Interstate Equipment (I) P. Ltd. vs Bharat Aluminium Company Limited
2007 Latest Caselaw 1361 Del

JUDGMENT

Shiv Narayan Dhingra, J.

1. The respondent invited tenders for installation of Aerial Ropeway System at Gandhamardan Bauxite Project on turn key basis in Orissa by issuing Notice Inviting Tender (NIT) dated 30.9.1982. Pursuant to the invitation of tender, petitioner submitted its bid to the respondent at Delhi. A letter of intent dated 13.10.1983 (Ex. P-3) was issued by respondent to the petitioner accepting offer of the petitioner for rope way on turn key basis for a value of Rs. 5,27,32,500/-. This letter provided that the date of contract will start when Balco (respondent) pays 10% advance after issuance of letter of intent and the contract was to be completed within a period of 22 months from the date when 10% advance was paid. The petitioner was supposed to submit a bank guarantee for this advance of 10% of the contract value in the Balco's prescribed format within 10 days of issuance of letter. The contract was to be governed by the terms and conditions as per Notice Inviting Tender (NIT).

2. The petitioner's case is that the work on the project could not take off and was kept on hold. 10% advance was not paid by the respondent. The reason for hold up, as can be found out from the pleadings and correspondence between the parties being that the final environmental clearance was denied by the Central Government. There was also an agitation by the local tribal people against the project. The correspondence between the parties and pleading also reveal that when the NIT was issued, the State Government had provisional environment clearance with it and it was quite hopeful of getting final environment clearance. However, the project could have commenced only if the final environment clearance was granted by the Central Government. The environment clearance was ultimately denied by the Central Government.

3. The respondent's case is that the project was kept on hold by it hoping that the tribal upsurge against the project would subside and the final environment clearance would be granted by the Central Government. The correspondence on this account continued between the parties from October 1983 onwards, when the initial letter of intent was issued. Ultimately, in July 1988 the petitioner wrote a letter dated 12.7.1988 to the respondent that the project has been held up on various accounts inter alia tribal agitation and non grant of environmental clearance due to fault of respondent. The factor contributing to the delay also affected design parameters for which also the petitioner held respondent responsible. The petitioner wrote to the respondent that due to change in the project as first contemplated and awarded in 1983, the original terms and conditions can no longer apply and the differences and disputes have to be resolved in equitable and just manner petitioner enumerated various issues which needed resolution as under:

i. Payment for goods inspected and supplied at site.

ii. Payment and acceptance for goods and supplies ordered on account of Balco project ready and awaiting dispatch.

iii. Liability on account of cancellation of orders or compensation to Suppliers for placing them On Hold.

iv. Relief and reimbursement of overheads, establishment and other direct/indirect costs incurred by petitioner consequent upon the Hold placed by Balco for the period of involvement.

v. revision of contractual price and conditions of contract or in case Balco chooses to abandon the work to assess and pay for loss of profits and damages after deducting the advance payments.

vi. Immediate interim relief in terms of paras 1 to 4 to enable to meet pressing commitments / liabilities.

Petitioner stated in its letter that in the event of not receiving any positive response within a fortnight from notice date, it shall presume that respondent was not inclined to make a reference to arbitration. In that event, respondent may suggest the names of the arbitrators who would be acceptable to petitioner and if desired by respondent, petitioner could also suggest such suitable name/ names.

4. Petitioner wrote another letter dated 16.8.1988 to the respondent wherein it noted that the respondent was still making efforts to obtain necessary clearance and to revive the project. However, petitioner wanted that decision on outstanding disputes be urgently taken and disputes be resolved. The petitioner thereafter suo motu appointed Justice H.L. Anand, a retired Judge of Delhi High Court, as sole arbitrator to decide all the outstanding disputes and asked the respondent to give its objections to the appointment within 15 days. respondent objected to such appointment and also objected to the alleged issues raised by the petitioner. The stand of the respondent was that it was not responsible for the contract being on hold and the circumstances, beyond the control of the respondent were responsible for the frustration of the contract. The respondent also took a stand that the issue regarding existence of the contract itself would be one of the issues and respondent hoped that matter would be resolved amicably between the parties.

