Madras High Court
Bgr Energy Systems Ltd vs Tandex Engineering & Services ... on 21 May, 2021
C.R.P.(N.P.D).No.1232 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 01.11.2021
PRONOUNCED ON : 01.02.2022
CORAM
THE HON'BLE Mr. JUSTICE G.CHANDRASEKHARAN
C.R.P.(N.P.D)No.1232 of 2021
and C.M.P.Nos.9564 & 9565 of 2021
BGR Energy Systems Ltd.,
Represented by its Authorized Signatory,
Mr.G.Sankaranaarayanan
443, Anna Salai,
Teynampet, Chennai-600018. ...Petitioner
Vs.
1.Tandex Engineering & Services Pvt. Ltd.,
Represented by its Director
No.6, Mantralaya, 10th Street,
Tansi Nagar, Velachery,
Chennai-600042.
2. Indian Council of Arbitration,
Room 112, Federation House,
Tansen Marg, New Delhi, 110001. ...Respondents
Prayer:- Civil Revision Petition is filed under Article 227 of the
Constitution of India, to set aside the Impugned order/Interim award dated
21.05.2021 passed by the Arbitral Tribunal under the aegis of the second
respondent in Case No.AC-2186.
1/34
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For Petitioner : Mr.Vishnu Mohan for
M/s.R.Parthasarathy
For Respondents : Mr.Kuriakhose Varghese for
M/s.KMNP Law and
Gautham Venkatesh for R1
ORDER
This Civil Revision Petition is filed challenging the impugned
interim award dated 21.05.2021, passed by the Arbitral Tribunal under the
Aegis of the second respondent in case No.AC-2186.
2. The first respondent filed statement of claims before the second
respondent. The statement of claims, in brief is as follows:
The statement of claim was made by the first respondent against
the service orders placed by the petitioner for 2 units of NTPC, Solapur and
2 units of NTPC, Meja. The work comprised of chemical cleaning and
steam blowing. First respondent mobilized in January 2016 manpower and
equipment at Solapur for carrying out this work. Equipments worth
Rs.2.72crores including imports from Malaysia and procured from India,
like pumpsets, pipes, pipe fittings, valves, flanges, fasteners, test and
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measuring equipment, tools and tackles were required for execution. First
respondent engaged a sub contractor M/s.S.V.Engineering. It deployed
around twenty workmen including fitters, riggers, welders, fabricators etc.
The set up was completed by May 10, 2016 and operation of chemical
cleaning was started and completed on June 3, 2016. After seven days of
completion of chemical cleaning temporary piping set up was dismantled.
First respondent started mobilising for the work of steam blowing during
this period, which included preliminary engineering, preparation of
drawings, lay out, equipment and planning to commence steam blowing.
They ordered four numbers of custom built motor operated valves and
bypass valves on M/s.Athena Engineers, Chennai, with advance payment.
Athena returned advance later as they did not supply to TES. Chemical
cleaning of main boiler of Unit 1 was completed on June 3, 2016. On June
6, 2016, the orders of first respondent were unilaterally cancelled for the un-
executed portion. First respondent represented against the cancellation order
vide letter reference TES/BGR/2016 dated 09.06.2016. Subsequently, orders
were reinstated partially for chemical cleaning only. After two months, first
respondent was compelled to surrender the order for MOVs made on
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M/s.Athena Engineers to M/s.BGR. In this process, the custom built, long
delivery item valves for steam blowing, readily procured by BGR for
Solapur project and thus benefited on costs by atleast around Rs.10,00,000/-
per valve, totalling Rs.40,00,000/- at the expense of first respondent. First
respondent engaged M/s.Pavo Power for designing the critical piping work
required for Solapur Unit 1. M/s.Pavo had undertaken site process and
necessary studies and made the drawings/details. First respondent ordered
certain materials required for execution of complete service orders with
local manufacturers and the creditor's payable towards these stands at over
Rs.60,00,000/- When BGR wanted to reinstate the service orders excluding
steam blowing on first respondent, first respondent demanded that extra cost
of Rs.22,00,000/- per unit towards additional cost of inhibitor and
compensation for reduction in scope of work and payment of dues for Unit
1 at Solapur to the tune of Rs.1crore. BGR also wanted additional 2 units of
500M^3/hour of pumpsets over and above 2 existing ones. Since, BGR did
not pay the dues but insisted upon mobilising at Meja site, the same could
not be complied with by first respondent. Non-payment of dues for the work
done put heavy financial stress on first respondent and all other operations
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of first respondent came to a standstill resulting mounting up financial
losses. First respondent repeatedly requested BGR/petitioner for clearing
dues, but no payment was still made. During a meeting with petitioner on
14.11.2016, petitioner indicated its intention to recover around
Rs.61,00,000/- from TES/first respondent towards extra cost incurred by
BGR on various accounts. Then, first respondent raised the claim for
Rs.4,82,44,796/-.
