Zodiac Power Controls Ltd. vs Uttam Singh Dugal & Co. Ltd.
2003 Latest Caselaw 232 Del

JUDGMENT

R.C. Jain, J.

1. The above named petitioner has filed this petition under Section 20 of the Arbitration Act, 1940 (for short the `Act') praying for a direction on the respondent to file the arbitration agreement and thereafter for making an order of reference to the arbitrator in terms of the arbitration clause contained in the agreement dated 5th October, 1981.

2. The petition has been filed with the averments and allegations that petitioner is a company duly incorporated under the Companies Act and Mr. M.L. Jotwani, one of the director of the petitioner company, is duly authorised to sign and verify the petition and institute the same. The respondent company was awarded the contract at Baghdad (Iraq) for the construction of Jad Riyah University project and on 5th October, 1981 entered into an agreement sub-contracting the electrical work to the petitioner. After the petitioner completed the work entrusted to it in terms of the agreement, the respondent vide its letter dated 18th May, 1989 confirmed that a sum of US Dollars 4.40 lacs was payable by it to the petitioner which letter was counter signed by the petitioner in token of its confirmation of the amount of US Dollars 4.40 lacs due and payable to the petitioner. However, the amount was not paid despite several letters and reminders. Subsequently, the respondent denied its liability to pay the said amount on the premise that the work executed by the petitioner was incomplete or defective and that M/s. Trocon had not informed it about the extent of work carried out which was incomplete or required rectification. Besides liability to pay the amount was also denied. Disputes having arisen between the parties, the same are liable to be referred to arbitration in terms of clause 22 which contains the following arbitration agreement:-

"Any dispute or difference that may arise between the Contractor and Sub-Contractor as to the interpretation of this agreement or as to the rights and duties or liabilities of either party herein or to any act, matter, or thing arising out of or under this agreement, or relating thereto shall be referred to and settled by the Indian Arbitration Act, 1940 by each party nominating one Arbitrator and two arbitrators appointing an Umpire before entering into the reference. The venue of the said arbitration shall be at New Delhi."

The petitioner called upon the respondent to invoke the arbitration agreement but it failed to concur in referring the disputes to the arbitrator, hence this petition.

3. The petition is contested by the respondent and a written statement has been filed raising preliminary objections about the maintainability of the petition under Section 20 of the Act on the ground that there was novation of contract between the parties embodying the arbitration agreement dated 5th October, 1981. The said agreement came to an end/substituted by a tripartite agreement between the petitioner, the respondent and the Trans Orient Engineering and Contracting Company, Jordan (Trocon). It is pleaded that the respondent had entered into a sub-contract with M/s. Trocon, Jordan on 29th June, 1981 for construction of dormitories and dining halls for the University of Baghdad at Jad Riyah, Iraq. The principal contract was between the Government of Iraq and Trocon. The contract with the petitioner was entered into for supply of labour, technical supervision and all tools and plants of non-consumable nature for carrying out the electrical works for the said Baghdad project and it was a back to back contract, in respect of the work assigned to the petitioner and was to be governed by the general conditions particularly conditions and specifications and bill of quantities of the principal contract in respect of the said Baghdad project. It is alleged that the petitioner was to be paid for the work actually executed on acceptance and as measured by the resident engineer of Trocon. It is alleged that according to Trocon, there were several omissions in the work to be performed by the petitioner which were required to be rectified and completed. It is further alleged that during the month of May 1989, meetings were held between the representatives of respondent, petitioner and M/s. Trocon and at which Trocon enumerated the services which the petitioner was yet to perform and the work which was to be completed and rectified in order to entitle it to receive the payment directly from Trocon. Accordingly, respondent gave a letter to M/s. Trocon authorising it to give the amount due to the petitioner as well as the respondent's agreement to accept the debit for payments to be made to the petitioner by M/s. Trocon and which arrangement was agreed to by the petitioner. The respondent issued letter dated 18th May, 1989 which was signed by the petitioner in token of petitioner's acceptance of M/s. Trocon's conditions as well as M/s. Trocon taking over the responsibilities, liabilities and obligations towards the petitioner. It is alleged that the present petition is bad, not maintainable and cannot be disposed of unless M/s. Trocon is made a party to the present proceedings. On merits, it is stated that no liability of the respondent arises for any work alleged to be executed by the petitioner in relation to the said project till the work was satisfactorily completed by the petitioner and resident engineer of M/s. Trocon accepted the same. It is denied that the respondent confirmed or intended to confirm that a sum of US Dollars 4.40 lacs was payable by it to the petitioner for the said work. It is denied that there subsist any arbitration agreement between the parties for the settlement of disputes.

4. In the replication, the petitioner has denied and controverter the objections raised by the respondent that there was novation of the contract on execution of any alleged tripartite agreement between the parties and M/s. Trocon. The various averments made in the petition have been reiterated.

5. On the pleadings of the parties, following issues were framed as back as on 20th July, 1999:-

 1)"Whether there has been novation of contract dated 5th October, 1981 as alleged in the preliminary objection?  If so, its effect?                             OPD  
 

 2) If issue  No. 1 is decided in favor of the plaintiff whether Trans Orient Engineering and Contracting Company (Trocon) is a necessary party to the present proceeding?                                         OPD  
 

 3) Whether there is any subsisting dispute and/or valid and subsisting arbitration agreement between the parties.  If so, whether disputes raised are covered by the arbitration agreement?                            OPP   
 

 6. The parties have led their evidence by means of affidavits.  The alleged agreement dated 5th October, 1981 has also been filed besides certain other documents in the form of correspondence exchanged between the parties. 
 

