M/S Sanjay Iron And Steel Limited vs Steel Authority Of India
2021 Latest Caselaw 2731 Del

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI
%                              Reserved on:      September 07, 2021
                               Pronounced on:    October 01, 2021
+     ARB.P. 408/2021
      M/S SANJAY IRON AND STEEL LIMITED       ..... Petitioner
                    Through: Mr. Bhavneet Singh, Advocate

                        Versus

      STEEL AUTHORITY OF INDIA                ..... Respondent
                   Through: Mr. Ashish Rana, Advocate

      CORAM:
      HON'BLE MR. JUSTICE SURESH KUMAR KAIT

                            JUDGMENT

1. Petitioner - M/s Sanjay Iron & Steel Ltd. claims to be doing business

of trading of iron and steel. According to petitioner, respondent - Steel

Authority of India Limited is a Government Company, who had invited

online tenders for operating as Distributor involving purchasing,

transportation, handling and storage, processing and sales to dealers of

TMT/ TMT Coils/ at Panchkula Cluster in the State of Haryana. The

petitioner claims to have submitted its tender on 08.08.2019, which was

accepted by respondent vide letter of intent/acceptance bearing No. Tender

No. SAIL/ NR/ Distributor/ 19-20/01A, dated 25.06.2019. Petitioner further

claims to have deposited full security amount of Rs.5,00,000/- and bank

guarantees to the tune of Rs.1,28,00,000/-, prepared by Union Bank of India

in favour of respondent vide letter dated 23.10.2019 and complied with all

the terms as per online tender terms vide reference No. CMO/ REC/

BS/CHA/Distributor- Panchkula/ 19-20 dated 30.09.2019. Petitioner had

entered into an agreement dated 7.11.2019 with respondent for operating as

Distributor.

2. According to petitioner, respondent in clear breach of terms of the

agreement started executing the orders directly below 50 tones to the small

consumers/ dealers whereas, it had agreed not to entertain the direct orders

from small consumers / dealers below 50 tones and therefore, vide its email

dated 26.10.2020, petitioner communicated its unwillingness to extend the

bank guarantees and continue with the distributorship. Thereafter, petitioner

requested the respondent to release the bank guarantee and credit the balance

lying in their account in the form of commission, credit note, discount, EMD

and excess amount lying in their account by cancelling petitioner's orders on

22.10.2020. Besides, petitioner also raised grievance by showing difference

in the rates supplied to petitioner and other dealer.

3. Petitioner has averred that it had invested huge amount of capital in

terms of land, building development, purchase of machine as infrastructure

for SAIL, employee the area sales officer as distributor and also took loan

for the said purpose, consequently it had become difficult to survive, as

respondent was directly feeding the customers of small quantities below the

prices of petitioner. Further averred that the said respondent did not pay

attention to petitioner's request vide letter dated 03.12.2020 to rectify the

breaches and also vide letter dated 19.05.2020 to give relaxation in

distribution policy due to covid pandemic but to no avail.

4. At the hearing, learned counsel for petitioner pointed out that

petitioner has a huge claim of Rs.3,26,85,940/- approximately against

respondent i.e. bank guarantee of Rs.1,28,00,000/-; credit notes of various

dealers for a value of Rs.50,00,000/- approximately; and security deposit of

Rs.5,00,000/- and to the contrary, respondent issued the termination notice

dated 07.11.2020 to the petitioner to rectify the alleged defaults and

breaches, which were in fact never committed by the petitioner. Further

submitted that within 15 days of issuance of termination notice dated

07.11.2020, respondent directed the bank to encash the said bank guarantee

of Rs.1,28,00,000/-, which is against the spirit of respondent's termination

notice of dated 7.11.2020 and encashment of the bank guarantee by the said

respondent is arbitrary and against the principles of natural justice.