3. Petitioner filed statement of defence dated 16.03.2020.
The case of the petitioner in brief is as follows:
The claim is not maintainable either in law or facts and
it is clearly barred by law of limitation. It is also not maintainable in law
since the first respondent has accepted full and final settlement by virtue of
joint meeting between the parties on 14.11.2016. It is confirmed by letter
dated 07.03.2018 by the first respondent claiming balance payment of the
agreed sum as per the joint meeting between the parties. First respondent
has never issued any notice of dispute or invoked arbitration clause in the
contract as required under the General Conditions of Contract in the present
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case as well as under the provisions of the Arbitration and Conciliation Act,
1996. First respondent failed to issue notice for dispute resolution in the
clause 18 of the General Conditions of Contract. Therefore, clause 19
cannot be invoked by the first respondent. It filed an application under
Section 16 of the Arbitration and Conciliation Act. The statement of claim is
vague and bereft of material particulars, details and necessary averments for
seeking compensation/damages. Petitioner is engaged in and possesses
technical expertise to execute various projects including large scale projects
in the area of power sector. It is a leading player in the business of Turnkey
contracts and executed a number of contracts on EPC basis for leading State
run power companies such as NTPC, BHEL, TNEB, etc. Petitioner obtained
an order from NTPC limited, for supply erection and commissioning of
boilers for its thermal power plant to be commissioned in Meja in Uttar
Pradesh and Solapur in Maharashtra. It was looking for sub-contractors to
execute the work for chemical cleaning and steam blowing for the boilers
which were to be erected in the above site. First respondent expressed
interest in the project and petitioner issued a letter of intent dated
25.11.2015 for the Solapur project and letter dated 26.11.2015 letter of
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intent for Meja project. Petitioner placed service orders bearing numbers
S.O.No.3300014929 for Solapur project and S.O.No.3300015227 for Meja
project. Each order was separate and independent. Solapur project service
order was issued for a sum of Rs.2.82crores. First respondent was to
complete the work by 31.03.2016 for Unit 1 and by 30.09.2016 for Unit 2.
Meja project cost was Rs.2.82crores. First respondent was to complete the
work by 31.07.2016 for Unit 1 and by 31.01.2017 for Unit 2. Petitioner gave
a service order for hiring of package boiler for a sum of Rs.74,42,500/-. first
respondent commenced mobilisation only during the last week of January
2016. First respondent's progress of work was unsatisfactory. Petitioner sent
an email on 29.02.2016 informing about the slow progress of the work due
to insufficient man power and materials. First respondent admitted in his
email dated 02.03.2016 about the slow process of work. The quality of the
work was also poor. Petitioner sent email to the first respondent on
01.08.2016 notifying the issues with regard to the poor quality of work.
First respondent was requested to rectify the same. However, it has not
taken any corrective measures. Petitioner had no other option except to
issue notice of termination. First respondent through an email dated
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02.08.2016 requested for reinstatement order. Petitioner asked the first
respondent to go ahead with chemical cleaning work for unit 2 Solapur
project and Unit 1 and Unit 2 in Meja project . The termination of steam
blowing work was confirmed. First respondent accepted the reduction of
scope of work through a letter dated 09.08.2016. First respondent issued a
revised quotation dated 12.08.2016. Petitioner replied through a letter dated
20.08.2016 that it would not be in a position to provide any concession or
upward revision for payment on chemical cleaning. First respondent insisted
on price revision through its letter dated 23.08.2016. That was not accepted
by the petitioner. First respondent refused to perform the work as per earlier
contract. It performed only part of the contract of chemical cleaning work of
Unit 1 Solapur project. Consideration for this work was Rs.81,00,875/- and
Rs.74,42,500/- for hire charges of package boilers. After deducting the
payments made the balance amount payable was only Rs.43,42,975/-. After
joint meeting and going through the accounts, it was decided that petitioner
has to pay only Rs.43,42,975/-. A statement was prepared and it was signed
by the first respondent. Petitioner was making payment of the agreed
amount at regular intervals to the first respondent. Only a sum of
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Rs.8,34,195/- is alone payable to first respondent, if at all anything is
payable. The amount claimed by the first respondent is false and untenable.
