Delhi High Court
M/S Swajal Water Pvt. Ltd vs Indian Railway Catering And ... on 10 September, 2021
$~18
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Judgment: 10th September, 2021
+ ARB. A. (COMM.) 37/2021 & I.A. 9395/2021
M/S SWAJAL WATER PVT. LTD ..... Petitioner
Through: Ms Ila Sheel and Mr Sikhar
Sheel, Advocates.
versus
INDIAN RAILWAY CATERING AND
TOURISM CORPORATION LIMITED
& ANR. ..... Respondents
Through: Mr Harshit Agarwal, Advocate
for R1.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
VIBHU BAKHRU, J. (ORAL)
1. The appellant has filed the present appeal under Section 37 (2)
(b) of the Arbitration and Conciliation Act, 1996 (hereafter 'the A&C
Act') impugning an order dated 24.01.2021 passed by the Arbitral
Tribunal. By the impugned order the Arbitral Tribunal has rejected the
appellant's application under Section 17 of the A&C Act, inter alia,
seeking that the termination of the Contract with the respondent be
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RAWAL
stayed.
2. The appellant was awarded the contract to install Water
Vending Machines (101 in number) in four clusters by a letter dated
23.03.2017. The appellant claimed that it successfully installed the
Water Vending Machine (WVMs) in terms of the Letter of Award and
also paid licence fee amounting to ₹65,42,319/- for the first year
including the security deposit of ₹13,32,762/-. There is some
controversy whether the licence fee was payable from a fixed date or
from the date of actual commissioning of each WVMs.
3. The respondent alleges that the appellant had failed to pay the
licence fee in accordance with the terms of their Contract. The
respondent had also suspended the Contract with the appellant. There
is a dispute between the parties regarding the licence fee payable by
the appellant as well as the action of the respondent in suspending the
Contract in question. The appellant has raised claims in respect of the
quantum of licence fee and has also raised claims on account of the
alleged loss suffered by it as a consequence of the actions of the
respondent. The Arbitral Tribunal has been constituted and is
considering the said disputes.
4. During the pendency of the disputes before the Arbitral
Tribunal, by a letter dated 23.11.2020, the respondent terminated the
Contract with the petitioner in respect of all four clusters on account of
the alleged failure on the part of the appellant in paying the licence
fees.
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RAWAL
5. In the aforesaid context the appellant had filed an application
under Section 17 of the A&C Act praying that the termination order
dated 23.11.2020 be stayed.
6. It is the appellant's case that the Contract, in question, is not in
the nature of a determinable contract. The appellant contends that the
question of default in payment of licence fees - the sole ground on
which the respondent has terminated the Contract - is the subject
matter of dispute and the Contract in question could not be terminated
on that ground.
7. The Arbitral Tribunal heard the application and dismissed the
same by the impugned order. The Arbitral Tribunal had reasoned that
since the Contract was a determinable one, an application seeking stay
of termination of the said Contract was not maintainable as that would
amount to granting specific performance of a determinable Contract
which is impermissible.
8. The learned counsel appearing for the appellant drew the
attention of this Court to the Clause 8.2 of the General Conditions of
Contract (GCC) as applicable to the Contract in question. The said
clause reads as under:-
8.2 Termination The licensor shall also be entitled at
of Licence on any time forthwith to terminate the
other events Licence without notice in any of the
of default following events, that is to say(a) in
the event of the Licensee being
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RAWAL
convicted by a court of law under the
provisions of criminal procedure code
or any other law (b) in the event of the
Licensee being an individual or, if a
firm, any partner in the Licensee firm
being at any time be adjudged
insolvent or a receiving order or order
for administration of his estate made
against him or shall take any
proceeding for liquidation or
composition under any insolvency
Act for the time being in force or
make any conveyance or assignment
of his interest or enter into any
agreement or composition with his
creditors for suspended payment, or if
the firm be dissolved under the
partnership Act or, in the event of
Licensee being a company, if the
company shall pass any resolution to
be wound up either compulsorily or
voluntarily (c ) Repudiation of
agreement by Licensee or otherwise
evidence of intention not to be bound
by the agreement (d) Failure to adhere
to any of the due dates of payment
specified in the terms and conditions.
Immediately on the determination of
this agreement the Licensee shall
peacefully vacate the premises and
hand over to the licensor/railway
administration all articles in the
custody or possession of the Licensee
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and shall remove all his stores and
effects from the said premises. In
default the licensor shall be entitled to
enter and take possession of the said
premises and to lock up the same or
remove the furniture or other articles
of the Licensee that may be lying
there and to dispose of the same by
sale or otherwise without being liable,
for any damage, and all expenses
incurred in connection therewith, shall
be deducted by the licensor from the
sale proceeds or from the Security
Deposit or pending bills of the
Licensee.