5. Learned counsel for petitioner next submitted that in terms of Clause-

10.2 of the contract, if any dispute and difference between the parties is not

resolved through conciliation, the aggrieved party may refer the dispute to

Arbitration under the Scope Forum of Conciliation & Arbitration (SFCA)

New Delhi. Further, any dispute relating to construction, interpretation,

application, meaning, scope, operation or effect of contract or the validity or

the breach thereof, shall be settled through arbitration in accordance with the

rules of arbitration of SCOPE forum.

6. Learned counsel for petitioner also submitted that petitioner invoked

Clause 10.0/10.1 of the contract in its reply dated 28.11.2020 to the show

cause notice and requested the said respondent for appointment of a

Conciliator in accordance with rules of SCOPE Forum of Conciliation &

Arbitration (SPCA) and under Arbitration & Conciliation Act 1996, within

30 days. Respondent vide its reply dated 08.12.2020 consented to the

conciliation while raising disputes qua the agreement in question.

7. Further claimed by petitioner that after invocation of conciliation vide

letter dated 28.11.2020 to SCOPE, an email dated 05.02.2021 was received

from SCOPE that since the disputes inter se parties is of more than Rs.05

Crores, the parties were required to pay amount of Rs.10,75,000/- towards

conciliation, which was to be equally shared by both the sides. According to

learned counsel for petitioner, due to exorbitant fee quoted by SCOPE

towards fee of Conciliator, the conciliation has not started. Learned counsel

submitted that the enormous amount of Rs.5,00,000/- approximately would

be an extra financial burden for petitioner and petitioner cannot afford to pay

once for Conciliator and thereafter, for Arbitrator, therefore, petitioner has

invoked Clause-10.2 of the agreement in question and jurisdiction of this

Court for appointment of sole Arbitrator under the provisions of Section

11(6) of the Arbitration and Conciliation Act, 1996.

8. During the course of hearing, learned counsel appearing on behalf of

petitioner also submitted that petitioner is not shying away from getting the

disputes settled through conciliation and it is only the exorbitant fee of the

Conciliator at SCOPE that is haunting the mind of petitioner. Learned

counsel submitted that if respondent is willing to resolve the disputes, an

earnest effort can be made to settle through Delhi High Court Mediation and

Conciliation Centre, which shall be to the beneficial to both the sides.

9. The aforesaid proposal is not supported by learned counsel appearing

on behalf of respondent, who submits that the terms of Agreement between

the parties are required to be adhered to by the parties in letter and spirit and

any deviation therefrom is against the law of natural justice. Further

submitted that vide its letter/reply to show cause dated 28.11.2020,

petitioner has invoked Clause 10.1 and 10.2 of the Agreement to refer the

dispute for conciliation within the rules of SCOPE, to which respondent had

consented vide its letter dated 18.12.2020 and thereby, filing of the present

petition without undergoing conciliation is violation / bye passing of the

procedure prescribed under the agreed Clause-10 of the agreement.

Attention of this Court is drawn to Section 11(2) of the Act, whereunder

liberty has been given to the parties to agree on a procedure for invoking

arbitration. Also submitted that petitioner has raised exorbitant claims

against the respondent, however, respondent is willing to proceed with

conciliation under the rules of SCOPE Forum of Conciliation and

Arbitration (SFCA) New Delhi. On the plea that petitioner shall be over

burdened with the fee of Conciliator, learned counsel for respondent

submitted that the fee of the Conciliator before SCOPE has to be equally

shared by both the sides and respondent is willing and ready to oblige its

part towards the fee and it is only petitioner, who is not ready to fulfil its

part of obligations.

10. Learned counsel for respondent also drew attention of this Court to

Section 62 of the Act, which provides for commencement of conciliation

proceedings; Sections 76 and 79(3) which provides for declaration of

termination of proceedings in the absence of payment of fees, to submit that

under the statute, a procedure is prescribed even to commence and conclude

the conciliation proceedings. It was submitted that since conciliation

proceedings have still not been terminated, seeking appointment of an

Arbitrator amidst pendency of conciliation proceedings, is bad in law.

