Calcutta High Court
Bgm And M-Rpl-Jmct (Jv) vs Eastern Coalfields Limited on 19 January, 2024
Author: Moushumi Bhattacharya
Bench: Moushumi Bhattacharya
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
(Commercial Division)
Present :-
THE HON'BLE JUSTICE MOUSHUMI BHATTACHARYA
AP 745 of 2023
BGM and M-RPL-JMCT (JV)
Vs.
Eastern Coalfields Limited
For the petitioner : Mr. Debajyoti Basu, Adv.
Mr. Diptomoy Talukdar, Adv.
Mr. Dibyendu Ghosh, Adv.
Ms. C. Chatterjee, Adv.
For the respondent : Mr. Debnath Ghosh, Adv.
Mr. Sayed Nurul Arefin, Adv.
Mr. Sayed M. Arefin, Adv.
Ms. Rashmi Binayak, Adv.
Last Heard on : 16.01.2024
Delivered on : 19.01.2024
Moushumi Bhattacharya, J.
1. The petitioner prays for appointment of an arbitrator under section 11 of
The Arbitration and Conciliation Act, 1996. The petitioner relies on clause 13
under the General Terms and Conditions of an e-tender notice dated 8.5.2019
issued by the respondent, Eastern Coalfields Limited (ECL) for removal and
transportation of material for a project at Nakrakonda - Kumardih. Clause 13
of the General Terms and Conditions, appended to the e-tender notice, provides
for settlement of disputes and contains, according to learned counsel appearing
for the petitioner, the arbitration clause.
2. Counsel submits that disputes have arisen between the parties pursuant
to the petitioner being engaged as the contractor for the work described in the
e-tender notice. The dispute allegedly revolves around the parties disagreeing
to changes made to the price component of the contract.
3. Learned counsel appearing for the respondent takes a point of
maintainability of the present application on the ground that there is no
arbitration agreement between the parties.
4. The argument on maintainability is required to be answered first.
5. Clause 13 of the General Terms and Conditions which forms part of the
e-tender notice - and the crux of the dispute - is set out below :
"13. SETTLEMENT OF DISPUTES
It is incumbent upon the contractor to avoid litigation and disputes during
the course of execution. However, if such disputes take place between the
contractor and the department, effort shall be made first to settle the
disputes at the company level.
The contractor should make request in writing to the Engineer-in-charge for
settlement of such disputes/claims within 30 (thirty) days of arising of the
cause of dispute/ claim failing which no disputes/ claims of the contractor
shall be entertained by the company.
Effort shall be made to resolve the dispute in two stages.
In first stage dispute shall be referred to Area CGM, GM. If difference still
persist the dispute shall be referred to a committee constituted by the
owner. The Committee shall have one member of the rank of Director of the
company who shall be chairman of the company.
If differences till persist, the settlement of the dispute shall be resolved in
the following manner:
In the event of any dispute or difference relating to the interpretation and
application of the provisions of commercial contract(s) between Central
Public Sector Enterprises (CPSEs)/Port Trusts inter se and also between
CPSEs and Government Departments/Organizations (excluding disputes
concerning railways, Income Tax, Customs & Excise Departments), such
dispute or difference shall be taken up by either party for resolution through
AMRCD as mentioned in DPE OM No. 4(1)/2013-DPE (GM)/FTS-1835 dated
22-05-2018.
In case of parties other than Govt. Agencies, the redressal of the dispute
may be sought through ARBITRATION AND CONCILIATION ACT, 1996 as
amended by AMENDMENT ACT OF 2015"
6. It is evident from the above clause that the parties to the contract were
under an obligation to resolve the dispute in 2 stages if the parties were unable
to settle the disputes at the company level of ECL. The 2 stages are enumerated
in the clause itself and is not being repeated. The second part of the clause
begins with "In case of parties other than Govt. Agencies..." and is relevant for
the present application. The petitioner is a non-government entity.
7. The point which arises for consideration is whether the part of the clause
containing the word "may" can be construed to be an arbitration agreement as
contemplated under section 7 of the 1996 Act.