I have heard Mr. V.K. Makhija, learned senior Advocate representing the petitioner and Mr. R.K. Watel, learned counsel for the respondent and have given my thoughtful consideration to their respective submissions. My findings on the above issues are as under.

7. The onus of this issue lies on the respondent because they have alleged that there was novation of the contract dated 5th October, 1981 on the alleged execution of a tripartite agreement between it, the petitioner and M/s. Trocon on 18th May, 1989. In this connection, learned counsel for the respondent has heavily relied upon a letter/communication dated 18th May, 1989, Ex.P-1 emanating from the respondent and addressed to Mr. R. Hajjar, Chairman-cum-Managing Director, M/s. Trocon, Baghdad, the contents of which are as under:-

" 18th May, 1989

BGW/180A

Mr. R. Hajjar,

Chairman-cum-Managing Director,

Trocon

Baghdad.

Dear Sir,

Sub : Settlement of payment of M/s. Zodiac Power Controls Pvt. Ltd.

This has reference to our meeting with you on 16th and 17th May, 1983 on the above mentioned subject and we hereby confirm that a total sum of US dollar 440,000/- (US Dollar four hundred forty thousand only) is outstanding against their complete job done in Baghdad University Project, Tender-8 and Tender 9.

We hereby authorise you to pay the above mentioned amount to them directly at your earliest and debit the amount to our Foreign Currency Account with you.

Thanking you,

Yours faithfully,

for Uttam Singh Dugal & Co. Pvt. Ltd.

A. PAUL

JT. PROJECT MANAGER

I, hereby, confirm and accept the above outstanding amount due to us against the above work.

  No.  ATTI 448189 Dated:                                                                  18.5.89 Seen in embassy
   

 

(L.C.BAKHRU) 

for Zodiac Power Controls Pvt. Ltd. 

Chairman-cum-Mg. Director)"  
 

8. Yet another letter relied upon by the respondent is dated 22nd May, 1989, Ex.RW-1/1 issued by M/s Trocon addressed to the respondent. This letter contains several conditions in regard to furnishing of the list of electrical material etc. and the petitioner and respondent issuing a joint letter confirming a sum of money that should be paid by M/s. Trocon to M/s. Zodiac, i.e. the petitioner on behalf of the respondent and to be debited to respondent's account. On the strength of these two letters, it is urged by the learned counsel for the respondent that the contract dated 5th October, 1981 between the parties stood novated as a new agreement dated 18th May, 1989 came into being between the petitioner, respondent and M/s. Trocon under which M/s. Trocon had undertaken the liability to make the payment of US Dollar 4.40 lacs or any other amount found due to the petitioner and the petitioner accepted the same by confirming and appending the signatures. The contention seems to be devoid of any merits because a bare reading of the endorsement made by Mr. L.C. Bakhru at the foot of the letter dated 18th May, 1989, Ex.P-1 would show that the petitioner had only confirmed and accepted the above outstanding amount due to it against the Baghdad project. This acceptance and endorsement cannot by any stretch be construed as the discharge of the liability of the respondent to make the payment or acceptance of the petitioner about the liability of M/s. Trocon to make the payment of the due amount. No such intention is decipherable even from the letter dated 22nd May, 1989. Accordingly, I have no hesitation in holding that there was no novation of the contract dated 5th October, 1981 as no such tripartite agreement as alleged by the respondent came into being during May, 1989. The issue is as such answered in negative and against the respondent.

9. Learned counsel for the respondent has strongly urged that in view of the agreement/arrangement reached between the petitioner and respondent, M/s. Trocon is a necessary party to the present proceedings and without them there can be no adjudication of the disputes and differences. While discussing Issue No. 1, this Court has held that there was no tripartite agreement between the petitioner, respondent and M/s. Trocon and, therefore, the mere fact that at one stage, on the asking of the respondent, M/s. Trocon had undertaken to make the payment of US Dollar 4.40 lacs or whatever sum found due and payable to the petitioner, will not absolve the respondent from its liability to make the payment because admittedly M/s. Trocon has not made the payment in terms of the letter dated 18th May, 1989. This Court, therefore, is of the opinion that M/s. Trocon is neither a necessary nor proper party to the present proceedings.

10. The petitioner has filed cogent evidence which prima facie show that in the year 1989, the respondent had admitted its liability to make the payment of US Dollar 4.40 lacs to the petitioner in relation to the Baghdad project. However, it appears that subsequently they took a somersault and started denying its liability firstly on the ground that the liability to make the payment was that of M/s. Trocon and secondly that the work so executed by the respondent was not in accordance with the terms of the agreement and the work remained incomplete and defective in many ways which was not rectified by the petitioner and, therefore, the petitioner is not entitled to payment. These very pleas of the respondent would show the subsistence of disputes and differences between the parties in relation to the agreement dated 5th October, 1981. The issue is as such answered in affirmative and in favor of the petitioner.

11. In view of my findings on the above issues, the petitioner is entitled to the relief claimed. Accordingly, the petition is allowed and the respondent is called upon to file the arbitration agreement dated 5th October, 1981 and it is ordered that in terms of clause 22 contained in the arbitration agreement dated 5th October, 1981, the petitioner and respondent will nominate one arbitrator each within a period of one month from the date of this order and thereafter the arbitrators so named/appointed will appoint an Umpire in terms of the arbitration agreement.

Petitioner shall be entitled to costs of the petition.