Contenental Construction Ltd. vs Balfour Beaty Limited
2002 Latest Caselaw 112 Del

JUDGMENT

O.P. Dwivedi

1. This petition under Section 20 of the Indian Arbitration Act, 1940 has been filed by the petitioner M/s. Continental Construction Limited for referring disputes to the arbitration. The parties entered into two agreements referred to as "the Joint Venture Agreements" dated 8.1.87 for the purpose of jointly preparing and submitting a tender for the construction of Ahmedabad-Vadodara Expressway project in Gujarat State and for the widening to 4-lanes (including strengthening of existing pavement) of National Highway - I in Haryana State. The said joint venture signed contract agreements Nos. II, III and IV dated 23.3.87 for the works in the State of Haryana. Besides, joint venture also signed contract agreement Nos. V, VI and VII dated 25.3.87 and Nos. VIII, IX, X dated 24.3.87 for the works in the state of Gujarat. Under the joint venture agreements the defendant had to provide experts in express ways and also had to provide on a temporary basis specialised road construction equipments whereas the bulk of the remaining heavy earth moving and construction machinery was to be provided by the plaintiff. It is alleged that the defendant company failed to maintain the requisite standard of expertise in terms of the staff deputed for the work as also the machinery required for the purpose. Plaintiff wrote a letter dated 16.9.98 in this regard to the defendant. Even the client namely State of Haryana expressed their concern at the lack of progress on the projects. Ultimately a meeting was held on 15.12.88 but the defendant instead of providing inputs informed all concerned that they had decided to withdraw from the joint venture as well as from the works. This was done in December 1988/89. Plaintiff then made it clear to the defendant that defendant could not escape full liability for the breach of the agreement and they could not simply walk away. Plaintiff also wrote a letter dated 31.8.89 to the client states undertaking full responsibility for the execution o the contract but the concerned governments took about 30 months time to accept the plaintiff company alone as the contractors. In the meantime a settlement was arrived at between the parties vide MOU dated 1.2.89 under which the plaintiff undertook to takeover all the contractual obligations towards the client states on behalf of the joint venture for a sum of Stg.pounds 9 million which defendant had agreed to pay to the plaintiff. Another MOU was signed between the parties on 25.2.89 under which the defendant agreed to make a lump sum payment of Stg. pounds 6.8 million to the plaintiff on receipt of approval from the client states of the defendant's withdrawal from the joint venture. It is admitted by the plaintiff that this amount of Stg. pounds 6.8 million has been received by the plaintiff. The plaintiff's case is that at the time of the signing of the MOU dated 1.2.89 it was expected that the Governments of States of Haryana and Gujarat as also the Central Government will sort out the matter regarding the withdrawal of defendant from the joint venture by end of March 1989 but this did not happen. The Governments could resolve the matter only during the year 1991. In the meantime work remained virtually suspended in Gujarat and Haryana while cost escalation continued mounting up. Plaintiff wrote various letters to the defendant informing that the amount of losses estimated in the MOU dated 1.2.89 would not hold good because of the lapse of time. The plaintiff also submitted details of extra expenses incurred by it on behalf of the joint venture up to January 1991. According to the plaintiff the total loss to be shared between the parties would amount to Stg. pounds 32.34 million and therefore defendant was liable to pay Stg. pounds 16 million to the plaintiff. Out of the total amount of Stg. pounds 9 million which was agreed to be paid by the defendant to the plaintiff vide MOU dated 1.2.89 only Stg. pounds 6.8 million have been paid to the plaintiff. Thus, according to the plaintiff a sum of Stg. pounds 2.2 million remains payable by the defendant to the plaintiff.

2. Several letters were exchanged between the parties in this regard and meetings were also held but ultimately vide letter dated 9.4.92 defendant's Secretary conveyed that the defendant has no liability whether past, present, contingent or otherwise to make any further payments to the plaintiff. The plaintiff thereupon invoked arbitration clause contained in the joint venture agreement vide their letter dated 26.7.94 but the defendant did not agree to refer the disputes to the arbitration. The stand taken by the defendant was that with the payment of Stg. pounds 6.8. million under the supplementary contracts dated 18.4.91, 16.8.91 the defendant stood absolved of its liability under the joint venture agreements and the joint venture agreements which contained arbitration clause came to an end and therefore there is no question of referring the dispute to the arbitration.

