Himachal Pradesh High Court
Mansarovar Infratech Private Limited vs Of on 28 November, 2016
Author: Dharam Chand Chaudhary
Bench: Dharam Chand Chaudhary
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA.
Arbitration Case No. 70 of 2015 .
Reserved on: 29.08.2016 Date of decision: 28th November, 2016 Mansarovar Infratech Private Limited .......Petitioner.
Versus of Neftogaz India Privat Limited and others. ...Respondents. Coram rt The Hon'ble Mr. Justice Dharam Chand Chaudhary, Judge. Whether approved for reporting?1 Yes.
For the petitioner: Mr. Rahul Singh Verma, Advocate. For the respondents: Mr. N.K. Sood, Sr. Advocate with Mr. Aman Sood, Advocate for respondent No.2.
Respondents No. 1 and 3 already ex-parte.
Dharam Chand Chaudhary, Judge.
The petitioner is a Company registered under the Companies Act, 1956. This petition has been filed by the petitioner with a prayer to appoint an Arbitral Tribunal for resolution of its disputes with the respondents.
2. The Himachal Pradesh Road and other infrastructure Development Corporation (HPRIDC) had awarded the work namely "Widening and strengthening 1 Whether the reporters of Local Papers may be allowed to see the judgment? Yes.
::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 2of Theog-Kotkhai-Hatkoti-Rohru Road from 0+000Km to 80+684 Km." vide Contract No. (PW/SRP/RIDC/HP/5 .
(ICB)). An agreement came to be executed between the Government of Himachal Pradesh and the 2nd respondent in this regard. The 2nd respondent had of executed a sub-contract with Naftogaz India Private Limited, the 1st respondent on 30.07.2011 and thereby rt tendered the execution of the aforesaid work by respondent No. 1. Respondent No. 1 had further executed memorandum of understanding (MoU)/agreement, Annexure P-1 with the petitioner-
Company on 16.12.2011. Before that, letter of intent dated 01.11.2011, Annexure P-2 was issued by respondent No. 1 to petitioner-Company. In terms of Memorandum of Understanding, Annexure P-1, the residuary work was to be executed by petitioner and payment allegedly to be released in its favour by respondent No. 2 i.e. the Principal Contractor.
Respondent No. 2 with respect to the work executed by the petitioner has made through RTGS, payment of `1,75,00,000/- on 28.04.2012 and `47,92,436/- on ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 3 28.06.2012 on verification of its bills by respondent No. 1 on approval thereof by respondent No. 2. The statement .
of accounts, Annexure P-3 has been produced by the petitioner in support of this aspect of its case.
3. The Government of Himachal Pradesh had of cancelled the work tendered to the 2nd respondent on 2.7.2012. As a result thereof, the machinery of the rt petitioner deployed for execution of the work was also impounded by the employer along with machinery of Principal Contractor, the 2nd respondent. A Civil Suit for recovery of damages on this score filed by the petitioner is pending disposal in this Court. A Civil Writ Petition bearing No. 3195/2014 filed by the petitioner was dismissed by this Court being not maintainable, in view of the arbitration clause in the Memorandum of Understanding, Annexure P-1. The liberty was reserved to the petitioner to seek appointment of Arbitrator for resolution of disputes in accordance with law. Since payment of pending bills i.e. dated 5.12.2013 in the sum of `2,08,32,094/- and dated 04.01.2015 in the sum of `3,35,98,304/- has not been made by the 2nd respondent ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 4 for want of verification thereof by the 1st respondent and as there exist arbitration clause in the MoU, Annexure P-1 .
qua resolution of disputes between the parties by an Arbitrator, hence this petition.
4. The sub-contractor, the 1st respondent has of failed to put in appearance despite due service of notice, therefore, was ordered to be proceeded against ex-parte.
rt The proforma respondent No. 3 is also ex-
parte. Now if coming to the reply filed on behalf of Principal Contractor, the 2nd respondent, in preliminary it is averred that there being no arbitration agreement in existence between the petitioner and the said respondent and that in terms of Arbitration and Conciliation Act, 1966, the arbitration can only be between two contracting parties i.e. the signatory to an agreement and also that since the 2nd respondent has never entered into any agreement with the petitioner, therefore, petition qua said respondent is devoid of merits and as such sought to be dismissed. The Memorandum of Understanding, Annexure P-1 is between the petitioner and the 1st respondent and as ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 5 per the same, arbitral proceedings can only be held at Noida (U.P.), therefore, this petition is stated to be not .
maintainable in this Court. In view of Civil Suit No. 31/15 is stated to be filed by the petitioner in this Court for recovery of amount based upon similar claims/disputes, of therefore, on this score also, this petition is not maintainable, because two parallel proceedings for rt adjudication of almost same and similar claims are not legally permissible.
