Delhi High Court
M/S Karam Chand Thapar & Bros (Coal ... vs Tehri Hydro Development ... on 9 November, 2012
Author: Reva Khetrapal
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ARB.P. 322/2010
M/S KARAM CHAND THAPAR
& BROS (COAL SALES) LTD ..... Petitioner
Through: Mr. A.K. Ganguly, Sr.
Advocate with Mr. Sukumar
Pattjoshi, Ms. Madhumita
Kothari, Ms. Reetu Chhabra
and Mr. Niranjan Behera,
Advocates.
versus
TEHRI HYDRO DEVELOPMENT
CORPORATION INDIA LTD & ANR ..... Respondents
Through: Mr. Gourab Banerjee, Sr.
Advocate with Mr. S.K. Taneja,
Sr. Adv. alongwith Mr. Puneet
Taneja and Mr. Anand Kumar
Singh, Advocates for the
respondent No.1.
Mr. Jaswinder Singh, Advocate
for the respondent No.2.
% Date of Decision : November 09, 2012
CORAM:
HON'BLE MS. JUSTICE REVA KHETRAPAL
JUDGMENT
: REVA KHETRAPAL, J.
1. The present petition under Section 11(2) and (6) of the
Arbitration and Conciliation Act, 1996 has been filed by M/s. Karam
Chand Thapar & Bros (Coal Sales) Ltd. (hereinafter referred to as
"KCT").
BRIEF BACKGROUND
2. The essential facts leading to the dispute between the parties are
within a narrow compass. The Respondent, Tehri Hydro
Development Corporation India Limited (hereinafter referred to as
"THDC") is a joint venture corporation of Government of India and
Government of U.P. THDC invited tenders for three packages for the
work of construction of Tehri Hydro Power Plant. KCT submitted its
tenders for the three packages vide their letter dated 14.12.1993.
THDC accepted the offer of KCT and issued Letter of Intent dated 8 th
November, 1995 and Contract Agreements to this effect were signed
on 03.01.1996 separately for the three packages between the parties.
KCT contends that the present petition relates to Package-III
specifically, which is denied by THDC. It is the submission of THDC
that KCT has raised disputes pertaining to other packages as well. It
is, however, not in dispute that Clause 60 of the "General Conditions
of the Contract" provided for a four tier system for settlement of
disputes. For the facility of reference, Clause 60 is reproduced
hereunder:-
"Claues 60.0 SETTLEMENT OF DISPUTES
(i) If the Contractor considers any work demanded of
him to be outside the requirements of the contract
or considers any decision of the Engineer-in-
Charge on any matter in connection with or
arising out of the contract or carrying out of work
to be unacceptable, he shall promptly ask the
Engineer-in-Charge in writing for written
instructions or decision. Thereupon the Engineer-
in-Charge shall give his written instructions or
decision within a period of thirty days of such
request.
Upon receipt of the written instructions or
decision, the contractor shall promptly proceed
without delay to comply with such instructions or
decision.
If the Engineer-in-Charge fails to give his
instructions or decision in writing within a period
of thirty days after being requested for or if the
contractor is dissatisfied with the instructions or
decision of the Engineer-in-Charge, the contractor
may within thirty days after receiving the
instructions or decision, file a written appeal with
the CMD, THDC stating clearly and in detail, the
basis for the objection. The CMD will consider the
written appeal and make his decision on the basis
of relevant contract provisions, together with the
facts and circumstance involved in the dispute.
The decision will be furnished in writing to the
contractor within thirty days after the receipt of
the contractor‟s written appeal.
If the contractor is still dis-satisfied with the
decision, the contractor, within a period of fifteen
days from the receipt of the decision, shall indicate
to the CMD, THDC his intention to refer the
matter to the Disputes Review Board (DRB) and
within period of another fifteen days shall formally
appeal to the Disputes Review Board.
The constitution of the Dispute Review Board and
the procedure to be adopted by it for resolving the
disputes is elaborated in the TABLE-A, provided,
however, all such disputes which may arise prior
to the constitution of the Board, shall be taken up
for consideration at its first meeting convened not
later than thirty days upon its constitution. As
specified under para 1 of Annex-A, the
decisions/recommendations of Dispute Review
Board in respect of the disputes involving the
individual claims upto Rs.200.00 lacs shall be
binding on the THDC and the contractor. In the
case of the dispute involving individual claim
beyond Rs.200.00 lac, if inspite of the
recommendations/decision of the Disputes Review
Board, the dispute remains unresolved, either
party, within 15 days of the receipt of the aforesaid
recommendations/decision of the board, may
appeal the decision back to the Board for review.
However, if even after this review of its
recommendations/decision by the Disputes Review
Board, the two parties still fail to resolve the
dispute, either party may resort to arbitration. In
that case ,within a period of 30 days of the receipt
of the Disputes Review Board‟s final
recommendations/decision, the party desiring to
resort to arbitration shall indicate its intention to
refer the dispute to Arbitration, failing which, the
said final recommendations/decision of the
Disputes Review Board shall be conclusive and
binding.
(ii) The disputes arising between the contractor and
the THDC shall be resolved by arbitration in
accordance with the provisions of Indian
Arbitration Act, 1940, or any statutory
amendments thereof. The Board of arbitrators
shall comprise of three arbitrators, one to be
nominated by the Contractor, the second by the
THDC and the third by the Secretary (Power),
Ministry of Energy, Govt. of India.
(iii) .......
(iv) If either of the parties fail to appoint its arbitrators
in pursuance of sub clause (ii) above, within sixty
days after receipt of the notice of the appointment
of its arbitrators, then the Secretary (Power),
Ministry of Energy, Govt. of India shall have the
power, at the request of either party to appoint
arbitrator. A certified copy of the Secretary
(Power)‟s order making such appointment shall be
furnished to both the parties."
3. As per Table-A of GCC Clause 60, before referring any matter
for arbitration in terms of sub-clause (i), such matter shall be placed
before the Dispute(s) Review Board (hereinafter referred to as DRB)
for giving its recommendations/decision. The matter shall be referred
to arbitration only if the dispute still remains unresolved. DRB shall
provide special expertise to assist in and facilitate the timely and
equitable resolution of disputes, claims and controversies between the
THDC and the KCT, in an effort to avoid litigation and delay in
construction. The manner in which the Board (DRB) is to be set up
and disbanded is provided in Clause 3 of Table-A as follows:-
"The THDC and the Contractor shall each select and
negotiate the agreement with their respective member
within the first six months after award of the Contract.