3. The plaintiff pleads that the defendant's Managing Director mr. Malwyn Jones had visited India in mid April 1991 and had made a commitment on behalf of the defendant to pay stg.pounds 1.50 million over and above what had been paid till ten provided plaintiff completed the withdrawal of the defendant's name from the contracts and also secured return of the defendant's bank guarantees from the client States. Plaintiff therefore raised the claim for stg. pounds 1.50 million only after completing the proceedings regarding withdrawal of defendant's name from the contracts and securing return of defendant's bank guarantees from the clients. According to the plaintiff the balance amount payable to it comes to stg. pounds 2.2. million but they are pressing their claim for payment of Stg. pounds 1.5 million only as per the promise made by Mr. Malwyn Jones yet the defendant did not honour the commitment of their erstwhile Managing Director even for this Lesser amount. The joint venture agreement dated 8.1.87 contains the following arbitration clause:-

"6. Settlement of disputes:-

All questions relating to the validity and interpretation of this agreement shall be governed by the laws of India. All disputes or differences arising between the parties hereto as to the intent and meaning or application of this agreement, including any disputes or differences as to its existence or validity, shall be referred to arbitration in accordance with the Indian Arbitration Act, 1940. The venue of arbitration shall be New Delhi. The award in such arbitration will be final and binding on both parties. Neither the obligations of each party to perform the contract nor the execution of the works shall stop during the course of arbitration proceedings."

4. In their letter invoking arbitration clause, the plaintiff also proposed the name of Mr. R.K. Aggarwal, Advocate to act as an arbitrator but the defendant failed to nominate his arbitrator. However, Mr. R.K. Aggarwal, could not make and publish his award within time due to non-cooperation by the defendant. Then vide letter dated 8.8.95 the plaintiff proposed the names of three arbitrators but the defendant vide letter dated 15.8.95 declined to refer the disputes to the arbitration on the ground that there is no subsisting arbitration agreement between the parties. Hence, this petition.

5. The petition has been contested by the defendant. In their reply dated 12.3.96 defendant has taken the stand that the joint venture agreement dated 8.1.87 which contained the arbitration clause was terminated by supplementary agreement between the parties dated 17.4.91 and 16.8.91 whereunder the defendant had completely withdrawn from the joint venture agreements and payment of Stg. Pounds 6.8 million was made in full and final settlement of the parties claim against each other. It is pleaded that all the claims between the parties under and in relation to the said joint venture agreements completely stood settled and concluded in terms of the supplementary agreement and the defendant stood completely discharged and released of all claims, liability, obligations under the said agreement. Clients viz. State of Haryana and Gujarat also accepted this position when separate agreements were executed between the said States and the parties to the suit. The plaintiff also executed release letter in respect of the joint venture agreements. Thus according to the defendant there is no-subsisting arbitration agreement between the parties nor there is any outstanding dues, so the question of making reference to the arbitration does not arise. It is alleged that the plaintiff is raising this unfounded claim with a view to pressurise and coerce the defendants to pay some additional amount. Besides, it is contended that the alleged claim is barred by time.

6. The plaintiff did not file any rejoinder to the reply filed by the respondent. On the pleadings of the parties, following issues were framed on 20th August, 1996:-

(1) Whether the claim of plaintiff is barred by limitation?

(2) Whether there is any valid and subsisting arbitration agreement between the parties?

(3) Whether the claims raised in the petition are disputes within the meaning of the arbitration clause?

(4) Whether the disputes raised in the petitioner could be referred to arbitration under clause contained in joint venture agreements?

(5) Relief.

7. Parties were allowed to adduce their evidence by filing affidavits.

8. I have heard learned counsel for the parties and perused the records.

9. These issues are inter connected therefore they are taken up together. It is specifically pleaded by the defendant in their reply that joint venture agreements between the plaintiff and the defendant which contained arbitration clause were terminated and came to an end by mutual agreement between the parties. Therefore, with the mutual termination of the joint venture agreement, arbitration clause also ceased to be operational and the same is no longer in existence. Parties released each other from all claims, liabilities and obligations under the joint venture agreements vide supplementary agreements dated 18.4.91 and 17.5.91 executed between the parties and the State of Gujarat whereby defendant was completely relieved of all liabilities, obligations and claims arising out of or in connection with this contract for Ahmedabad-Vadodra express way and the plaintiff undertook all past, present and future contractual obligations/liabilities for execution of the said contracts. Likewise vide supplementary agreement dated 16.8.91 executed between Government of Haryana and the parties to this petition the defendant stood completely released from all claims, liabilities, obligations arising out of or in connection the contracts for National Highway No. 1 and the plaintiff undertook all past, present and future contractual obligations/ liabilities for execution of the said contracts. The plaintiff also executed letters of release dated 19.4.91 and 16.8.91 both of which contain the following clause:-

"... It is mutually agreed by both the joint venture partners that the joint venture agreements referred to above are finally terminated with effect from the dates on which the Supplementary Contracts are signed by all parties (i.e. Employer, joint venture, CCL and BBL) and each of the joint venture partners waives all outstanding claims between them."