5. The petitioner filed the present suit under Section 20 of the Arbitration Act 1940 on 22.10.1988 praying the court that respondent be directed to file arbitration agreement and the disputes between the parties be referred to Justice H.L. Anand (Retd.) The petitioner enumerated the disputes in the suit more or less in the same manner as given in para 3 above.

6. The respondent in its reply to the suit took the stand that the contract containing the arbitration agreement was void under Section 20 of the Indian Contract Act. The arbitration agreement having become void was not enforceable. At the time when the contract was entered into between the parties there was assumption that there would be a possibility of the execution of the work on agreed terms but it transpired subsequently that the contracted terms cannot be fulfillled because of the statutory prohibitions and the limitation and restrictions since the necessary environmental clearance was finally not given by the Central Government and there was a mass agitation at the project site.

7. It is also stated that even if contract was not void, the conditions precedent to invoking the arbitration agreement were not fulfillled and the arbitration agreement could not be invoked by the petitioner without fulfillling the conditions. The respondent also submitted that this Court has no jurisdiction to entertain this suit inasmuch as according to the terms of the agreement based on the NIT and General Conditions of the Contract, all disputes arising out of the contract are deemed to have arisen in Bilaspur/ Ratnagiri and only the courts at Bilaspur/ Ratnagiri shall have jurisdiction to entertain the suit.

8. The basic facts are not disputed by the parties. The respondent's claim is that the project report was submitted to the Central Government and a provisional clearance was granted by the Central Government for implementation of the project. However, the final clearance was to be granted after the matter was referred for the environmental assessment regarding acquisition of land and consequent displacement of persons, deforestation, land degradation affecting vegetation and forest growth; noise and air pollution; damage to monuments/ buildings of importance; water pollution including its effect on water regime and impact on local population. It is stated that the provisional clearance was given in August 1982 and was valid till further communication. The project was prepared on the basis of provisional clearance and no objection certificate by the State Prevention and Control of Pollution Board, Orissa and public tenders were floated. The provisional clearance was given by the department of environment subject to the condition that respondent prepared a detailed plan as per clearance certificate and carried out various studies and make a report in consultation with various parties including petitioner regarding the deforestation of the land during construction on land. The Provisional clearance required that adequate steps to be taken to limit the affect of deforestation during the construction period. The respondent obtained clearance for release of 107 acres of forest land under the Forest Conservation Act, 1980 from the State Government before proceeding with the NIT and involved all concerned parties including petitioner in order to fulfilll various conditions including steps for afforestation environmental protection. However, in June 1985 project was recommended to be shelved in view of serious adverse environmental implications on the perennial streams and springs as well as that the two important temples, namely, Hari Shanker and Narshing Nath, located nearby were being badly affected. The respondent and State Government had also sanctioned expenditure around 25 crore for the afforestation and environmental balance, but environmental clearance did not come. It is stated that respondent had made all efforts to obtain environmental clearance but the final environmental clearance from the Central Government of India was rejected in view of massive agitation by local people and tribals as well as in view of the environmental effect on the area. The agitation caused complete cessation of work of the project from June, 1986 onwards despite all efforts made in this regard to normalise the situation by respondent and the State Government. All the contractors, including the petitioner, informed the respondent that they were unable to carry out work in view of the coercive measures adopted by the agitators. The petitioner also informed the respondent that the implementation of the project was no longer possible in view of the lack of final environmental clearance and the prolonged agitation of the local tribals. The petitioner, vide letter dated 26.8.1987 requested the respondent to keep the invocation of the bank guarantee in abeyance until work commenced or the claims and other related matters are resolved. This request of the petitioner was accepted by the respondent and bank guarantee was not only kept in abeyance but was allowed to lapse.

