Delhi High Court

M/S. Valecha Engineering Lim. vs M/S. D.S. Constructions Ltd. & ... on 6 April, 2009

Author: Manmohan Singh

*          HIGH COURT OF DELHI : NEW DELHI

+                    Arb. Petition No.90/2008

                      Judgment reserved on:     24th February, 2009

%                     Judgment decided on :           6th April, 2009

M/s. Valecha Engineering Limited                    ......Petitioner
                    Through : Mr. Chetan Sharma, Sr. Adv. with
                               Mr. Sanjeev Narula, Adv.

                      Versus

M/s. D.S. Constructions Ltd. & Anr.                .....Respondents
                     Through: Mr. A.S. Chandiok, Sr. Adv. with
                                Mr. Ashish Dholakia and Mr. Adarsh
                                Priyadarshi, Advs.

Coram:

HON'BLE MR. JUSTICE MANMOHAN SINGH

1. Whether the Reporters of local papers may
   be allowed to see the judgment?                                Yes

2. To be referred to Reporter or not?                             Yes

3. Whether the judgment should be reported                        Yes
   in the Digest?

MANMOHAN SINGH, J.

1. This petition is filed under Section 11(6) of the Arbitration

and Conciliation Act, 1996 (for short „the Act‟) for appointment of an

independent Arbitrator.

2. Factual matrix of the case is that Valecha Engineering

Limited (VEL), petitioner herein is a company duly incorporated under

the Companies Act, 1956 having its registered office at Valecha

Chambers, 7th Floor, Plot No. B-6, New Link Road, Andheri (West),

Mumbai-400053. M/s. D.S. Constructions Limited (DSC), respondent

no.1 herein is also a registered company having its office at C-66, South

Extension Part II, New Delhi -110049.

3. The National Highways Authority of India (NHAI) awarded

the contract for Delhi-Gurgaon Access Controlled Highway NH-8 to

Jaypee DSC Venture Limited (JDVL). In order to execute the works of

the project relating to execution of Pile Foundation, JDVL invited bids

in response to which petitioner submitted a bid dated July 14, 2005.

The said bid was accepted by Respondent No.1 and vide letter dated

July 19,2005, it awarded the work to the petitioner at the bid price of

Rs.5,37,58,100/-. VEL also submitted another bid dated October 11,

2005 regarding construction of RTR Palam elevated structure on NH-8

Civil work for substructure and superstructure. Respondent No.1

awarded the said work to VEL at the bid price of Rs.25,91,38,559/-.

4. In both the contracts stated above, Clause 26 and Clause 30

respectively deals with the arbitration clause as under:-

"The decision of the M.D. DSCL shall be final and binding on any dispute or difference which may arise between the parties out of or in connection with this Contract."

5. Certain disputes arose between the parties regarding the

outstanding bills. By relying on the aforesaid arbitration clause without

protest or demur, the petitioner herein preferred two separate petitions

under Section 9 of the Arbitration and Conciliation Act being OMP No.

524/2007 and 562/2007 before this Court. Both the petitions are

pending in this Court. VEL preferred an appeal registered as FAO (OS)

No.391/2007 against an order dated 28 th September, 2007 in OMP

No.524/2007 which was disposed of vide order dated 1.10.2007. In

OMP No.562/2007, interim order has been passed and the petitioner has

been allowed to remove its material and equipment from the site.

6. After obtaining orders in the aforesaid petitions from this

Court, the petitioner vide letter dated 08.01.2008 wrote to the MD,DSC

i.e. arbitrator named in the contract and required him to, inter alia,

appoint an independent arbitrator.

7. The said named arbitrator, vide letter dated 25.01.2008

entered into the reference in view of the fact that he had been named as

arbitrator in the contract.

8. However, in February, 2008 the petitioner filed the present

petition under Section 11(6) (c) of the Act for appointment of arbitrator.