The THDC and Contractor will immediately notify their
members to begin selection of the third member. The
first two members shall ensure that the third member
meets all the criteria listed above. The third member
shall be selected within four months after the first two
members are notified to proceed with the selection of
the third member. In the event of an impasse, in the
selection of the third member, that member shall be
selected by the President, Institution of Engineers
(India), from among the nominees proposed by the first
two members.
The THDC, the Contractor, and all the three members
of the Disputes Review Board shall execute the Disputes
Review Board Tripartite Agreement within two months
after the selection of the third member.
If during the contract period, the THDC and the
contractor are of the opinion that any member or
members of the Disputes Review Board is/are not
performing their functions properly or that the Board is
not discharging the functions for which it was
constituted. THDC and the Contractor may disband the
Disputes Review Board and reconstitute the same. The
procedure for disbandment and reconstitution of
Disputes Review Board shall be as follows:-
a) The THDC and the Contractor shall jointly sign a
notice specifying that the Board shall stand
disbanded with effect from the date specified in the
notice. The notice shall be posted by a registered
letter with AD or delivered personally to each of
the members of the Board. A member shall be
deemed to have received the delivery of the letter
even if he refuses to do so.
b) The Board shall stand disbanded from the date
specified in the notice.
c) The procedure for reconstitution of the Board shall
be the same as laid down above for initial
constitution of the Board except that the THDC
and the Contractor shall take steps to ensure that
the reconstituted Board is in position within three
months."
4. Clause 5 of Table-A provides for the Procedure and Schedule
for Disputes Resolutions and states as follows:-
"5. Disputes shall be considered as quickly as
possible, taking into consideration the particular
circumstances and the time required to prepare detailed
documentation."
5. Sub-clause (c) of Clause 5 of Table-A provides the time period
for resolution of disputes by the DRB in the following terms:-
"(c) When a dispute is referred to the Board, it shall
convene the first meeting within one month of the
appeal being made to it and the Board's
recommendations/decision shall be conveyed in writing
to both the parties within one month of the first
meeting. In case of disputes involving large and complex
issues requiring elaborate discussions, collection of
elaborate data, verification of facts on the site etc. which
will require a period longer than one month, the Board
shall decide in the first meeting the additional time over
one month that it will require to complete its
proceedings for giving its recommendations/decision."
6. Sub-clause (f) of Clause 5 of Table-A, which is also pertinent,
inter alia, provides as under:-
"(f) Although both the THDC and the Contractor
should give great weightage to the recommendations of
the Disputes Review Board, these are not binding in
respect of the disputes involving individual claims
beyond Rs.200.00 lac. If the Board‟s recommendations
do not result in resolution of dispute, all records and
written recommendations, including any minority
reports,will be admissible as evidence in any subsequent
formal arbitration or litigation."
7. Clause (IX) relates to Termination of Agreement and reads as
under:-
"(IX) TERMINATION OF AGREEMENT
Subject to the provisions relating to the reconstitution of
the BOARD as hereinabove contained; this Agreement
shall terminate on satisfactory completion of works and
issue of a Maintenance Certificate as provided under
the Contract referred to above and on settlement of all
outstanding disputes involving financial claims.
However, parties may by mutual consent decide not to
terminate this Agreement for such further period as
may be mutually agreed to."
8. It is the case of KCT that the provision of the DRB had not been
enabled by THDC from 03.01.1996 when the contract agreement was
entered into till the date when KCT invoked the arbitration clause.
Despite execution of the contract(s) by KCT in the year 1996, and
appointment by KCT of its DRB member, namely, Mr. N.N. Singhal
on 12.09.1996, THDC nominated its member, namely, Mr. V.V.
Badareenarayana on 23.11.2001 and by the same letter communicated
its approval of the nomination of Mr. N.N. Singhal. KCT conveyed its
approval for the nomination of Mr.V.V. Badareenarayana by its letter
of the same day i.e. 29.11.2001. The DRB was constituted even later,
i.e., on 10.05.2002, on which date the Tripartite Agreement between
DRB members was signed. Thus, the DRB was constituted six
years after the date on which it ought to have been constituted.
9. It is further the case of KCT that even after its constitution on
10.05.2002, the DRB out of the 20 disputes referred to it till 2010
decided only 4 disputes between November, 2002 till 02.08.2005. It
is also stated that after resignation of THDC‟s nominee member on
15.01.2005, the new DRB member (THDC nominee) was
appointed by THDC in March, 2008, i.e., after a lapse of three
years. Since then, the newly constituted DRB has only been harping
on the fixation of higher fee structure rather than taking steps to decide
the disputes between the parties. THDC issued completion
certificate to KCT on 08.06.2007 for Package-III for substantial
completion of work as on 30.04.2007,i.e., much prior to the
reconstitution of the DRB.
10. It is stated that the malafides of THDC are obvious from the
fact that on 26.09.2005, THDC sought to fill the vacancy caused in the
DRB pursuant to the resignation of its nominee member Mr. V.V.
Badareenarayana on 15.01.2005 with Mr. T.K. Dhar, whose father,
namely, Mr. Anil Dhar was working with THDC and THDC well
knew the fact that the aforesaid filling up of the vacancy would be
unacceptable to KCT. KCT vide letters dated 27.01.2007 and
16.05.2007 requested THDC to disband the DRB as in 11 years of
contract execution DRB had given decisions only in 4 matters and
totally failed in achieving its objective, i.e., quick resolution of
disputes. Despite such objection from KCT, THDC proposed Dr.
B.K. Mittal‟s name as THDC‟s nominee in place of Mr.
Badareenarayana vide its letter dated 26.06.2007, i.e., after seven and
a half years of the entering into of the contract agreement between the
parties and after issuance of completion certificate by THDC on 8th
June, 2007, again with the knowledge that the said nominee would not
be acceptable to KCT as Dr. B.K. Mittal was the presiding arbitrator
in the Arbitral Tribunal adjudicating the disputes between KCT and
THDC. As anticipated, KCT objected to the appointment of Dr. B.K.
