Delhi High Court
Bharat Heavy Electricals Limited vs Lalitpur Power Generation ... on 15 May, 2019
$~3 & 4
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 15.05.2019
+ ARB.P. 888/2018
BHARAT HEAVY ELECTRICALS LIMITED ..... Petitioner
Through Mr. Kartik Nayar, Mr. Mohit Mahla
and Mr. Sarthak Malhotra, Advs.
versus
LALITPUR POWER GENERATION COMPANY LIMITED
..... Respondent
Through Mr. Alok Krishna, Mr. Mayank
Bughani, Mr. Upendra Prasad, Mr.
Sanjeev Kr. Singh and Mr. Shighra
Kumar, Advs.
AND
+ ARB.P. 889/2018
BHARAT HEAVY ELECTRICALS LIMITED ..... Petitioner
Through Mr. Kartik Nayar, Mr. Mohit Mahla
and Mr. Sarthak Malhotra, Advs.
versus
LALITPUR POWER GENERATION COMPANY LIMITED
..... Respondent
Through Mr. Alok Krishna, Mr. Mayank
Bughani, Mr. Upendra Prasad, Mr.
Sanjeev Kr. Singh and Mr. Shighra
Kumar, Advs.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
RAJIV SHAKDHER, J. (ORAL)
Backdrop:
1. This is a petition filed under Section 11 of the Arbitration and
Conciliation Act, 1996 (in short '1996 Act') for appointment of a
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 1 of 14
nominee-arbitrator on behalf of the respondent.
2. Briefly, the backdrop in which the captioned petitions have
been filed are as follows:
2.1 On 22.4.2010, a Memorandum of Understanding (MOU)
appears to have been executed between the Government of Uttar
Pradesh and the respondent i.e. Lalitpur Power Generation Company
Limited (herein referred to as „LPGCL‟).
2.2 To be noted, in its earlier avatar LPGCL was known as Bajaj
Hindustan Limited.
2.3 This MOU concerned setting up of a 3x660 MW Super Critical
Thermal Power Plant (in short „power plant‟). The MOU envisaged
setting up of the power plant via a Special Purpose Vehicle (SPV).
2.4 Accordingly, LPGCL floated a tender for the supply and
installation of a Boiler Turbine Generator (BTG) Package. This
tender was floated on 9.11.2010.
2.5 Against this tender, amongst others, the petitioner i.e. Bharat
Heavy Electricals Limited (hereafter referred to as „BHEL‟)
submitted its techno-commercial bid and price bid. The bids which
were in two parts were submitted on 19.2.2011 and 10.3.2011
respectively.
2.6 BHEL was declared successful in the bidding process and,
consequently, two Letters of Award (for short „LOA‟) of even date
21.3.2011 were issued in its favour. The LOAs, broadly, required
BHEL to design and supply the equipment and also install the BTG
Package. By virtue of the 1st LOA, BHEL was required to design and
supply the equipment for BTG package while the 2nd LOA required
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 2 of 14
rendering services which, inter alia, involved erection of the BTG
package.
2.7 Thus, as required, BHEL furnished a bank guarantee for the
said purpose to LPGCL in the sum of INR 236,73,22,000.00. This
bank guarantee was furnished by BHEL on 25.3.2011. Besides this,
as required, BHEL also furnished advance bank guarantees and
corporate guarantee to LPGCL. The details of the guarantees need
not be given by me as it is common ground that all of these stand
released to BHEL.
2.8 Continuing with the narrative, the parties herein also executed a
Wrap-up Contract Agreement on 10.8.2011, preceded by a separate
Supply and Services Contract Agreement of even date (hereafter
collectively referred to as „definitive agreements‟). It is not in dispute
that BHEL has executed its obligations under the LOAs and/or the
definitive agreements.
3. It is the petitioner‟s case that it has discharged its obligations
under the definitive agreements.
4. The respondent on the other hand says that there are defects in
the execution of the subject works which are required to be cured. It
is LPGCL‟s stand that the subject works were not fully completed and
even the part which BHEL claims to have completed was riddled with
defects.
