Rolls Royce Industrial Power ... vs Urmila & Company Pvt Ltd. & Ors.
1998 Latest Caselaw 458 Del

ORDER

D.K. Jain, J.

1. This petition under Section 33 of the Arbitration Act 1940(for short the Act) seeks declaration that the arbitration clause 22 of the tripartite agreement dated 12 December 1985, between the parties, has ceased to exist; has worked itself out and become inoperative on settlement of issues relating to payment and that no arbitration clause enabling invocation for arbitration, at any rate, only by respondent no.1, exists. The petition has emerged in the following circumstances:

2. National Thermal Power Corporation (for short NTPC) awarded a contract to M/s. NEI Projects India Limited, a company incorporated and registered in the United Kingdom (NPIL) and later styled as 'Rolls Royce Industrial Power India Limited' (hereinafter referred to as the petitioner), for the work associated with 2 X 500 MW super thermal power stations, to be set up by NTPC at Rihand in the state of UP, with right to award sub-contract. The petitioner approached various sub-contractors for the execution and setting up of the said thermal power stations.

3. Respondent no.2- M/s Lee & Muirhead India Limited (for short L&M), a duly incorporated company intended bid for the sub-contract. They associated respondent no.1-M/s. Urmila & Company Private Limited (for short Urmila) with them for the purpose. An agreement dated 15 March 1984 was entered into by both. Pursuant to it L&M gave bid and after negotiations, a tripartite agreement dated 12 December 1985, to carry out the "port handling and inland transportation" of plant and equipment" was signed between the petitioner, as principal and L&M and Urmila as "contractor." The "contractor" undertook to be jointly and severally obligated to the petitioner for due performance of the work assigned to them. Clause 2.2 of the agreement stipulated that L&M shall be the sole representative of the contractor in dealing with the petitioner. The latter undertook to make payment to the contractor for the work done on submission of bills. The work was stipulated to be executed and completed from 27 November 1984 to 30 November 1987, with right to NPIL to extend it for a further period of one year at the same rates, terms and conditions at its sole discretion.

4. In terms of the tripartite agreement, the execution of work by the "contractor", namely L&M (respondent no.2) and Urmila (respondent no.1) continued and in terms of clause 2.2 the bills for work done by them continued to be submitted by L&M to the petitioner for payment. It appears that the contract could not be completed within the stipulated time and some differences arose between the "contractor",i.e. L & M and Urmila regarding preparation of bills for the work executed and payment to it. A meeting of the parties was convened by the petitioners and held on 21-22 February 1989 at Delhi, wherein the time for execution of the work was extended for a period of one year on the same terms and conditions (to cover the remaining FOB and spares delivery). Some other grievances/differences relating to submission of bills and payments were also discussed and arrangement to get over these was taken. One of the decisions taken and recorded against point 6 of the minutes was in the following terms:

"6. Claims under Category III will be submitted by L&M/Urmila & Co along with explanations and statements as desired by NPIL to enable NPIL to examine, discuss and finalise the same by end April 1989".

5. The minutes of the proceedings were sent by the petitioner to the "contractor" (Respondents No. 1 & 2) for comments. Urmila reacted on the issue of settlement of accounts vide their letter dated 1 March 1989 to L & M with copy to the petitioner. The relevant portion of the letter is extracted below for the sake of ready reference:

"Point 3 and Point 6 of Minutes - Categories for Settlement:

7. L&M's telex did not reflect the total claims of outstanding to Urmila as now being established by us. L&M's claims are composite in nature viz. for clearing and forwarding as well as for transportation. Due to non-receipt of a copy of the above telex referred to in the minutes, Urmila is not in a position to fully comprehend the various claims as made by L&M till we discuss mutually.

