Oil And Natural Gas Corpoation Ltd vs International Certification ...
2016 Latest Caselaw 1979 Bom

                                                                  8-arbp606-16

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              IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                  ORDINARY ORIGINAL CIVIL JURISDICTION




                                                         
                    ARBITRATION PETITION NO.606 OF 2016


      Oil & Natural Gas Corporation Limited        )




                                                        
      a Corporation registered under the           )
      Companies Act, 1956 having its               )
      registered office at Jeevan Bharati,         )
      Tower-II, 124, Connaught Circus,             )




                                                 
      New Delhi - 110 001 and having its           )
      Branch Office at Quadrant 1, 3rd Floor,      )
      NBP Green Heights, Plot No.C-69,
                                     ig            )
      Bandra Kurla Complex,                        )
      Bandra (East) - Mumbai - 400 051.            )           ...Petitioner
                                   
                  ....Versus....

      International Certification Services         )
      Private Limited, a Company registered        )
             

      under the Companies Act, 1956, having        )
      its registered office at 22/23, Goodwill     )
          



      Premises, Swastik Estate, 178 CST            )
      Road, Kalina, Santacruz (East)               )
      Mumbai - 400 098.                            )           ...Respondent





      Mr.Kevic Setalvad, Senior Counsel with Ms.Daisy Dubhash, Mr.J.P.
      Kapadia, Mr.O.Mohandas and Mr.A. Khare i/b Little & Co. for the
      Petitioner.

      Mr.Vishal Kanade with Ms.Bhakti Nadkarni i/b Lex Firum for the





      Respondent.

                                      CORAM : R.D. DHANUKA, J.

DATE : 28TH APRIL, 2016.

ORAL JUDGMENT :-

1. By this petition filed under section 34 of the Arbitration &

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Conciliation Act, 1996 the petitioner has impugned the arbitral award

dated 26th October, 2015, recommending immediate withdrawal and

cancellation of ONGC letter dated 22nd April, 2014 regarding dealing

with the respondent and to permit the respondent herein to

participate in all ongoing and future tenders, wherever they are

qualified and to restore their business credibility. Some of the relevant

facts for the purpose of deciding this petition are as under :

2. The petitioner herein was the original respondent, whereas

the respondent was the original claimant in the arbitral proceedings.

3. The petitioner had invited bids for maintenance, painting of

its process platforms at Mumbai in the year 2008. M/s.J.K. Surface

Coating Pvt. Ltd. had submitted its bids. The bid of the said M/s.J.K.

Surface Coating Pvt. Ltd. was accepted by the petitioner on 8th May,

2009.The petitioner had also invited bids for hiring the services of a

third party for supervision, quality control and measurement of work

of maintenance, painting of the said offshore platforms of Mumbai

Offshore. The petitioner had accepted the bid of the respondent in

respect of the said work on 8th June, 2009. The petitioner entered into

a contract with the respondent on 7th July, 2009. It is not in dispute

that when the tender was opened, the tender amount was more than

Rs.1.00 crore. It is also not in dispute that in the year 2012, the work

for supervision and maintenance entered into between the parties

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was completed by the respondent.

4. It is the case of the petitioner that the respondent received

a vigilance complaint with regard to the work carried out by the

painting contractor i.e. M/s.J.K. Surface Coating Pvt. Ltd. The

petitioner accordingly initiated action against the said M/s.J.K.

Surface Coating Pvt. Ltd. based on such vigilance complaint. On 13 th

June, 2012, the petitioner addressed a letter to the respondent for

seeking explanation in respect of the alleged discrepancies in the

certification process undertaken by it. It was the case of the petitioner

that in view of the wrong certification of the invoices of the painting

contract by the respondent, the petitioner had made excess payment

of Rs.57,41,582/- to the painting contractor.

5. It is the case of the petitioner that on 10th July, 2013, the

Vigilance Department submitted its recommendation that the

petitioner may consider action against the respondent and the

painting contractor for recoveries of excess payment.

