M/S. Saipem Triune Engineering ... vs Indian Oil Petronas Pvt. Ltd.
2011 Latest Caselaw 108 Del

THE HIGH COURT OF DELHI AT NEW DELHI

%           Judgment Reserved on: January 07, 2011
            Judgment Pronounced on: January 10, 2011

+       CS(OS) No. 2340/2008 & I.A. No. 15811/2008


M/S. SAIPEM TRIUNE ENGINEERING PVT. LTD
                                    ....Plaintiff

                              - versus -

INDIAN OIL PETRONAS PVT. LTD.                   .....Defendant

Advocates who appeared in this case:
For the Plaintiff: Ms. Malvika Rajkotia, Adv.
For the Defendant: Mr. Diggaj Pathak

CORAM:-
HON'BLE MR JUSTICE V.K. JAIN

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                      Yes
   in Digest?

V.K. JAIN, J

1.          This is an application under Section 5 & 8 of

Arbitration and Conciliation Act, 1996, in a suit for recovery

of        Rs.1,79,92,366/-.        On      26.09.2005,           the

defendant/applicant had issued a notice inviting tender for

Project Management Consultancy Services, for design and



CS(OS)No.2340/2008                               Page 1 of 16
 engineering,         carrying       out   investigation    work,          basic

engineering          with   cost     estimate,    statutory     approvals,

procurement assistance etc. and preparation of project

completion            documents           for     implementation             of

LPG/Propane/Butane                  Import/Export         Terminal           at

Ennore(Tamil Nadu), on a lump sum turnkey basis. The bid

documents consisted of two volumes.                   The first volume

contained instructions to bidders; forms of bid, bank

guarantee and conditions of contract, etc. whereas the

second volume consisted of scope of work and other project

requirements. On 1.9.2006, the defendant/applicant issued

a Letter of Intent to the plaintiff with respect to the aforesaid

tender.     Pursuant thereto, a work order dated 3.10.2006

was issued to M/s.Triune Projects Pvt. Ltd., which was

substituted by amended work order dated 25.1.2007 in the

name of the plaintiff which had acquired the business of

M/s.Triune Project Pvt. Ltd. Other terms and conditions of

the    work     order       dated    3.10.2006,    however,       remained

unchanged.

2.          The work order, inter alia, provided as under:-

            "All the tender documents including
            N.I.T., your quotation, payment terms,
            special terms and conditions of the

CS(OS)No.2340/2008                                         Page 2 of 16
             tender, general description of the works,
            subsequent negotiations and all other
            correspondences connected with the
            tender, shall form a part of this contract
            agreement."

3.          The case of the applicant/defendant is that the

documents referred in the work order as forming part of the

contract included the Format for Agreement of Project

Management Service, Article 31 of which provided as

under:-

            "ARTICLE 31 : ARBITRATION
            The arbitration proceedings shall be in
            accordance with OM No.3/5/93-PMA
            dated    30/6/93,    Govt.   of   India,
            Department of Public Enterprises, which
            reads as follows:-

            "In the event of any dispute or difference
            relating to the interpretation and
            applications of the provisions of the
            CONTRACTS, such dispute or difference
            shall be referred by either pasty to the
            arbitration of one of the Arbitrators in the
            Department of Public Enterprises to be
            nominated      by    the    Secretary     to
            Government of India, incharge of Bureau
            of Public Enterprises. The Arbitration Act,
            1940 shall not be applicable to the
            arbitration under this clause, provided,
            however, any party aggrieved by such
            award may make a further reference for
            setting aside or revision of the award to
            the Law Secretary, Department of Legal
            Affairs, Ministry of Law and Justice,
            Government of India. Upon such
            reference, the dispute shall be decided
            by the Law Secretary or the Special

CS(OS)No.2340/2008                                  Page 3 of 16
             Secretary/Additional Secretary when so
            authorized by the Law Secretary, whose
            decision shall bind the parties finally
            and conclusively. The parties in the
            dispute will share equally the cost of
            Arbitration  as    intimated   by  the
            Arbitrator."

4.          The       contract       was       terminated       by      the

defendant/applicant vide its letter dated 12.8.2008 on the

allegations of various breaches on the part of the plaintiff

and claims are stated to have been raised by it against the

plaintiff in this regard.