9. On the basis of pleadings of the parties, following issues were framed on 27.4.1989:

1. Whether this Court has no jurisdiction to entertain and try this petition

2. Whether there exists a valid, subsisting arbitration agreement between the parties

3. If issue No. 2 is proved, whether the petitioner has not properly invoked the arbitration agreement

4. What are the disputes required to be referred for arbitration.

10. The suit was decided by this Court vide judgment dated 3.3.2004 holding that the provision of Arbitration and Conciliation Act 1996 would apply in this case and this Court appointed Sh. A.B. Saharia (Retd.) Chief Justice of Punjab and Haryana High Court as the sole arbitrator to adjudicate upon the disputes between the parties. A writ petition being WPC No. 5450/2004 was preferred against this judgment before Division Bench of this Court and vide order dated 17.2.2005, the order of this Court was quashed in view of the judgment of the Supreme Court in Milk Food v. GMC Ice Cream (P) Limited and U.P. State Sugar Corporation Limited v. Jain Construction Co. and Anr. and the matter was remanded back to Single Judge to decide the entire matter afresh in accordance with law.

11. Issue No. 1 Whether this Court has no jurisdiction to entertain and try this petition It is submitted by learned Counsel for the petitioner that there was no clause in the NIT or in the General Conditions of the Contract providing that court in Bilaspur/Ratnagiri would have jurisdiction to determine the disputes. In the NIT, the clause of jurisdiction of the Court has been left blank. In NIT the venue of the arbitration is stated to be administrative office Bilaspur/ Ratnagiri. It is argued that merely because arbitration had to take place at administrative office Bilaspur/ Ratnagiri, jurisdiction of Delhi courts is not taken out. It is submitted by learned Counsel for the petitioner that the letter of acceptance of the offer of the work was sent from its Delhi office by the respondent. Since offer was accepted at Delhi, the Contract was concluded at Delhi and therefore in view of Section 4 of Contract Act, Delhi courts would have jurisdiction. It is also submitted that this Court would have jurisdiction in view of Section 20 CPC as the respondent at relevant time was having its head office in Delhi and cause of action had partly arisen in Delhi petitioner relied upon Progressive Construction Limited v. Bharat Hydro Power Corporation Limited , American Pipe Co. v. State of Uttar Pradesh AIR 1983 CAL. 186 and Dr. S. Dutt v. State of U.P on the other hand has taken me through the clauses of contract (NIT) which have been over looked by the petitioner during argument and has argued that only Court at Bilaspur has jurisdiction to entertain the suit. The arbitration clause as provided in NIT is as under:

Settlement of Disputes

9.1 ( Matters finally determined by the company)

All the disputes or differences of any kind whatsoever arising, out of or in connection with the contract (other than those in respect of which the decision of any person is by the contract expressed to be final and binding) whether during the progress of the works or after their completion and whether before or after the determination of the contract, shall be referred by the Contractor in writing to the Company and the Company shall within a reasonable time after their presentation make and notify decisions thereon in writing.

9.2.1(Demand for arbitration) x x x x x

9.2.2 (Obligations during pendency of Arbitration) x x x x x

9.2.3 (Arbitration) x x x x x x x x x

9.2.3.1.4 The venue of Arbitration proceedings shall be the Administrative Officers of the Korba/ Ratnagiri Projects.

10.1.1 (Court of jurisdiction) The court of jurisdiction shall be (blank) There is no doubt that in the above clause, the Court of jurisdiction has not been filled and left blank. However, the Agreement For Works formed part of the NIT. The clause reads as under:

All disputes arising out of or in any way connected with this agreement shall be deemed to have arisen in Bilaspur/Ratnagiri and only the Courts in Bilaspur/ Ratnagiri shall have jurisdiction to determine the same.

