Section 11 of the Act of 1996 pertains to appointment of Page 4 of 16 HC-NIC Page 4 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER arbitrators. Under sub-section (4) or sub-section (5) or sub-section (6) of Section 11 of the Act of 1996, the Chief Justice or his designate would appoint an arbitrator, provided the conditions contained in the said provisions are fulfilled. Sub-section (6-A) which was added in Section 11 of the Act of 1996 by virtue of the amending Act of 2015 reads as under:
(6-A)The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement.
6. In terms of this provision, therefore, while considering any application under sub-section (4), (5) or 6 of Section 11, the High Court would notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement. In terms of Sub-section (6-A) of Section 11, therefore, the focus of the Court considering an application for appointment of arbitrator under sub-section (4), (5) or (6) of the Section 11 would be confined to the examination of existence of an arbitration agreement. In other words, if the arbitration agreement exists, the further question of the claim being barred by limitation and other similar considerations on which it would be optional for the High Court to refuse to make an appointment of an arbitrator, would no longer be valid. It is in this context that the question of applicability of sub-section (6-A) of Section 11 in the present case assumes significance. In other words, if this provision applies, the objection of the Page 5 of 16 HC-NIC Page 5 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER respondent to appointment of an arbitrator on the ground of belated claim would not be relevant.
7. Section 26 of the Amendment Act of 2015 which was introduced later on reads as under:
Section 26- Act not to apply to pending arbitral proceedings: Nothing contained in this Act shall apply to the arbitral proceedings commenced,in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.
8. As per this provision thus nothing contained in the Amendment Act of 2015 would apply to arbitral proceedings commenced in accordance with the provisions of Section 21 of the Act of 1996, before the commencement of the Amending Act unless parties otherwise agree. We may note that the Amending Act of 2015 was brought into effect from 23.10.2015.
9. Since Section 26 of the Amendment Act, 2015 refers to commencement of the arbitral proceedings in accordance with Section 21 of the principal Act, we may refer to the said provision also which reads as under:
21. Commencement of arbitral proceedings Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration Page 6 of 16 HC-NIC Page 6 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER is received by the respondent.
10. In terms of Section 21 of the Act of 1996, therefore, unless parties otherwise agree, the arbitral proceedings in respect of particular dispute would commence on the date on which a request for that dispute to be referred to the arbitration is received by the respondent. Admittedly, in the present case, there is nothing to suggest that the parties had agreed otherwise. In terms of Section 21 of the Act of 1996, therefore, arbitral proceedings commenced upon the respondent receiving the petitioner's notice for arbitration dated 22.5.2015. Thus, long before the Amendment Act of 2015 was brought into effect, in terms of Section 21 of the Act of 1996, the arbitral proceedings had commenced.
11. Section 26 of the Amendment Act, 2015, is divided principally in two parts. First part provides that nothing contained in the said Amending Act would apply to arbitral proceedings commenced before the commencement of the said Act unless parties otherwise agree. This part also specifies as to when the arbitral proceedings would commence. Keeping the question of arbitral proceedings in terms of Section 21 of the Act of 1996 aside for the time being, as per first part of Section 26, nothing contained in the Amending Act of 2015 would apply to the arbitral proceedings which have commenced before the commencement of the Act unless parties agree otherwise. The second part of Section 26 goes on to state that the said Act would, however, apply in relation to arbitral proceedings commenced on or after the date of commencement of the Amending Act. In plain terms, therefore, unless parties Page 7 of 16 HC-NIC Page 7 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER otherwise agree the Amending Act of 2015 would not apply to arbitral proceedings which have already commenced in terms of Section 21 of the Act, 1996 before the commencement of the Amending Act. The later portion of Section 26 ensures two things. Firstly, it supplies emphasis that the Amending Act would apply in relation to arbitral proceedings commenced on or after the date of commencement of the Act. Secondly, the choice of the parties to agree otherwise which is available in the first part of Section 26 is no longer available in a case where the arbitral proceedings have commenced on or after the date of commencement of the Amending Act of 2015.
12. Similar view was adopted by the Chief Justice of Madras High Court in a case of Jumbo Bags Ltd. V/s. The New India Assurance Co. Ltd. made in Original Petition No.657 of 2015 decided on 10.03.2016 in which it is observed as under:
21. In he aforesaid context, what becomes relevant is as to what is meant by the commencement of the arbitral proceedings.
