Indeen Bio Power Limited vs M/S. Efs Facilities Service ...
2018 Latest Caselaw 2627 Del

*IN THE HIGH COURT OF DELHI AT NEW DELHI
%                           Judgment delivered on: 26th April, 2018
+      ARB. A. (COMM.) 39/2016

INDEEN BIO POWER LIMITED                                      ..... Petitioner

                                   versus

M/S. EFS FACILITIES SERVICE (INDIA) PVT. LTD.... Respondent
Advocates who appeared in this case:
For the Petitioner :      Mr. Hiroo Advani, Advocate with Mr. Tariq Khan,
                          Ms. Nikta Chitale and Ms. Ranu Purohit, Advs.

For the Respondents :       Mr. Dharmendra Rautray, Mr. Vasanth Raja, Ms.
                            Tara Shahani and Mr. S. Babulkar, Advs.

CORAM:-
HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJEEV SACHDEVA, J.

1. This appeal under Section 37 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as 'the Act'), impugns order/award dated 15.09.2016 of the Sole Arbitrator passed under Section 16 of the Act.

2. The appellant had filed the claim before the Arbitral Tribunal raising several claims. By the impugned order/award dated 15.09.2016, the Arbitral Tribunal has held that the agreements under which the proceedings had been initiated did not come into existence and, as such, the Tribunal did not have any jurisdiction to adjudicate the disputes between the parties.

3. A preliminary objection was raised by the respondent, whereby, it was contended that order dated 15.09.2016 was an arbitral award and could

be challenged only by way of a petition under Section 34 of the Act and not by way of an appeal under Section 37 of the Act.

4. By order dated 17.08.2017, limited arguments were heard on the preliminary objections raised by the respondent. Accordingly, in this order, I propose to deal only with the preliminary objection raised.

5. For the purpose of deciding the preliminary objection, it would be necessary to refer to some brief facts leading to the filing of the claims before the Arbitral Tribunal.

6. On 02.05.2010, the claimant/appellant Indeen Bio Power Limited (hereinafter referred to as 'the claimant') and Dalkia India Pvt. Ltd. entered into a project development agreement which provided for exploring feasibility of the project. As per the Appellant/claimant, the parties agreed upon and settled the terms and conditions of the Engineering Procurement Construction (EPC) contract on 18.01.2011.

7. Though, it is the case of the appellant that since the terms and conditions of the EPC were finalised, no formal execution of the contract was required. However, the stand of the respondent is that there is no effective contract between the parties and though the terms had been agreed upon there were still some formalities required to be carried out and the contracts yet to be executed. As per the claimant, the EPC agreement was split into three agreements, i.e., Service Contract Agreement, Supply Contract Agreement and Works Contract Agreement and they were duly initialled by the parties on 16.03.2012.

8. On 28.03.2012, the appellant invoked arbitration under Article 13.2

of the Service Contract Agreement alleging breaches.

9. The respondent, in reply, contended that the Project Development Agreement expired on 02.08.2010 and the Synchronisation and Co- ordination Agreement (SCA) did not become effective as under its terms the claimant was required to issue 'notice to proceed' under the contract agreement, i.e., the Works Contract Agreement, Service Contract Agreement and Supply Contract Agreement, which had not been executed between the parties. It was contended that there could be no invocation of the arbitration clause as there was no effective agreement between the parties.

10. On a notice being given under Section 11 of the Arbitration & Conciliation Act, 1996, this Court referred the disputes to arbitration by order dated 21.01.2013, however, left the issue of determining the existence or non-existence of the arbitration agreement under Section 16 of the Act.

11. The Arbitral Tribunal noted the agreement of the parties that the issue with regard to jurisdiction, raised in the application be decided as the first issue along with the final award. Consequent thereto, the Arbitral Tribunal, based on the material placed before it and after hearing submissions of the parties, came to a conclusion that the three contracts did not commence and the terms of the agreement did not come into existence and since they did not come into existence, the SCA including clause 19.3 could not operate for want of compliance with the stipulation to issue Notice to Proceed and, accordingly, concluded that the Tribunal had no jurisdiction to adjudicate the disputes between the parties. Even if the arbitration clause was considered to be separate and independent of the

main agreement, since the rest of the terms and conditions were not in operation, the arbitration proceedings must fail. Accordingly, the Arbitral Tribunal ruled that it had no jurisdiction to entertain the claim.