10. These averments contained in the written statement/reply filed by the defendant have not been controverter by the plaintiff. Plaintiff chose not to file any rejoinder to the reply file by the defendant as is clear from the order sheet dated 20.8.96. So these averments contained in reply must be deemed to have been admitted. This is also clearly borne out from supplementary contracts dated 18.4.91 and 16.8.91 and the release letters dated 19.4.91 and 16.8.91 which are admitted documents. It is also an admitted fact that the payments mentioned in the supplementary agreement amounting to 6.8 million stl.pound have been received by the plaintiff. Thus with execution of the supplementary agreements, the release letters and with the receipt of the said amount of 6.8 million, stl. pound by the plaintiff, the defendant stood completely discharged of its obligations, liabilities, claims etc in connection with the joint venture agreements and the other contracts executed with the States of Gujarat and Haryana there under. With the receipt of 6.8 million stl. pounds by the plaintiff from the defendant in full and final settlement of all the dues and liabilities between the parties all claims between the parties stood satisfied and therefore it is not open to the plaintiff to claim a reference to the arbitration in respect of any alleged oral assurance given by Mr. Malwyn Jones. In the case of P.K. Ramaiah & Co. v. Chairman & Managing Director NTPC-1 (1994) 1 Scale 1 and in the case of State of Maharashtra v. Nav Bharat Builders- 1994 Supp (3) Supreme Court Cases 83, Supreme Court held that once there is a settlement of mutual claims there remain no dispute to be referred to the arbitrator and the contractor cannot approach the court to refer the matter to arbitration without first getting the settlement set aside.

11. Learned counsel for the plaintiff referred to the decision in the case of Bharat Heavy Electricals Limited Ranipur v. Amar Nath Bhan Prakash- (1982) 1 Supreme Court Cases 625, wherein it was observed that the question as to whether there was discharge of the contract by accord and satisfaction or not, is a dispute arising out of the contract to be referred to arbitration and therefore application of the respondent under Section 20 of the Arbitration Act should have been allowed. From the reported portion of this judgment, it is not possible to ascertain the entire facts of the case and the precise nature of controversy involved in the case. The legal principle deducible from authorities cited at the bar would thus be that if from the admitted facts and documents on record Court comes to a clear conclusion that there has been a mutual settlement of claims and discharge of contract by accord and satisfaction, no reference will be made to the arbitrator under Section 20 of the Arbitration Act, 1940 but when it is not possible to say with certainty that settlement of dispute has taken place and the matter required examination of evidence regarding settlement if any, such a dispute will be referred to the arbitrator. In the present case it is apparent from the admitted facts and documents on record that with the payment of 6.8. million stl. pounds, execution of supplementary contracts dated 18.4.91 and 16.8.91 and release letters dated 19.4.91 and 16.8.91 defendant stood completely discharged of all its liabilities under the contract and the joint venture contract itself came to an end. In face of these admitted facts and documents it is not possible to entertain the plaintiff's plea regarding some oral assurances made by Malwyn Jones and to invoke the arbitration clause which has already vanished with the main joint venture agreements. Assuming that there were some negotiations between the plaintiff and Mr. Malwyn Jones, the fact remains that Mr. Malwyn Jones never made any commitment nor any such commitment is contained in any of the letters exchanged between the parties. If at all Malwyn Jones had made any such commitment in April 1991, plaintiff would not have agreed to sign the supplementary agreements dated 18.4.91 and 16.8.91 and the release letters dated 19.4.91 and 16.8.91. The language of the supplementary contracts and the release letters is clear and unambiguous that with the payment of 6.8 million Stl.pounds under the supplementary contracts, the defendant stood completely absolved of and discharged from its liabilities, etc. under the said contracts. With the settlement of all outstanding matters between the parties, the plaintiff received 6.8 million Stl.pounds in full and final settlement of all outstanding claims against the defendant. This amounts to discharge of contract by accord and satisfaction. Therefore, in view of the law laid down by the Supreme Court in the case of State of maharashtra and P.K. Ramaiah (supra) the plaintiff cannot ask for referring the dispute to arbitration without first getting the settlement set aside.

12. Moreover, even if Mr. Malwyn Jones had made any commitment after and inspite of the execution of supplementary agreements and release letters such a agreement will beyond the scope of Arbitration clause which already stood extinguished with the termination of the primary contract viz. the joint venture agreements.

13. Accordingly, I hold that there is no subsisting arbitration agreement between the parties nor there is any dispute within the ambit of arbitration clause which has ceased to exist nor any such dispute can be referred to the arbitrator. Accordingly, all three issues are decided in negative against the plaintiff.

14. In view of my finding in issue Nos. 2, 3 and 4, this petition fails so the question regarding limitation need not be gone into.

15. In the result, on finding issue Nos. 2, 3 and 4 this petition fails and is hereby dismissed.