Moreover, Section 11(6) (c) of the Act provides that the right to apply to

court only accrues when the parties have approached the institution and the

institution has failed to perform its function, whereas in the present case,

petitioner has not approached SCOPE for conciliation and, therefore, no

right accrues in favour of petitioner under the provisions of Section 11(6) (c)

of the Arbitration and Conciliation Act, 1996.

11. It was next contended by learned counsel that the agreed procedure in

an Agreement is required to be followed and as per Clause-10.1 of the

Agreement, invocation of arbitration without any outcome of conciliation,

the present petition is premature and liable to be dismissed. In support of

above submission, reliance is placed upon decision of Rajasthan High Court

in Simpark Infrastructure Vs. Jaipur Municipal Corporation, 2012 SCC

OnLine Raj 3833.

12. Another objection raised by learned counsel is on the ground that

petitioner with its eyes open had agreed to the dispute resolution clause and

therefore, cannot now claim that the fee for conciliation proceedings is too

high. In this regard, reliance is placed upon decision of Hon'ble Supreme

Court in S. K. Jain vs. State of Haryana (2009) 4 SCC 357.

13. Learned counsel further submitted that vide letter dated 18.11.2020,

petitioner has only invoked the conciliation and not arbitration and since, no

notice under Section 21 of the Act has been issued to the respondent, on this

count also the present petition is premature and deserves to be rejected.

Reliance is placed upon decision in Alupro Building Systems Vs. Ozone

Overseas (2017) SCC OnLine Del 7228 in this regard.

14. In rebuttal, learned counsel for petitioner submitted that the procedure

to make an effort through conciliation or mutual discussion is directory and

not mandatory in view of Section 77 of the Act. On this aspect, reliance is

placed upon Hon'ble Supreme Court decisions in Visa International

Limited Vs. Continental Resources (USA) Limited (2009) 2 SCC 55 and

Swiss Timing Limited Vs. Common Wealth Gamesh 2010 Organizing

Committee (2014) 6 SCC 677. Reliance is also placed upon decisions of this

Court in Ravinder Kumar Verma Vs. BPTP Limited (2014) SCC OnLine

Del 6602 & Siemens Limited Vs. Jindal India Thermal Power Limited

(2018) SCC OnLine Del 7158.

15. Reliance is also placed upon a decision of Calcutta High Court in

TATA Projects Limited Vs. Steel Authority of India (AP No. 12/2017

dated 17.09.2018) to submit that since parties have not been able to resolve

their disputes mutually, therefore, reference of disputes to SCOPE to have

recourse for conciliation under SCFA, would serve no purpose and the said

decision has attained finality, as the Hon'ble Supreme Court declined to

interfere in an appeal filed against the said order.

16. Learned counsel placed reliance upon decision of Hon'ble Supreme

Court in Demerara Distilleries Private Limited Vs. Demerara Distillers

Limited (2015) 13 SCC 610 to submit that in the said case parties had

agreed to resolve differences through mutual discussion followed by

mediation and thereafter through arbitration, it was held that the

communication between the parties reflected that recourse to conciliation or

mediation shall be an empty formality and so, application seeking

appointment of arbitrator was allowed in the said case. Lastly, learned

counsel for petitioner submitted that vide its letter dated 22.09.2019

petitioner had invoked arbitration clause and requested the respondent to

give consent to appointment of Arbitrator nominated by the petitioner, but

the respondent refused to give consent and thereby, the present petition be

allowed and this Court may appoint an Arbitrator to adjudicate the disputes

between the parties.

17. In essence, this Court is required to determine in the present petition

is as to whether prayer of petitioner seeking appointment of Arbitrator under

the provisions of Section 11 of the Arbitration and Conciliation Act, 1996 is

maintainable in view of Clause-10.1 of the Agreement entered between the

parties, which stipulates that in the event of failure of parties to mutually

resolve their disputes, they shall refer their disputes to SCOPE for resolution

under the rules of SCOPE Forum of Conciliation and Arbitration (SFCA)

New Delhi, which has not been resorted to by the petitioner?