8. In our opinion we have various claims yet outstanding for which we have to receive consideration. As discussed at the meeting, we have entrusted the work of analysing the invoicing and payments received so far and establishing our claims, if any, to a reputed firm of financial consultants, M/s. A.F. Ferguson & Co. As per their findings so far, we would like to briefly state the various heads under which our claims are being tabulated:

a) On outstanding 80% Bills

b) On outstanding 20% Bills

c) On Deductions made on 80% Bills (i.e. on bills passing).

d) Deductions made on various counts such as Freight Demurrage, Retention, Hire Charges, etc.

e) Dunn age supplied.

f) On ODC items not billed by L&M

g) Under billed ODC items.

h) Billings for unidentified goods transported by Urmila.

i) On Unloading charges for goods transported by L&M.

j) Minimum contract value.

k) Container weight transportation.

Point 7 of the Minutes:

12. Urmila should be kept informed of all meetings to be held with NPIL in the future as we would like Urmila's representatives to be present for such meetings."

6. Again on 11 March 1989, Urmila faxed a letter to the petitioner, stating that though they had no objection to L & M preparing and submitting the bills but objected to petitioner's making any payment to L&M till the analysis for the work being done by their Chartered Accountant M/s. A.F. Ferguson & Company was completed by them.

7. Meanwhile, it appears that, L&M submitted some bills to the petitioner, which the petitioner and L&M discussed and the petitioner claims to have made payment to them on 29 May 1991, vide agreement styled as "Final contract settlement agreement between NEI Projects (India) Limited and Lee & Muirhead (India) Private Limited.". On 10 February 1992, Urmila wrote to L&M, with copy to the petitioner, saying that in the tripartite agreement dated 12 December 1985, L&M or its agent for preparing and submission of bills for the work done , was itself a trustee for Urmila for Rs.124 lakhs and they should pay it to Urmila failing which they would terminate their arrangement for representation by L&M.

8. Thereafter, it seems that, Urmila, on the basis of the tripartite agreement dated 12 December 1985 between the parties, raised some differences and disputes about the L&M: (a) not raising proper bills for the work done by Urmila; (b) the petitioner not withholding payment of bills relating thereto and (c) also raised additional claims for Rs.70 lakhs against the petitioner. Invoking the arbitration clause in the tripartite agreement, vide legal notice dated 3 February 1994, Urmila requested the President, Institute of Engineers to nominate a person in terms of clause 22 of the General Conditions of Contract to enable resolution of disputes at the earliest.

9. Aggrieved on it, the petitioner has filed the present petition under Section 33 of the Act claiming that payment for all work done by the respondents, jointly or severally, having been made by it to L&M from time to time; a final settlement dated 29 May 1991 having been arrived at and the payment in terms thereof made to L&M and accepted, Urmila is bound by the actions of L&M, who alone was the "contractor", or could raise bills and receive payments, any dispute between and inter se L&M and Urmila being foreign to the tripartite agreement, no dispute survives or could be raised by Urmila and as such (a) the arbitration clause has become infructuous, inoperative, has ceased to exist and at any rate (b) Urmila is not independently competent, particularly in view of the settlement by L&M to invoke the arbitration clause.

10. The petition is opposed by Urmila, contesting respondent no.1, specifically denying all the allegations in the petition, inter alia, the pleas that L&M alone was the "contractor" or the said respondent alone could receive payment or that petitioner's liability to pay extended to L&M alone or that there was any final or effective settlement as alleged or that Urmila alone could not invoke the arbitration clause. It is asserted that Urmila is not bound by the alleged settlement and that disputes within the ambit of the arbitration clause do exist and are referable for arbitration.

There has been no response to the petition by L&M.

11. I have heard Mr. Arun Jaitley, learned senior counsel for the petitioner and Mr. Mukul Rohtagi, learned senior counsel for Urmila at some length.

12. To appreciate the rival contentions, it would be necessary to notice the vital terms of the tripartite agreement dated 12 December 1985, between the parties, referred to by their counsel in the course of their arguments.

13. The contract agreement between the petitioner on the one hand and L&M and Urmila, both described as acting jointly and severally as "contractor" on the other refers to: (A) submission of bid for the work by L&M in association with Urmila; (B) several discussions concerning the bid and the agreement reached between the parties and (C) its recording in consequence.