5. The record filed before me shows that correspondence has been
exchanged between the parties with regard to payment of outstanding
dues. What I have on record is one such letter which dates back to
20.6.2013. Via this letter, BHEL laid a claim on LPGCL for a sum of
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 3 of 14
Rs.290 crores. This letter was followed by a letter dated 20.6.2014
whereby BHEL claimed a sum of Rs.542 crores from LPGCL. After
this, letters were issued by BHEL only in May 2018 in which claims
in the range of Rs.650 and Rs. 655 crores were raised by BHEL. This
aspect is recorded in letters dated 8.5.2018 and 25.5.2018. There is,
at least on record, a huge gap of four years.
5.1 Pertinently, in the letter dated 25.5.2018 there is also a
reference to the meetings held between the CMD, BHEL and the
Chairman, LPGCL. The meetings between these two persons appear
to have been held on 13.2.2017 and 24.8.2017.
6. Since there was no resolution of the dispute, BHEL vide its
communication dated 29.10.2018 finally triggered the arbitration
agreements which according to it obtains between itself and LPGCL.
In this letter, reference was made to Clause 30 relatable to the 1st
LOA issued vis-a-vis the Supply Contract dated 10.8.2011 and
likewise to Clause 29 of the 2nd LOA relatable to the Services
Contract also dated 10.8.2011, which have been collectively
described hereinbefore as definitive agreements.
6.1 Furthermore, in this communication, BHEL named its
nominee-arbitrator and called upon LPGCL to appoint its own
nominee-arbitrator.
7. Interestingly, LPGCL responded to BHEL‟s letter dated
29.10.2018 whereby the arbitration agreement was sought to be
triggered. This response was sent by LPGCL vide communication
dated 30.11.2018. It would be relevant to quote an extract from the
letter only to highlight the fact that the stand taken by LPGCL before
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 4 of 14
me, in Court today, is inconsistent with what is stated in its
communication dated 30.11.2018.
"...Under such circumstances, we would sincerely APPEAL
to you that
a)If we could approach the entire issue through a
negotiated settlement between us instead of going to
Arbitration - Arbitration being a lose-lose situation for
both of us - so much for BHEL also, who, we claim to be
our partner holding our hands and NOT a supplier - on a
transactional basis.
b) We would request that let us 'meet as frequently as
possible at operating level under your guidance and try
to agree before March 2019 to arrive at payment time
frame agreed between us - as mentioned to you in the
meeting.
c) In any case, again, as mentioned in the meeting, we
will need 3 years - to pay you whatever is the settled
amount between us. Please consider our situation - we
are keen to pay you but have dearth of means, which is
why requesting you to accommodate us to pay you - as
early as possible.
d) We would also request you to recognize our bonafide
intention - our intention is not to pay you one Rupee
LESS than what is due to you and agreed by us.
e) Finally, under such circumstances, request you to
kindly consider our approach to resolve the issue - and
withdraw the Arbitration Procedure and settle between
us. Arbitration, you will appreciate, is not going to
expedite the payment to you if there is no money with
us.
f) Last but not the least, we wanted to assure you that
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 5 of 14
though we are asking for three years' time frame to be on
safe side (so that we do not fail in our commitment) - we
understand our responsibility of paying you the settled
amount - and if, God Willing, money comes earlier than
anticipated- please rest, assured that you will be our first
partner to receive your money..."
8. As would be evident upon perusal of the aforesaid extract, it
was not the stand of LPGCL that there was no arbitration agreement
between the parties. LPGCL also did not take the stand that BHEL
had not followed the procedure prescribed for triggering the
arbitration agreement.
Submissions of Counsel
9. Given this background, arguments on behalf of the BHEL have
been addressed by Mr. Kartik Nayar, while the submissions on behalf
of LPGCL have been advanced by Mr. Bughani.