18. To find an answer, this Court heard the learned counsel representing

both the sides at length and has gone through the averments made by the

parties in petition, reply, written submissions, decisions relied upon as well

as other material placed on record.

19. Pertinently, against respondent's Online Tender No.

SAIL/NR/Distributor/19-20/01A, dated 25.06.2019, petitioner's bid was

accepted by respondent and Agreement was entered into between the parties

on even date. Clause-10 of the aforesaid Agreement dated 25.06.2019

mentions the manner in which parties shall resolve their disputes, which

reads as under:-

"10.0 Resolution of Disputes. Conciliations and Arbitrations:-

RESOLUTION OF DISPUTES In the event of any dispute/difference whatsoever arising between the parties relating to r arising out of the tender, the parties shall endeavor to resolve such dispute through the SCOPE Forum of Conciliation & Arbitration (SFCA) New Delhi (as amended from time to time).

10.1 Conciliation Any dispute or difference whatsoever arising between the parties relating to or arising out of contract, may be settled by the Rules of conciliation in accordance with the Rules of SCOPE Forum of Conciliation & Arbitration (SFCA) and the settlement so rendered between the parties in pursuance thereof shall be final and binding on the parties. If the dispute is not settled by conciliation within 30 days of the initiation of conciliation or such further period as the parties shall agree in writing, the dispute shall be referred to and finally resolved by Arbitration, in accordance with the Rules of Arbitration of SCOPE Forum of Conciliation and Arbitration.

10.2 Arbitration In the event the dispute/ difference is not resolved through conciliation as per the above provisions, the aggrieved party may refer the dispute to Arbitration under the SCOPE Forum of Conciliation & Arbitration (SFCA) "New Delhi. Any dispute or difference whatsoever arising between the parties relating to construction, interpretation, application, meaning, scope, operation or effect of this contract or the validity or the breach thereof: shall be settled by arbitration in accordance with the Rules of Arbitration of the "SCOPE" Forum and the award made in pursuance thereof shall be

final and binding on the parties.

The venue of the Conciliation shall be at New Delhi."

20. A bare perusal of aforesaid Clause makes it manifestly clear that

parties have agreed to a specific mechanism to be adopted for resolution of

disputes. However, by approaching this Court seeking appointment of

Arbitrator, petitioner is eventually trying to bye-pass or skip the preceding

condition of adopting recourse to conciliation, thereby making an attempt to

dodge Clause-10.1 of the Agreement. It is not the only case of petitioner that

it is unable to pay the gigantic amount of fee quoted for Conciliator before

the SCOPE but also that the Agreement in question also stands vitiated on

many counts. Similarly, respondent has disputed the various claims put-forth

by the petitioner. Nevertheless, the disputes so raised by both the sides can

be adjudicated upon either in conciliation or in arbitration proceedings and

this Court is not required to go into the details thereof.

21. This Court has gone through the various decisions of Hon'ble

Supreme Court, this Court as well as other High Courts in support of their

submissions.

22. Reliance placed by learned counsel for respondent upon Hon'ble

Supreme Court decision in S. K. Jain (Supra) is distinguishable on facts as

in the said case, the Hon'ble Supreme Court dealt with the issue whether

arbitration can be invoked by a private contract against Government on the

basis of a contract only after security deposit is furnished and is hence, not

applicable to the case in hand. Further, reliance placed by respondent upon

decision of this Court in Alupro Building Systems (Supra )to submit that

invocation of arbitration without issuing notice under Section 21 of the Act,

is bad in law. However, in the present case, petitioner claims to have sent a

letter dated 22.09.2019 to respondent invoking arbitration and nominating

Arbitrator and having asked for respondent's consent thereon. Hence, this

decision also is of no help to the case of respondent.