5.          The case of the plaintiff is that the work was

completed by it by December, 2006 except for soil testing

which took another five months as clear site was not made

available by the defendant.            It is also claimed that the

investigation works could start only in April, 2007 and

report was submitted to the defendant on 25.2.2007. It is

further     alleged    that   vide    letter    dated   8.9.2007,       the

defendant issued instructions to the plaintiff to resume the

work on part-II of the project and extended the project

completion schedule to April, 2009. Pursuant to that letter,

the plaintiff commenced work on part-II.                    However, on

9.6.2008, the defendant asked the plaintiff to cancel the

tender giving high cost estimate and non-incorporation of

CS(OS)No.2340/2008                                       Page 4 of 16
 some of its comments as the reason for cancellation. The

plaintiff, however, continued with the work till August, 2008

when the PMC contract was terminated by the defendant on

12.8.2008.           According to the plaintiff, it had submitted

invoice     amounting       to   Rs.2,15,17,485/-   for   the       work

performed till May, 2008 but the defendant released only a

sum of Rs.37,60,119/- leaving a balance of Rs.77,57,366.

It is also alleged that a bank guarantee of Rs.52,35,000/-

which the plaintiff had submitted to the defendant was also

encashed.            The plaintiff has now claimed a sum of

Rs.1,79,92,366/- which comprises the balance amount

payable to it, the amount of bank guarantee and an amount

of Rs.50 lakhs as nominal damages.

6.          The case of          the defendant/applicant in this

application is that since the suit pertains to subject matter

of an arbitration agreement between the parties, the matter

is required to be referred to arbitration.

7.          It is stated in the reply that there are three

different clauses pertaining to arbitration, i.e. (a) 9.0.0.0 of

C 154 - C - G -102 (sheet no.76 of 89 at page 105).                  (b)

Article 31 of C 154-C-G 109 (sheet no.23 of 24 at page

no.188 to 189). (c) Article 34 of the draft contract agreement

CS(OS)No.2340/2008                                   Page 5 of 16
 and all the clauses are at variance. It is alleged that since

all the clauses are at variance and had not attained finality,

in the absence of a valid arbitration clause, the dispute

cannot be referred to arbitration.

8.          In       Eastern   Coalfields   Limited    vs.      Sanjay

Transport Agency and Another, (2009) 7 SCC 345, the

agreement between the parties contained the following

clause:-


            "ARBITRATION WITH REGARD TO THE
            COMMERCIAL DISPUTES BETWEEN
            THE PUBLIC SECTOR ENTERPRISES
            INTER SE AND BETWEEN THE PUBLIC
            SECTOR      ENTERPRISES     AND
            GOVERNMENT DEPARTMENTS.

            In the event of any dispute of difference
            relating to the interpretation and
            application of the provisions of the
            commercial terms of the contract such
            dispute or difference shall be referred by
            either party to the arbitration, to one of
            the arbitrators in the Department of
            Public Enterprises, to be nominated by
            the Secretary to the Government of India
            incharge of the BUREAU OF PUBLIC
            ENTERPRISES. The Arbitration Act, 1940
            shall not be applicable to the arbitration
            under this clause. The award of the
            arbitrator shall be binding upon the
            parties to the dispute, provided however,
            any party aggrieved by such award,
            may make further reference for setting
            aside or revision of the award to the Law
            Secretary, Department of Legal Affairs,

CS(OS)No.2340/2008                                    Page 6 of 16
             Ministry of Law & Justice, Government of
            India. Upon such reference, the dispute
            shall be decided by the Law Secretary or
            the     Special      Secretary/Additional
            Secretary when so authorised by the
            Law Secretary, whose decision shall
            bind the parties finally and conclusively.
            The parties to the dispute will share
            equally the cost of arbitration, as
            intimated by the arbitrator."

            Relying upon the above-referred clause, the High

Court referred the dispute which had arisen between the

parties to the sole arbitration of a retired judge of the High

Court. Setting aside the order of the High Court, Supreme

Court, inter alia, held as under:-

            "The aforesaid clause No. 14 relates to
            disputes of commercial nature arising
            between the Public Sector Enterprises
            inter se and between the Public Sector
            Enterprises         and       Government
            Departments. The text that follows also
            makes the said position clear which
            provides that after the award is given by
            the arbitrator in the department of public
            sector enterprises, reference for setting
            aside or revision of the award is to be
            made to the Law Secretary, Department
            of Legal Affairs, Ministry of Law &
            Justice, Government of India. The said
            clause,     therefore,    concerns     the
            commercial disputes arising between the
            Public Sector Enterprises inter se and
            between       such     enterprises    and
            Government Departments. The said
            clause will have no application to an
            agreement which is entered into between
            the appellant and the respondents, one

of whom is a private party.

9. Since Article 31 of the Format for Agreement of

Project Management Service is absolutely identical to clause

14 of the agreement between the parties in the case of

Eastern Coalfields (supra), it must necessarily be held that

since one of the parties to the agreement is a private

company, it can have no application to the agreement

between them and, therefore, no reliance can be placed on

the aforesaid clause for referring the disputes between the

parties to arbitration.

