Gujarat High Court
Ms Vijay Tanks And Vessels Pvt Ltd vs Ms Indian Oil Corporation Limited on 21 October, 2022
Author: Aravind Kumar
Bench: Aravind Kumar
C/ARBI.P/166/2021 ORDER DATED: 21/10/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/PETN. UNDER ARBITRATION ACT NO. 166 of 2021
With
CIVIL APPLICATION (FIXING DATE OF EARLY HEARING) NO. 1 of 2022
In R/PETN. UNDER ARBITRATION ACT NO. 166 of 2021
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MS VIJAY TANKS AND VESSELS PVT LTD
Versus
MS INDIAN OIL CORPORATION LIMITED
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Appearance:
MR. S.N. SOPARKAR, SENIOR ADVOCATE WITH MR NIKUNT K
RAVAL(5558) for the Petitioner(s) No. 1
M R BHATT & CO.(5953) for the Respondent(s) No. 1
MR. MANISH BHATT, SENIOR ADVOCATE WITH MUNJAAL M BHATT,
ADVOCATE FOR (8283) for the Respondent(s) No. 1
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CORAM:HONOURABLE THE CHIEF JUSTICE MR. JUSTICE
ARAVIND KUMAR
Date : 21/10/2022
ORAL ORDER
1. Though the matter is listed for admission, by consent of learned advocates appearing for the parties, it is taken up for final disposal.
2. I have heard arguments of learned Senior Counsel Mr. S.N. Soparkar for petitioner and Mr. Manish Bhatt, learned Senior Advocate appearing for respondent. Perused the records.
Page 1 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022
3. A tender came to be floated by the respondent inviting bids from prospective contractors for the purpose of Capacity Augmentation of Indian Oil Corporation Ltd. LPG Import Terminal from 0.6 Metric Tonne Per Annum (MTPA) to 2.5 (MTPA). Petitioner which is a company incorporated under the Companies Act, 1963 had participated in the said tender process floated by respondent and offered its bid resulting in petitioner being declared as L1 bidder both in tender price opening and in reverse auction held on 16.09.2019. During price negotiations, further price discounts aggregating to 2.75% offered by the petitioner was duly accepted by the respondent namely after negotiations held on 16.09.2019, 26.09.2019 and 27.09.2019. Further discussion was held with regard to a paragraph of the tender document, which was said to have been deleted in the tender document under clause 1.4(iv) titled as "Scope for civil and structural works". Thereafter petitioner afforded further discount of 1.70% amounting to Rs. 6.60 crores having regard to the nature of the project which was of public importance. Letter of acceptance came to be issued on Page 2 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 23.03.2020, pursuant to which the agreement dated 26.05.2020 came to be executed between the parties. On account of stand taken by the respondent with regard to the deleted clause of the tender document, there were discussion, exchange of communication, culminating in issuance of a notice dated 06.01.2021 by the petitioner to the respondent, whereunder petitioner highlighted the fact with regard to deleted paragraph under Clause 1.4(iv). As noticed hereinabove, there were exchange of communication in this regard between the parties which culminated in certain discounts being extended by the petitioner to the respondent. Even thereafter, according to petitioner, the respondent had taken a diametrically opposite stand and as such the petitioner under the said notice dated 06.01.2021, notified the respondent about the unilateral stand taken by the respondent. In other words, the stand taken by the respondent on certain works being carried out by the petitioner by referring to the deleted clause was found fault with by the petitioner. It has been specifically pleaded by the petitioner that stand of the respondent to revise the design Page 3 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 even after technical and contractual requirement having been satisfied by the petitioner, would only create ambiguity and thereby it would amount to reinstating the deleted paragraph which has been explicitly excluded and as such it was specifically pleaded that it was in breach of terms of the contract. Hence, contending that there is dispute that has arisen between the parties, out of the said contract, sought for resolution of said dispute by invoking clause 13.5 of the SCC. In other words, petitioner contended that on account of the insistence of the respondent to the requirement being met by the petitioner in obedience to clause 1.4(iv) which according to petitioner has been specifically excluded from the contract and subsequently being imposed on the petitioner was an afterthought, dispute came to be raised by the petitioner on the ground of unreasonably enforcing a term of contract which is not agreed upon between the parties, as a result of which it would result in six fold increase from the minimum contractual requirement. Therefore, it was contended there exists a dispute between the parties and it requires to be adjudicated on account of Page 4 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 this commercial expediency, petitioner sought for appointment of an arbitrator. The said notice was replied to by the respondent and denied by its reply notice dated 21.01.2021. The respondent has categorically contended by referring to the exchange of communication that claim of the petitioner is in conflict with the tender conditions. With regard to demand for appointment of an Arbitrator, respondent has contended that there is no dispute or difference of any kind whatsoever so as to refer the matter to arbitration, or in other words there is no arbitrable dispute and contended that petitioner has been acting adamantly and not complying with the conditions stipulated under the tender. It is also contended that on account of tender conditions not suiting the preference opted by the petitioner, its (petitioner's) disagreement cannot be termed as "dispute" or "difference" and also for the reason that recourse adopted by the petitioner is highly flawed and incorrect.