The definition clause (1) defines the term "contractor" vis-a-vis the parties" thus :

"Contractor"

"Lee & Muirhead and Urmila acting jointly and severally".

Clause (2) stipulates the "contractor's" obligations, thus:

"2. Contracator's obligations:

2.1. Lee & Muirhead and Urmila will be jointly and severally liable for the performance of the contractor's obligations under this contract.

2.2 Lee & Muirhead shall be the sole representative of the contractor in dealing with NPIL".

Clause (3) makes reference to various schedules and annexures to the agreement. Clauses (4) and (5) deal with payments and read thus:

4. In consideration of the payment to be made by NPIL to the "contractor" as provided in the contract, the contractor hereby agrees with NPIL to execute and complete the works in conformity and in all respects with the provisions of the contract.

5. NPIL hereby agrees to pay to the "contractor" in consideration of the execution and completion of the works, the contract price as provided in the contract, at the times and in the manner prescribed by the contract.

Clause 6 gives finality to the agreement and states "this contract agreement constitutes "the entire agreement between the parties........".

14. Referring to the definition of the term "contractor" in clause (1) and stipulation as to the contractor's obligations in clause (2) of the tripartite agreement dated 12 December 1985, it was contended by learned counsel for the petitioner that though both the respondents fell within the definition of the term "contractor" and were made jointly and severally responsible for the due performance of the contract, so far as the petitioner is concerned, it recognised only L&M - respondent no.2 as the person to deal with them for all matters including preparation and submission of the bills and the payment of the work done by the contractor. It was maintained that L&M alone submitted the bills during the progress of the work from time to time, discussed the matter in connection with the contract and its performance, with them, and received the payment and L&M having finally settled the matter of payment for the work done, set out in the settlement deed, dated 29 May 1991, having thus received and accepted the payment for the 'contractor' voluntarily and unconditionally, it is not open to the 'contractor' to now raise any new claims; the motion for appointment of an arbitrator at the instance of respondent no.1 is unwarranted, illegal and it be declared as such. Reliance for it was placed on two decisions of the Supreme Court in M/s P.K. Ramaiah and Company Vs. Chairman & Managing Director, National Thermal Power Corporation : 1994 Supp (3) S 126 and Nathani Steels Ltd. Vs. Associated Constructions : 1995 Supp (3) S 324. It was submitted that in view of settlement dated 29 May 1991 the arbitration clause in the tripartite agreement has become infructuous, inoperative, ceased to exist and cannot be invoked and in any case, the said clause can be invoked only by the 'contractor' acting together and not acting independently by any one of the two respondents.

15. On the contrary, Mr. Rohtagi, learned senior counsel for Urmila has urged that stipulation in clause (2), authorising L&M to deal with the petitioner was made only to facilitate due performance of the work and has no relevance to settlement of account with the petitioner, which, it was asserted, was the job of the 'contractor' - the term representing both L&M and Urmila as per the contract. It was contended that the purported settlement dated 29 May 1991 by L&M alone with the petitioner cannot be said to be for and on behalf of Urmila, particularly because on the face of it, it does not reflect so. It is maintained that the settlement purports to be only between L&M and the petitioner and there is nothing to indicate that respondent no.2, in doing so acted for and on behalf of respondent no.1 as well or, for a matter of that, for the "contractor" as defined in clause (1) of the agreement. Reference for support was made by the learned counsel to: (i) the minutes of the meeting dated 21-22 February 1989 held between the petitioner and representatives of Urmila and L&M, for the settlement of payments and claims etc.,(ii) petitioner's telex dated 2 March 1989 to each of the two respondents (iii) telex dated 11 March 1989 in reply by Urmila to the petitioner, confirming the move by the petitioner in their telex dated 2 March 1989 for the new procedure for raising bills/payments etc., except the suggestion regarding release of payment of Rs.19,72,928/- by the petitioner to L&M as suggested by them and (iv) telex dated 13 March 1989 by the petitioner to L&M recording that no response had been received from them to the minutes aforesaid or to their earlier telex dated 2 March 1989 and it was vehemently contended that in the light of it all, it cannot be said that insofar as the claims and payments there for were concerned, respondent no.2 alone was competent to make any settlement for and on behalf of Urmila. It was thus urged that the accounts pertaining to the contract having not been settled finally, settlement dated 21 May 1989 cannot stall the invocation of arbitration clause 22 in the tripartite agreement, which for all intents and purposes is alive and as such the petition under section 33 of the Ac t is not maintainable and be dismissed.

