Cmc Ltd. vs Delhi Transport Corporation & Anr
2009 Latest Caselaw 4014 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                 AA No.135/2008

%                         Date of decision: 6th October 2009

CMC LTD.                                               ....Applicant
                        Through: Mr. Shraman Singh with Mr. Bhim Raj,
                                 Advocates.

                               Versus

DELHI TRANSPORT CORPORATION & ANR.... Respondents

                        Through: Mr. Ajay Verma, Advocate.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may
      be allowed to see the judgment?   Yes

2.    To be referred to the reporter or not?    Yes

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


RAJIV SAHAI ENDLAW, J.

1. The petition under Section 11 of the Arbitration Act, 1996 is

for consideration. The petitioner relies on an agreement dated 10th

March, 2003 to which the petitioner, respondent No.1 and the

respondent No.2 Union of India through the Secretary, Ministry of

Communication and Information Technology are parties. The said

agreement provides for arbitration as under:-

"15. ARBITRATION AND JURISDICTION

a) If any dispute or difference arises between the Parties hereto as to the construction, interpretation, effect and implementation of any provision of this Agreement including the rights or liabilities or any claim or demand of any Party against other party or its subcontractor or in regard to any matter under these presents but excluding and matters, decisions of determination of which is expressly provided for in this Agreement, such disputes or differences shall be referred to the sole arbitration of the Secretary of Department of Legal Affairs, Govt. of India or that of his nominee. A reference to the arbitration under this clause shall be deemed to be

submitted within the meaning of the Arbitration and Conciliation Act, 1996 and any modifications or reenactment there of and the rules framed thereunder for the time being in force.

b) i) The venue of the Arbitration shall be at Delhi.

ii) Each Party shall bear and pay its own cost of the arbitration proceedings unless the arbitrator otherwise decides in the award.

iii) The provision of this clause shall not be frustrated, abrogated or become in operative, notwithstanding this Agreement expires or ceases to exist or is terminated or revoked or declared unlawful.

c) The Courts at Delhi shall have exclusive jurisdiction in all matters concerning this Agreement, including any matter arising out of the arbitration proceedings or any award made therein."

2. The respondent No.2 Union of India did not appear in spite of

service and were ordered to be proceeded against ex-parte. The

respondent No.1 DTC has contested the petition inter-alia on the

ground that the disputes for adjudication whereof arbitration is

sought arise not from the Tripartite Agreement dated 10th March,

2003 aforesaid but from the Bipartite Agreement dated 1st January,

2001 between the petitioner and the respondent No.1 DTC only and

to which the respondent No.2 Union of India was not a party; the

said agreement does not provide for arbitration.

3. Before adjudicating the aforesaid controversy, it may be

mentioned that the arbitration agreement on the basis whereof the

petition has been preferred is of a named arbitrator; of course the

said named arbitrator is also empowered to nominate any other

person as the arbitrator. The petitioner avers that it has prior to the

institution of this petition got sent a legal notice dated 24th August,

2007 to the said named arbitrator. The petitioner by the said legal

notice had invoked the arbitration agreement and called upon the

named arbitrator to enter reference in the arbitration proceedings as

the sole arbitrator in accordance with the arbitration agreement. The

petitioner approached this court with the contention that the named

arbitrator has not taken any steps whatsoever.

4. A petition under Section 11 of the Act lies upon a party to an

arbitration agreement failing to appoint arbitrator or a person

including an institution failing to perform any function entrusted to

him under the appointment procedure or in the case of arbitration of

a sole arbitrator the parties being unable to mutually agree on an

arbitrator. Section 11 is not concerned with the failure of the named

arbitrator to act. The remedy therefor is provided under Section

14(i)(a) of the Act. This petition under Section 11 of the Act is not

maintainable for this reason alone.

5. Coming back to the controversy raised by the respondent No.1

DTC, the respondent No.1 DTC was planning to implement an

Automatic Fleet Management system for its fleet of buses plying in

the City of Delhi; the petitioner offered to design, develop and

implement the said system comprising of Automatic Vehicle Tracking

and Monitoring System, implementation of Transportation Model for

scheduling of buses and interfacing of Smart Card Reader with the

Vehicle Tracking System; the Bipartite Agreement dated 1st January,

2001 was executed on the said premise; it is recorded therein that

the said project of the respondent No.1 DTC shall be financially

supported by the Ministry of Information Technology, Govt. of India

and the petitioner; the agreement records the other terms &

conditions agreed between the parties.