9. The learned counsel for the petitioner relied upon Section

11(6)(c) of the Arbitration and Conciliation Act, 1996. It is alleged that

the arbitrator has failed to perform his function entrusted to him and also

failed to perform any functions under the procedure set out in the clause

relating to settlement disputes. The petitioner alleged that the Arbitrator

named in the arbitration clause in both the contracts executed between

the parties is biased as he is also involved in stopping the certified bills

of the petitioner and stopped releasing the payments to the petitioner. It

is argued that referring the present disputes between the parties wherein

the named arbitrator is in close relation of the respondent company is

totally impermissible and against the principles of equity, justice and

good conscience. In fact the respondent No.1 is a closely held company

of the Narula family. The structure of Respondent No.1 clearly denotes

that it stands on the family pyramid. The respondent No.2 cannot be

Arbitrator in his own actions, he is an interested party being the

Managing Director of Respondent no.1 more so, in the context of the

dispute relating to the encashment of the bank guarantees, settlement/

certifying of the bills, demobilization of equipment, release of

outstanding payment etc, the respondent No.2 is not impartial and is

biased against the petitioner. Besides the respondent No. has been

actively and personally involved in respect of the disputes and

differences between the parties at each and every stage. The

respondent No.2 has in fact acted as an opposite party and rejected the

claims of the petitioner, as orally conveyed in the meetings.

10. It is further alleged that though the clause 26 and 30 of the

contracts satisfy the ingredients of Section 7(4) of the Act and thus

constitute an arbitration agreement, but normally the connotation and

sequence of an arbitration clause is distinct and different. Following

averment has been made by the petitioner in this context :

"7. A bare look at the Arbitration clause reveals the following salient characteristics :

(i) Normally, the arbitration clause is worded as follows : " Any dispute or difference that may arise between the parties arising out of the contract or in relation thereto shall be referred to arbitration of ____(nominated arbitrator-name/designation), whose decision shall be final and binding.

(ii) The said clause i.e. "Settlement of Dispute" is notably different in its character and tenor from the normal arbitration clauses.

(iii) It is styled and nomenclature as "Settlement of Disputes".

(iv) It makes no reference as to the appointment of the

arbitrator.

(v) The said clause in no manner identifies the procedure for reference.

(vi) The said clause makes the decision of the Managing Director of the Respondent as final."

11. It is further alleged that the Managing Director of DSCL

failed to take a decision on time and instead invoked the bank

guarantees. It is averred that a person who has acted personally against

the petitioner cannot now act as non-partisan and thus cannot be

permitted to be the Judge or Jury as well as and the audience. The

petitioner relied upon the case of Alcove Industries Limited vs.

Oriental Structural Engineers Lim., 2008 (1) Arb. LR 393 and,

Delhi and Interstate Constructions Vs. NPCC Limited, 114(2004)

DLT 746.

12. The learned counsel for the respondent submitted that

Section 11(6) (c) has no application in the facts of the present case.

Section 11 (6) (c) reads as under:-

"11. Appointment of arbitrator-

xxxxxx (6) Where under an appointment procedure agreed upon by the parties, xxxxx

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment."

13. It is submitted that the aforesaid provision is not attracted

because when the petitioner invoked arbitration/sought appointment of

arbitrator, the named arbitrator promptly entered upon the reference

within 30 days. Consequently, there was no occasion for invoking

Section 11 (6) (c) and the present petition is liable to be dismissed on

this ground alone.

14. The present petition is not maintainable as the conditions

precedent to the invocation of jurisdiction of this Court to appoint

arbitrator have not been fulfilled. It is settled law that in case of a

named arbitrator, reference has to be made to him and a party is

precluded from approaching the Court for appointing an arbitrator other

than the named arbitrator. In this regard, reliance is placed on the

following judgments:

(i) The Iron and Steel Company Ltd. vs. M/s Tiwari Road

Lines AIR 2007 SC 2064

(ii) Sterlite Optical Technologies Ltd. vs. Bharat Sanchar

Nigam Ltd. 2009 (1) Arb. LR 139 (Delhi)

(iii) Yashwith Constructions (P) Ltd. vs. Simplex Concrete Piles

India Ltd & Anr. (2006) 6 SCC 204

15. It is further submitted that in the two petitions filed by the

petitioner, the petitioner has invoked the jurisdiction of this Court while

stating that:-

"3. .....The agreement stipulated that any dispute or difference which may arise between the parties out of or in connection with the contract would be subject to the decision of the Managing Director of DSC, who is based in Delhi. Thus, this Hon‟ble Court has the jurisdiction to entertain the petition and grant prayers made herein."

It is submitted that the petition is barred by principles of

estoppel/waiver. Having obtained reliefs granted under the previous

petitions based on the above mentioned averment, it cannot be permitted

to take a contradictory stand and file the present petition.