16. I have considered the contentions raised in the light of documents placed on record. It is true that Clause 2.2 of the agreement does provide that L&M - (respondent no.2) shall be the sole representative of the 'contractor' (respondent no.1 and respondent no.2) in dealing with the petitioner. It is common ground that the work was executed by the contractor comprising 5both L&M and Urmila for payment of which the bills were pre-pared and submitted by L&M to the petitioner, payment against which was also received by L&M. However, it seems that differences on the submission of bills arose between L&M and Urmila; Urmila protested that the bills submitted were not properly and correctly prepared and payment received from the petitioner was not shared by L&M with Urmila, whereon the petitioner convened and held a meeting with both the respondents, each of whom was separately represented and after deliberations some decisions regarding further arrangement and procedure to be followed were taken and the minutes were circulated by the petitioner, followed by the detailed telex dated 2 March 1989 to each of the two respondents for their comments.

17. A combined reading of the minutes and petitioner's telex dated 2 March 1989 shows that the earlier representation of Urmila by L&M, as stipulated in clause 2.2 of the tripartite agreement was given a go bye by the petitioner themselves. The petitioner, inter alia, suggested and the parties agreed to independent and separate representation before them , by and on behalf of Urmila, by Adm. K.R. Menon, to attend the meeting held on 21 and 22 February 1989 on behalf of Urmila and required Urmila to confirm it and invest Adm. Menon with power of attorney on its behalf for future representation as well. Further in view of the differences between L&M and Urmila, by way of departure to the prevalent procedure of submission of claims by and payments to L&M alone, the petitioner required the claims in category III to be submitted both by L& M and Urmila, along with the explanations and statements to enable the petitioner to examine, discuss and finalise the same by the end of April 1989 and this arrangement was to continue till differences between the respondents were settled between them; it further sought confirmation from Urmila to agree on the release of pending payment of Rs.19,82,928/- to L&M (respondent no.2) and also indicate the date when both the respondents could jointly prepare and submit statement of share of each party in each claim. Urmila in their telex dated 11 March 1989 addressed to the petitioner, with copy to L&M, confirmed that Adm. Menon was fully authorised to represent their interest; that they had no objection to L&M preparing and submitting invoices for the work done prior to 30 November 1988 and subsequent period but adding that as a result of analysis carried out by their representative, M/s. Ferguson & Co., it appeared that large sums of money may be due to Urmila out of disbursements already made by the petitioner to L&M; which matter was being discussed and analysed in detail between L&M and Urmila and requested that further release of payments including of Rs.19,82,928/- by the petitioner should await the conclusion of the analysis. It appears that since there was no response by L&M to the petitioner's telex dated 2 March 1989 and also to Urmila's telex dated 11 March 1989, the petitioner in their telex dated 13 March 1989 to L&M regretted it and informed that Urmila had objected to any payment to L&M till conclusion of the analysis stated above. Relevant extracts of the telex dated 13 March 1989 are reproduced below for ready reference:

1. "We invite reference to TLX No.480 dated 11.3.89 from Urmila & Co Pvt Ltd, Bombay in response to NPIL TLX MSGs of 2 March 89 and 10 March 89 quoted by Urmila & Co.

2. Pls. note Urmila & Co HV objected to any payments being re- leased to L&M until conclusion of the analysis being carried out between L&M and Urmila as stated in para BB of above TLX.

3. .....

4. .....