Claim is barred by limitation.
4. Petitioner filed an application before the Arbitral
Tribunal under Section 16 of the Arbitration and conciliation Act, reiterating
the above averments, seeking dismissal of arbitration proceedings.
5. First respondent filed reply supporting its claim. The
Arbitral Tribunal while considering the issues,
i) Does the Arbitral Tribunal have jurisdiction?
ii) Is the Arbitration agreement valid in view of the
following:
a. Unsigned Agreement,
b. Moreso, when this issue is not contested by
either of the parties,
c. Suo moto raised by one of the Learned Co-
Arbitrator Dr.Bhatt?
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iii) Is there a full and final settlement?
iv) Have all the procedures been followed with regard to
the initiation of arbitration proceedings?
v) Is the claim time barred?
vi) Whether provisions of Section 21 of the Arbitration
and Conciliation Act, 1996 were duly followed?
found that the “Arbitral Tribunal thus by majority decides that the matters
can be taken up in trial and decided upon including the matter relating to
application filed under Section 16 of the Arbitration and Conciliation Act,
1996 in the Final Award”. Against the said order this revision is filed.
6. The learned counsel for the petitioner submitted that
only if there is an arbitrable dispute, the dispute can be referred to
arbitration. In the case before hand, there is no arbitrable dispute between
the parties. First respondent has not given any notice before invoking
arbitration. In the application filed under Section 16 of the Arbitration and
Conciliation Act, 1996, before the Indian Council of Arbitration, petitioner
claimed that the arbitral tribunal has no jurisdiction to entertain the matter
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for the reason that there is no dispute, much less, arbitrable dispute between
the parties for taking a decision. The dispute with regard to payment in
connection with contractual obligation was settled between the parties. The
first respondent has clearly endorsed that the amounts have been settled
between them and there is no further claim against each other. Notice was
sent to the petitioner only after initiation of arbitration proceedings. The
general conditions of contracts were not followed.
7. It is further submitted that the condition no.18 mentions
that all disputes, claims and differences of any kind shall be referred by the
contractor to BGRESL. If the contractor has any unresolved dispute or
claim, he shall promptly refer to site engineer of BGRESL. If he could not
resolve the issue, then the contractor may appeal to site incharge. If the
contractor is not satisfied with the decision of site incharge, only then he
can resort to arbitration. None of these procedures were be followed before
the initiation of arbitration proceedings in Indian Council of Arbitration.
The respondent initiated the arbitration proceedings before Indian Council
of Arbitration through a letter dated 03.11.2018, but it was informed to the
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respondent only on 04.07.2019. The statement of claim is bereft of details.
No notice was given with regard to this claim. Fresh claim is raised after
the settlement of dues between the parties, alleging that the settlement was
sham transaction. On the other hand, one Ramprasad, Director of first
respondent, accepted the details of accounts and requested the release of
balance payment of Rs.10,85,803/-. The claim that the settlement is a sham
and forged settlement, is an after thought made only on 08.03.2021. Co-
arbitrator has given a dissenting view. Therefore, the finding of the majority
view that the matter can be taken up for trial and decided upon, including
the matter relating to application filed under Section 16 of Arbitration and
Conciliation Act, 1996 in the final award, is not correct and liable to be set
aside.
8. Per contra, the learned counsel for the first respondent
submitted that the work involved in this case relates to chemical cleaning
and steam blowing. It is the case of technical arbitration. Arbitration and
Conciliation Act, 1996 is a complete code. Arbitral tribunal conducted five
hearing through virtual hearing, framed six issues and finally concluded that
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all the issues can be taken up and a finding can be given in the final award.