16. On the allegation of arbitrator being biased, it is submitted

that the remedy against a plea of bias as raised by the petitioner is

available only under Sections 12, 13 and 34 of the Act. It has no

application in a petition filed under Section 11(6) of the Act. Reliance

in support of the above proposition is placed on:

(i) Ace Pipeline Contracts (P) Ltd. vs. Bharat Petroleum

Corpn. Ltd. (2007) 5 SCC 304 @ para 21

(ii) Ahluwalia Contracts (India) Ltd. vs. Housing & Urban

Development Corporation & Anr. (2008) 100 DRJ 461 @

para 16

(iii) Dharam Prakash vs. Union of India & Anr.(138) 2007 DLT

118(DB)@ para 5.

17. The respondents denied that the named arbitrator had already

determined the claims of the petitioner. It is submitted that the said

allegation is false to the knowledge of the petitioner since if this were

so, it would certainly not have written to the named arbitrator after the

alleged determination of the petitioners‟ claims had been made.

18. Regarding the contention of the petitioner that the arbitration

clause in the present case is worded differently from the wording

"normally" used in arbitration clauses contained in other contracts, it is

submitted that by filing petitions under Section 9 of the Act and the

present petition under Section 11 of the Act, the petitioner has admitted

that there exists a valid and subsisting arbitration clause, which is wide

enough to cover the disputes between the parties.

19. It is apparent from the provision of Section 11 (6) of the Act

that it applies only when a party or person concerned have failed to

act in terms of the arbitration agreement. In the case of Yashwith

Constructions (P) Ltd. vs. Simplex Concrete Piles India Ltd. & Anr.,

(2006) 6 SCC 204 following observations were made in para 4 :

"4......... There was no failure on the part of the party concerned as per the arbitration agreement, to fulfil his obligation in terms of Section 11 of the Act so as to attract the jurisdiction of the Chief Justice. Obviously, Section 11(6) of the Act has application only when a party or the person concerned had failed to act in terms of the arbitration agreement.

20. In the case of Ace Pipeline Contracts (P) Ltd. vs. Bharat

Petroleum Corpn. Ltd., (2007) 5 SCC 304, it was held that on failure

of the appointing authority to appoint arbitrator within a reasonable

time, mandamus can be issued under Section 11(6) to authority

concerned to appoint arbitrator, as far as possible as per arbitration

clause. However, in large number of cases, it is found that it would not

be conducive in the interest of parties or for any other reasons to be

recorded in writing and that the choice of arbitrator can go beyond the

designated persons or institutions in appropriate cases. But the court

should normally adhere to the terms of arbitration clause except in

exceptional cases for reasons to be recorded or where both parties

agree for a common name. It was held that once a party has entered into

an agreement with eyes wide open it cannot wriggle out of the situation

on the claim that the designated person being an officer of the other side

would be not be impartial or objective. However, if appellant feels that

the arbitrator has notched independently or impartially, or it has suffered

any bias, it will always be open to it to make application under S. 34 to

set aside the award on ground that arbitrator acted with bias or malice in

law or fact.

21. In the case of The Iron and Steel Company Ltd. v. M/s.

Tiwari Road Lines, AIR 2007 Supreme Court 2064, it was observed

that the legislative scheme of Section 11 is very clear. If the parites

have agreed on a procedure for appointing the Arbitrator or Arbitrators

as contemplated by sub-section (2) thereof, then the dispute between the

parties has to be decided in accordance with the said procedure and

recourse to the Chief Justice or his designate cannot be taken

straightway. A party can approach the Chief Justice or his designate

only if the parties have not agreed on a procedure for appointing the

Arbitrator as contemplated by sub-section (2) of Section 11 or in case

the various contingencies provided for in sub-section (6) have arisen. In

this case, the agreement executed between the parties contains an

arbitration clause and Cl. 13.1 clearly provides that all disputes and

differences whatsoever arising between the parties out of or relating to

the construction, meaning and operation or effect of the contract or the

breach thereof shall be settled by arbitration in accordance with the

Rules of Arbitration of the Indian Council of Arbitration and the award

made in pursuance thereof shall be binding on the parties. This clause is

in accordance with sub-section (2) of S. 11. There being an agreed

procedure for resolution of disputes by arbitration in accordance with

the Rules of Arbitration of the Indian Council of Arbitration sub-sections

(3), (4) and (5) of S. 11 can have no application. The stage for invoking

sub-section (6) of S. 11 had also not arrived. In these circumstances, the

application for appointment of Arbitrator moved by the respondent before

the City Civil Court, which was a Designated Authority in accordance

with the scheme framed by the Chief Justice was held to be not

maintainable at all and the City Civil Court had no jurisdiction or

authority to appoint an Arbitrator.