9. She also referred to the decision of the Madras High Court in
Jumbo World Holdings Limited and Another v. Embassy Property
Developments Private Limited : 2020 SCC OnLine Mad 61 whereby
the Court had referred to an earlier order setting out the features for
considering the contract as determinable. Paragraph 23 of the order is
set out below:-
"23. The other aspect that remains to be considered is
whether time is of the essence of the SPA and,
therefore, whether the Petitioners were entitled to avoid
the SPA as per Section 55 of the Contract Act. In this
connection, upon appraisal of evidence, the Arbitral
Tribunal concluded that time is not of the essence. In
addition, the Arbitral Tribunal also held that the
Petitioners were in breach of their obligations under the
SPA and, therefore, could not insist on the
consummation of the transaction within the stipulated
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time limit. I see no reason to interfere with these factual
findings as per applicable legal principles. As regards
the contention that the SPA is not specifically
enforceable because it is in its nature determinable, I
set out below my analysis from an earlier order dated
26.11.2019 in O.P. No. 698 and 711 of 2012 on this
issue:
"16. On examining the judgments on
Section 21(d) of SRA 1877 and Section 14
(c) of the Specific Relief Act, as applicable
to this case, i.e. before Act 18 of 2018, I am
of the view that Section 14(c) does not
mandate that all contracts that could be
terminated are not specifically enforceable.
If so, no commercial contract would be
specifically enforceable. Instead, Section
14(c) applies to contracts that are by nature
determinable and not to all contracts that
may be determined. If one were to classify
contracts by placing them in categories on
the basis of ease of determinability, about
five broad categories can be envisaged,
which are not necessarily exhaustive. Out of
these, undoubtedly, two categories of
contract would be considered as
determinable by nature and, consequently,
not specifically enforceable : (i) contracts
that are unilaterally and inherently
revocable or capable of being dissolved
such as licences and partnerships at will;
and (ii) contracts that are terminable
unilaterally on "without cause" or "no fault"
basis. Contracts that are terminable
forthwith for cause or that cease to subsist
"for cause" without provision for remedying
the breach would constitute a third category.
In my view, although the Indian Oil case
referred to clause 27 thereof, which
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provided for termination forthwith "for
cause", the decision turned on clause 28
thereof, which provided for "no fault"
termination, as discussed earlier. Thus, the
third category of contract is not
determinable by nature; nonetheless, the
relative ease of determinability may be a
relevant factor in deciding whether to grant
specific performance as regards this
category. The fourth category would be of
contracts that are terminable for cause
subject to a breach notice and an
opportunity to cure the breach and the fifth
category would be contracts without a
termination clause, which could be
terminated for breach of a condition but not
a warranty as per applicable common law
principles. The said fourth and fifth
categories of contract would, certainly, not
be determinable in nature although they
could be terminated under specific
circumstances. Needless to say, the
rationale for Section 14(c) is that the grant
of specific performance of contracts that are
by nature determinable would be an empty
formality and the effectiveness of the order
could be nullified by subsequent
termination."
10. She submitted that the Arbitral Tribunal had not considered the
said question, but had merely proceeded on the assumption that the
Contract in question was a determinable one.
11. Mr Aggarwal, learned counsel appearing for the respondent
contends that there are other clauses as well which would indicate that
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the Contract is a determinable one. However, he does not dispute that
the Arbitral Tribunal has not specifically decided the question whether
Contract in question was determinable but had proceeded further by
refering to the decision of this Court in M/s Bharat Catering
Corporation v. Indian Railway Catering & Tourism Corporation
Ltd. OMP 281/2009 decided on 26.05.2009.
12. The impugned order indicates that the Arbitral Tribunal has
clarified that it was not examining the merits of the controversy with
respect to the termination of the Contract in question.
13. This Court is informed that the Arbitral Tribunal has also taken
a view that the dispute regarding the validity of termination of the
Contract is not one of the disputes referred to the Arbitral Tribunal and
therefore, the Tribunal shall not consider the same. Ms Sheel, learned
counsel appearing for the appellant has also shared an email dated
13.04.2021 sent by the Arbitral Tribunal, inter alia, stating that as
under:-
"........after carefully considering all aspects of the
case, I come to the conclusion that it will not be
appropriate for the same tribunal to adjudicate in the
matter of termination. It is, therefore, suggested that
a new Tribunal may be appointed in the matter."
14. It is not disputed that pursuant to the aforesaid email, the
respondent has constituted another Arbitral Tribunal which is
currently examining the dispute regarding the termination of the
Contract in question. Mr Aggarwal, however, states that the
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respondent has raised an objection that the said Arbitral Tribunal can
only examine the termination of the Contract regarding cluster no. 137
and separate arbitral tribunals are required to be constituted for
examining the termination of Contracts in respect of other clusters.
15. Be that as it may, it is not disputed that the Arbitral Tribunal
that has rendered the impugned order is not examining the question as
to termination of the Contract in question. Clearly, the petitioner's
application of interim measures of protection under Section 17 of the
A&C Act was in aid of its contention that the termination of the
Contract is illegal. Since the Arbitral Tribunal has in unequivocal
terms stated that it would not examine the said issue, it was not
apposite for the said Tribunal to examine the appellant's application
under Section 17 of the A&C Act for interim orders or protection that
was founded on its contention that the termination of the Contract is
illegal.
16. In view of the above, this Court considers it apposite to allow
the present petition and set aside the impugned order while reserving
all rights and contentions of the parties. The appellant is at liberty to
approach the Arbitral Tribunal which has been constituted to
adjudicate the disputes regarding the termination of the Contract in
question, for such interim measures or protection as may be advised.
Needless to state that if any such application is made to the said
Arbitral Tribunal, it shall consider the same on its own merits
uninfluenced by the impugned order or any order passed by this Court.
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RAWAL
17. It is clarified that all contentions of the parties are reserved.
18. The appeal is disposed of in the aforesaid terms. The pending
application is also disposed of.
VIBHU BAKHRU, J
SEPTEMBER 10, 2021
pkv
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RAWAL