6. The Tripartite Agreement was executed for the same project

since, as mentioned in the Bipartite Agreement, the finance was to

be provided by Ministry of Information Technology, Govt. of India.

However, the Tripartite Agreement varies from the Bipartite

Agreement not only qua the arbitration clause but also in some other

respects.

7. The correspondence exchanged between the parties shows

that the project was formally completed on 31st September, 2004.

The petitioner claimed that the balance payment of Rs.13,99,596/-

was due to it. All correspondence filed by the petitioner with respect

to its said claim and demanding the said payment is from the

respondent No.1 DTC only and there is no letter of the petitioner

demanding the said payment from the respondent No.2 Union of

India. Ultimately, a legal notice dated 11th January, 2005 was got

issued by the petitioner, again to DTC only demanding the said

payment. The respondent No.1 DTC replied to the said legal notice

through its advocate's letter dated 28th February, 2006. The

respondent DTC though denying the claim for Rs.13,99,596/-

admitted that a balance sum of Rs.13,03,412/- was due from it to the

petitioner. However, the respondent No.1 DTC in the said reply

contended that the petitioner had in breach of its obligations failed

to provide the services during the warranty period owing whereto

the respondent No.1 DTC had to incur an expense of Rs.26 lacs; it

was thus stated that after adjusting Rs.13,03,000/- admittedly due

from the respondent No.1 DTC to the petitioner, the petitioner was

liable to pay a sum of Rs.12,97,000/- to the DTC; the said amount

was demanded by the respondent No.1 DTC from the petitioner.

8. The petitioner upon receipt of the aforesaid reply from the

advocate for respondent No.1 DTC issued the letter dated 24th

August, 2007 (Supra) to the named arbitrator. Though in the heading

of the said letter reference is made to the arbitration between

petitioner, DTC and the Union of India but in the operative

paragraph No.8 of the said letter it is stated:

"8. Be that as it may, disputes and differences have arisen between DTC and my clients which are subject matter of an arbitration clause contained in clause 15 of the said agreement dated 10.03.2003.

            DIT being one of the parties to the agreement is
            also,   therefore   a    necessary     and    proper
            party.............."

It would be thus clear that in the letter invoking arbitration

clause also the case of the petitioner was of disputes between

petitioner and DTC only and not between petitioner, DTC and the

respondent No.2 Union of India, referred as DIT (Deptt. of

Information Technology).

9. The respondent No.1 DTC in its reply to the petition has also

stated that it has already instituted a suit in the court of the District

Judge, Delhi against the petitioner for recovery of Rs.12,97,000/-

claimed in the reply aforesaid from the petitioner together with

interest. A copy of the plaint in the said suit has also been filed

before this court. Though Union of India has also been impleaded as

defendant No.2 in the said suit but in the plaint itself it is stated that

it is a proforma party and the claim of the DTC is against the

petitioner only.

10. During the course of hearing, it was informed that the

petitioner, though at the time of the agreement a Government owned

company, is now in private hands. It was also informed that the

petitioner has filed an application under Section 8 of the Act in the

suit aforesaid instituted by DTC and the Learned Addl. District Judge

before whom the suit and the applications are pending has been

adjourning the hearing of the application for the reason of pendency

of the present petition in this court. It is the case of the petitioner

that DTC, after the legal notices got issued by the petitioner, has

malafide instituted the aforesaid suit in an attempt to preempt the

petitioner. Though the counsels had during the hearing cited dates

on which the suit was instituted and on which the present petition

was filed in this court but in my view the same is not relevant for

adjudication of the present controversy.