12. The issue that thus arises is: the Arbitral Tribunal having ruled that it has no jurisdiction, would an appeal under Section 37 of the Act, lie against the said order or would it be liable to be challenged under Section 34 of the Act as an award?

13. Section 16 of the Act reads as under:

"16. Competence of arbitral tribunal to rule on its jurisdiction.--

(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the

arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34."

14. Section 37 of the Act that provides for an Appeal reads as under:

"37. Appealable orders.--

(1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:--

(a) refusing to refer the parties to arbitration under section 8;

(b) granting or refusing to grant any measure under section 9;

(b) setting aside or refusing to set aside an arbitral award under section 34.]

(2) An appeal shall also lie to a Court from an order granting of the arbitral tribunal.--

(a) accepting the plea referred in sub-section (2) or sub-

section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court."

15. Under Section 37(2) of the Act an appeal lies from an order accepting the plea of lack of jurisdiction or exceeding the scope of reference raised before an Arbitral Tribunal under section 16 of the Act. No appeal is prescribed under Section 37 of the Act in a case of rejection of the plea of lack of jurisdiction or exceeding the scope of reference, in which case the remedy would be to await the Arbitral Award and then take recourse against the same under section 34 of the Act.

16. For a party which has raised an objection as to the very maintainability of Arbitration action under the Act or lack jurisdiction of the Tribunal, to contend that the remedy of the opposite party in a case where such an objection is sustained, is to challenge the order as an award, would be really blowing hot and cold at the same time.

17. In National Thermal power Corpn. Ltd Vs Siemens Atiengesellschaft; (2007) 4 SCC 451, Supreme Court held as under:

"18. The expression "jurisdiction" is a word of many hues. Its colour is to be discerned from the setting in which it is used. When we look at Section 16 of the Act, we find that the said provision is one, which deals with the competence of the Arbitral Tribunal to rule on its own jurisdiction. SBP & Co. v. Patel Engg. Ltd. [(2005) 8 SCC 618] in a sense confined the operation of Section 16 to cases where the Arbitral Tribunal was constituted at the instance of the parties to the contract without reference to the Chief Justice under Section 11(6) of the Act. In a case where the parties had thus constituted the Arbitral Tribunal without recourse to Section

11(6) of the Act, they still have the right to question the jurisdiction of the Arbitral Tribunal including the right to invite a ruling on any objection with respect to the existence or validity of the arbitration agreement. It could therefore rule that there existed no arbitration agreement, that the arbitration agreement was not valid, or that the arbitration agreement did not confer jurisdiction on the Tribunal to adjudicate upon the particular claim that is put forward before it. Under sub-section (5), it has the obligation to decide the plea and where it rejects the plea, it could continue with the arbitral proceedings and make the award. Under sub-section (6), a party aggrieved by such an arbitral award may make an application for setting aside such arbitral award in accordance with Section 34. In other words, in the challenge to the award, the party aggrieved could raise the contention that the Tribunal had no jurisdiction to pass it or that it had exceeded its authority, in passing it. This happens when the Tribunal proceeds to pass an award. It is in the context of the various sub-sections of Section 16 that one has to understand the content of the expression "jurisdiction" and the scope of the appeal provision. In a case where the Arbitral Tribunal proceeds to pass an award after overruling the objection relating to jurisdiction, it is clear from sub- section (6) of Section 16 that the parties have to resort to Section 34 of the Act to get rid of that award, if possible. But, if the Tribunal declines jurisdiction or declines to pass an award and dismisses the arbitral proceedings, the party aggrieved is not without a remedy. Section 37(2) deals with such a situation. Where the plea of absence of jurisdiction or a claim being in excess of jurisdiction is accepted by the Arbitral Tribunal and it refuses to go into the merits of the claim by declining jurisdiction, a direct appeal is provided. In the context of Section 16 and the specific wording of Section 37(2)(a) of the Act, it would be appropriate to hold that what is made directly appealable by Section 37(2)(a) of the Act is only an acceptance of a plea of absence of jurisdiction, or of excessive exercise of jurisdiction and the refusal to proceed further either wholly or partly."

(underlining supplied)

18. In view of the above, the objection raised by the Respondent is rejected. It is held that the Arbitral Tribunal, by its order, having ruled that it has no jurisdiction, an appeal would lie under Section 37 of the Act, against said order. Consequently, it is held that the present appeal under section 37 of the Act, is maintainable.

19. List before the Roster bench for directions on 01.05.2018.

SANJEEV SACHDEVA J th APRIL 26 , 2018 st/HJ