12. It is settled law that if two or more courts have jurisdiction over the matter, the parties by an agreement can choose the jurisdiction of one of the court to the exclusion of other. The reference may be made in this regard to ABC Laminart Pvt. Ltd. and Anr. Angile Insulations v. Davy Ashmore Indus. Ltd Apparel Export Promotion Council v. Prabhati Patni, PCF. In this case the choice of the parties is clear from the jurisdiction clause. Although, in the arbitration clause the column of jurisdiction is blank, however, in the subsequent part of the contract between the parties, this blank stands explained and filled up and it is specifically provided that only court at Bilaspur shall have jurisdiction in respect of all disputes arising or connected with the agreement. It is obvious that Delhi courts will have no jurisdiction. The petitioner's office was at Calcutta. The respondent was having works at Bilaspur/Ratnagiri. respondent was a PSU at the relevant time. Head office of all PSUs were in Delhi and the correspondence used to be done from Head Office but a conscience decision was made by the respondent and the petitioner that only court at Bilaspur shall have jurisdiction. In view of this conscience decision having been made jointly, I consider that jurisdiction of this Court could not be invoked for filing an application under Section 20 of the Arbitration Act and only the courts at Bilaspur/ Ratnagiri shall have jurisdiction. The cases cited by the petitioner are in different circumstances and none of the case deals with the circumstance when parties exercised a conscience decision of choosing jurisdiction of a particular court. It is within the rights of the parties to make such a choice and this Court cannot re write the contract between the parties. I, therefore, hold that this Court has no territorial jurisdiction.

13. Issue No. 2 Whether there exists a valid, subsisting arbitration agreement between the parties The conclusion of the contract between the parties is not disputed. Counsel for the respondent submitted that the contract got frustrated due to non grant of environmental clearance by the Central Governmental and since contract got frustrated the arbitration clause also got frustrated and there was no subsisting arbitration agreement between the parties. On the other hand learned Counsel for the petitioner submitted that the plea of the respondent that contract got frustrated was baseless, however, irrespective of the fact whether the contract got frustrated or not, the arbitration clause shall survive and the petitioner can raise disputes/ claims in respect of frustrated contract only through arbitration as provided in the contract.

Once a contract is concluded between the parties and contract contains an arbitration clause that the disputes arising out of the contract shall be resolved between the parties through arbitration, even if the contract is rescinded/ terminated or otherwise gets frustrated, the arbitration clause shall still survive and the disputes between the parties has to be resolved in accordance with the mechanism provided in the contract. This Court in Goyal Mg. Gases Limited and Anr. v. Griesheim Gmbh 1999(2) Arbitration Law Reporter 644 held that frustration of contract shall not frustrate the arbitration clause and the arbitration clause shall still be in existence for the purpose of resolution of disputes between the parties. I, therefore, decide this issue in favor of the petitioner and against the respondent.

14. Issue No. 3. Whether petitioner has not properly invoked arbitration agreement The parties were bound by the arbitration clause which reads as under:

9.1 ( Matters finally determined by the company)

All the disputes or differences of any kind whatsoever arising, out of or in connection with the contract (other than those in respect of which the decision of any person is by the contract expressed to be final and binding) whether during the progress of the works or after their completion and whether before or after the determination of the contract, shall be referred by the Contractor in writing to the Company and the Company shall within a reasonable time after their presentation make and notify decisions thereon in writing.

9.2.1 Demand for Arbitration

If the Contractor be dissatisfied with the decisions of the company, on any matter in question dispute or difference on any account or as to the withholding by the Company of any certificates to which the Contractor may claim to be entitled to or if the Company fails to make decisions within a reasonable time, then the Contractor within ten days of the receipt of the communication of such decision, or after the expiry of reasonable time (which reasonable time will in no case exceed three months) as the case may be deemed in writing that such matters in question, dispute or difference, be referred to arbitration. Such demand for arbitration shall be delivered to the Company by the Contractor and shall specify the matters which are in question, dispute or difference and such dispute or difference of which the demand has been made and no other matter shall be referred to arbitration.

Work under the contract shall, unless otherwise directed by the Engineer, continue during the arbitration proceedings and no payment due or payable by the Company shall be with held on account of such proceedings provided, however, it shall be open for the arbitrator or arbitrators to decide whether or not such work should continue during arbitration proceedings.

9.2.3 Arbitration

9.2.3.1 Matters in question, disputes or difference to be arbitrated upon shall be referred for decision to A sole arbitrator who shall be an officer of the company in cases where the claims in question are below Rs. 50,000/-.