8. Section 7(1) defines an "arbitration agreement" to mean an agreement by
the parties to submit disputes which have arisen between them in respect of a
defined legal relationship to arbitration. The section includes non-contractual
relationships. Section 7(2) envisages agreements which are embedded in the
contract or in the form of a separate agreement and section 7(3) stipulates that
the arbitration agreement must be in writing. Section 7(4) factors in 3
situations where the arbitration agreement will be accepted to be in writing and
section 7(5) looks at arbitration agreements being incorporated by reference.
9. Section 7 underscores the unequivocal intent of the parties to go to
arbitration by giving shape and form to the arbitration agreement and exit
options to the parties under sub-sections (4) and (5) of section 7.
10. Presence of the word "may" in the arbitration clause in the matter at
hand is required to be tested against mindset of the parties to the agreement.
Parties consenting to arbitration including to the mode and mechanism of the
procedure forms the mainstay of the 1996 Act.
Does "may" negate the existence of an arbitration agreement?
11. In Jagdish Chander vs. Ramesh Chander; (2007) 5 SCC 719, the Supreme
Court set out 4 broad principles on what would constitute an arbitration
agreement. These are :
i) The intent of the parties to enter into an arbitration agreement as
discernible from the terms of the agreement;
ii) Absence of the words "arbitration" / "arbitral tribunal" would not be
fatal to the existence of an arbitration clause if the clause has the
attributes or the elements of an arbitration agreement;
iii) The clause must provide that the disputes shall be referred to
arbitration in the event of disputes arising between the parties;
iv) Mere use of the words "arbitration" / "arbitrator" in a clause will not
make it an arbitration agreement if the clause requires further consent
of the parties for reference to arbitration.
12. Jagdish Chander masterfuly encapsulates the parameters of what
constitutes an arbitration agreement and more important, the parties intention
to arbitrate. The will to arbitrate must clearly be articulated in the arbitration
clause. There is no room for any doubt or second-guessing. Parties must be
clear in their minds that they wish to subject themselves to arbitration as the
chosen mechanism of dispute resolution and ensure that the intention is
expressed in writing in the form of the arbitration agreement.
13. The clarity of intention should hence be expressed through clear-cut
words. Therefore, words such as
"the parties wish .....", or
"the parties will consider .....", or
"the parties will thereafter decide ...." and
"the parties may ....."
will be counter-productive to the unequivocality of the intention to arbitrate.
The above instances are not exhaustive and may include other words which
give a sense of indecision, lack of purpose, prevarification or even saving the
option for arbitration to a later date or as a last resort.
14. An arbitration agreement also does not sit comfortably with conditions
attached for the parties to go to arbitration. The clause should not be subject to
or conditional upon further or future events which may or may not occur.
15. In essence, there cannot be any ifs and buts or an undecided mumble;
the parties must give a resounding "Yes" to arbitration. For a movement
analogy; the arbitration agreement is not about a hesitant 1 step ahead - 2
steps backward / back-tracking but a confident 1-way stride forward to
arbitration.
16. Section 11 of the 1996 Act is one of the earlier interventions by a Court
on the presumption of the existence of an arbitration clause. The Court must
hence ensure the existence of an arbitration agreement before flagging of the
road to the award and beyond. The parties cannot set forth on the procedural
journey if there is no arbitration agreement.
17. In the present case, the arbitration agreement muddies the waters with
regard to the immediate and unequivocal reference of the dispute to
arbitration. The word "may" in the relevant part of the clause gives an option to
the parties to either refer the dispute to arbitration or hold back on the
arbitration. The word "may" makes the clause conditional on a future event/s
or to the other parts of the clause and gives the parties the option to resile from
the clause. In other words, the clause creates a Hamlet-esque hand-on-the-
chin indecision and the Court is also left wondering as to what the parties
actually intended in clause 13 of the agreement.
18. Besides, the absence of an arbitration agreement was urged by the
respondent both before the Commercial Court at Asansol as well as before the
Division Bench of this Court. In any event, absence of an arbitration clause is a
fundamental threshold argument and should be made at the section 11 stage.
19. The Dispute Resolution Clause also makes it clear that the Clause is
divided in 2 parts - The first part and the tiers thereof are relevant for
government agencies and in any event does not refer to arbitration or have the
trappings thereof. The second part applies to the petitioner as a non-
government entity.