Mittal vide its letter dated 10.08.2007. Ultimately, on 29.01.2008, i.e.,
3 years after their nominee‟s resignation, THDC nominated Mr. N.K.
Choudhari as their nominee to the DRB. Thus, the DRB was
reconstituted only in January, 2008. This reconstituted DRB held
its first meeting six months later on 31.07.2008. No Tripartite
Agreement has been signed by this reconstituted DRB as required
by the contract provisions till date.
11. According to KCT, the reconstitution of the DRB also served no
useful purpose as all that the newly constituted DRB did, as is
apparent from the material placed on record, was only to harp on the
fixation of higher fee structure, rather than taking steps to decide the
disputes between the parties. The minutes of the first meeting of the
newly formed DRB held on 31.07.2008 bear testimony to the fact that
all that was discussed in the meeting was details of the fee structure.
Thereafter another meeting was held on 05.05.2009, when again only
the fee structure was discussed.
12. On 23.06.2009, the nominee member of KCT in the DRB,
namely, Mr. N.N. Singhal vide his letter of the said date addressed to
the other members of the DRB raised his concern about non-
functioning of the DRB, but to no avail.
13. Faced with the situation as aforesaid, KCT vide its letter dated
22.07.2009 again requested the Chairman and Managing Director of
THDC to take steps to disband the DRB and reconstitute the same as
the DRB was not functional as per contract provisions. The said
request was also reiterated by KCT vide its letter dated 21.08.2009.
However, in spite of repeated requests by KCT, THDC took no steps
towards reconstitution of the DRB. In the circumstances, KCT vide
its letter dated 15.04.2010 wrote to THDC, proposing to disband the
DRB and invoke the stage of arbitration.
14. Shortly thereafter, on 24.04.2010, KCT invoked Clause 60 of
the Contract Agreement for adjudication of its disputes by the Arbitral
Tribunal, nominating Mr. Y.P. Singh (Retired Chief Engineer) as one
of the members of the Arbitral Tribunal and requesting THDC to
appoint its nominee as per provisions of the Contract. In the said
letter, KCT clearly stated that DRB had failed to discharge its
obligations and adjudicate the disputes between the parties effectively
and expeditiously. It stated: "More than 8 years have elapsed and
because of delays on your part nothing substantial has come out of
the DRB proceedings. So we are left with no other option............."
15. On 15.05.2010, Mr. N.N. Singhal also informed the Petitioner
of his intention to resign from DRB, specifically stating therein that:
"Matters were still at a standstill at exactly the same stage with zero
action after the reconstitution of the DRB in March, 2008."
Thereupon, KCT sent another letter dated 01.06.2010 whereby it
informed THDC that the THDC‟s insistence on continuation of DRB
was wholly misconceived as DRB had ceased to operate. KCT once
again called upon THDC to nominate its arbitrator not later than 30
days from the date of receipt of the said communication.
16. The THDC responded vide letter dated 26.06.2010 and
requested KCT to appoint its new nominee DRB member, ostensibly
on the plea that KCT had referred Claim No.D-21 vide its letter dated
24.05.2010 to DRB. THDC by the same letter refused to appoint an
arbitrator. Due to failure on the part of the THDC to appoint its
arbitrator and also for appointment of the Presiding Arbitrator, KCT
vide its letter dated 02.08.2010 requested Secretary (Power), Ministry
of Energy, Government of India to nominate two arbitrators, i.e.,
THDC‟s nominee arbitrator and the Presiding Arbitrator within 30
days of the receipt of the notice. No action having been taken on the
letter of KCT dated 02.08.2010, the present petition for appointment
of the two arbitrators is filed by KCT.
17. Response to the petition is filed by THDC, strongly opposing
the relief prayed for. KCT filed its rejoinder, reiterating the contents
of the petition and denying the averments made in the Opposition filed
on behalf of the Respondent.
18. This Court has heard the submissions advanced by Mr.A.K.
Ganguly, the learned senior counsel for KCT and Mr. Gourab
Banerjee, the learned Additional Solicitor General on behalf of
THDC.
CONTENTIONS OF KCT
19. At the outset, Mr. A.K. Ganguly, the learned senior counsel for
KCT submitted that the work pertaining to Package-III was completed
on 30.04.2007 and a completion certificate was issued by THDC on
08.06.2007. Thereafter, the DRB has ceased both by operation of
contract as also by conscious decision/election by one party, namely,
THDC, and also by virtue of the fact that the quorum had not been
established owing to the resignation of member(s). He contended that
the purpose of the DRB was to expeditiously resolve the disputes
during the progress of work. However, despite a lapse of more than
three years after completion of work on 30th April, 2007, the DRB
had failed to decide the disputes pending before it. Hence, the very
purpose of existence of DRB stood defeated. He submitted that
despite execution of the contract(s) in the year 1996 and the
appointment by KCT of its DRB member on 12.09.1996, THDC
nominated its member in 2001 and constituted DRB on 10.05.2002.
Even after its constitution, DRB decided only 4 out of the 20 disputes
referred to it till 2010. Mr.V.V. Badareenarayana, THDC‟s nominee
member of DRB resigned on 15.01.2005, and the new DRB member
(THDC nominee) was appointed only in March, 2008, i.e., after a
lapse of three years. This newly constituted DRB also rendered itself
unfit to act as an adjudicator as was apparent from the fact that the
members of the DRB had only been harping on the fixation of higher
fee structure, rather than taking steps to decide the dispute between the
parties. The DRB thus explicitly rendered itself nothing more than a
party with vested interest.