9.2.3.1.2 Where the claim in question exceeds Rs 50,000/- arbitrator shall be appointed as per Indian Arbitration Act 1940 as modified from time to time.

9.2.3.1.3 Subject as aforesaid Indian Arbitrators Act, 1940 as and the Rules there under and any enactment or statutory modification thereof for the time being in force shall apply to the arbitration proceedings under the clause.

9.2.3.1.4 The venue of Arbitration proceedings shall be the Administrative Officers of the Korba/ Ratnagiri Projects.

In order to invoke arbitration, petitioner has first to refer disputes and differences to the company and company was to be communicate its decision giving reasons in writing. Petitioner, if dissatisfied with the decision of the respondent could have invoked the arbitration clause. The arbitration clause could also have been invoked if respondent failed to give its response within a reasonable time i.e within a period of three month. The petitioner then could have asked the respondent to appoint an arbitrator in writing details of disputes and differences.

Petitioner vide its letter dated 29.2.88 sought for resolution of the issues in terms of Clause 9 of the agreement giving details of its claims and stating that it had already written to DGM on 19.2.88. The respondent was to take decision within three months and communicate the same to the contractor. Four months elapsed but respondent took no decision thus petitioner was justified in invoking arbitration clause. The petitioner also wrote a letter dated 12.7.88 to the respondent for appointment of arbitrator giving details of disputes and differences. However, two further months elapsed. There was no response from the respondent. Thereafter, the petitioner vide letter dated 16.8.88 forwarded names of Justice H.C. Anand as sole arbitrator. Thus, the petitioner complied with the conditions for invoking arbitration clause. It is contended by the respondent that the letters dated 12.7.88, 16.8.88 and 31.8.88 referred to by the petitioner do not show that the condition required for invoking arbitration clause had been fulfillled. A perusal of letter dated 19.2.88 referred to by the petitioner Ex. P.96 would show that in this letter petitioner made a grievance that the project was on hold for last five years because government denied environmental clearance and it was still uncertain whether project was likely to be executed or not. petitioner asked for positive directions and decision in respect of certain issues enumerated by it which are as under:

1. The likely date of receipt of the Government's Clearances which will result in starting the project.

2. In case the clearances are not received within 3 months, whether it will be worthwhile to continue keeping us on hold.

3. Orders for immediate payment of outstanding invoices.

4. Payment for the compensation for material and goods ready for dispatch in case of cancellation. The goods have been ordered for the project and are lying in storage with the Suppliers.

5. Reimbursement of costs and compensation for the period the project has been on hold including costs for cancellation of orders on Suppliers.

6. Indemnity from Balco for action against us by our Supplies and Bankers etc.

The letter dated 19.2.88 was replied by the respondent vide its letter dated 21.3.88 ( Ex. P-97). In sum and substance, the respondent gave this position as under:

We have been suffering considerable financial loss and the project is at a stand still for reasons which cannot be attributed to us. There has been no failure or default on our part on the basis of which you could make any claim against us. In any event, the respective rival contentions of the parties in respect of any differences or disputes and claims or counter claims will be dealt with at a later stage if and when any such question will arise for decision. Therefore, without prejudice to our rights and contentions and also subject to what is stated in our earlier correspondence and herein above, the circumstances and the difficulties have to be appreciated and the matter has to be dealt with in the light of the same accordingly. In this connection, we may add that there have been certain deliberations in connection with the environmental clearance of the project by the Environmental Management Authority constituted by the Government of India' but it cannot be said definitely as to what would be the ultimate decision with regard to the project and we will let you know as and when the matter is finally decided.

In letter dated 12.7.88 ( Ex. R-52) the petitioner again referred to the correspondence between the parties and expressed its disappointment that after lapse of such a long time there was uncertainty whether project would be ever taken up or not. Petitioner noted that the project had been held up due to respondent holding project for want of environmental clearance. Apart from above, petitioner stated in his letter in respect of arbitrator as under:

There is enough goodwill on both sides and we would be willing for the appointment of an agreed eminent person as Sole Arbitrator. This would save considerable time and expense to both parties. As the matter is very pressing, we are anxious to resolve this at the earliest. We are also amiable to any other suggestions that you may have.