20. Although arbitration clauses differ in every case, the Supreme Court has
clarified certain uniform trappings of a valid arbitration agreement. In Food
Corporation of India v. National Collateral Management Services Limited
(NCMSL); (2020) 19 SCC 464, the Supreme Court found a lack of finality in the
arbitration clauses which envisaged reference of the dispute to the CMD of
Food Corporation of India for "settlement". The concerned clauses also
specifically mentioned that the parties understood the clause not to be an
arbitration clause. In Mahanadi Coalfields Ltd. v. IVRCL AMR Joint Venture;
2022 SCC OnLine SC 960, the Supreme Court relied on Jagdish Chander and
construed the relevant clause in the agreement not to be an arbitration
agreement. The concerned clause before the Supreme Court also contained the
word "may". A learned Single Judge of the Bombay High Court in Quick Heal
Technologies Limited v. NCS Computech Private Limited; 2020 SCC OnLine Bom
693 noted the difference between the words "shall" and "may" and concluded
that there was no clear intention of the parties to refer the dispute between
them to arbitration. The Court, in fact, construed the words "shall" and "may"
in the same clause and came to the aforesaid view. Another learned Single
Judge of the Bombay High Court in GTL Infrastructure Limited v. Vodafone Idea
Limited (VIL); 2023 SCC OnLine Bom 39 construed the word "may" to
contemplate a future possibility which would also involve discretion on the part
of the parties whether to refer dispute the arbitration or not.
21. On the other hand, the decisions shown by counsel for the petitioner are
not on the point of negation or dilution of the arbitration agreement by use of
the word "may". Enercon (India) Limited v. Enercon GMBH; (2014) 5 SCC 1 was
on the unworkability of the arbitration clause which is different from the
absence/non-existence of an arbitration clause. Powertech World Wide Limited
v. Delvin International General Trading LLC; (2012) 1 SCC 361 involved
ambiguity in the language of the arbitration clause. The Supreme Court
considered the decision in Jagdish Chander and referred to the correspondence
between the parties and the intention emanating therefrom to refer the dispute
to arbitration. In Babanrao Rajaram Pund v. Samarth Builders and Developers;
(2022) 9 SCC 691, a Single Bench of the Supreme Court also referred to
Jagdish Chander and opined that the arbitration clause before the Court was
substantially different from the arbitration clause in Jagdish Chander. The
Court noted use of the words "shall be referred to arbitration ..." and relied on
the recitals to the agreement to conclude that there was an unambiguous
intention of the parties at the time of the formation of the contract to refer the
disputes to arbitration. Visa International Limited v. Continental Resources
(USA) Limited; (2009) 2 SCC 55, was on the point of existence of a live issue
which was capable of being referred to arbitration under section 11 of the 1996
Act. The Court was also of the view that the attending facts and circumstances
were conducive to the existence of a valid arbitration agreement.
22. None of these decisions assist the petitioner. Unlike the present case, the
arbitration clauses in the cases were not diluted by use of the word "may".
There are also no attending circumstances in the present case by way of
correspondence or otherwise which would show that the parties intended to
refer the dispute to arbitration even if the clause says otherwise.
23. Despite the Court's finding on the absence of an arbitration agreement
between the parties, it is important to record that clause 32 of the Instructions
to Bidders which forms part of the e-tender document gives the option to an
aggrieved party to approach the jurisdictional Court. Hence, the petitioner will
not be rendered remedy-less. It is also important that contractors / parties
engaging with public sector undertakings / Government Companies be made
aware of the words used in the arbitration clause which have the effect of
negating the arbitration agreement altogether. In many cases, the contractor
does not have a say in the drafting of these clauses and it is hence all the more
necessary for the parties to be put on notice and guard themselves against
vague or uncertain dispute resolution clauses.
24. In view of the above finding - that Clause 13 under the General Terms
and Conditions of the e-tender document does not constitute or contain an
arbitration agreement - AP 745 of 2023 is dismissed on the ground of
maintainability. There shall be no orders as to costs.
Urgent photostat certified copies of this judgment, if applied for, be
supplied to the parties upon fulfillment of requisite formalities.
(Moushumi Bhattacharya, J.)