10. It is, broadly, Mr. Nayar‟s submission that a perusal of Clauses
29 and 30 of the two LOA‟s which are pari materia in their language
and content and Article 5 of the definitive agreements would show
that there is an arbitration agreement obtaining between the parties. It
is, thus, the stand of the learned counsel that since disputes have
erupted between the parties with regard to payments, they need to be
referred to an arbitral tribunal.
11. Mr. Nayar also says that since in terms of the arbitration
agreement obtaining between the parties BHEL has appointed its
nominee-arbitrator, the prayer made in the petition is for appointment
of a nominee-arbitrator on behalf of LPGCL, in view of its failure to
appoint one, despite a notice in that behalf having been served upon
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 6 of 14
it.
12. Mr. Bughani, on the other hand, makes two submissions. First,
that there is no arbitration agreement obtaining between the parties.
Second, that in case this Court were to hold that there is an arbitration
agreement obtaining between the parties, then, since BHEL has not
followed the procedure prescribed for that purpose, this Court cannot,
at this juncture, appoint a nominee-Arbitrator for LPGCL.
13. It is further submitted by Mr. Bughani that the LOAs issued by
LPGCL, in a sense, got subsumed by the definitive agreements
executed between the parties. In other words, it is the submission of
the learned counsel that once the definitive agreements were executed
between the parties, the LOAs lost their relevance and that, in
particular, the arbitration clause which stood incorporated in the
LOAs does not form part of the definitive agreements.
13.1 In this behalf, Mr. Bughani has submitted that the parties had a
choice after the LOAs were executed to enter into either a format
agreement which, consciously, they chose to move away from or a
negotiated agreement. According to the learned counsel, the parties
chose the latter path and hence upon negotiations being held between
them executed the definitive agreements.
14. Mr. Bughani, thus, relies upon the definitive agreements to
contend that since these agreements do not contain an arbitration
clause there is, in fact, no agreement to arbitrate between the parties
in respect of the disputes which have erupted between them.
15. Insofar as the other submission is concerned, which pertains to
BHEL not following the prescribed procedure, Mr. Bughani has
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 7 of 14
referred me to the General Conditions of Contract (in short „GCC‟).
In particular, reliance has been placed by Mr. Bughani on Clause
22.0, 22.1 and, lastly, Clause 22.3 and their various sub-clauses of the
GCC.
16. It is Mr. Bughani‟s submission that since the procedure
prescribed therein was not followed by BHEL, the stage for BHEL to
approach the Court for appointment of LPGCL‟s nominee-arbitrator
has not reached. In other words, according to Mr. Bughani, these
petitions, in a sense, at this juncture, are premature.
Reasons
17. I have heard the learned counsel for the parties and perused the
record. What emerges from the record is as follows:
(i) That there are disputes with regard to the alleged non-payment of
dues of BHEL.
(ii) There is correspondence on record commencing from 20.6.2013
until October, 2018 which brings forth the fact that BHEL has been
demanding payment of its dues from LPGCL.
(iii) LPGCL, in fact, in its communication dated 30.11.2018, to which
I have made a reference hereinabove, seems to have taken a stand that
the matter could be amicably settled and that parties need not proceed
to arbitration.
(iv) The fact that parties entered into two LOAs of even date followed
by definitive agreements dated 10.8.2011 is not in dispute.
18. Therefore, what this Court is required to examine is simply this
as to whether or not there is an arbitration agreement obtaining
between the parties, as contended by BHEL, since the triggering of
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 8 of 14
the arbitration agreement by BHEL vide its order dated 29.10.2018 is
not in dispute?
19. Since the arbitration clauses which appear in the two LOAs of
even date are identical, I intend to extract one of the two clauses.
Thus, Clause 29 of LOA dated 21.3.2011 is extracted hereafter:
"29.0 Settlement of Disputes by Arbitration:
If any dispute arises between the Parties hereto during the
subsistence of this LOA, in connection with the validity,
interpretation, implementation or performance or non
performance or alleged breach of any provision of this
LOA, the dispute shall be resolved by binding arbitration.