23. A coordinate Bench of this Court in Ravinder Kumar Verma (Supra),

dealt with the proposition of law laid down by another Bench of this Court

in M/s Haldiram Manufacturing Company Pvt. Ltd. Vs. M/s DLF

Commercial Complexes Limited 193 (2012) DLT 410, wherein it was held

that if no mutual discussion takes place prior to filing of the application

under Section 8 of the Act, then the arbitration clause cannot be invoked and

held as under:-

"11. Whereas the existence of conciliation or mutual discussion should not be a bar in seeking to file proceedings for reference of the matter to arbitration and which is necessary for preserving rights as envisaged by Section 77 of the Act, however, since in many contracts there is an effective need of conciliation etc. in terms of the agreed

procedure provided by the contract, the best course of action to be adopted is that existence of conciliation or mutual discussion procedure or similar other procedure though should not be held as a bar for dismissing of a petition which is filed under Sections 11 or 8 of the Act or for any legal proceeding required to be filed for preserving rights of the parties, however before formally starting effective arbitration proceedings parties should be directed to take up the agreed procedure for conciliation as provided in the agreed clause for mutual discussion/conciliation in a time bound reasonable period, and which if they fail the parties can thereafter be held entitled to proceed with the arbitration proceedings to determine their claims/rights etc."

24. The aforesaid observations in Ravinder Kumar Verma (Supra)

though has observed that conciliation procedure may not be a bar for

referring the matter to arbitration but has also made it clear that before

taking resort to arbitration, the parties are required to follow the due

procedure for conciliation as provided in the agreed clause.

25. Another Coordinate Bench of this Court in Siemens Limited (Supra),

while dealing a somewhat similar case examined the agreement between the

parties, which stipulated that the parties shall endeavour to resolve all

disputes amicably within a period of 30 days, however, no further procedure

was prescribed. Further observed that since petitioner had been continuously

writing to the respondent to release its pending dues and settle the claims

arising out of the contract and because parties had met two-three times to

resolve the disputes and also that respondent therein did not respond to the

notice invoking arbitration, therefore, the petition was allowed and

Arbitrator was appointed by the Court.

26. In the case in hand, Clause-10 of the Agreement in question makes it

manifestly clear that at the first instance parties shall endeavour to resolve

such dispute through the SCOPE Forum of Conciliation & Arbitration and if

the dispute is not settled by conciliation within 30 days of the conciliation,

then the aggrieved party may refer to arbitration, which again shall be

governed in accordance with the Rules of Arbitration of the "SCOPE". In

fact, respondent vide its letter dated 08.12.2020 also tendered its consent to

invocation of conciliation proceedings through SCOPE. However, despite

invocation of conciliation, the proceedings before the Conciliator did not

commence due to non-payment of fees.

27. The Hon'ble Supreme Court in Visa International Limited (Supra)

had appointed Arbitrator keeping in view that various exchange of

correspondence between the parties showed that there was no scope for

conciliation. Similar was the view taken by the Hon'ble Supreme Court in

Demerar Distilleries (Supra) while appointing the Arbitrator in the said

case. In the case in hand, though a few communications have been

exchanged between the parties raising grievance and replies thereto,

however, both sides did not at all sit together to resolve the disputes. Hence,

these decisions do not come to the rescue of petitioner.

28. In view of afore-noted narration, this Court is of the opinion that the

very purpose of keeping a conciliation clause in any Agreement is to shorten

the path for settlement of disputes between the parties. Therefore, parties in

the present petition are directed to first explore possibility of resolution of

disputes through Conciliation in terms spelt out in Clause- 10 of the

Agreement. Further directed that parties shall strictly adhere to the time line

and shall conclude the conciliation proceedings within 30 days of initiation

of conciliation proceedings, as agreed in Clause 10.1 of the Agreement and

thereafter only disputes, if any, shall be referred to arbitration.

29. With directions as aforesaid, the present petition is accordingly

disposed of.

(SURESH KUMAR KAIT) JUDGE OCRTOBER 01, 2021 r