22. As regards the submissions raised by the petitioner about the

connotation and sequence of arbitration clause is concerned, it has

categorically held in the case of Punjab State and Others vs. Dina Nath

(2007) 5 Supreme Court Cases 28 that arbitration agreement need not be

in any particular form. However, it must indicate that the parties had agreed

that any dispute arising between them in respect of the subject-matter of the

contract, should be referred to arbitration. Moreover, it must be in writing

and must indicate the intention of the parties to treat the decision of the

arbitrator as final. If those requirements are satisfied, the mere absence of

the words „arbitration‟ or „arbitrator‟ therein cannot be a ground to hold that

the agreement in question was not an arbitration agreement. A clause in the

agreement in the Work Order providing that any dispute arising between the

principal and the contractor should be referred to Superintending Engineer

for his orders and that his decision would be final and binding on the

parties, held, was a binding arbitration agreement. Further held, the words

„any dispute‟ occurring therein were wide enough to cover all disputes

relating to the Work Order including a dispute relating to non-payment

of money after completion of the work. The word „orders‟ implied some

expression of opinion by the Superintending Engineer which would be

enforceable. The Supreme Court while dealing with the similar dispute in

the present case made the following observations in paras 8, 10, 12 and 14

wherein the clause in dispute is as under :

"Any dispute arising between the department and the contractor/ society shall be referred to the Superintending Engineer, Anandpur Sahib, Hydel Circle No. 1, Chandigarh for orders and his decision will be final and acceptable/binding on both the parties"

"8. A bare perusal of the definition of arbitration agreement would clearly show that an arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if any dispute arises between them in respect of the subject-matter of the contract, such dispute shall be referred to arbitration. In that case, such agreement would certainly spell out an arbitration agreement. (See Rukmanibai Gupta v. Collector AIR 1981 SC 479) However, from the definition of the arbitration agreement, it is also clear that the agreement must be in writing and to interpret the agreement as an "arbitration agreement" one has to ascertain the intention of the parties and also treatment of the decision as final. If the parties had desired and intended that a dispute must be referred to arbitration for decision and they would undertake to abide by that decision, there cannot be any difficulty to hold that the intention of the parties was to have an arbitration agreement, that is to say, an arbitration agreement immediately comes into existence.

xxxxx

10. We have already noted clause 4 of the Work Order as discussed hereinabove. It is true that in the aforesaid clause 4 of the Work Order, the words "arbitration" and "arbitrator" are not indicated; but in our view, omission to mention the words "arbitration" and "arbitrator" as noted herein earlier cannot be a ground to hold that the said clause was not an arbitration agreement within the meaning of Section 2(a) of the Act. The essential requirements as pointed out herein earlier are that the parties have intended to make a reference to an arbitration and treat the decision of the arbitrator as final. As the conditions to constitute an

"arbitration agreement" have been satisfied, we hold that clause 4 of the Work Order must be construed to be an arbitration agreement and dispute raised by the parties must be referred to the arbitrator. In K.K. Modi v. K.N. Modi (2003) 7 SCC 418, this Court had laid down the test as to when a clause can be construed to be an arbitration agreement when it appears from the same that there was an agreement between the parties that any dispute shall be referred to the arbitrator. This would be clear when we read para 17 of the said judgment and Points 5 and 6 of the same which read as under: (SCC p. 584) "(5) that the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law, and lastly (6) the agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal." xxxx

12. Keeping the ingredients as indicated by this Court in K.K. Modi in mind for holding a particular agreement as an arbitration agreement, we now proceed to examine the aforesaid ingredients in the context of the present case:

(a) Clause 4 of the Work Order categorically states that the decision of the Superintending Engineer shall be binding on the parties.

(b) The jurisdiction of the Superintending Engineer to decide the rights of the parties has also been derived from the consent of the parties to the Work Order.

(c) The agreement contemplates that the Superintending Engineer shall determine substantive rights of parties as the clause encompasses all varieties of disputes that may arise between the parties and does not restrict the jurisdiction of the Superintending Engineer to specific issues only.