Once the arbitration proceedings is initiated, no judicial interference is
permitted. Moreover, this petition filed under Article 227 is not
maintainable for the reason that Arbitration and Conciliation Act, 1996, is a
complete code in itself and it has its own procedural mechanism to deal with
arbitration matters. In this regard, the learned counsel for the respondent
relied on the following judgments:
SBP & Co. Vs. Patel Engineering Ltd., and Another reported in (2005) 8
SCC 618, the relevant para, which reads as follows:
45. It is seen that some High Courts have proceeded
on the basis that any order passed by an Arbitral Tribunal
during arbitration, would be capable of being challenged
under Article 226 or 227 of the Constitution. We see no
warrant for such an approach. Section 37 makes certain
orders of the Arbitral Tribunal appealable. Under Section 34,
the aggrieved party has an avenue for ventilating its
grievances against the award including any in-between orders
that might have been passed by the Arbitral Tribunal acting
under Section 16 of the Act. The party aggrieved by any order
of the Arbitral Tribunal, unless has a right of appeal under
Section 37 of the Act, has to wait until the award is passed by
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the Tribunal. This appears to be the scheme of the Act. The
Arbitral Tribunal is, after all, a creature of a contract between
the parties, the arbitration agreement, even though, if the
occasion arises, the Chief Justice may constitute it based on
the contract between the parties. But that would not alter the
status of the Arbitral Tribunal. It will still be a forum chosen
by the parties by agreement. We, therefore, disapprove of the
stand adopted by some of the High Courts that any order
passed by the Arbitral Tribunal is capable of being corrected
by the High Court under Article 226 or 227 of the
Constitution. Such an intervention by the High Courts is not
permissible.
47. (vi) Once the matter reaches the Arbitral
Tribunal or the sole arbitrator, the High Court would not
interfere with the orders passed by the arbitrator or the
Arbitral Tribunal during the course of the arbitration
proceedings and the parties could approach the Court only in
terms of Section 37 of the Act or in terms of Section 34 of the
Act.
Bhaven Construction Through Authorised Signatory
Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada
Nigam Lit. and Another, reported in 2021 SCC OnLine SC 8, the relevant
para, which reads as follows:
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11. We need to note that the Arbitration Act is a
code in itself. This phrase is not merely perfunctory, but has
definite legal consequences. One such consequence is
spelled out under Section 5 of the Arbitration Act, which
reads as under “Notwithstanding anything contained in any
other law for the time being in force, in matters governed by
this Part, no judicial authority shall intervene except where
so provided in this Part.” The non-obstante clause is
provided to uphold the intention of the legislature as
provided in the Preamble to adopt UNCITRAL Model Law
and Rules, to reduce excessive judicial interference which is
not contemplated under the Arbitration Act.
12. The Arbitration Act itself gives various
procedures and forums to challenge the appointment of an
arbitrator. The framework clearly portrays an intention to
address most of the issues within the ambit of the Act itself,
without there being scope for any extra statutory mechanism
to provide just and fair solutions.
13. Any party can enter into an arbitration
agreement for resolving any disputes capable of being
arbitrable. Parties, while entering into such agreements,
need to fulfill the basic ingredients provided under Section 7
of the Arbitration Act. Arbitration being a creature of
contract, gives a flexible framework for the parties to agree
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for their own procedure with minimalistic stipulations under
the Arbitration Act.
14. If parties fail to refer a matter to arbitration or
to appoint an arbitrator in accordance with the procedure
agreed by them, then a party can take recourse for Court
assistance under Section 8 or 11 of the Arbitration Act.
15. In this context, we may state that the Appellant
acted in accordance with the procedure laid down under the
agreement to unilaterally appoint a sole arbitrator, without
Respondent No.1 mounting a judicial challenge at that stage.
Respondent No.1 then appeared before the sole arbitrator
and challenged the jurisdiction of the sole arbitrator, in terms
of Section 16(2) of the Arbitration Act.
16. Thereafter, Respondent No.1 chose to impugn
the order passed by the arbitrator under Section 16(2) of the
Arbitration Act through a petition under Article 226/227 of
the Indian Constitution. In the usual course, the Arbitration
Act provides for a mechanism of challenge under Section 34.
The opening phase of Section 34 reads as 'Recourse to a
Court against an arbitral award may be made only by an
application for setting aside such award in accordance with
sub-Section (2) and sub-Section (3)'. The use of term 'only'
as occurring under the provision serves two purposes of
making the enactment a complete code and lay down the
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procedure.
27. It must be noted that Section 16 of the
Arbitration Act, necessarily mandates that the issue of
jurisdiction must be dealt first by the tribunal, before the
Court examines the same under Section 34. Respondent No.1
is therefore not left remediless, and has statutorily been
provided a chance of appeal. In Deep Industries case
(supra), this Court observed as follows:
“22. One other feature of this case is of some
importance. As stated herein above, on 09.05.2018, a Section
16 application had been dismissed by the learned Arbitrator
in which substantially the same contention which found
favour with the High Court was taken up. The drill of
Section 16 of the Act is that where a Section 16 application is
dismissed, no appeal is provided and the challenge to the
Section 16 application being dismissed must await the
passing of a final award at which stage it may be raised
under Section 34.”