4. On service of notice, respondent has appeared, filed its reply affidavit and reiterated its stand as raised in Page 5 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 the reply notice and the communications exchanged with the petitioner. Learned advocates appearing for the parties have reiterated their contentions raised in the respective pleadings.
5. Having regard to the rival contentions and the pleadings referred herein supra, I am of the considered view that following points would arise for consideration :
"(i) Whether there is an arbitration clause in the contract for being invoked ;
(ii) Whether there is an arbitrable dispute emerging from the said contract ?"RE. : POINT NO. 1
6. The records on hand would clearly disclose that pursuant to the tender floated by the respondent, petitioner was declared as the successful bidder and after price negotiations and reverse auction held on 16.09.2019, the petitioner emerged as successful bidder namely petitioner Page 6 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 was declared as L-1 and was awarded the contract and as such, letter of acceptance and letter of intent dated 23.05.2020 came to be issued and contract was made on 18.05.2020. The tender documents, letter of acceptance of tender, letter of intent, all formed part and parcel of the contract. There is no dispute between the parties in this regard.
7. Clause 13.5 of the tender document, provided for resolution of all disputes arising out of contract by arbitration. I deem it just and proper to extract the said clause, which has been pressed into service, it reads :
"13.5 ARBITRATION :
If any dispute or difference of any find whatsoever shall arise between the parties in connection with or arising out of this Agreement, such dispute or difference shall be resolved through arbitration as per the procedure mentioned herein below :
a. The dispute or difference shall be referred to a sole arbitrator.
b. The arbitration shall be through appropriate authority which shall be advised to the successful bidder.Page 7 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022
C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 c. The Rules of the above mentioned Institutional Arbitration Forum shall be applicable to the arbitral proceedings.
d. The Indian Arbitration and Conciliation Act 1996 and Arbitration and Conciliation (Amendment) Act 2015 or any statutory modification or re-enactment thereof and the rules made there under for the time being in force shall apply to the arbitration proceedings under this clause.
e. The seat of arbitration shall be at
Ahmedabad.
f. The proceedings shall be conducted in English language.
g. The cost of the proceedings shall be equally borne by the parties, unless otherwise directed by the sole arbitrator.
h. The following shall not be referred to arbitration:
i. Disputes having financial claims less than Rs. 5 Lakhs.
ii. Disputes, which can be referred to Appellate Authority under MDG or any other similar forum iii. Notwithstanding anything contained herein above (except 'h'), upon arising of dispute the parties may agree to refer the same to arbitration of mutually acceptable sole arbitrator including employee of Indian Oil Corporation Limited."
8. A plain reading of the above clause would indicate that for resolution of the disputes arising out of the contract has been agreed upon to be resolved by Alternative Dispute Page 8 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 Resolution Mechanism namely Arbitration. It is specifically agreed between the parties that "any dispute" or "difference", arising between the parties in connection with or arising out of the said contract, would be a dispute or difference to be resolved through arbitration as per the procedure mentioned thereunder. In other words, parties to the contract have agreed that if any dispute or differences were to arise between them in connection with or arising out of the said contract, same would be resolved through arbitration instead of resorting to proceedings before jurisdictional Court. In that way of the matter, it has to be necessarily held that there is an arbitration agreement between the parties for resolution of the disputes as per clause 13.5 and accordingly Point No. 1 is answered in the affirmative.
RE. : POINT NO. 2
9. In the teeth of finding recorded in the point No.1, the ancillary question which would arise for consideration Page 9 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 would be whether there is an arbitrable dispute which has arisen between the parties ? and if the answer is in the affirmative, necessarily the parties have to be relegated to resolve their dispute through arbitration and in the event of same being answered in negative, petition is liable to be dismissed.