11. The counsel for the petitioner has contended that the Tripartite

Agreement containing the arbitration clause, being of a subsequent

date would prevail over the earlier Bipartite Agreement; that there

being admittedly an arbitration clause between the parties and the

named arbitrator having failed to act, the petitioner has become

entitled to the appointment of the arbitrator and the suit filed by the

DTC cannot also proceed. Reliance in this regard is placed on

Hindustan Petroleum Corporation Ltd. Vs. Pinkcity Midway

Petroleums (2003) 6 SCC 503 to contend that even if DTC has any

objection to the applicability of the arbitration clause to the facts of

the case, the same has to be raised before the arbitrator. On the

same proposition reference is also made to Konkan Railway

Corporation Ltd. Vs. Rani Construction Pvt. Ltd. AIR 2002 SC

778. On enquiry, as to why the subsequent Tripartite Agreement was

executed, it was stated that though the work had started under the

earlier Bipartite Agreement but the Union of India was not willing to

release the funds unless Tripartite Agreement was executed. On

enquiry, as to how the Union of India was concerned/involved in the

disputes, it was informed that the Union of India had already

released the monies which it was to contribute for the project to the

DTC and DTC was illegally withholding the same. No reply was given

as to what right, if any, the petitioner has, to claim the monies from

Union of India. It was only submitted that Union of India was a

necessary party to the disputes and had been impleaded by DTC also

in the suit instituted by it.

12. I have wondered as to what objection DTC could have, to the

arbitration of the Secretary of Deptt. of Legal Affairs, Govt. of India

or his nominee. On a careful perusal of the two agreements, I find

that the claims of DTC against the petitioner stem from clauses in

the Bipartite Agreement and which are found to be missing in the

subsequent Tripartite Agreement. The fear and/or the real reason of

DTC for vehemently opposing this petition appears to be that if

arbitration in accordance with the clause in the Tripartite Agreement

was to happen, the claims of DTC against the petitioner may not be

found to be tenable under the Tripartite Agreement.

13. That brings me to the effect of the subsequent Tripartite

Agreement containing the arbitration clause. A perusal of the

rejoinder filed by the petitioner to the reply of the DTC to the

petition shows that it is not the plea of the petitioner that the

Bipartite Agreement stands novated; though it has been pleaded that

the subsequent agreement would hold sway over the former, that the

earlier Bipartite Agreement has been modified by the latter

Tripartite Agreement; that the DTC cannot disown the Tripartite

Agreement; that the subsequent Tripartite Agreement is equally

effective besides being comprehensive and fixing the rights and

liabilities of the Union of India which the earlier Bipartite Agreement

could not and did not. The counsel for the petitioner during the

hearing also did not urge that the earlier Bipartite Agreement stood

novated or superseded by the latter Tripartite Agreement.

14. The counsel for DTC urged that the claim of the petitioner was

based on the minutes of the meeting of the Project Review

Committee. It was contended that the Project Review Committee was

constituted under the Bipartite Agreement; another committee

namely, the Project Review and Steering Group was constituted

under the Tripartite Agreement. The contention is that the

continuance of the Project Review Committee shows that the

petitioner and the DTC qua their inter se relationship continued to

be governed by the Bipartite Agreement and the subsequent

Tripartite Agreement was only qua the role of Union of India.

15. I find that the Tripartite Agreement nowhere provides that the

same is in supersession of the earlier Bipartite Agreement. In fact

the minutes of the meeting held on 21st September, 2004 of the

Project Review Committee in Clause 3 thereof expressly refer to the

earlier Bipartite Agreement and the obligations of the petitioner

thereunder and which do not find mention in the subsequent

Tripartite Agreement. From the same, it appears that the parties

were treating themselves to be bound even by the terms of the

Bipartite Agreement and which had not been included in the

Tripartite Agreement.

16. Thus the adjudication of the disputes in the present case would

necessarily entail decision on whether the petitioner and the

respondent No.1 DTC are governed by the terms & conditions of the

subsequent Tripartite Agreement alone or of the earlier Bipartite

Agreement also.

17. The question which arises is which is the fora equipped to

decide the said question, whether the arbitrator agreed upon in the

Tripartite Agreement or the court agreed upon in the earlier

Bipartite Agreement. An arbitrator is a creature of an agreement. He

is required to decide the dispute in terms of the agreement only. If

the disputes in the present case are to be referred to the arbitrator,

the same may be to the prejudice of DTC in as much as the arbitrator

may refuse to look into the claims of DTC under Bipartite Agreement

which does not provide for arbitration. However, a court would not

be under any such disability. I, therefore, consider a court to be the

appropriate forum for adjudicating the said disputes between the

parties.