5. On merits, while reiterating that there exists no agreement between the petitioner and the 2nd respondent, the petition against the said respondent is stated to be not maintainable. The payment of `1,75,00,000/- on 28.04.2012 and `47,92,436/- on 28.06.2012 by the 2nd respondent to the petitioner were not on account of its liability towards the petitioner nor the same were made towards the part payment for execution of work and rather to respondent No. 1 through bank transfer on account of advance and payment of salary etc., to its workers. The liability of the 2nd respondent qua execution of work in question was ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 6 towards respondent No. 1 and not the petitioner. The agreement (MoU) dated 16.12.2011, Annexure P-1 is .
stated to be between the petitioner and respondent No. 1, hence an arrangement mutually binding them and not the 2nd respondent. The claims, if any, of the of petitioner have to be met by the 1st respondent and the 2nd respondent is not liable to indemnify the same. The rt petition, as such, has been sought to be dismissed.
6. In rejoinder, the petitioner-Company has denied the contentions to the contrary being wrong and has reiterated its case as set out in the petition.
7. Mr. Rahul Singh Verma, learned counsel representing the petitioner has strenuously contended that respondents No. 1 and 2 both are liable to indemnify the claims of the petitioner, as according to him, in terms of Section 8 and 45 of the Act, the arbitral proceedings can be sought to be initiated against 3rd party like the 2nd respondent. The Principal Contractor, in the present case, according to Mr. Verma had sub-
contracted the work to the 1st respondent and that the petitioner-Company has been associated vide ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 7 Memorandum of Understanding, Annexure P-1 to execute the work at such sums and costs payable by the .
Principal Contractor, of course, through its sub-
contractor, the 1st respondent. It has, therefore, been urged that in a situation, if arbitral proceedings are of allowed to be initiated only against the 1st respondent, the sub-contractor the petitioner will have to file civil suit rt against the 2nd respondent for adjudication of his claims against the said respondent and in that event two parallel proceedings qua same subject matter of dispute will take place simultaneously. Mr. Verma in support of arguments, he addressed has placed reliance on the judgment of the Apex Court in Chloro Controls India Private Limited V. Severn Trent Water Purification Inc. and others, (2013) 1 Supreme Court Cases 641.
8. In order to repel the arguments addressed on behalf of the petitioner-Company, Mr. N.K. Sood, learned Senior Advocate assisted by Mr. Aman Sood, Advocate has very ably argued that for want of a singed contract agreement between the petitioner and the 2nd respondent, the appointment of Arbitrator ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 8 against the 2nd respondent cannot be sought and as such, the petition qua said respondent has been sought .
to be dismissed. Mr. Sood has also urged the question of jurisdiction of this Court to entertain the petition. The ratio of judgment in Chloro Controls India Private Limited of (Supra) according to Mr. Sood is not applicable and rather distinguishable in the given facts and rt circumstances of this case.
9. Analyzing the rival submissions in the given facts and circumstances and also the legal provisions, the sole question arises for determination in this petition is as to whether no arbitral proceedings can be sought to be initiated against the 2nd respondent, who is not signatory to the Memorandum of Understanding, Annexure P-1 nor any contract agreement exists between the said respondent and the petitioner. The answer to this poser in all fairness and in the ends of justice would be in affirmative for the reason that bare reading of Section 8 of the Act makes it crystal clear that it is only those parties who can be referred to arbitration where there exists an arbitration agreement between ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 9 them and one of such party to such agreement personally or any person claiming through or under him .
may apply for appointment of arbitrator, however, not later than the date of submitting his first statement on substance of disputes. This Court in this regard is of supported by the ratio of judgment of the Apex Court in Essar Oil Limited V. Hindustan Shipyard Limited and rt others, (2015) 10 Supreme Court Cases 642, where in the similar facts and circumstances, the Apex Court has held as under:
"22. We have heard the learned counsel for the parties at length and have also considered some judgments cited by them and the documents which had been placed on record and relied upon by them.
23. Upon hearing the learned counsel and looking at the contract entered into between the appellant and the respondent and upon perusal of other letters, we believe that the view expressed by the High Court cannot be accepted.
24. It is true that the ONGC had made payment to the appellant directly on several occasions.::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 10
Upon perusal of the correspondence, we find that some understanding, but not amounting to .
any agreement or contract, was arrived at between the ONGC and the respondent for making direct payment to the appellant, possibly because the respondent was not in a position to make prompt payments to the appellant. It also of appears that on account of the delay in making payment to the appellant, the work of the ONGC was likely to be adversely affected. The ONGC rt was interested in getting its work done promptly and without any hassles. In the circumstances, upon perusal of the correspondence, which had taken place between the ONGC and the respondent, it is clear that so as to facilitate the respondent, the ONGC had made payments on behalf of the respondent to the appellant directly.