(d) That the agreement of the parties to refer their disputes to the decision of the Superintending Engineer is intended to be enforceable in law as it is binding in nature. xxxx

14. The words "any dispute" appears in clause 4 of the Work Order. Therefore, only on the basis of the materials produced by the parties in support of their respective claims a decision can be arrived at in resolving the dispute between the parties. The use of the words "any dispute" in clause 4 of the Work Order is wide enough to include all disputes relating to the said Work Order. Therefore, when a party raises a dispute for non-payment of money after completion of the work, which is denied by the other party, such a dispute would come within the meaning of "arbitration agreement" between the parties. Clause 4 of the Work Order also clearly provides that any dispute between the department and the contractor shall be referred to the Superintending Engineer, Hydel Circle No. 1, Chandigarh

for orders. The word "orders" would indicate some expression of opinion, which is to be carried out, or enforced and which is a conclusion of a body (in this case Superintending Engineer, Hydel Circle No. 1, Chandigarh). Then again the conclusion and decision of the Superintending Engineer will be final and binding on both the parties. This being the position in the present case and in view of the fact that clause 4 of the Work Order is not under challenge before us, the decision that would be arrived at by Superintending Engineer, Hydel Circle No. 1, Chandigarh must also be binding on the parties as a result whereof clause 4 must be held to be a binding arbitration agreement.

23. In State of U.P. v. Tipper Chand , (1980) 2 SCC 341, it

was held that the clause in dispute in that decision between the parties

did not amount to an arbitration agreement. In that decision, further held

that clause under consideration before them which provided that except

where otherwise specified in the contract the decision of the

Superintending Engineer for the time being shall be final, conclusive

and binding on all the parties to the contract upon all questions relating

to the meaning of the specifications, etc. and the decision of the

Superintending Engineer as to the quality, workmanship, etc. shall be

final, conclusive and binding between the parties does not constitute an

arbitration agreement but while arriving at such a conclusion, Apex

Court referred to a decision of the Jammu and Kashmir High Court in

Dewan Chand v. State of J&K, AIR 1961 J&K 58. In Dewan Chand

case the relevant clause runs as follows: (AIR p. 59, para5)

"For any dispute between the contractor and the Department the decision of the Chief Engineer, PWD, Jammu and Kashmir, will be final and binding upon the contractor."

24. The Supreme Court in Dewan Chand‟s case (supra) had put

strong reliance on the expression "any dispute between the contractor

and the Department" and approved the conclusions arrived at by the

J&K High Court. It came to the conclusion by interpretation of that

clause that there did not exist any arbitration agreement as the decision

of the Superintending Engineer in connection with the work done by the

contractor was meant for supervision and execution of the work and

administrative control over it from time to time.

25. In Bihar State Mineral Development Corpn. v. Encon

Builders (I) (P) Ltd. (2003) 7 SCC 418, Supreme Court held that:

(SCC p. 423, para 14)

"14. There is no dispute with regard to the proposition that for the purpose of construing an arbitration agreement, the term „arbitration‟ is not required to be specifically mentioned therein."

26. Recently in the case of Sterlite Optical Technologies Ltd.

vs. Bharat Sanchar Nigam Ltd., 2009 (1) Arb. LR 139 (Delhi), in a

petition filed under Section 11(6) of the Act for the appointment of

Arbitrator, the petitioner instead of approaching the arbitrator named in

the arbitration agreement i.e. CMD, BSNL approached DDG(MM) for

appointment of arbitrator. Rejecting the application of the petitioner,

learned Single Judge of this Court held as under :

"7.........What the petitioner was required to do was to approach this CMD of the respondent with its claims and only if the said CMD had failed to either himself act as an arbitrator or to nominate/appoint anyone else as the arbitrator, could the petitioner have any cause of action for approaching this Court. The petitioner having admittedly not done so, the petition is liable to be rejected as without cause of action.

27. It is not in dispute that the petitioner itself approached this

court under Section 9 of the Arbitration and Conciliation Act by filing

O.M.P. Nos. 524/2007 and 562/2007 and obtained interim orders

relying upon the clause 26 and 30 of the contracts relating to settlement

of disputes. It nowhere questioned or raised any objection regarding the

above stated clause. It has also written letters dated 8th January, 2008

to the MD, DSC for appointing an independent arbitrator.

28. The plea of the petitioner that the named arbitrator is

impartial and biased cannot be accepted in view of Dina Nath‟s case

(supra). When the petitioner itself has agreed that the dispute pertaining

to both the contracts ought to be referred to MD, DSC, it cannot now

take a stand that respondent no. 2 is acting in a subjective manner. The