6. The petitioner thereafter started enquiry by nominating an

enquiry officer on 18th October, 2013 to enquire and investigate the

case against the respondent.. The enquiry officer thereafter issued a

show cause notice to the respondent. The respondent replied to the

said show cause notice and denied the allegations made therein. The

enquiry officer thereafter conducted an enquiry on 31 st December,

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2013 and recommended banning of all further business dealings with

the respondent and putting the respondent on a holiday for a period

of three years for the alleged gross violation of the provisions of the

scope of the work.

7. Based on such enquiry report, the competent authority of

the petitioner issued an order on 22nd April, 2014 against the

respondent stopping further business dealings with the respondent

for participation in future tenders of the petitioner for the period of

three years from the date of the issue of the said order.

8. On 18th December, 2014, the respondent invoked

arbitration as per clause 27 of the contract. The petitioner appointed

Dr.I.M. Chatterjee as a sole arbitrator on 10th April, 2014. The

respondent filed statement of claim before the learned arbitrator and

applied for refund of the amount recovered by the petitioner by

encashing the performance bank guarantee and also impugned the

letter dated 27th April, 2014 issued by the petitioner thereby

blacklisting the respondent from future contract for a period of three

years. The petitioner resisted the said claim by filing the written

statement. The learned arbitrator made an award on 26th October,

2015 and rejected the monetary claim made by the respondent. The

learned arbitrator however, recommended the impugned withdrawal

and cancellation of the letter dated 27th April, 2014 issued by the

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petitioner thereby dealing with all the business with the respondent

for a period of three years. This part of the impugned award is

impugned by the petitioner in this petition filed under section 34 of the

Arbitration & Conciliation Act, 1996.

9. Mr.Setalvad, learned senior counsel appearing for the

petitioner invited my attention to the various provisions of the contract

entered into between the parties and more particularly clauses 9, 10,

18.1 to 18.6 and 27.1. It is submitted by learned senior counsel that

admittedly the contract had expired by efflux of time. He submits that

the contract was not terminated on account of force majeure and also

on account of unsatisfactory performance. He submits that clauses

18.1 and 18.2 of the contract were thus not attracted in the facts and

circumstances of the present case. Reliance is placed on second part

of clause 18.6 which provides for consequence of termination. He

submits that since the contract was not terminated under clauses

18.1 and 18.2 which provided for termination of contract on expiry of

the contract and termination on account of force majeure, the

contractor could be put on holiday under clause 18.6. He submits that

there is no dispute that clause 34 which provided for "integrity pact"

was deleted.

10. Learned senior counsel for the petitioner also invited my

attention to four circulars issued by the petitioner which provided for

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procedure required to be followed for black listing a contractor and

action permitted under those circulars against such a contractor. He

submits that the action was initiated by the petitioner against the

respondent under those circulars and also under "integrity pact"

which provided for black listing such contractor for a period of three

years.

11. It is submitted that since the petitioner had taken action

against the respondent for black listing under the "integrity pact" and

based on such circulars, the cause of action, if any, arisen in favour

of the respondent was outside the scope of the contract and thus the

said prayer for impugning the action of black listing was not arbitrable

under the arbitration clauses recorded under clause 27.1 of the

contract.

12. The next submission of the learned senior counsel for the

petitioner is that clause 27.2 which provided for number of arbitrators

required to be appointed by the appointing authority would also

indicate that the arbitrator could be appointed only if the amount of

the claim was as prescribed under clause 2 of the said clause.

13. It is submitted by the learned senior counsel that the

learned arbitrator thus acted beyond the scope of his jurisdiction and

has decided the issue of blacklisting on the respondent which was not

permissible under clause 27.1 of the contract.

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14. The next submission of learned senior counsel is that the

fact that the learned arbitrator has rejected the claim for refund of

performance bank guarantee amount by rendering a finding against

the respondent that the work was not satisfactory, the learned

arbitrator could not have consequently passed an order for setting

aside the order of blacklisting against the respondent. The conclusion

drawn by the learned arbitrator is contrary to the findings recorded by

the learned arbitrator. He submits that the petitioner has no dispute

that the respondent could avail of any other remedy in law other than

invoking the arbitration agreement.