20. Reference in the aforesaid context was made by Mr. Ganguly to
letter dated 30th May, 2008 from KCT to THDC complaining about
non-functioning of DRB despite KCT‟s consent to the nomination of
Mr. N.K. Choudhari as DRB member; letter dated 31.05.2008
whereunder Mr. N.K. Choudhari (the THDC nominee) consented to be
nominated as member of DRB after a lapse of five months subject to
modified payment terms pertaining to retainer fee per calendar month,
besides payment of actual sitting days; letter dated 07.06.2008 from
THDC to DRB members requesting for initiation of DRB
proceedings; letter dated 26.06.2008 from Chairman, DRB to all
concerned informing about the meeting to be held on 31st July, 2008 to
discuss fee structure of DRB members; Minutes of the first meeting of
the newly formed DRB dated 31.07.2008 giving details of fee
structure as discussed and suggested in the meeting; letter dated 19 th
September, 2008 from KCT to DRB Members agreeing to the
enhancement of fee from ` 3,000/- to ` 5,000/- per hearing without
retention fee; Minutes of the meeting of the DRB dated 05.05.2009
pertaining to enhancement of the fee structure; letter dated 23.06.2009
from Mr. N.N. Singhal (KCT‟s nominee on DRB), the relevant portion
whereof is reproduced hereunder:-
"In the last meeting (05-05-09), I had clearly given my
views that non-acceptance of fee structure by any party is
no ground for non-functioning of DRB, whose members
had signed the tripartite agreement, which provides that
fee structure can be changed only with agreement of the
parties (THDC & KCT). There is no conditional
acceptance for being a member of DRB.
I had further stressed that resolution of disputes
should be the first aim and be taken up without further
waste of time on fee structure.
I am repeating my earlier views, already more
than 14 months have passed since the new DRB, was
formed during which most of the disputes would have
been resolved, justifying the existence of the DRB,
otherwise parties to the dispute shall be forced to seek
remedies available under the Contract to overcome the
present impasse."
21. Mr. Ganguly also referred to letter dated 22.07.2009,
whereunder KCT wrote to THDC, requesting for reconstituting the
DRB in respect of the two members (THDC‟s nominees) who were
not performing their functions properly, and also requesting that the
communication be treated as a notice for reconstitution of DRB. He
also relied upon the letter dated 21st August, 2009 sent by KCT to
THDC for reconstitution of the DRB and for making the same
functional and also letter dated 15.04.2010 sent by KCT to THDC
stating:
"...................it is amply clear that it is THDC and the
DRB members who are at fault and not us. It is a
malafide and mischievous attempt on THDC‟s part to try
and put the blame on us. We have all through the
contract period and even beyond made substantial efforts
for effective and proper functioning of the DRB.
Unfortunately, THDC because of its indifferent attitude
has made sure that DRB fails to discharge its
obligations. The DRB as on date has become
redundant as it has failed to discharge its contractual
obligations. In view of the existing situation, and the
fact that the DRB has given its recommendations in
only four out of the eleven disputes referred to it,
(presently twenty disputes referred to it with sixteen
disputes still remaining unresolved) the parties are left
with no option but to disband the DRB and invoke the
next stage of dispute settlement, i.e. Arbitration or any
other suitable legal recourse."
22. Reference was next made by him to letter dated 24.04.2010
whereby KCT invoked arbitration and to letter dated 15.05.2010
whereunder Mr. N.N. Singhal (KCT‟s nominee in DRB) tendered his
resignation stating that "the matter is stand still at exactly the same
state with zero action by anyone ............ As for myself, I have been
feeling very embarrassed to continue in the DRB................".
23. On the basis of the aforesaid correspondence between the
parties, it was submitted on behalf of KCT that as per the contract,
disputes remaining unresolved through DRB, the applicant KCT is left
with no alternate remedy and is hence well within its right to invoke
the arbitration clause seeking reference to the Arbitral Tribunal. A
number of precedents were cited in support of KCT‟s contention that
the DRB having become redundant disputes between the parties could
be submitted to arbitration, which are dealt with hereinbelow.
24. In Expresswell International Ltd. vs. Adhunik Metaliks Ltd.,
2006 (Suppl.) Arb. LR 42 (SC), the applicant, a Chinese Company
and the Respondent, an Indian Company had entered into a contract
for supply of low ash metallurgical coke. The contract provided for an
Arbitration Agreement between the parties contained in Clause 18.
The said clause, however, envisaged that prior to giving notice of
arbitration, the parties were required to settle their disputes by
negotiation and if no settlement could be reached then, in that case, the
dispute could be submitted to arbitration. Disputes arose as to the
failure of the parties to work the contract and the applicant was willing
to settle the dispute by negotiation. No agreement could be arrived at
and a notice of arbitration was thereupon sent by the applicant to the
Respondent indicating the points of dispute and also naming its
Arbitrator. The Respondent took the plea that the notice of arbitration
was premature. The Hon‟ble Supreme Court held the case to be a fit
case for appointment of Arbitrator, basing its views on the principle
that no one can be permitted to take advantage of its own wrong and
relying upon its earlier decision in the case of M.K. Shah Engineers
& Contractors vs. State of M.P. reported in (1999) 2 SCC 594 = 1999
(1) Arb. LR 646 (SC), in which this kind of situation had arisen for
consideration and the Court held that the party at fault cannot be
permitted to set up the bar of non-performance of pre-requisite
obligations so as to exclude the applicability and operation of the
arbitration clause.
25. In the case of National Thermal Power Corporation Ltd. vs.
WIG Brothers (Builders & Engineers) Ltd. reported in 2009 (2) Arb.
LR 238 (Delhi), the facts were somewhat akin to the facts of the
present case. In the said case, the arbitration clause contemplated that
a dispute between the parties should first be referred to an Engineer
for his decision, and it is only thereafter that it can be carried to
arbitration. The question which arose before the Court was what is the
recourse open to a contractor for resolution of his disputes if the owner
does not appoint an Engineer which it is obliged to do under the
contract. The Court observed that a somewhat similar question had
come up for decision in the case of Petron Civil Engineering Limited
vs. DLF Industries Ltd. and Others reported in 2000 (2) RAJ 438
(Del.) = 2003 (3) Arb. LR 536 (Del.), in which this Court had held as
under:-
".........if it is the contention of the respondents that the matter had
to be first referred to the "Engineer" for decision, it was
obligatory on their part to have such a person continue to be
appointed so as to have the matter referred to him for decision.
That having not been done, there was no need of the matter being
first referred to a person who was not even in existence at the
relevant time for his decision.
.....because there was no "Engineer-in-charge" or "Engineer"
available at site to whom the matter could be referred for decision,
the disputes are required to be referred to an arbitrator....."
