M/S.Rapti Contractors vs Reliance Energy Ltd & Ors
2009 Latest Caselaw 472 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI

+                        AA No.6/2008

%                  Date of Decision: 10.02.2009

M/s.Rapti Contractors                     .......        Petitioner
                         Through:    Mr.Raman Kapur, Advocate.

                                 Versus

Reliance Energy Ltd & Ors                  ........   Respondents
                       Through :     Mr.Rishi Aggarwal, Advocate.


CORAM :-
 HON'BLE MR. JUSTICE ANIL KUMAR

1.   Whether reporters of Local papers may be                   YES
     allowed to see the judgment?
2.   To be referred to the reporter or not?                     NO
3.   Whether the judgment should be reported in                 NO
     the Digest?


ANIL KUMAR, J.

*

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

Conciliation Act, 1996 by the petitioner for appointment of an arbitrator

in terms of the arbitration agreement between the parties.

2. The learned counsel for the petitioner on instructions seeks to

delete respondents No.3 to 7 as parties to the present petition. The

learned counsel for the respondents also has no objection for deletion of

the respondents No.3 to 7 as parties to the present petition.

3. The petitioner contends that it is a partnership firm doing

business of construction and maintenance on contract basis and the

firm is registered with the Registrar of Firms at Lucknow.

4. It is contended that in 2004 respondent No. 2, Reliance Energy

Ltd, invited offers for construction of 33 KVA sub-station building at

Balaji-Kalkaji, New Delhi (Remaining Civil and electrical works). The

offer submitted by the petitioner was accepted at Delhi by respondent

No.2.

5. After the acceptance of the offer of the petitioner a letter of intent

was issued. In accordance with the work order dated 28th September,

2004, issued in accordance with the letter of intent, the date of

commencement of work was 28th March, 2004 and the total work was

required to be completed by 17th December, 2004, i.e. within a period of

80 days only.

6. The petitioner contended that his working was dependant mainly

on the respondent permitting the petitioner to proceed with the work,

without causing any hindrance in any manner and by resolving the

problems at site in time and by faithfully discharging his obligation

under the contract. According to the assertions of the petitioner, the

respondents failed to discharge their obligations under the contract. It

is asserted that the respondents took an exceptionally long time in

giving constructional drawings and failed in finalizing the logistics of the

work. The no-objection certificate which was required from the

Municipal Corporation of Delhi was not obtained nor had the plans

been got sanctioned from the Municipal Corporation of Delhi, entailing

delay in start of the work. During this period according to the plea of

the petitioner his labour, plant and tools remained idle. Disputes arose

between the parties and in terms of the arbitration clause contained in

the detailed work order No.CPG/7302/BLJ dated 28th September, 2004

the petitioner invoked the arbitration agreement between the parties,

first for adjudication of disputes by the respondents. The arbitration

agreement in terms of the clauses in the agreement between the parties

is as below:-

"Arbitration:- All disputes arising out of and in connection with this contract, which cannot be settled by mutual negotiations within 30 days of reference, by either party shall be considered a dispute within the meaning of this Clause. Such dispute shall be referred to Arbitration in accordance with the rules of Indian Arbitration.

18.0 Arbitration:- If any disputes or differences arise between the owner and the contractor in relation to or out of this contract, the same shall be referred to the Arbitration of two arbitrators, one each to be appointed by the owner and the contractor. The provisions of the Indian Arbitration Act, 1940 shall apply for such Arbitration. The decision so given shall be final and binding upon the parties hereto. "

7. The petitioner contended that on account of breaches committed

by the respondents disputes arose which were referred to the

respondents with the request to settle the same mutually and amicably.

The petitioner communicated the disputes by letter dated 29th

September, 2007. Along with the letter the details of the disputes were

also sent. The disputes, however, could not be settled even after more

than 50 days and, therefore, the petitioner invoked the arbitration

clause No.18 of General Conditions of Contract which is the arbitration

agreement and nominated its nominee for the arbitral Tribunal with the

request to the respondents to nominate their arbitrator.

8. According to the petitioners even after 30 days of invoking the

arbitration agreement the respondents did not appoint an arbitrator.