Madarshi Dayanand University and Another v. Anand Coop.
L/C Society Ltd., and Another, reported in (2007) 5 SCC 295, the relevant
para, which reads as follows:
13. But we make it clear that the arbitrator, in the
first instance, has to decide whether the existence of an
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arbitration agreement in terms of Section 7 of the Act is
established and also to decide whether the claim now made is
a claim that comes within the purview of clause 25-A of the
tender conditions in case it if found to be an agreement within
the meaning of Section 7 of the Act. Only on deciding these
two aspects can the arbitrator go into the merits of the claim
made by the respondent. But we clarify that it does not mean,
that he should treat these two aspects as preliminary issues
and decide them first; but only that he must decide them
without fail while proceeding to finally pronounce his award.
9. In reply, the learned counsel for the petitioner submitted that
without a notice, an arbitration cannot be initiated and when there is an
illegal proceeding is initiated, the High Court is empowered under Article
227, to interfere and set right the illegality. In this regard, he relied on the
following judgments.
Deep Industries Ltd., v. ONGC, reported in (2020) 15 SCC 706,
the relevant para, which reads as follows:
“17. This being the case, there is no doubt
whatsoever that if petitions were to be filed under Articles
226/227 of the Constitution against orders passed in
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appeals under Section 37, the entire arbitral process would
be derailed and would not come to fruition for many years.
At the same time, we cannot forget that Article 227 is a
constitutional provision which remains untouched by the
non obstante clause of Section 5 of the Act. In these
circumstances, what is important to note is that though
petitions can be filed under Article 227 against judgments
allowing or dismissing first appeals under Section 37 of the
Act, yet the High Court would be extremely circumspect in
interfering with the same, taking into account the statutory
policy as adumbrated by us herein above so that
interference is restricted to orders that are passed which are
patently lacking in inherent jurisdiction.”
Bhaven Construction v. Executive Engineer, Sardar Sarovar
Nigam Ltd., reported in 2021 SCC OnLine SC 8, the relevant para, which
reads as follows:
“18. It is therefore, prudent for a Judge to not
exercise discretion to allow judicial interference beyond the
procedure established under the enactment. This power
needs to be exercised in exceptional rarity, wherein one
party is left remediless under the statute or a clear 'bad
faith' shown by one of the parties. This high standard set by
this Court is in terms of the legislative intention to make the
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arbitration fair and efficient.
19. In this context we may observe Deep
Industries Limited v. Oil and Natural Gas Corporation
Limited, 2019 SCC OnLine SC 1602, wherein interplay of
Section 5 of the Arbitration Act and Article 227 of the
Constitution was analyzed as under:
“15. Most significant of all is the nonobstante
clause contained in Section 5 which states that
notwithstanding anything contained in any other law, in
matters that arise under Part I of the Arbitration Act, no
judicial authority shall intervene except where so provided
in this Part. Section 37 grants a constricted right of first
appeal against certain judgments and orders and no others.
Further, the statutory mandate also provides for one bite at
the cherry, and interdicts a second appeal being filed (See
Section 37(2) of the Act)
16. This being the case, there is no doubt
whatsoever that if petitions were to be filed under Article
226/227 of the Constitution against orders passed in
appeals under Section 37, the entire arbitral process would
be derailed and would not come to fruition for many years.
At the same time, we cannot forget that Article 227 is a
constitutional provision which remains untouched by the
non-obstante clause of Section 5 of the Act. In these
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circumstances, what is important to note is that though
petitions can be filed under Article 227 against judgments
allowing or dismissing first appeals under Section 37 of the
Act, yet the High Court would be extremely circumspect in
interfering with the same, taking into account the statutory
policy as adumbrated by us herein above so that
interference is restricted to orders that are passed which are
patently lacking in inherent jurisdiction.”
20. In the instant case, Respondent No.1 has not
been able to show exceptional circumstance or 'bad faith'
on the part of the Appellant, to invoke the remedy under
Article 227 of the Constitution. No doubt the ambit of
Article 227 is broad and pervasive, however, the High Court
should not have used its inherent power to interject the
arbitral process at this stage. It is brought to our notice
that subsequent to the impugned order of the sole arbitrator,
a final award was rendered by him on merits, which is
challenged by the Respondent No.1 in a separate Section 34
application, which is pending.”