The arbitration proceeding shall be governed by the
Arbitration and Conciliation Act, 1996. Each Party shall
appoint one arbitrator who shall select the third arbitrator
within thirty (30) days of the selection of the second
arbitrator. The arbitration proceedings shall be in the
English language and the venue of the arbitration
proceedings shall be New Delhi.
The detailed provisions relating to the settlement of the
disputes through the arbitration mechanism shall be
described in the Definitive Agreements."
20. This clause has to be read with Article 51 of the definitive
agreements referred to hereinabove. Once again I may note that
Article 5 which in incorporated in the definitive agreements is
identical save and except as to the reference made therein to the
relatable LOA and the Contract.
20.1. A conjoint reading of the arbitration clause i.e. Clause 29 and
Terms and Conditions of the letter of Award
All other terms and conditions as set out in the letter of Award no. LPGCL/ BTG/LOA/03 dated March 21,
2011 (attached as Annexure-1) unless otherwise provided hereinabove shall remain unchanged and shall
form part of this contract.
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 9 of 14
30 of the LOAs in issue and Article 5 would show that all terms and
conditions which are set out in the two LOAs form part of the
definitive agreements unless otherwise provided in the definitive
agreements.
21. A perusal of the definitive agreements would show that there is
no suggestion whatsoever that the arbitration clause which finds
mention in the LOAs does not form part of the definitive agreements.
In fact, the LOAs are appended as Annexure-1 to the definitive
agreements.
22. Therefore, Mr. Bughani‟s submission that there is no arbitration
agreement obtaining between the parties, to my mind, is a submission
that I am unable to accept. I may in this behalf also refer to Articles
2.1 and 2.2 of the definitive agreements which are also identical. A
bare perusal of Article 2.12 would show that apart from anything else,
it is indicative of the fact that the LOAs form an integral part of the
definitive agreement and that the LOAs along with other documents
which includes the tender documents, the clarifications issued by
LPGCL‟s engineers, minutes of the post-bid/pre-award
discussion/meetings etc. constitute together the Contract Documents.
Article 2.23, in order to lend greater clarity, accords priority to
The Tender Documents, pre-bid clarifications issued by the Owner's Engineers, Minutes of the post-bid/
pre-award discussions/meetings, the Offer and the Letter of Award shall be treated as forming integral part
of this Contract and shall together constitute the "Contract Documents".
In case of any ambiguity, inconsistency or conflict between any of the Contract Documents, the
documents shall prevail in the following order:
(a) Overall Wrap-Up Contract Agreement dated 10th August, 2011
(b) This contract
(c) Supply Contract Agreement dated 10th August, 2011
(d) Letter of Award(s) together with amendments;'
(e) Minutes of the post-bid/ pre-award discussions/ meetings
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 10 of 14
documents which collectively are referred to as Contract Documents
in the eventuality of an inter se ambiguity, conflict or inconsistency
among them.
23. In my opinion, Articles 2.1 and 2.2 provide further intrinsic
evidence of the fact that the LOAs form an integral part of the
definitive agreements.
24. This brings me to the other submission made by Mr. Bughani,
which is, that if this Court were come to the conclusion that there is
an arbitration agreement in existence, then, BHEL has on its own
showing, failed to follow the procedure prescribed in Clauses 22.0,
22.2 and 22.3 of the GCC.
25. In my view, this submission of Mr. Bughani is, in fact,
destructive of his earlier submission that there is no arbitration
agreement in existence.
25.1 Be that as it may, I propose to examine this submission as well.
30. Insofar as Clause 22.0 is concerned, a bare perusal of the same
would show that it prescribes procedure for settlement of claims
relating to "additional payment". Mr. Nayar, to my mind, is right in
contending that BHEL‟s claim does not relate to any additional
payment and that it relates to payments qua works executed under the
LOAs and/or the definitive agreements. It is, therefore, obvious that
Clause 22.0 and the connected sub-clauses would have no application
to the matter at hand.