The petitioner thereafter, filed the present petition on 20th January,

2008 and till the filing of the petition the respondents have not

appointed any arbitrator.

9. The petition is contested by the respondents contending that the

petition under Section 11 of the Arbitration & Conciliation Act, 1996 is

not maintainable. It was contended that the arbitration agreement

contemplates adjudication of disputes under the Indian Arbitration Act,

1940 which stands repealed by virtue of Section 85 of the Arbitration &

Conciliation Act, 1996 and consequently there is no agreement between

the parties to have the disputes adjudicated by arbitration and the

arbitration agreement is void in law and, therefore, no arbitrators can

be appointed nor arbitration proceedings can commence.

10. The respondents also contended that the arbitration agreement is

violative of Section 10 of the Arbitration and Conciliation Act, 1996 as

there cannot be an even number of arbitrators after the enactment of

Arbitration & Conciliation Act, 1996.

11. The petition is also contested on the ground that the Court does

not have territorial jurisdiction since the respondents is a company

registered at Mumbai and by virtue of Clause 19 the jurisdiction of the

Court other than Mumbai was excluded. Clause 19 regarding

jurisdiction is as under:-

"19. Jurisdiction

The contract shall be governed by and constructed according to the laws in force in India. The contractor hereby submits to the jurisdiction of the Courts situated at Mumbai for the purposes of actions and proceedings arising out of the contract and the courts in Mumbai only will have the jurisdiction to hear and decide such actions and proceedings."

12. I have heard the learned counsel for the parties. Regarding the

non-maintainability of the petition as respondents No.3 to 7 were also

impleaded, it is contended that since respondents No.3 to 7 have been

deleted as parties, therefore, it cannot be held that there is no valid

arbitration agreement between the petitioner and all the parties. The

respondent no.1 & 2 are the same entity and therefore, the dispute that

there is no arbitration agreement with respondents no. 3 to 7 does not

survive in the facts and circumstances.

13. The learned counsel for the respondents, after some arguments,

has given up his objection regarding lack of territorial jurisdiction of

this Court to adjudicate Section 11 petition under the Arbitration &

Conciliation Act, 1996 in view of the decision of the Hon'ble Supreme

Court in Patel Roadways Ltd, Bombay v. Prasad Trading Company,

(1991) 4 SCC 270. In any case the cause of action has arisen at Delhi

as the work was executed at Delhi and the payments were also made at

Delhi and the offer of the petitioner was also given in Delhi and merely

on account of registered office of the respondents being at Mumbai,

there was no cause of action at Mumbai. The Supreme Court in Patel

Roadways Ltd (Supra) had held that the choice of forum can be limited

by incorporating inclusion Clause under the agreement but by

agreement jurisdiction cannot be conferred on a place where it does not

lie. Relying on the explanation to Section 20 of the Code of Civil

Procedure it was held that if the cause of action had not arisen at the

place where the defendant has its principal office, then merely on

account of the principal office of the defendant being at that particular

place, the cause of action cannot be said to have arisen there and

consequently the defendant cannot, by incorporating an inclusion

clause, confer jurisdiction on the Court having jurisdiction over the

place where only the principal office is situated.

14. The next contention of the respondents is that the arbitration

agreement is void as it contemplates appointment of even number of

arbitrators contrary to Section 10 of Arbitration & Conciliation Act,

1996. It is also contended that the arbitration agreement contemplates

adjudication of disputes in accordance with the Indian Arbitration Act,

1940 which stood repealed on the day the arbitration agreement was

entered into between the parties and, therefore, the arbitration

agreement is void.

15. Regarding the appointment of even number of arbitrators, the

learned counsel for the petitioner has relied on Dr.Deepashree v. Sultan

Chand & Sons, 2008 (4) Arb.LR 94 (Delhi). In Deepashree (Supra) the

arbitration agreement contemplated appointment of two arbitrators, one

each to be appointed by the parties. On disputes having arisen, an

arbitrator was appointed by one of the parties and the other party was

asked to give consent to the appointment of that arbitrator as the sole

arbitrator. The opposite party had declined to concur with the

appointment of the nominated arbitrator as the sole arbitrator and had

nominated another arbitrator as per the terms of the agreement.