15. Mr.Kanade, learned counsel appearing for the respondent

on the other hand invited my attention to clauses 18.1 to 18.6, 27.1

and 34 of the arbitration agreement. It is submitted by the learned

counsel that admittedly the "integrity pact" clause recorded in clause

34 was deleted. He submits that admittedly the petitioner had taken

action of blacklisting against the respondent under "integrity pact". In

support of this submission, learned counsel for the respondent invited

my attention to some of the paragraphs of the impugned award in

which the submissions of both the parties were recorded by the

learned arbitrator. He submits that the contention of the petitioner

before the learned arbitrator was that clause 34 of the contract which

provided for "integrity pact" clause was deleted by mistake by the

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petitioner. He submits that the petitioner had applied for rectification

of the contract before the learned arbitrator based on the premise that

the said clause 34 was deleted by mistake.

16. It is submitted that since the action taken by the petitioner

was under clause 34, which was not part of the contract, the

respondent was entitled to invoke arbitration under clause 27.1 of the

contract. He submits that the question as to whether the petitioner

could take any action of blacklisting the respondent was the question

which would fall within the parameters of clause 27.1 as the same

was in connection with construction, meaning, operation, effect,

interpretation of the contract or breach thereof. He submits that the

disputes and differences arose between the parties as to whether the

petitioner could have banned the respondent under the provisions of

the said contract and thus the learned arbitrator had jurisdiction to

deal with such claims made by the respondent.

17. The next submission of learned counsel for the respondent

is that the petitioner had not raised an issue of jurisdiction before the

learned arbitrator that the claim made by the respondent was outside

the scope of contract or was outside the purview of arbitration

agreement recorded in clause 27.1 of the contract. He submits that

since the issue of jurisdiction was not raised before the learned

arbitrator, the said issue of jurisdiction cannot be allowed to be

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raised for the first time in this petition filed under section 34 of the

Arbitration & Conciliation Act, 1996.

18. Learned counsel for the respondent invited my attention to

the findings and observations made by the learned arbitrator while

granting the relief of setting aside the order of blacklisting the

respondent. He submits that the learned arbitrator has after

considering the pleadings and documents has rendered findings of

fact which findings being not perverse cannot be interfered by this

Court. He submits that the ig learned arbitrator has interpreted the

terms of the contract and has come to the conclusion that under the

provisions of the contract, the petitioner could not ban the respondent

in view of the deletion of clause 34 of the of the contract. He submits

that since the action on the part of the petitioner was beyond the

scope of contract, the said claim was arbitrable. It is submitted that

the interpretation of the learned arbitrator of the provisions of the

contract being a possible interpretation, this Court cannot substitute

the possible interpretation of the learned arbitrator with another

interpretation.

19. Mr.Setalvad, learned senior counsel for the petitioner in re-

joinder submits that the learned arbitrator could not have entertained

such claim. In support of this submission, he placed reliance on the

judgment of the Calcutta High Court in case of Vijay Singh Nahata

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vs. Union of India & Ors., AIR 1998 Calcutta, 153 and in particular

paragraphs 48 to 54. He submits that the challenge to an order

banning a contractor could be challenged only by way of writ petition

and not by filing arbitration proceedings.

20. A perusal of the contract entered into between the parties

indicates that clause 34 of the contract which provided for "integrity

pact" had been deleted admittedly when the contract was signed. The

said contact also provided that any modification to the contract had to

be in writing. Admittedly, there was no such amendment to clause 34

of the contract.

21. The question that arises for consideration of this Court is

whether the action of blacklisting taken by the petitioner against the

respondent by applying a non-existing provision was outside the

contract which action was based on the performance of the contractor

under the same contract awarded to the respondent and if so

whether such cause of action could be adjudicated upon by invoking

the arbitration agreement recorded in clause 27.1 of the contract.

22. It is not in dispute that the contract was terminated by

efflux of time. No action had been taken by the petitioner on account

of force majeure. It is not the case of the petitioner that the

respondent was banned by invoking clause 18.6 of the contract. A

perusal of the letter dated 22nd April, 2014 issued by the petitioner

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thereby banning the business dealings with the respondent for a

period of three years clearly indicates that the said order was based

on irregularity alleged to have been observed in the works in the

same contract which was subject matter of arbitration.