10. As could be seen from the correspondence exchanged between parties which is also an offshoot of negotiation and mutual discussion held, it would emerge therefrom, that point of dispute that has arisen between the parties revolves around Clause 1.4(iv) of the tender which according to the petitioner has been deleted, which is also admitted by the respondent. However, petitioner is contending that said clause is sought to be introduced into the contract and it is impermissible. Said clause refers to tank pile design. As to the contours within which said clause has to be interpreted is highly technical, as is evident from the exchange of communications between the parties themselves. Petitioner has been contending that said Page 10 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 paragraph or clause had explicitly stood deleted was never intended to be operated by the respondent or made applicable to the subject tender and there was meeting of minds as to the configuration which is reflected in the tender pile drawing without any ambiguity, being the minimum contractual requirement applicable to the project. Whereas respondent has been contending that petitioner has been drawing inference and it has been specifically contended in paragraph 6.7 of its reply which is to the following effect :
"6.7 With reference to Paragraph 11, it is submitted that it was made clear to the bidder that the illegible Paragraph was not relevant to the tender and the same has been acknowledged by the Petitioner himself. As such, the contents of the said Paragraph have no bearing on the tender and contract conditions. It is further submitted that reference to pile drawing is made only at Clause No. 1.4 (iv) (Foundation for Propane & Butane Tanks) of "Scope for Civil & Structural Works" of the tender, which states that "Deck slabs for Propane & Butane tanks shall be approx. 1.5m above FFL. This shall be supported on Stub column which shall be taken from pile cap at FFL. The pile cap shall be supported on pile. Refer attached drawing'. Further, it is reiterated that nowhere in the tender document the design of pile foundations is explicitly stipulated in view of the fact that as per the tender document the design of pile foundation is within the scope of contractor. The drawing PC-00167-9515-0202 was only for referring general arrangement of the tank pile foundation as mentioned above. It is further submitted that the above cited drawing clearly stipulates that the details are tentative and are liable to change. Thus the petitioner's inferences drawn from the said drawing with regard to deflection of 10 mm are nothing but a Page 11 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 figment of the petitioner's imagination."
11. In the aforesaid background, the respondent has contended that there is no dispute or difference of any kind and insistence of execution of the tender condition would not qualify itself to be termed as a dispute. The Hon'ble Apex Court in the case of Vidya Drolia and Others versus Durga Trading Corporation reported in (2021) 2 SCC 1, while examining as to what disputes should be construed or becomes qualifies to be held, as non-arbitrable dispute has held that fourfold test is to be adopted namely :
(1) when cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem;
(2) when cause of action and subject matter of the dispute affects third party rights; have erga -
omnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable;
(3) The cause of action and subject matter of Page 12 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and (4) The subject-matter of the dispute is expressly or by necessary implication non- arbitrable as per mandatory statute(s).
12. However, the word of caution which has been recorded by the Hon'ble Apex Court is that there cannot be any watertight compartment and possibility of dovetail and overlapping, albeit when applied holistically and pragmatically will help and assist in determining and ascertaining with great degree of certainty, a dispute or subject matter is non-arbitrable or not. Only in the event of answer being in the affirmative, the subject matter of the dispute would be non-arbitrable. It has been further held :
"Non-Arbitrability
15. Non-arbitrability is basic for arbitration as it relates to the very jurisdiction of the arbitral tribunal. An arbitral tribunal may lack jurisdiction for several reasons. Non-arbitrability has multiple Page 13 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 meanings. Booz Allen & Hamilton Inc. refers to three facets of non-arbitrability, namely: -
"(i) Whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).
(ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the "excepted matters" excluded from the purview of the arbitration agreement.
(iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the Arbitral Tribunal, or whether they do not arise out of the statement of claim and the counterclaim filed before the Arbitral Tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of an arbitration agreement, will not be "arbitrable" if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such a joint list of disputes, does not form part of the disputes raised in the pleadings before the Arbitral Tribunal."
47. A judgment is a formal expression of conclusive adjudication of the rights and liabilities of the parties. The judgment may operate in 20 (2000) 4 SCC 368 two ways, in rem or in personam. Section 41 of the Indian Evidence Act, 1872 on the question of relevancy of judgments in the context of conclusiveness of a judgment, order or decree provides:
"41. Relevancy of certain judgments in probate, etc., jurisdiction.--A final judgment, order or decree of a competent Court, in the exercise of probate, matrimonial admiralty or insolvency jurisdiction Page 14 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 which confers upon or takes away from any person any legal character, or which declares any person to be entitled to any such character, or to be entitled to any specific thing, not as against any specified person but absolutely, is relevant when the existence of any such legal character, or the title of any such person to any such thing, is relevant. Such judgment, order or decree is conclusive proof--
that any legal character, which it confers accrued at the time when such judgment, order or decree came into operation;
that any legal character, to which it declares any such person to be entitled, accrued to that person at the time when such judgment, [order or decree] declares it to have accrued to that person;
that any legal character which it takes away from any such person ceased at the time from which such judgment, [order or decree] declared that it had ceased or should cease;
and that anything to which it declares any person to be so entitled was the property of that person at the time from which such judgment, [order or decree] declares that it had been or should be his property."