It is also important to state here that the matters being discussed between L&M and Urmila and on which they HV yet to come to an agreement HV no relevance to the extended period of the contract on which issue Urmila & Co and L&M HV indicated their full agreement.

We have marked a copy of this TLX to Urmila and Co Attn. Mr. A.B.A. Dubash. We propose to issue a separate reply to them.

We however note that NPIL Delhi HV not received any statement from L&M in reply to Urmila & Co's letter No.KRM:JC:89 dated 1.3.1989 addressed to Attn. Mr. Aravind Parikh and in respect of their subsequent telex messages".

18. It is evident from the telex, extracted above, that the petitioner did make a departure in the procedures initially adopted in terms of clause 2.2 of the agreement, it did take due notice of Urmila's request not to make payment to L&M till after their analysis, being carried out, and the discussions between L&M and Urmila thereon were completed for the work already executed, clarifying however, that this embargo would not be applicable to the work for the extended period agreed to be executed only by L&M. Considering changes in policy, procedure and practice, thus brought about by the petitioner themselves and agreed to by all concerned, I feel that the petitioner could not settle accounts with L&M or to have made any payment in consequence without further specific reference to and approval by Urmila. There is nothing to indicate that the petitioner did call upon Urmila before settling the account or the alleged final settlement and making of payment to L&M as a sequel to that. The purported final settlement, as noticed above, does not ex facie purport to have been made for and on behalf of Urmila, which definitely was a vital constituent of the term 'contractor'. As noticed above, the said settlement was signed by L&M as "signed on behalf of Lee & Muir head (India) Private Limited" - not "for and on behalf of "contractor" or both L&M and Urmila and cannot be said to be binding on Urmila. In the light of it all, and in view of the change in the vital procedure pertaining to submission of bills, to be signed by both the respondents, the petitioner cannot, on bare terminology of clause 2.2. of the tripartite agreement, be permitted to contend that the purported settlement dated 29 May 1991 is binding on Urmila or that the arbitration clause has lapsed, has become non-existent or inoperative. The petitioner is estopped by its own conduct, reflected in the Affronted correspondence, from doing so. It being clear that the petitioner itself diluted the rigours of the said clause 2.2, I am inclined to agree with learned counsel for Urmila that the stipulation in the said clause was of a routine nature to provide medium for smooth progress and execution of work like imparting and receipt of instructions for an on going project and in the light of stipulations of "joint and several liability" of both, L&M and Urmila for due performance of work and the petitioner's liability to pay for the work done to the "contractor" as defined in clause 1 as L&M and Urmila, it cannot be reasonably construed to relate to the discharge of liability for payment to the "contractor" as meaning a discharge only by one of them. For it, in my view, an explicit specific provision was called for. Clause 2.2, in my opinion, does not speak so and I am unable to accept the interpretation being given by the petitioner to the said clause.

19. The ratio of both the decisions of the Supreme Court in P.K. Ramaiah and Company's case and Nathani Steels Limited's case (Supra), inter alia, holding that once dispute is amicably settled between the parties finally, the arbitration clause cannot be invoked by a party to resolve the same on the ground of mistake in the settlement arrived, without the settlement being first set aside in proper proceedings, is distinguishable and inapplicable on the facts of the present case.

20. Accordingly, I hold that the alleged final settlement, dated 29 May 1991, is beyond the scope of clause 2.2, and, in any case, made in spite of and in violation of the subsequently prescribed procedure by the petitioner themselves, they cannot be permitted to take shelter under it.

21. For all these reasons, there is no merit in the petition and the same is accordingly dismissed with no order as to costs.

22. Needless to say that dismissal of this application shall not be construed as expression of opinion either on the merits or limitation of the claims/disputes raised by Urmila in the impugned letter. Both the aspects would fall within the domain of the arbitrator.

IA No.10673/94

In view of the fact that the main petition has been dismissed, the application seeking interim relief is rendered in fructuous and is accordingly dismissed. Interim order dated 13 December 1994, staying proceedings before the arbitrator, is hereby vacated.