Thereafter, an application under Section 11 was filed by one of the

parties. The learned Single Judge relying on a judgment of the Andhra

Pradesh High Court in Sri Venkateswara Construction Company v.

Union of India, AIR 2001 A.P 284 where an agreement for arbitration by

two arbitrators was construed as an agreement for reference to a sole

arbitrator, and relying on two judgments of this Court, Wipro Finance

Ltd v. Sandplast India Ltd, 2006(3) Raj. 524 (Delhi) and Marine

Container Services (South) Pvt Ltd v. Atma Steels Ltd, 2001(1)

Arb.L.R.341 (Delhi) where sole arbitrators were appointed even though

the arbitration agreements were for the appointment of two arbitrators,

had held that an agreement for appointment of two arbitrators is not an

agreement within the meaning of Section 10(1) of the Act and

consequently Section 10(2) comes into play and the Arbitral Tribunal is

to consist of a sole arbitrator.

16. Section 10 (1) of the Arbitration & Conciliation Act, 1996 provides

that the parties are free to determine the number of arbitrators provided

that such number shall not be an even number. Section 10(2) of the

said Act, however, provides that failing the determination referred to in

sub-Section (1) the arbitral tribunal shall consist of a sole arbitrator.

The precedents referred to hereinabove had also held that an arbitration

agreement which provides for an even number of arbitrators will not be

invalid on that count only and it was held that in those circumstances

the arbitration agreement is to be deemed to be for reference to a sole

arbitrator. A similar view was also taken in North East Securities Ltd v.

Sri Nageshwara Chemicals and Drugs Pvt Ltd, 2001(1) Arb.L.R.70 (A.P).

In view of the precedents discussed above it cannot be held that the

arbitration agreement is void solely for the reason that it contemplated

arbitration by even number of arbitrators. Section 10(2) of the

Arbitration and Conciliation Act, 1996 shall be applicable in the

circumstances and the arbitral tribunal is to consist of a sole arbitrator.

The petitioner had appointed an arbitrator and asked the respondents

to appoint his arbitrator which the respondents failed to appoint within

30 days or before filing of the present petition. Since even numbers of

arbitrators are not to be appointed, therefore, it will be just and

appropriate to appoint a sole arbitrator. The learned counsel for the

petitioner also has no objection in case a sole arbitrator is appointed in

place of the arbitrator nominated by the petitioner.

17. The next contention of the respondents is that the arbitration

agreement stipulates that the arbitration shall be governed by the

provisions of the Indian Arbitration Act, 1940 and since the Act of 1940

had been repealed by virtue of Section 85(1) of the Arbitration and

Conciliation Act, 1996 and as the arbitral proceedings had not

commenced before the coming into force of the Act of 1996 as

contemplated in Section 85(2) of the Act of 1996 and as there was no

agreement between the parties to subject themselves to arbitration

under the Arbitration and Conciliation Act, 1996 or any modification of

the Arbitration Act, 1940, the arbitration agreement in its entirety is

void in law. Section 85 of the Arbitration & Conciliation Act, 1996 is as

under:-

"85. Repeal and saving:- 1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961 are hereby repealed.

(2) Notwithstanding such repeal,-

a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force.

b) all rules made and notifications published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act."

18. Section 85 of the Arbitration & Conciliation Act, 1996

contemplates that the Act shall apply in relation to the arbitral

proceedings which commenced on or after this act comes into force.

Since the arbitration was invoked by the petitioner vide letter dated 23rd

November, 2007 after coming into force of Arbitration & Conciliation

Act, 1996, so the arbitration between the parties cannot commence

under the Indian Arbitration Act, 1940. Since the agreement

contemplates adjudication of disputes between the parties under the

Indian Arbitration Act, 1940, therefore, whether the agreement will

become void or the arbitration can proceed in accordance with the

Arbitration & Conciliation Act, 1996.

19. It is well-settled that if the contract is in several parts, some of

which are legal and enforceable and some are unenforceable, lawful

parts can be enforced provided they are severable. Partial invalidity in

contract will not ipso facto make the whole contract void or

unenforceable. Wherever a contract contains legal as well as illegal

parts and objectionable parts can be severed, effect has to be given to

legal and valid parts striking out the offending parts.