48. A judgment in rem determines the status of a person or thing as distinct from the particular interest in it of a party to the litigation; and such a judgment is conclusive evidence for and against all persons whether parties, privies or strangers of the matter actually decided. Such a judgment "settles the destiny of the res itself" and binds all persons claiming an interest in the property inconsistent with the judgment even though pronounced in their absence. By contrast, a judgment in personam, "although it may concern a res, merely determines the rights of the litigants inter se to the res". Distinction between judgments in rem and judgments in personam turns on their power as res judicata, i.e. judgment in rem would operate as res judicata against the world, and judgment in personam would operate as res judicata only Page 15 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 against the parties in dispute. Use of expressions "rights in rem" and "rights in personam" may not be correct for determining non-arbitrability because of the inter-play between rights in rem and rights in personam. Many a times, a right in rem results in an enforceable right in personam. Booz Allen & Hamilton Inc. refers to the statement by Mustill and Boyd that the subordinate rights in personam derived from rights in rem can be ruled upon by the arbitrators, which is apposite. Therefore, a claim for infringement of copyright against a particular person is arbitrable, though in some manner the arbitrator would examine the right to copyright, a right in rem. Arbitration by necessary implication excludes actions in rem.
49. Exclusion of actions in rem from arbitration, exposits the intrinsic limits of arbitration as a private dispute resolution mechanism, which is only binding on 'the parties' to the arbitration agreement. The courts established by law on the other hand enjoy jurisdiction by default and do not require mutual agreement for conferring jurisdiction. The arbitral tribunals not being courts of law or established under the auspices of the State cannot act judicially so as to affect those who are not bound by the arbitration clause. Arbitration is unsuitable when it has erga omnes effect, that is, it affects the rights and liabilities of persons who are not bound by the arbitration agreement. Equally arbitration as a decentralized mode of dispute resolution is unsuitable when the subject matter or a dispute in the factual background, requires collective adjudication before one court or forum. Certain disputes as a class, or sometimes the dispute in the given facts, can be efficiently resolved only through collective litigation proceedings. Contractual and consensual nature of arbitration underpins its ambit and scope. Authority and power being derived from an agreement cannot bind and is non-effective against non-signatories. An arbitration agreement between two or more parties would be limpid and inexpedient in situations when the subject matter or dispute affects the rights and interests of third parties or without presence of others, an effective and enforceable award is not possible. Prime Page 16 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 objective of arbitration to secure just, fair and effective resolution of disputes, without unnecessary delay and with least expense, is crippled and mutilated when the rights and liabilities of persons who have not consented to arbitration are affected or the collective resolution of the disputes by including non-parties is required. Arbitration agreement as an alternative to public fora should not be enforced when it is futile, ineffective, and would be a no result exercise.
13. It is contended by learned Senior Counsel Mr. M.R. Bhatt that it is an ongoing contract and as to which specification would be applicable or not, would not be in realm of arbitration.
14. In this background, when the rival claims made by the parties in the present proceedings are perused, it would clearly emerge that dispute which has arisen between the parties to relates to applicability of clause 1.4(iv) as noticed hereinabove, and at the cost repetition, the dispute or difference with regard to the application of the said clause has to be necessarily held as a dispute or difference which has arisen between the parties, which will have to be necessarily held as an arbitrable dispute requiring it to be adjudicated through arbitration. Hence, I answer point No. 2 Page 17 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022 C/ARBI.P/166/2021 ORDER DATED: 21/10/2022 in affirmative and proceed to pass the following :
ORDER
(i) Petition is allowed.
(ii) Shri M.S. Shah, Former Chief Justice, residing at : Bungalow No. 28, Neetibaug Judges' Cooperative Housing Society Ltd., Behind Cinemax Theatre, Opp.
High Court of Gujarat, S.G.Highway, Ghatlodia, Ahmedabad - 380061 is hereby nominated as sole Arbitrator to resolve the dispute between the parties in accordance with the Arbitration Centre (Domestic and International), High Court of Gujarat Rules, 2021. Both parties would also be governed by said Rules.
(iii) Registry is directed to
communicate this order to the sole
arbitrator forthwith by speed post.
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C/ARBI.P/166/2021 ORDER DATED: 21/10/2022
(iv) No order as to costs.
15. Pending application(s), if any, stands consigned to records.
(ARAVIND KUMAR,CJ) AMAR SINGH Page 19 of 19 Downloaded on : Sun Dec 25 04:41:18 IST 2022