Section 21 makes it abundantly clear that commencement of the arbitral proceedings is the date on which the request for disputes to be referred to arbitration is received by the respondent. The law in this behalf is quite explicit in view of the observations in Milk Food Ltd. V/s. GMC Ice Cream Pvt.Ltd. Cited supra, distinguishing the two expressions "commencement of an arbitration proceedings"
and "commencement of proceedings before an Arbitrator". In this context, there is no quibble over the date of the petitioner herein invoking the arbitration clause, i.e. on 7.7.2015 and the reply of the respondent on 15.7.2015. In fact, the original petition was admitted and notice issued prior to the amendment of the Act. Thus, ex facie, these Page 8 of 16 HC-NIC Page 8 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER amended provisions would not come into play in the present case.
22. The endeavour of the petitioner to make a distinction between the two expressions in the context of whether the arbitration is with or without the intervention of the court and relying upon the minority view is of little help. In my view, what is most relevant is that Section 21 of the Principal Act leaves little to doubt that the arbitral proceedings would commence on the date of receipt of the request for arbitration, which date had already passed and thus, Section 26 introduced by the amended Act equally clearly stipulated that nothing contained in the amended Act would have force of law for such arbitration which have already commenced, unless the parties otherwise agree.
13. Learned counsel for the petitioner, however, strenuously urged that the parties had agreed to abide by the amended provisions of the Act of 1996. In this context, he relied on the decision of the Hon'ble Supreme Court in case of Thyssen Stahlunion Gmbh V/s. Steel Authority of India Ltd. reported in (1999) 9 SCC 334 in which the parties had agreed to abide by the law "for the time being in force". In the context of the repeal of the Arbitration and Conciliation Act, 1940 and replacement by the said Act of 1996, the question arose, whether the said expression would include being governed by the Act of 1996? In this context, the Supreme Court observed that the interpretation of the expression "for the time being in force" would mean that the provisions of the Act would apply to arbitration proceedings which were in force at the time when the arbitration proceedings are held. It was held that nothing would prevent the parties to agree to be governed by the new provisions. The Supreme Court taking aid of the expression "unless otherwise agree" held that Page 9 of 16 HC-NIC Page 9 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER the parties had agreed to be governed by the new Act.
14. In the present case, however, I do not find any expression in the entire agreement under which the parties expressed their intention to be governed by the law for the time being in force. The arbitration and jurisdiction clauses have been reproduced. The arbitration clause provides that after attempting to resolve the disputes amicably by referring them to Chief Managing Director (CMD) of the respondent-Company, if either party is dissatisfied with the decision of the CMD that the disputes would be referred to the arbitration in accordance with the Arbitration and Conciliation Act, 1996. The jurisdiction clause provides that the laws applicable to the contract shall be the laws in force in India. The Court at Anand shall have exclusive jurisdiction in all matters arising under the contract. Neither of these two clauses thus express any intention of the parties which would suggest agreement to the contrary as referred in Section 26 of the Amending Act of 2015. In other words, the arbitration clause or the jurisdiction clause does not convey any intention of the parties to agree to abide by the amendment of Amending Act of 2015 irrespective of the provisions contained in Section 26 thereof.
15. In the present case, as noted, the amendment in Section 11 was made with effect from 23.10.2015. The notice for arbitration was issued by the petitioner on 22.5.2015 and was received by the respondent shortly thereafter. Sub-section (6-A) of Section 11, therefore, Page 10 of 16 HC-NIC Page 10 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER would not apply in the present case.
16. This brings me to the second issue of the claim being barred by limitation. It is well settled in the series of judgments of the Supreme Court starting from the Constitution Bench decision in the case of SBP & Co. V/s. Patel Engineering Ltd. and another reported in (2005) 8 SCC 618, that, in addition to ascertaining the jurisdiction of fact of the existence of the arbitration agreement between the parties, it is also open and optional for the Chief Justice or his designate to examine whether the claim made by the petitioner is hopelessly barred by limitation and which aspect can be ascertained from the face of the record. If it is possible to do so, the Court may also refuse to appoint an arbitrator, however, if answer to such a question cannot be ascertained without further or detailed examination of facts, it would be safe to leave the question to be decided by the arbitrator. The Supreme Court in this context (in SBP & Co.) observed as under:
39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one;
or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and Page 11 of 16 HC-NIC Page 11 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal.