26. Insofar as Clause 22.2 and its various sub-clauses as also
(f) Pre-bid clarifications issued by the Owner's Engineer/LPGCL
(g) Tender Documents including Technical specifications, General & special conditions of contract;
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 11 of 14
Clause 22.3 and its various sub-clauses are concerned, I am of the
opinion that BHEL has substantially complied with the same. The
correspondence referred hereinabove by me would show that BHEL
has been writing to LPGCL that its claims needed to be settled.
27. The first time around BHEL appears to have raised the issue of
non-payment of its due was on 20.6.2013, at that point in time the
petitioner‟s claims hovered around Rs.290 crores. Over a period of
time, the claims have ballooned to nearly Rs.650 crores, if not more,
when BHEL triggered the arbitration agreement obtaining between
the parties vide its notice dated 29.10.2018. The only response that it
received (and which is, concededly, the only letter on the issue
available on record) was via LPGC‟s letter dated 30.11.2018.
28. As alluded to above, LPCGL in its letter of 30.11.2018 did not
take the stand that there was no arbitration agreement in existence or
the stand that the disputants had to follow the procedure as prescribed
in Clauses 22.2.and 22.3 of the GCC. This stand LPGCL has taken
for the first time, as is evident from the record, only before this Court.
28.1. As indicated above, even if I were to assume that LPGCL in its
correspondence, some of which Mr. Bughani claims is not on record,
had taken umbrage to the fact that BHEL had not followed the
procedure prescribed under Clauses 22.2 and 22.3 of the GCC--there
has been, to my mind, substantial compliance by BHEL of these
clauses. In fact, the Chairman and Managing Director, BHEL, had
met up with the Chairman, LPCGL to resolve the inter se disputes.
However, despite their intercession, the issue of non-payment of bills
(h) Offer
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 12 of 14
remained unresolved which forced BHEL to trigger the arbitration
agreement.
28.2 Thus, for the foregoing reasons I find no merit in this
submission advanced by Mr. Bughani.
29. Having regard to the fact that LPCGL has failed to appoint its
nominee-arbitrator despite being served with a notice triggering the
arbitration agreement, I am inclined to allow the captioned petitions
and appoint a nominee-arbitrator on behalf of LPGCL.
30. On this aspect of the matter, I have put to Mr. Bughani that
given the fact that there is an interrelation between the definitive
agreements coupled with the circumstances that BHEL has already
appointed its nominee-arbitrator, it would sub-serve the interest of
both parties if a common nominee-arbitrator is appointed in respect of
the definitive agreements. Strangely, Mr. Bughani says that he cannot
agree to this suggestion of the Court. However, having regard to what
is in the best interest of the parties (given the fact that LPGCL‟s
failure to appoint its nominee-arbitrator in time emasculated its right
in that behalf), particularly, keeping in mind that adjudication of the
matter needs to be hastened as also to avoid a possible conflict in the
findings that may arise if two separate arbitral tribunals are
constituted, I am inclined to appoint a common nominee-arbitrator on
behalf of LPGCL in the captioned matters.
31. Accordingly, Mr. Justice Madan B. Lokur, former judge,
Supreme Court (Cell No: 9868219007), is appointed as the nominee-
arbitrator on behalf of LPGCL in the captioned matters.
31.1 In terms of the arbitration clause obtaining between the parties,
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 13 of 14
the nominee-arbitrators shall convene a meeting for appointing a
presiding arbitrator.
31.2 The arbitral tribunal shall be paid its fee in accordance with the
Fourth Schedule appended to the 1996 Act.
31.3 Needless to say, before entering upon reference, the members
of the arbitral tribunal will file a declaration under Section 12 read
with attendant provisions of the 1996 Act.
32. The petition is disposed of in the aforesaid terms.
33. Parties will, however, bear their own costs.
RAJIV SHAKDHER, J
MAY 15, 2019
rb
ARB.P. No.888/2018 & ARB.P. No.889/2018 Pg. 14 of 14