The petitioner again enumerated the issues to be resolved between the parties and asked the respondent to give its response within a fortnight. It seems petitioner had not received reply to its letter dated 12.7.1988. petitioner then wrote a letter dated 16.8.88 informing the respondent that the petitioner has already suffered a lot and delay has caused irreparable harm to the petitioner. Regarding arbitration petitioner mentioned as under:

It would in the meantime suggest that the decision on the outstanding disputes and issues be referred to an agreed Arbitrator so that regardless whether or not the project is abandoned or continued, the outstanding matters can be amicably and speedily resolved. We therefore put forward the name of Mr. H.L. Anand as the sole Arbitrator to determine all the outstanding disputes and issues between BALCO and ourselves.

Mr. Anand is an eminent Jurist with vast legal experience and as a past Judge of the Delhi High Court, there is no doubt that the disputes/ differences will be resolved expeditiously and in fairness to both BALCO and ourselves. We trust that you have no objections to the appointment of Justice Anand.

In case you have objections, please advise us within 15 (fifteen) days, and in that case we suggest an alternative name, Shri A.N. Banerjee, ex-Chairman of BALCO who is well-known to you and is one of the most eminent Mining Engineering in the country with vast administrative experiences. We believe Shri Bannerjee will also be able to expeditiously in fairness to both parties help us resolve all outstanding matters.

Respondent wrote a letter to the petitioner that a reply to its letter dated 12.7.88 was sent to petitioner's office at Calcutta by registered post but the same was received back with postal remarks 'left'. Respondent sent another copy of its reply to the letter of the petitioner dated 12.7.88 and 16.8.88. In this letter respondent denied allegations made by the petitioner in its letter dated 12.7.88 and 16.8.88 and stated that regarding arbitration proceedings and the procedure to be adopted for taking up the matter for arbitration, the respondent would write its views to the petitioner in the first half of the September 1988. Respondent also stated that disputes and issues as stated by the petitioner did not arise and the disputes and issues will arise on the rival contentions of the parties as would be raised before the arbitrator. The question of existence, interpretation and validity of the contract, would also arise for consideration. However, respondent expressed its anxiousness to get the disputes resolved as expeditiously as possible.

It is thus clear that the petitioner had intimated to the respondent in writing all disputes which respondent felt had arisen due to holding of the contract and none payment of the money to the contractor. It was in 12.7.88 when petitioner categorically stated that the disputes need to be referred to the arbitrator. The reply to the petitioner's letters raising issues were given by the respondent. Thus, replies did not address problems of the petitioner and the petitioner was not satisfied with the replies. In fact, no decision on the issues was taken by the respondent or conveyed by the respondent. The only thing conveyed by the respondent to the petitioner was that the petitioner should continue to bear with the respondent and should not invoke the arbitration at that stage. Since the respondent did not respond to the plea of the petitioner for appointment of arbitrator and did not respond to the names forwarded by the petitioner to the respondent for being appointed as arbitrator, the petitioner moved present petition under Section 20 of the Arbitration Act for filing arbitration agreement and reference of disputes to the arbitrator in October 1988. Thus, it is clear that petitioner had complied with all requirements of invoking arbitration clause and had given sufficient notice to the respondent about the disputes and differences raised by the petitioner and about the demand made by the petitioner and despite these demands having been made and issues having been raised, the respondent did not refer the matter to arbitration nor agreed to the names suggested by the petitioner. I, therefore, come to the conclusion that petitioner has properly invoked the arbitration clause and issue is decided in favor of the petitioner and against the respondent.

In case the disputes between the parties are referred to the arbitrator, all those disputes which petitioner has raised in its letter dated 12.7.88 given in para 3 above will have to be referred to the arbitrator apart from the contentions raised by the respondent that the contract between the parties was void / frustrated.

16. Issue No. 5 Relief.

In view of my holding that this Court has no territorial jurisdiction and courts at Bilaspur/ Ratnagiri has jurisdiction, the petition is hereby dismissed.