17. Elaborating this issue, the Supreme Court in case of Indian Oil Corporation Ltd. V/s. SPS Engineering Ltd. reported in 2011 (2) Scale 291, observed as under:
11. To find out whether a claim is barred by res judicata, or whether a claim is "mala-fide", it will be necessary to examine the facts and relevant documents. What is to be decided in an application under Section 11 of the Act is whether there is an arbitration agreement between parties. The Chief Justice or his designate is not expected to go into the merits of the claim or examine the tenability of the claim, in an application under section 11 of the Act. The Chief Justice or his Designate may however choose to decide whether the claim is a dead (long -barred) claim or whether the parties have, by recording satisfaction, exhausted all rights, obligations and remedies under the contract, so that neither the contract nor the arbitration agreement survived. When it is said that the Chief Justice or his Designate may choose to decide whether the claim is a dead Page 12 of 16 HC-NIC Page 12 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER claim, it is implied that he will do so only when the claim is evidently and patently a long time barred claim and there is no need for any detailed consideration of evidence. WE may elucidate by an illustration : If the contractor makes a claim a decade or so after completion of the work without referring to any acknowledgment of a liability or other factors that kept the claim alive in law, and the claim is patently long time barred. The Chief Justice or his Designate will examine whether the claim is a dead claim (that is, a long time barred claim).
On the other hand, if the contractor makes a claim for payment, beyond three years of completing of the work but say within five years of completion of work, and alleges that the final bill was drawn up and payments were made within three years before the claim, the court will not enter into a disputed question whether the claim was barred by limitation or not. The court will leave the matter to the decision of the Tribunal. If the distinction between apparent and obvious dead claims, and claims involving disputed issues of limitation is not kept in view, the Chief Justice or his designate will end up deciding the question of limitation in all applications under Section 11 of the Act.
12. An application under Section 11 of the Act is expected to contain pleadings about the existence of a dispute and the existence of an arbitration agreement to decide such dispute. The applicant is not expected to justify the claim or plead exhaustively in regard to limiation or produce documents to demonstrate that the claim is within time in a proceedings under Section 11 of the ct. That issue should normally be left to the Arbitral Tribunal. If the Chief Justice or his designate is of the view that in addition to examining whether there is an arbitration agreement between the parties, he should consider the issue whether the claim is a dead (long time barred) or whether there has been satisfaction of mutual rights and obligation under the contract, he should record his intention to do so and give an opportunity to the parties to place their materials on such issue. Unless parties are put on notice that such an issue will be examined, they will be under the impression that only questions of jurisdiction and existence of arbitration Page 13 of 16 HC-NIC Page 13 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER agreement between the parties will be considered in such proceedings.
18. In this context, we may peruse the materials on record. The contracts were awarded to the petitioner under agreements dated 2.1.2008. On 9.12.2009, the petitioner demanded rate revision from the respondents due to escalation of the work conveyed as under:
In view of above we kindly request you to please look into the matter and arrange to revise the rates at the rate of 60% as the fabrication & erection work has been completed.
19. On 25.9.2011, the petitioner once again wrote to the respondent for the same purpose in which it was also conveyed as under:
In view of above, we kindly request you to please look in to the matter and arrange to revise the rates from present fabrication rate that is Rs.8000/- MT to 60% above the present fabrication rates, as the Fabrication and Erection work has been completed. (Page 34 of the petition)
20. On 4.3.2014, the petitioner sent an e-mail to the respondent in which it was conveyed as under:
We would like to draw your kind attention to the following.
We were requesting from last four years for the above built up fabrication charges. So far nobody has taken any action against the matter you may kindly arrange to release the payment as early as possible.
21. On 17.12.2014, the petitioner wrote to the Chief Managing Director of respondent-Company in which also it was conveyed that the petitioner had completed the work in Page 14 of 16 HC-NIC Page 14 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER time frame which was done on 8.1.2010 after which several attempts were made to negotiate the rate revision which, however, failed. It was pointed out that in fact the fabrication work was completed on 8.11.2009.
22. In the notice for appointment of arbitrator, the petitioner did not bring out any facts to suggest how the claim now being raised was within the period of limitation. Be that as it may, the respondents have produced along with reply a copy of letter dated 5.2.2010 under which the quantity of work was increased by amending the work order and another letter dated 18.7.2011 under which finally agreed lump sum amount of Rs.20 lacs was paid for the extra work carried out by the petitioner.
23. It can thus be seen that even as per the petitioner fabrication work was over in the year 2009 and in any date the remaining work was over latest by 8.1.2010. If there were any negotiations for rate revision, the respondents made final payment for extra work on 18th July, 2011. Notice of appointment of arbitrator came to be issued on 22.5.2015 which, when looked from any angle, was beyond the period of 3 years from the cause of action arising. Going by the petitioner's own averments and assertions of completion of work and the date of initiation of arbitral proceedings, the claim is clearly barred by limitation.
24. Under the circumstances, this arbitration petition is dismissed. Notice is discharged.
Page 15 of 16 HC-NIC Page 15 of 16 Created On Thu Aug 25 00:10:22 IST 2016 O/IAAP/23/2016 ORDER (AKIL KURESHI, J.) ashish Page 16 of 16 HC-NIC Page 16 of 16 Created On Thu Aug 25 00:10:22 IST 2016