25. Simply because some payments had been made by the ONGC to the appellant, it would not be established that there was a privity of contract between the ONGC and the appellant and only for that reason the ONGC cannot be saddled with a liability to pay the amount payable to the appellant by the respondent.
26. It is also pertinent to note that the Arbitration Agreement was only between the appellant and the respondent. The ONGC was not a party to ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 11 the Arbitration Agreement. When a dispute had arisen between the appellant and the .
respondent in relation to payment of money, the appellant had initiated the arbitration proceedings. As the ONGC was not a party to the Arbitration Agreement, it could not have been represented before the Arbitral Tribunal. If of the ONGC was not a party before the Arbitral Tribunal, the Tribunal could not have made any Award making the ONGC liable to make rt payment to the appellant. In the aforestated factual and legal position, the Arbitral Tribunal could not have made the ONGC liable in any respect and rightly, the majority view of the Arbitral Tribunal was to the effect that the ONGC, not being a party to any contract or Arbitration Agreement with the appellant, could not have been made liable to make any payment to the appellant.
27. We are in agreement with the view expressed by the majority of the Arbitral Tribunal. In our opinion, the High Court had committed an error by not considering the above facts and by observing that the appellant will have to take legal action against the ONGC for recovery of the amount payable to it. If one looks at the relationship between the appellant and the respondent, it is very clear that the respondent had given a sub-contract to the appellant and in ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 12 the said agreement of sub-contract, the ONGC was not a party and there was no liability on the .
part of the ONGC to make any payment to the appellant. Moreover, we could not find any correspondence establishing contractual relationship between the ONGC and the appellant. In the circumstances, the ONGC of cannot be made legally liable to make any payment to the appellant. As stated hereinabove, only for the sake of convenience rt and to get the work of the ONGC done without any hassle, the ONGC had made payment to the appellant on behalf of the respondent without incurring any liability to make complete payment on behalf of the respondent.
28. The learned counsel appearing for the appellant failed to show any document in the nature of a contract entered into between the appellant and the ONGC whereby the ONGC had made itself liable to make payment to the appellant. Even when the payment had been made by the ONGC, it was very clear that the payments were made on behalf of the respondent as the ONGC was debiting the account of the respondent by the amount paid to the appellant. It is important that the payment was made to the appellant only upon certification of work done by the respondent. The ONGC had given a contract to the respondent.::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 13
The ONGC had never entered into any contract with the appellant and therefore, it did not rely .
upon any certification or any statement made by the appellant in relation to quantum of work done by the appellant. This fact also shows that the ONGC was concerned with the work which had been approved by the respondent and of instead of making payment to the respondent, the ONGC had made payment to the appellant on behalf of the respondent, though there was rt no legal obligation on the part of the ONGC to make such a payment to the appellant.
29. For the aforestated reasons, we do not agree with the view expressed by the High Court and the impugned judgment delivered by the High Court is set aside. The ONGC shall not be liable to make payment, as rightly decided by the Arbitral Tribunal, to the appellant but the payment shall have to be made by the respondent, who had given a sub- contract to the appellant. Majority view of the Arbitral Tribunal on the above issue is confirmed and the view of the High Court is not accepted. The respondent shall accordingly make payment to the appellant."
10. The controversy in this petition is squarely covered by the ratio of the judgment ibid in favour of respondent No. 1 and against the petitioner. The law ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 14 laid down by the Apex Court in Chloro Controls India Private Limited (Supra) being distinguishable on facts is .
not applicable to this case. In that case, the appointment of Arbitrator was sought under Section 45 of the Act, which pertains to the foreign arbitration and of not domestic arbitration. True it is that the scope of Section 8 of the Act has also been discussed in this rt judgment, however, in order to find out a distinction between two provisions i.e. under Section 8 of the Act and also under Section 45. It has been held in this judgment that there is mark distinction between the provisions contained under Section 8 and Section 45 of the Act. As a matter of fact, it is Section 8 of the Act which pertains to the domestic arbitral proceedings in view of the judgment in Essar Oil Limited (supra). It has further been held in this judgment that the payment to the sub-contractor/an associate like the petitioner herein directly by the Principal Contractor should not be construed to infer that there being no contract agreement in existence, still the Principal Contractor is liable to indemnify the claims of the associate/sub-
::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 15contractor like the petitioner. Above all, the 2nd respondent has clarified to the satisfaction of this Court .
that a sum of `1,75,00,000/- on 28.04.2012 and `47,92,436/- on 28.06.2012 deposited by the 2nd respondent through RTGS in the account of petitioner is of the payment made to respondent No.1. The appointment of arbitrator can be sought by a party to an rt agreement against the other party to such agreement, if there exists a signed contract agreement between the said parties. Being so, the petition against respondent No. 2 is not maintainable nor is there any question of any disputes between the said respondent and the petitioner.