It was pointed out by the learned counsel for the

defendant/applicant that in the case of Eastern Coal fields

(supra), the heading of the arbitration clause indicated that

it applied to disputes between the Public Sector Enterprises

inter se and the Public Sector Enterprises and the

Government Departments, but, no such heading has been

given to clause 31 of the Format for Agreement of Project

Management Service. In my view, the contention is

misconceived for two reasons. Firstly, the heading to Article

31 of the Format for Agreement of Project Management

Service indicates that the arbitration shall be in accordance

with OM No.3/5/93-PMA dated 30.6.1993, Government of

India, Department of Public Enterprises and that OM,

undisputedly, refers only to arbitration between Public

Sector Enterprises inter se and the Public Sector

Enterprises and Government of India. Secondly and more

importantly, the arbitration clause in that case being

absolutely identical to the arbitration clause contained in

Article 31, the heading of the arbitration clause would not

be a material factor.

10. However, clause 9.0.1.0 of the general

conditions of contract for Project Management Consultancy

Services, which form part of the tender document, also

provides for arbitration and reads as under:-

9.0.1.0 Subject to the provisions of Clauses 6.7.1.0, 6.7.2.0 and 9.0.2.0 hereof, any dispute arising out of a Notified Claim of the CONSULTANT included in the Final Bill of lie CONSULTANT in accordance with the provisions of Clause 6.6.3.0 hereof, if the CONSULTANT has not opted for the Alternative Dispute Resolution Machinery referred to in Clause 9.1.1.0 hereof, and any dispute arising out of any Claim(s) of the OWNER against the CONSULTANT shall be referred to the arbitration of a Sole Arbitrator selected in accordance with the provisions of Clause 9.0.1.1 hereof. It is specifically agreed that the OWNER may prefer its Claim(s) against the CONSULTANT as counterclaim(s) if a Notified Claim of the

CONSULTANT has been referred to arbitration. The CONSULTANT shall not, however, be entitled to raise as a set off defence or counterclaim any claim which is not a Notified Claim included in the CONSULTANT's Final Bill in accordance with the provisions of Clause 6.6.3.0 hereof.

9.0.1.1 The Sole Arbitrator referred to in Clause 9.0.1.0 hereof shall be selected by the CONSULTANT out of a panel of 3 (three) persons nominated by the OWNER for the purpose of such selection, and should the CONSULTANT fail to select an arbitrator within 30 (thirty) days of the panel of names of such nominees being furnished by the OWNER for the purpose, the Sole Arbitrator shall be selected by the OWNER out of the said panel.

11. Since the work order issued by the defendant

company specifically stipulated that all the tender

documents including general terms and conditions of the

tender shall form part of the contract agreement, it cannot

be disputed that the above-referred general terms and

conditions of contract, including the arbitration clause

referred-above, form part of the contract between the

parties. Thus, there is an agreement clause between the

parties and in terms of that clause, any dispute arising out

of a notified claim of the plaintiff included in the final bill of

the plaintiff as also any dispute arising out of any claim of

the defendants against the plaintiff as required to be

referred to the arbitration of a sole Arbitrator to be selected

in accordance with the provisions of clause 9.0.1.1 since

admittedly the plaintiff has not opted for the alternative

dispute resolution machinery referred to in clause 9.0.1.0

and the provisions of clause 6.7.1.0, 6.7.2.0 and 9.0.2.0

also do not apply to the claim of the plaintiff.

12. An analysis of Section 8 of Arbitration &

Conciliation Act would show that the following conditions

are required to be satisfied before the Court can exercise its

powers under this provision: (1) there should be an

arbitration agreement; (2) a party to the agreement should

bring an action in the court against the other party; (3)

subject-matter of the action should be the same as the

subject-matter of the arbitration agreement; (4) the other

party should move the court for referring the parties to

arbitration before it submits his first statement on the

substance of the dispute. In my view, clause 9.0.1.0

constitutes an arbitration agreement between the parties.

The plaintiff before this Court is a party to the arbitration

agreement; the defendant which is the other party to the

arbitration agreement has moved the Court for referring the

disputes between the parties to arbitration, before

submitting its first statement on the substance of the

dispute and prima facie subject matter of the suit is the

same as the subject matter of the arbitration agreement.

Therefore, all the conditions required for exercise of powers

by the Court under Section 8 of the Act stand fulfilled in

this case.