23. In my view, even if the validity period of contract had

expired upon completion of work between the parties, the dispute,if

any, having arisen out of the said contract in view of the banning

order issued by the petitioner based on the alleged unsatisfactory

performance of the respondent of the same contract, the arbitration

agreement will not come to an end and would continue to subsist for

adjudication of the dispute between the parties under the said

agreement. In my view, there is thus no substance in the submission

of the learned senior counsel for the petitioner that the claim

impugning banning order issued by the petitioner was outside the

scope of contract or outside the scope of arbitration agreement

recorded under clause 27.1 of the contract or that the arbitration

agreement did not survive after expiry of the contract.

24. In my view, since clause 34 of the contract was admittedly

deleted by the parties when the contract was awarded to the

respondent, the petitioner could not have taken any action against the

respondent under the said non-existent clause. The submission of the

petitioner made before the learned arbitrator for rectification of the

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contract based on the alleged mistake in deleting the said clause was

in my view, totally untenable and is rightly rejected by the learned

arbitrator.

25. A perusal of the record clearly indicates that the petitioner

did not raise any issue of jurisdiction before the learned arbitrator,

which is raised by the petitioner for the first time in this petition. It was

not the case of the petitioner that though the issue of jurisdiction was

raised by the petitioner before the learned arbitrator, the same is not

considered by the learned arbitrator. In my view, the issue of

jurisdiction thus not having been raised before the learned arbitrator,

the same cannot be allowed to be raised for the first time in the

present proceedings filed under section 34 of the Arbitration &

Conciliation Act, 1996.

26. Be that as it may, in my view, the challenge to the order of

banning issued by the petitioner was within the purview of jurisdiction

of the learned arbitrator under arbitration agreement recorded in

clause 27.1 of the contract. A perusal of the said clause clearly

indicates that the same is very wide and would include the disputes

or question arising out of its agreement which arose between the

parties. In my view, the claim of the respondent that the action of

banning was in breach of the contract would thus clearly fall within

the ambit of arbitration agreement. In my view, the learned arbitrator

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has thus acted within the jurisdiction by exercising his power under

clause 271. of the contract. There is thus no substance in this

submission made by the learned senior counsel for the petitioner.

27. Insofar as the submission of learned senior counsel for the

petitioner that mechanism of the arbitration could not be invoked also

under clause 27.2 is concerned, there is no substance in this

submission of the learned senior counsel. A claim upto Rs.5.00

crores could be adjudicated upon by a sole arbitrator to be appointed

by the petitioner.

28. A perusal of the judgment of the Calcutta High Court,

relied upon the learned senior counsel for the petitioner in case of

Vijay Singh Nahata (supra) indicates that the Calcutta High Court

had considered the issue of black listing in the writ petition. In my

view, the said judgment would not apply to the facts of this case and

would not assist the case of the petitioner.

29. A perusal of the award clearly indicates that the learned

arbitrator has dealt with the provisions of the contract and has dealt

with the submissions and pleadings of both the parties and has

rendered a finding of fact. In my view, the said finding of fact

rendered by the learned arbitrator is not perverse and thus cannot be

interfered with by this Court under section 34 of the Arbitration &

Conciliation Act, 1996.

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30. The learned arbitrator has interpreted the terms of the

contract and has held that in view of deletion of clause 34 of the

contract, the petitioner could not have taken any action of banning the

respondent in absence of such contract. The interpretation of the

learned arbitrator is not only possible interpretation but is correct

interpretation.

31. Insofar the submission of learned senior counsel for the

petitioner that since the learned arbitrator had rejected the claim for

refund of performance bank guarantee amount and thus the

conclusion drawn by the learned arbitrator is inconsistent with the

findings recorded by the learned arbitrator is concerned, it is not in

dispute that the respondent has not impugned the said finding. In my

view the action banning the contractor by the petitioner was an

independent action. The learned arbitrator on interpretation of the

terms of the contract having found that the said action was outside

the scope of contract, has rightly allowed the said claim.

32. In my view, the petition is devoid of merits and is

accordingly dismissed. No order as to costs.

(R.D. DHANUKA, J.)