26. On the basis of the aforesaid decision, this Court in the
National Thermal Power Corporation Ltd. (supra) opined that one
party to an Arbitration Agreement cannot by his own act or omission
prevent the other from having its dispute resolved by arbitration. The
Court held as follows:-
"......................The fact is that the parties had entered
into an arbitration agreement that contemplated one step
to be resorted by the parties before carrying the dispute
to arbitration. That step was that the Engineer (to be
appointed by the petitioner) would first try to resolve the
disputes between the parties. Now, if the petitioner
fails/refuses or neglects to appoint an Engineer, it cannot
be heard to contend that the arbitration agreement itself
is frustrated and that the respondent cannot resort to
arbitration directly. The intention of the parties was to
have their disputes resolved eventually by arbitration. In
the absence of the availability of the Engineer, the rest of
the agreement must be given effect to, as that would be
consistent with the intention of the parties. This
interpretation is in accordance with the well accepted
principle of interpretation of documents that the intention
of the parties, to the extent possible, must be given effect
to and each and every term of the contract must be
implemented. The contention of the petitioner would
mean that they by their own act would render the whole
of Clause 27 of the contract nugatory and meaningless.
Such a contention is completely unacceptable. The
intention of the parties was clearly to seek the resolution
of disputes by arbitration though through the route (as
per Clause 26) of the Engineer. However, the non-
appointment of an Engineer by the petitioner could in no
manner undo the intent in the agreement to resolve
disputes by arbitration."
27. A somewhat similar view was taken by the Punjab and Haryana
High Court in the case of Sunder Dass and Company vs. Jind Co-
operative Sugar Mills Ltd (P&H), 2007 (Suppl.) Arb. LR 567. In the
said case, the contract contained an arbitration clause which provided
that all disputes and differences arising out of or in connection with
the contract shall be referred to and settled by the Architect and the
Engineer-in-charge, who shall state their decision in writing. Such
decision with respect to any of the excepted matters shall be final but,
if either the employer or the contractor be dissatisfied with the
decision of the Architect and the Engineer-in-charge on any matter
(except any of the excepted matters), then in any such case either party
may invoke the arbitration clause. The material on record disclosed
that the Petitioner did take steps to proceed with the matter in
accordance with the agreement and it was on the failure of the
Architect and Engineer-in-charge to act that the Petitioner invoked the
arbitration clause. In such circumstances, the contention of the
Respondent that the reference to arbitration was premature or illegal
was rejected by the Court and the challenge to the order of
appointment of Arbitrator was also rejected.
28. The alternative submission of Mr. Ganguly, which submission,
it was clarified, was being made without prejudice to the first
submission, that the DRB had become redundant justifying KCT‟s
resort to invocation of arbitration, is as follows. The rider in Clause
60.0 of GCC that in respect of disputes involving individual claims
upto ` 200.00 lac, the decision of DRB shall be binding on both the
parties is void. Mr. Ganguly contended that as per Section 28 of the
Indian Contract Act, every agreement, by which any party thereto is
restricted absolutely from enforcing his right, under or in respect of
any contract, by usual legal proceedings in the ordinary tribunals is
void to that extent, and it has been so held by the Hon‟ble Supreme
Court, and that the objectionable part of such clause in an Arbitration
Agreement as to waiver of rights of appeal or objection is clearly
severable. Thus, the part of Clause 60.0 of GCC making the
recommendation of DRB in respect of disputes upto ` 200.00 lac final
and binding is void, there being no rationale or justification for the
same. For this proposition, reference was made to certain decisions of
the Supreme Court referred to hereinafter.
29. In A.V.M. Sales Corporation vs. Anuradha Chemicals Private
Limited, (2012) 2 SCC 315, the Hon‟ble Supreme Court, albeit in the
context of territorial jurisdiction, unequivocally laid down that the
provisions of Section 28 read with Section 23 of the Contract Act,
1872 make it very clear that "if any mutual agreement is intended to
restrict or extinguish the right of a party from enforcing his/her right
under or in respect of a contract, by the usual legal proceedings in the
ordinary tribunals, such an agreement would to that extent be void. In
other words, parties cannot contract against a statute."
30. In Shin Satellite Public Co. Ltd. vs. M/s. Jain Studios Ltd.,
AIR 2006 SC 963, the agreement entered into between the parties
provided for resolution of disputes, if any, arising between the parties
to the agreement by arbitration under the rules of United Nations
Commission on International Trade Law (UNCITRAL). The second
part of the said clause, however, provided that the Arbitrator‟s
determination shall be final and binding between the parties and the
parties waive all rights of appeal or objection in any jurisdiction. The
question for consideration before the Supreme Court was whether
such an Arbitration Agreement was legal, valid and enforceable in
view of the provisions of Section 28 of the Contract Act, 1872. The
Supreme Court opined that the offending and objectionable part of
Clause 23 pertaining to the Arbitrator‟s determination being „final and
binding between the parties‟ and the declaration contained therein that
the parties have waived the right of appeal or objection „in any
jurisdiction‟ was clearly severable as the same was independent of the
dispute being referred to and resolved by an arbitrator. It was further
observed as follows: "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‟."
31. In J.G. Engineers Private Limited vs. Union of India and Anr.,
(2011) 5 SCC 758, Clauses (2) and (3) of the contract made certain
decisions by the Superintending Engineer and Engineer-in-charge
final, binding and conclusive, in regard to certain matters. The
question which arose was whether the said clauses of the Agreement
stipulated that the decision of any authority was final in regard to the
responsibility for the delay in execution and consequential breach of
the contract. After analyzing the situation, the Hon‟ble Supreme
Court held that even though the decision as to the rate of liquidated
damages and certain others were excepted matters, the right to levy
liquidated damages would arise only if the contractor was responsible
for the delay and was in breach. The question whether the contractor
was responsible for the delay or the respondents were responsible for
the delay in execution of the work was, therefore, arbitrable. In fact,
the question whether the other party committed breach cannot be
decided by the party alleging breach. In arriving at the said
conclusion, the Supreme Court relied upon its earlier decision in the
case of BSNL vs. Motorola India (P) Ltd., (2009) 2 SCC 337,
wherein the Supreme Court had held as under:-
"26. Quantification of liquidated damages may be an
excepted matter as argued by the appellants, under
Clause 16.2, but for the levy of liquidated damages, there
has to be a delay in the first place. In the present case,
there is a clear dispute as to the fact that whether there
was any delay on the part of the respondent. For this
reason, it cannot be accepted that the appointment of the
arbitrator by the High Court was unwarranted in this
case. Even if the quantification was excepted as argued
by the appellants under Clause 16.2, this will only have
effect when the dispute as to the delay is ascertained.