13. It was contended by the learned counsel for the

plaintiff that since the disputes subject matter of this suit,

do not arise out of a notified claim of the plaintiff included

in the final bill submitted by it, the arbitration clause

referred-above does not apply to the suit claim. As noted

earlier, the case of the plaintiff is that it had submitted

invoices amounting to Rs.2,15,17,485/- for the work

performed till May, 2008 and a sum of Rs.77,57,366/- out

of that amount is still due to it from the defendant. It is

difficult to accept that the claim with respect to this amount

is not covered under the above-referred arbitration clause.

Admittedly, the defendant has also raised claims against the

plaintiff and presumably the amount of the bank guarantee

of Rs.52,35,000/- has been encashed towards satisfaction

of those claims of the defendant. In any case, it will be very

much open to the arbitrator to take a view on this aspect of

the matter and decide whether any or all the claims forming

subject matter of this suit are covered under the arbitration

clause or not. Section 16 of the Arbitration & Conciliation

Act, 1996 specifically confers power upon the arbitral

tribunal to rule on its jurisdiction including ruling on any

objections with respect to the existence or validity of the

arbitration agreement. Therefore, it will only be appropriate

if this aspect of the matter is left to the arbitrator to

determine.

14. In Hindustan Petroleum Corporation Ltd. v. M/s

Pinkcity Midway Petroleums, AIR 2003 SC 2881 the

appellant before the Supreme Court filed an application

under Section 8 read with Section 5 of the Arbitration and

Conciliation Act, 1996 in a civil suit filed by the respondent

seeking a decree of declaration. The learned Civil Judge

dismissed the application holding that the disputes between

the parties were not covered by the arbitration agreement.

The revision filed by the appellant against that order was

dismissed by the High Court. Setting aside the decision of

the High Court, the supreme Court referred to the decision

of its Constitutional Bench in Konkan Railway

Corporation Ltd. v. Rani Construction Pvt. Ltd., AIR

2002 SC 778 and held that if there is any objection as to

the applicability of the arbitration clause to the facts of the

case, the same will have to be raised before the concerned

arbitral tribunal and, therefore, the Courts below ought not

to have proceeded to examine the applicability of the

arbitration clause to the facts of the case in hand but ought

to have left that issue to be determined by that arbitral

tribunal. Referring to its earlier decision in the case of P.

Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539,

the Supreme Court was of the view that in cases where

there is an arbitration clause in the agreement, it is

obligatory for the Court to refer the parties to arbitration in

terms of their arbitration agreement and nothing remains to

be decided in the original action after such an application is

made except to refer the dispute to an arbitrator. The

Supreme Court was of the view that once the arbitration

clause was admitted, considering the mandatory language

of Section 8 of the Arbitration Act, the Court below ought to

have referred the dispute to arbitration.

15. Dealing with the question as to what would be the

role of Civil Court when an argument is raised that such

arbitration clause does not apply to the case in hand, the

Supreme Court noted that Section 16 of the Act had

empowered the arbitral tribunal to rule on its own

jurisdiction, including the rule on any objection with respect

to the existence or validity of the arbitration agreement. The

Supreme Court was of the view that the arbitral tribunal's

authority under Section 16 of the Act was not confined to

the width of its jurisdiction but goes to the very root of its

jurisdiction and, therefore, there would be no impediment in

contending before the arbitral tribunal that it had been

wrongly constituted and, therefore, it had no jurisdiction.

16. As observed by Supreme Court in P.Anand

Gajapathi Raju And Others vs. P.V.G. Raju (Dead) And

Others, (2000) 4 SCC 539, the language of Section 8 of

Arbitration & Conciliation Act is preemptory and, therefore,

it is obligatory for the Court to refer the parties to

arbitration in terms of their arbitration agreement and in

such a case, nothing remains to be decided in the original

action. Similar view was taken by the Supreme Court in

Branch Manager, Magma Leasing and Finance Ltd. and

another v. Potluri Madhavilata and another, (2009) 10

SCC 103.

For the reasons given in the preceding paragraphs,

the application is allowed and the disputes between the

parties which are subject matter of this suit are referred to

arbitration. The respondent is directed to nominate a panel

of three persons in terms of clause 9.0.1.1. The plaintiff will

be entitled to select any one out of those three persons to

act as Arbitrator, within thirty days of the name of the

panelist being forwarded to it by the defendant, failing

which the arbitrator will be selected by the defendant out of

the panel forwarded by it to the plaintiff. The defendant will

also be entitled to prefer counter-claims against the plaintiff

in terms of clause 9.0.1.0 to the arbitrator.

The suit as well as the IA stand disposed of in

terms of this order.

(V.K. JAIN) JUDGE JANUARY 10, 2011 'sn'/'vk'