20. In Shin Satellite Public Co. Ltd. v. Jain Studios Ltd., AIR 2006 SC

963 the Hon'ble Supreme Court had held -

"The proper test for deciding validity or otherwise of an agreement or order is 'substantial severability' and not 'textual divisibility'. It is the duty of the court to severe and separate trivial or technical part by retaining the main or substantial part and by giving effect to the latter if it is legal, lawful and otherwise enforceable. In such cases, the Court must consider the question whether the parties could have agreed on the valid terms of the agreement had they known that the other terms were invalid or unlawful. If the answer to the said question is in the affirmative, the doctrine of severability would apply and the valid terms of the agreement could be enforced, ignoring invalid terms. To hold otherwise would be "to expose the covenanter to the almost inevitable risk of litigation which in nine cases out of ten he is very ill able to afford, should he venture to act upon his own opinion as to how far the restraint upon him would be held by the court to be reasonable, while it may give the covenantee the full benefit of

unreasonable provisions if the covenanter is unable to face litigation."

Applying the doctrine of severability in Shin Satellite (supra) the

Court had held -

"In the present case, Clause 23 relates to arbitration. It is in various parts. The first part mandates that, if there is a dispute between the parties, it shall be referred to and finally resolved by arbitration. It clarifies that the rules of UNCITRAL would apply to such arbitration. It then directs that the arbitration shall be held in Delhi and will be in English language. It stipulates that the costs of arbitration shall be shared by the parties equally. The offending and objectionable part, no doubt, expressly makes the arbitrator's determination "final and binding between the parties" and declares that the parties have waived the rights of appeal or objection "in any jurisdiction". The said objectionable part, in my opinion, however, is clearly severable as it is independent of the dispute being referred to and resolved by an arbitrator. Hence, even in the absence of any other clause, the part as to referring the dispute to arbitrator can be given effect to and enforced. By implementing that part, it cannot be said that the Court is doing something which is not contemplated by the parties or by 'interpretative process', the Court is re-writing the contract which is in the nature of 'novatio'. The intention of the parties is explicitly clear and they have agreed that the dispute, if any, would be referred to an arbitrator. To that extent, therefore, the agreement is legal, lawful and the offending part as to the finality and restraint in approaching a Court of law can be separated and severed by using a 'blue pencil'.

21. Applying the ratio of the above said case to the case at hand I am

of the opinion that the offending clause, i.e. the clause stipulating that

the arbitration shall be governed by the provisions of the Indian

Arbitration Act, 1940, is clearly severable from the rest of the

agreement. Consequently the part of the agreement which clearly

expresses the intention of the parties to refer their disputes to

arbitration is valid and enforceable. A fortiori in case the agreement

contemplates adjudication of disputes under the Indian Arbitration Act,

1940 which had been repealed on the day the arbitration agreement

was invoked or even on the date when the agreement was executed, the

disputes between the parties are to be adjudicated by the arbitration

Act which is applicable on the day the arbitration agreement was

entered between the parties. The learned counsel for the respondents is

unable to show any provision or precedent that in case the agreement is

for adjudication of disputes under an Act which had already been

repealed when the agreement was executed, then the entire agreement,

the intention of the parties to get the disputes resolved through

arbitration, shall be negated completely and the Arbitration Agreement

shall be void.

22. For the foregoing reasons, the petition is allowed and Mr.Justice

Vijender Jain (Retd), House No.136, Sector 15A, Noida-201301, (Phone

Nos.9711009541, 95120-2511535/2511536) is appointed as a sole

arbitrator for adjudicating all the disputes between the parties under

the contract in question. The learned arbitrator shall fix his own fees

which shall be borne equally by the parties. The learned arbitrator shall

also decide his own procedure. The parties are directed to appear before

the arbitrator on 20th February, 2009 at 5 PM. A copy of this order be

sent to the Learned Arbitrator forthwith. Copies of this order be also

given to the learned counsel for the parties dasti. Considering the facts

and circumstances parties are also left to bear their own cost. With

these directions the petition is disposed of.

FEBRUARY 10, 2009                                 ANIL KUMAR, J.
'K'