Clause 16.2 cannot be treated as an excepted matter
because of the fact that it does not provide for any
adjudicatory process for decision on a question, dispute
or difference, which is the condition precedent to lead to
the stage of quantification of damages."
32. It is thus contended on behalf of KCT that the plea of THDC
that there is a rider in Clause 60.0 of GCC in respect of the disputes
involving individual claims upto ` 200.00 lac, pertaining to which the
decision of DRB shall be binding on both the parties, is unsustainable.
The said rider in Clause 60.0 of GCC would be against public policy,
being contrary to Section 28 of the Contract Act, 1872.
CONTENTIONS OF THDC
33. Mr. Gourabh Banerjee, Additional Solicitor General on behalf
of THDC, sought to rebut the submissions of KCT by contending that
Clause 60.0 GCC and Table-A provided an elaborate mechanism for
the constitution of the DRB, its functions, reconstitution, etc. and that
reference to DRB was a condition precedent before the matter could
be referred to arbitration as was clear from the fact that in Clause 1 of
Table-A it was specifically provided: "The matter shall be referred for
arbitration only if the dispute still remains unresolved." He
contended that there were inherent checks and balances in the
composition of the DRB, in that THDC‟s nominee member was to be
approved by KCT and the KCT‟s member was to be approved by
THDC and they were to select the Chairman. Thus, the DRB for all
intents and purposes was an impartial body. In any event, the DRB
could only be disbanded if both THDC and KCT agreed, as per the
prescribed procedure set out in Table-A as to the disbandment, which
states that THDC and the contractor may disband the Disputes Review
Board and reconstitute the same.
34. Mr. Banerjee also contended that the DRB report was not waste
paper. As per Sub-Clause (v) of Clause 60.0 GCC, any member of the
DRB could be called as a witness for the purpose of "giving evidene
before the arbitrators on any matter whatsoever relevant to the
dispute or difference referred to the arbitrators as aforesaid".
Further, Clause 5(f) of Table A unequivocally provided that: "If the
Board's recommendations do not result in resolution of dispute, all
records and written recommendations, including any minority
reports, will be admissible as evidence in any subsequent formal
arbitration or litigation".
35. Mr.Banerjee urged that KCT‟s submission that DRB can simply
be bypassed, cannot and should not be countenanced by this Court.
The DRB is functional and operative and KCT cannot be allowed to
take advantage of its own wrong conduct to sabotage the functioning
of DRB, whose one member and Chairman are continuing and KCT is
required to nominate its member as per the procedure, which THDC
requested KCT to follow on 26.6.2010.
36. Rebutting KCT‟s submission that DRB was only relevant till
08.06.2007 or a maximum of one year thereafter, Mr. Banerjee
contended that this was contrary to the conduct of KCT itself and also
contrary to Clause (IX) pertaining to termination of the Agreement.
He submitted that two aspects were not in dispute, viz., that the DRB
was reconstituted in 2008 and held its first meeting on 31st July, 2008
and the second that KCT made various claims before the DRB on 20th
July, 2009, 8th August, 2009, 19th August, 2009, 4th October, 2009 and
9th October, 2009. A further claim was submitted to the DRB on 24 th
May, 2010, i.e., after issuance of notice by KCT dated 24.04.2010
invoking arbitration. Thus, it is now not open to KCT to urge that
DRB had ceased to function upon the completion of contract. He also
submitted that Clause (IX) titled "Termination of Agreement" is
crystal clear. The Agreement will only terminate upon issuance of a
Maintenance Certificate as provided under the contract between the
parties and on settlement of all outstanding disputes involving
financial claims. Disputes have not been settled and, therefore, the
DRB continues to be effective. In any event, the dispute resolution
clause is not tied to the contract.
37. With regard to KCT‟s second submission regarding the
inordinate delay in the functioning of DRB and the non-functionality
of DRB, Mr.Banerjee referred to and relied upon the chart of fifteen
claims made by KCT (Amended Annexure A-8 to IA
No.11309/2011), and summarized it in the following manner:-
Claim Nos. Total Principal Date of Reference to
Amount DRB
1-5 44.47 lakhs August 2003
6-13 1019.00 lakhs 20.7.2009, 8.8.2009,
4.10.2009, 9.10.2009
14-15 3228.40 lakhs 7.5.2010 & 25.4.2011
(to CMD)
The above table, it was contended on behalf of THDC shows
that out of the total principal amount claimed of Rs.4291.87 lakhs,
(approximately Rs.43 crores), Claims amounting to Rs.42.5 Crore
(approximately) have been raised from 2009 onwards. Thus, the issue
of delay is merely an excuse and nothing more. In any event, delay
cannot be a ground for KCT to unilaterally repudiate part of the
dispute resolution clause.
38. It was further contended that the non-functionality of the DRB
on account of fee disputes was a red herring. Prior to the
reconstitution of the DRB in 2008, it was in fact KCT‟s nominee, Mr.
N.N. Singhal, who, by his letter dated 27.11.2007, had raised the issue
of higher fees, including retention fee on the model of NHPC. A
perusal of the minutes of the reconstituted DRB dated 31.07.2008 and
05.05.2009 read with letters dated 27.08.2008, 19.09.2008,
03.11.2008, 04.03.2009, 24.03.2009 and 12.05.2009, exchanged
between THDC and KCT, clearly brings out the fact that it was KCT
who was questioning the aspect of retention fee for the members of the
reconstituted Board, to which THDC had agreed. Reference was also
made to letter dated 3rd August, 2009 whereunder THDC pointed out
to KCT that the fee implication, considering the stakes involved, was
minimal and that the total financial implication to each party in a year,
over and above the fee already agreed by KCT, on account of
acceptance of fee schedule in the meeting held on 05.05.2009, shall be
in the range of ` 2.40 lac and ` 0.72 lac for four days and three days
respectively. Despite this, KCT decided to take the view, on
15.04.2010, that the DRB had become redundant and sought to invoke
arbitration by letter dated 24.04.2010. Such a course of conduct was
demonstrative of the fact that the fee issue was being used by KCT as
an excuse to frustrate the DRB.