11. There exists a contract agreement (MoU), Annexure P-1 between the petitioner and the sub-
contractor i.e. the 1st respondent. The arbitration clause in existence in the contract agreement, Annexure P-1 reads as follows:
"25. That in respect for the matters requiring resolution of dispute, the parties shall meaningfully negotiate in an endeavor to ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 16 resolve such matters and will be sorted out amicably. If the matter, question or dispute .
to arbitration subject to the provision of the India Arbitration and conciliation act 1996 and contract act 1957 and they statuary modifications and enactment thereof. The language of the arbitration shall be the of English language and arbitration proceeding shall be held in Noida (Uttar Pradesh)."
12. As noticed at the very out set, since the 1st rt respondent has not opted for putting appearance despite service and rather allowed itself to be proceeded against ex-parte, the petitioner-Company has been able to show that the disputes on account of non-payment of its dues have arisen. Therefore, such disputes in terms of arbitration clause referred to hereinabove can only be resolved by an arbitral tribunal.
Therefore, a case for appointment of Arbitrator to adjudicate the disputes between the petitioner and the 1st respondent deserves to be appointed.
13. Now if coming to the arguments addressed on behalf of the petitioner that exclusion of the 2nd respondent from arbitral proceedings would result in ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 17 filing a civil suit for recovery of claims against the said respondent and consequently would result into two .
parallel proceedings qua the same subject matter of dispute, the same in view of there being no contract between the petitioner and the 2nd respondent is far of fetched. Whatever is the grouse of the petitioner, it is against respondent No. 1 and not against respondent rt No.2. Any how these findings shall remain continued to the decision of this petition, the suit or petition, if any, filed by the petitioner against the 2nd respondent will be decided by the Court concerned on its own merits and in accordance with law.
14. Therefore, though the 2nd respondent has denied any outstanding claims of the petitioner against it, however, if any such claims of the petitioner exist against the 2nd respondent, a suit can be filed for recovery of the same in appropriate Court having jurisdiction over the matter.
15. Now if coming to the 2nd limb of arguments that in terms of MoU, the arbitral proceedings can only be initiated in Noida (U.P.). True it is that it find so ::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 18 recorded under Clause 25 thereof, however, the same is only for the purpose of holding the arbitral proceedings .
and not oust the jurisdiction of this Court to entertain this petition and appoint the Arbitrator. Since the Theog-
Kotkhai-Hatkoti-Rohru road, work whereof has been of executed by the petitioner is situated within the territorial jurisdiction of this Court, therefore, the Arbitrator can only rt be appointed by this Court. A reference in this behalf can also be made to the provisions contained under Section 20 of the Code of Civil Procedure, which provides that the suit can be instituted either at a place where defendant resides or where the cause of action arose. In the case in hand, since the cause of action has arisen within the jurisdiction of this Court, therefore, this petition is absolutely maintainable.
16. In view of what has been said hereinabove, this petition succeeds and the same is accordingly allowed. Consequently, an Arbitral Tribunal comprising Shri Harish Bahl, Senior Advocate and Shri Chandranarayana Singh, Advocate, is appointed to resolve the disputes having arisen on account of non-
::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 19payment of claims of the petitioner i.e. `2,08,32,094/- as per the bill dated 05.02.2013 and `3,35,98,304/- dated .
04.01.2015, total `5,44,30,398/- the balance payment towards execution of work of Theog-Kotkhai-Hatkoti-
Rohru road. Learned Arbitral Tribunal shall enter upon of the reference within two weeks from the date of receipt of an authenticated copy of this judgment.
rt It is left open to the Arbitral Tribunal to fix the fee at its own, of course taking into consideration the guiding factors in Schedule-IV to Arbitration and Conciliation Act. The parties on both sides shall share the fee so settled equally. A sum of `1,00,000/-
is to be deposited by them on the 1st date of hearing. Both the members of Arbitral Tribunal shall share this amount at per their entitlement. The remaining amount shall be payable to the Arbitral Tribunal on termination of proceedings i.e. on or before the pronouncement of award.
::: Downloaded on - 15/04/2017 21:38:11 :::HCHP 2017. With these observations, the petition .
stands disposed of.
November 28, 2016 (Dharam Chand Chaudhary)
(naveen) Judge
of
rt
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