18. Yet another reason which compels me to hold that this is not

an appropriate case for appointment of the arbitrator is that the

arbitration clause is for adjudication of disputes between the parties;

there were three parties to the arbitration agreement. That

arbitration clause is intended where all three parties are involved in

the dispute. From the narrative aforesaid, it is clear that the Union of

India is not involved in the disputes which have arisen between the

petitioner and the DTC. The counsel for the petitioner has of course

contended that the adjudication of the disputes would also entail

reference to minutes of the meeting of the PRSG of which Union of

India is a party and for this reason, arbitration is the appropriate

remedy. However, a perusal of the clause in the Tripartite

Agreement constituting the PRSG shows that PRSG was to comprise

not only of representatives of the petitioner, DTC and the

representatives of the Union of India but also of experts from

R&D/Academic Institutions, industry, the representatives of Planning

Commission & Delhi Government. Thus, merely because resolution of

the disputes may entail interpretation of the minutes of the meetings

of the PRSG to which Union of India was a party would not require

the matter to be referred to arbitration under the Tripartite

Agreement.

19. Moreover as aforesaid, it is the petitioner's own case that the

disputes are between the petitioner and the DTC only. That being the

position, disputes between two out of three parties to the Tripartite

Agreement cannot be subject matter of arbitration under the

Tripartite Agreement.

20. The arbitration clause in the Tripartite agreement of

arbitration by the Secretary of the Department of Legal Affairs of the

Union of India appears to have been imposed by the Union of India

for its own protection and/or in accordance with its policy and is not

found to be applicable to disputes to which Union of India is not a

party i.e. neither as a claimant nor as a respondent and/or to

disputes to which Union of India may only be a proper party.

21. As far as the judgments cited by the counsel for the petitioner

are concerned, the same are of prior to the judgment of the seven

judge bench of the Supreme Court in S.B.P. & Co. Vs. Patel

Engineering Ltd. AIR 2006 SC 450. As per the latter dicta of the

larger Bench and as clarified in National Insurance Co. Ltd. Vs.

Boghara Polyfab Pvt. Ltd. AIR 2009 SC 170, Chief Justice/his

designate in exercise of powers under Section 11 of the Act is

necessarily required to satisfy itself that the party who has applied

under Section 11 of the Act is a party to such an agreement. In the

present case, it has been found as aforesaid that the disputes which

have arisen are not subject matter of an arbitration agreement

between the parties; the said question cannot be left to be

adjudicated by the Arbitral Tribunal under Section 16 of the Act as

contended.

22. Though neither of the counsels have cited any other case lie on

the situation which has arisen in the present case, my research

shows; (i) in M/s Chand Chits & Finance Pvt. Ltd. Vs. M/s Super

Advertisers AIR 1992 Delhi 85 where an arbitration clause

contained in a subsequently signed deed of guarantee by the

guarantors was held to cover the disputes between the creditor and

the principal debtor also; (ii) in MMTC Ltd. Vs. Shyam Singh

Chaudhary MANU/DE/1247/2000 another single judge faced with

two agreements with one providing for arbitration and the other not,

held the disputes to be arbitrable for the reason of the two

agreements being intrinsically and integrally intertwined and for the

reason of one being supplemental to the other.

23. Even though in the present case also the two agreements are

indeed intrinsically and integrally intertwined but owing to a reason

aforesaid, I have concluded the disputes raised to be not subject

matter of the arbitration clause in the subsequent Tripartite

Agreement.

24. The counsel for the petitioner at the fag end of the hearing,

also argued that if this court was not inclined to agree with him,

benefit under Section 14 of the Limitation Act should be given to the

petitioner, if the petitioner is required to institute a suit for recovery

for its dues against the DTC. The power under Section 14 of the

Limitation Act has to be exercised by the court before which this suit

is instituted and finding in that regard cannot be returned by this

court exercising power as the designate of the Chief Justice.

However, all that can be said at this stage is that the facts of the

present case are such from which it cannot be said that the

petitioner was not prosecuting the remedy of arbitration with due

diligence. The question whether the parties are to be relegated to

arbitration or to the court for the disputes aforesaid is not free from

doubt and has taken considerable time of this court also for

determination.

With the aforesaid observations, the petition is dismissed.

No order as to costs.

RAJIV SAHAI ENDLAW (JUDGE)

October 6th,2009 pp