39. It was next urged by Mr. Banerjee that notwithstanding KCT‟s
request on 15.04.2010 to THDC to disband the DRB mutually, KCT
submitted new claims to DRB on 24.05.2010, wherefrom it is clear
that KCT adopted an inconsistent stand about the functioning of DRB.
The oscillating stand of KCT is also stated to be evident from the
notice for invocation of arbitration dated 05.05.2011 sent by KCT to
THDC in the matter of KCT‟s claim for extra expenditure due to
delays under Package III, to the tune of ` 32 crores, wherein KCT
stated that if under any order of the appropriate court of law the DRB
is held to be existing or is reconstituted, KCT reserves its rights to
refer the dispute to DRB in future, notwithstanding KCT‟s stand that
DRB is non-functional. In any event, he submitted that there is no
delay as regards claims worth ` 42.5 crores out of ` 43 crores, and,
therefore, delay cannot be a ground to by-pass the DRB.
40. Further, Mr. Banerjee submitted that the parties having agreed
for reference to DRB as a pre-condition to reference to arbitration, it is
not open to KCT unilaterally to rely on one part of the clause which
suits its purpose and ignore the other part which requires reference to
DRB. Reference in this context was placed on a judgment of the
Hon‟ble Supreme Court in Indian Oil Corporation Ltd and Ors vs.
Raja Transport Pvt. Ltd., (2009) 8 SCC 520, wherein it is held that:-
"No party can say that he will be bound by only one part
of the agreement and not the other part, unless such
other part is impossible of performance or is void being
contrary to the provisions of the Act, and such part is
severable from the remaining part of the
agreement.................A party to the contract cannot
claim the benefit of arbitration under the arbitration
clause, but ignore the appointment procedure relating to
the named arbitration contained in the arbitration
clause."
41. Adverting next to the submission of KCT that the portion of the
Agreement which gives finality to the DRB‟s decision in respect of
claims below ` 200 lacs, is contrary to public policy, being contrary to
Section 28 of the Contract Act, Mr. Banerjee submitted that a correct
reading of the said clause would mean that for disputes below ` 200
lacs, THDC and KCT would normally be bound but would always
have the option of challenging the decision by way of civil
proceedings, i.e., civil suit, whereas for larger claims the arbitration
option is provided. In this context, reference was made by
Mr.Banerjee to the judgment of a learned Single Judge of this Court
(Hon‟ble Mr. Justice Rajiv Sahai Endlaw) in Karam Chand Thapar
and Bros (CS) Ltd. vs. National Hydroelectric Power Corp. and
Anr., [CS(OS) No.2143A/2002 and OMP No.21/2004 dated
13.10.2009]. In the said case, in proceedings for setting aside of the
interim award on the arbitrability of the claims of the petitioner
against the respondent, this Court held that it had not been stated that
any clause of the Agreement barred claim No.3 held by the arbitrator
to be arbitrable and proceeded to make the following observations:-
"Again, it is not as if the petitioner is remedyless with the
claims being held to be non-arbitrable. The petitioner
has the remedy of a civil suit available to it with respect
thereto, though it is a different matter whether the civil
court also would allow the said claim or not, if the
parties had agreed to such claim being not entertainable
under the contract."
FINDINGS
42. On a careful consideration of the material on record and the
rival submissions of the parties made at the bar, I am of the considered
opinion that the unconscionable delay in the constitution and re-
constitution of the DRB and its failure to resolve the disputes between
the parties are glaring facts which cannot be easily brushed aside.
Though Mr. Banerjee is correct in his submission that ordinarily
Clause 60.0 of GCC, which envisages a four-tier dispute resolution
mechanism, ought not to be given a go-bye, I have serious
reservations in accepting his submission that the DRB has not been
rendered redundant with the passage of fourteen years which have
elapsed from the time when the parties penned the contract(s). It is
also noteworthy that KCT had followed the procedure prescribed in
the contract from the inception of the contract by appointing its
nominee DRB member in the year 1996 itself, but due to delay in
constituting the DRB by THDC and the rigid attitude of the DRB
members, only four disputes could be adjudicated upon by the DRB in
a span of fourteen years. KCT appointed Mr. N.N. Singhal as
nominee DRB member vide its letter dated 12.09.1996, whereas
THDC appointed its nominee DRB member, Mr. V.V.
Badareenarayana after five years and that too after repeated requests
made by KCT and after completion of the original contract period.
The tripartite agreement was signed by the DRB on 10.05.2002, i.e.,
six years after the appointment of KCT‟s nominee DRB member.
Between November, 2002 to August, 2005, only four out of eleven
disputes were decided and right up till 2006 no further progress was
made by DRB.
43. The malafides of THDC are also apparent from the fact that in
lieu of its nominee DRB member Mr. V.V. Badareenarayana, who had
resigned, THDC sought to nominate Mr. T.K. Dhar, the father of Mr.
Anil Dhar, who was working with THDC. KCT, as was expected,
protested to the said nomination and refused to accept the same.
THDC, after a span of two years and after completion of the contract
work on 08.06.2007, then proposed the name of Dr. B.K. Mittal as its
nominee on 26.06.2007, who, to the knowledge of THDC was the
Presiding Arbitrator in the Arbitral Tribunal adjudicating existing
disputes between KCT and THDC, and to whose nomination the KCT
was entitled to object and did in fact object.
44. THDC finally nominated Mr. N.K. Choudhari on 29.01.2008 as
their nominee to DRB, but even this newly constituted DRB failed to
prove effective. In its first meeting held on 31.07.2008, the members
of the DRB sought to engage in a fee wrangle. While it is the case of
THDC that Mr. N.N. Singhal, the nominee member of KCT was to
blame for the same, this is not borne out by the record. Mr. N.N.
Singhal vide his letter dated 27.11.2007, on which reliance is sought to
be placed by THDC, specifically informed THDC and KCT that the
DRB had not been functioning since the end of 2005, i.e., after
resignation of Mr. Badareenarayana and his replacement should have
been finalized within 30 days or so. He requested the parties to
reconstitute the Board without further delay and requested for revised
fee structure. The Board was eventually reconstituted on 31st May,
2008, on which date Mr. N.K. Choudhari (new THDC nominee) wrote
a letter dated 31.05.2008 accepting the nomination as new DRB
member subject to modified payment terms as per the Standard
Dispute Review Board's Rules and Procedures, which included
payment of retainer fee per calendar month equivalent to three times
daily fee established from time to time, besides payment for actual
sitting days. It was thus the nominee of THDC who insisted upon
enhanced fee structure from the date of his appointment and even
during the two meetings held by the newly constituted DRB.
45. Thereafter, KCT vide its letter dated 19.09.2008 sought to
expedite the process of adjudication of disputes, and to prevent an
impasse conveyed its consent to the new DRB for enhancement of the
fee from ` 3,000/- to ` 5,000/- along with ` 1,000/- towards
secretarial expense and requested the reconstituted DRB to commence
its proceedings. The THDC, however, continued to press KCT to
accept the hiked fee demanded by its nominee member. KCT vide its
letters dated 06.11.2008, 31.12.2008 and 18.02.2009 to DRB members
requested them to confirm their acceptance so that dispute resolution
was not delayed further and could start expeditiously. Mr. N.N.
Singhal (KCT‟s nominee) vide his letter dated 23.06.2009 addressed
to the members of DRB also raised his concern about the non-
functioning of the new DRB. The said letter reflects his insistence
upon resolution of disputes being the first aim of DRB instead of
wasting time on fee structure, and wholly belies the contention of
THDC that it was KCT‟s nominee who was insisting on a fee hike at
the cost of early adjudication of disputes. This was followed by a
request letter dated 22.07.2009 from KCT to the Chairman and M.D.,
THDC, specifically requesting THDC to take steps to disband the
DRB and reconstitute the same on account of its non-functionality, to
which also the THDC paid no heed. KCT vide its letter dated
21.08.2009 while replying to THDC‟s letter dated 03.08.2009
(informing KCT that as per the revised proposal of DRB vide minutes
dated 05.05.2009, the financial implication to each party in a year was
minimal) again requested THDC to take steps to reconstitute DRB in
respect of the said two members under the contract provision
mentioned in GCC Clause 60.0.
46. The aforesaid request of KCT to reconstitute DRB, in my
opinion, was in consonance with Clause 60.0 GCC Table-A, which
states that "if during the contract period, the THDC and the
contractor are of opinion that any member of the Board is not
discharging the functions for which it was constituted, THDC and the
contractor may disband the Board and reconstitute the same." Thus,
KCT‟s request for disbandment of the existing DRB was in terms of
the Agreement between the parties and THDC‟s refusal to constitute a
fresh DRB was wholly without any basis. KCT vide its letter dated
04.02.2010 again pointedly brought to the notice of THDC the failure
of the newly constituted DRB in discharging its obligations as per the
contract provisions and to provide a mechanism for speedy redressal
of all disputes. THDC paid no heed, leaving no other option to KCT
except to invoke arbitration on 24.04.2010, leading to the resignation
of Mr. N.N. Singhal from DRB on 15.05.2010. In such circumstances,
in my opinion, it is not open to THDC to contest the position that the
non-functionality of the DRB and the adamant refusal of THDC to
reconstitute the DRB in order to make it functional constitute
sufficient reason for KCT to invoke the arbitration clause.
47. As regards the contention of THDC that the total principal
amount claimed is ` 4,291.87 lacs, out of which claims amounting to
` 44.47 lacs only are relatable to claims made till 2003 (i.e., out of
claims amounting to ` 43 crores only, claims amounting to ` 42.50
crores have been raised from 2009 onwards) and, therefore, the issue
of delay is a red herring of no consequence, I find the said contention
wholly untenable. In terms of the contract between the parties, the
DRB was to become operational within six months, but THDC all
along adopted a lackadaisical attitude with regard to the constitution of
the DRB - the dispute resolution system envisaged under the
Agreement. It again took its own time to reconstitute the DRB which
was eventually constituted after the contract period had expired. Even
this reconstituted DRB was rendered non-operational by the attitude of
THDC‟s nominee members. The net result is that even after a lapse of
fourteen years from the date of entering into the contract, the disputes
of KCT with THDC remained unresolved. Notwithstanding, the KCT
is being told that the invocation of arbitration by it is premature, and
that it ought to agree to its claims being referred to a DRB to be
constituted at this juncture.
48. From the aforesaid, it is crystal clear that KCT cannot be faulted
for the non-functionality of the DRB. With regard to the contention of
THDC that in respect of disputes involving individual claims up to `
200 lacs, the decision of DRB shall be binding on both the parties
also, I have no hesitation in holding that the said part of Clause 60.0 of
GCC is against public policy, being contrary to the provisions of
Section 28 of the Indian Contract Act. I am buttressed in coming to
the aforesaid conclusion from the legal position adumbrated by the
Hon‟ble Supreme Court in A.V.M. Sales Corporation (supra), Shin
Satellite Public Co. Ltd. (supra) and J.G. Engineers Private Limited
(supra). In fairness to Mr. Gourab Banerjee, learned Additional
Solicitor General, he rightly conceded that there is no bar to
questioning the decision of DRB by way of filing a civil suit, but, in
my considered opinion, the DRB having proved redundant as a dispute
resolution mechanism, the process of arbitration must be made
available to the KCT, which has invoked the same. The THDC having
totally failed to comply with its obligation to set up and make
functional the DRB as an adjudicatory body cannot be allowed to take
advantage of its own inaction/wrong. In any event, no premium can
be given to THDC for its inaction. Applying the ratio of the law laid
down in Shin Satellite Public Co. Ltd. (supra), this is a fit case for
severing the lawful part of the Agreement with regard to referring the
dispute to arbitration from the offending part as to finality with regard
to the decisions of DRB in respect of certain disputes by using a blue
pencil.
49. I accordingly appoint Mr. Justice Y.K. Sabharwal, retired Chief
Justice of India to arbitrate upon the disputes between the parties. The
arbitration shall take place under the aegis of Delhi High Court
Arbitration Centre. The fees of the arbitrator shall also be in terms of
the Delhi High Court Arbitration Centre (Arbitrator‟s Fees) Rules.
50. The petition is allowed in the above terms.
A copy of this order be sent to the learned arbitrator as well as
to the Delhi High Court Arbitration Centre.
REVA KHETRAPAL
JUDGE
November 09, 2012
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