Judgment in Kvaerner Cementation India Limited v. Bajraglal Agarwal
and Another, reported in (2012) 5 SCC 214, is relied to highlight the scope
of engaging under Section 16 of Arbitration and Conciliation Act.
“4. A bare reading of Section 16 makes it
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explicitly clear that the Arbitral Tribunal has the power to
rule on its own jurisdiction even when any objection with
respect to existence or validity of the arbitration agreement
is raised, and a conjoint reading of sub-Sections (2), (4)
and (6) of Section 16 would make it clear that such a
decision would be amenable to be assailed within the ambit
of Section 34 of the Act.
5. In this view of the matter, we see no infirmity in
the impugned order so as to be interfered with by this
Court. The petitioner, who is a party to the arbitral
proceedings may raise the question of jurisdiction of the
arbitrator as well as the objection on the ground of non-
existence of any arbitration agreement in the so-called
dispute in question, and on such an objection being raised,
the arbitrator would do well in disposing of the same as a
preliminary issue so that it may not be necessary to go into
the entire gamut of arbitration proceedings.”
10. On the importance of arbitration agreement and notice
before the limitation of arbitration proceedings, the learned counsel for the
petitioner relied on the judgment in Alupro Building Systems Pvt. Ltd., v.
Ozone Overseas Pvt. Ltd., reported in 2017 SCC OnLine Del 7228. The
relevant para, reads as follows:
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“30. Considering that the running theme of the
Act is the consent or agreement between the parties at every
stage, Section 21 performs an important function of forging
such consensus on several aspects viz., the scope of the
disputes, the determination of which disputes remain
unresolved; of which disputes are time barred; of
identification of the claims and counter-claims and most
importantly, on the choice of arbitrator. Thus, the
inescapable conclusion on a proper interpretation of
Section 21 of the Act is that in the absence of an agreement
to the contrary, the notice under Section 21 of the Act by the
first respondent invoking the arbitration clause, preceding
the reference of disputes to arbitration, is mandatory. In
other words, without such notice, the arbitration
proceedings that are commenced would be unsustainable in
law.”
Judgment in SREI Investment Finance Ltd., v. Tuff Drilling Pvt. Ltd.,
reported in (2018) 11 SCC 470, is relied for the proposition that Arbitral
Tribunal is not in capacitated in drawing sustenance from CPC and
Evidence Act.
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“26. There cannot be a dispute that the power
exercised by the Arbitral Tribunal is quasi-judicial. In view
of the provisions of the 1996 Act, which confers various
statutory powers and obligations on the Arbitral Tribunal,
we do not find any such distinction between the statutory
tribunal constituted under the statutory provisions or
Constitution insofar as the power of procedural review is
concerned. We have already noticed that Section 19
provides that the Arbitral Tribunal shall not be bound by the
rules of procedure as contained in the Civil Procedure
Code. Section 19 cannot be read to mean that the Arbitral
Tribunal is incapacitated in drawing sustenance from any
provisions of the Code of Civil Procedure.”
11. Considered the rival submissions and perused the
records.
12. The perusal of the interim award of Arbitral Tribunal
dated 21.05.2021, shows that the Arbitral Tribunal conducted five virtual
hearings. Claimants/respondents participated in the hearings with their
representatives. When an issue regarding jurisdiction was raised before the
Arbitral Tribunal, the arbitral tribunal framed the following six issues:
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i)Does the Arbitral Tribunal have jurisdiction?
ii)Is the arbitration agreement valid in view of the following:
a)unsigned agreement,
b)Moreso, when this issue is not contested by either of the
parties,
c)Suo moto raised by one of the Ld.Co-Arbitrator Dr.Bhatt?
iii)Is there a full and final settlement?
iv)Have all the procedures been followed with regard to the
initiation of arbitration proceedings?
v)Is the claim time barred?
vi)Whether provisions of Section 21 of the Arbitration &
Conciliation Act, 1996 were duly followed?
13. The Arbitral Tribunal consists of one presiding arbitrator and
two co-arbitrators. The presiding arbitrator and one co-arbitrator on
considering the rival submissions found that the application under Section
16 of Arbitration and Conciliation Act, 1996 can be considered at the time
of final award. Other issues such as,
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C.R.P.(N.P.D).No.1232 of 2021
a)Reconciliation statement dated 14.11.2016.
b)The submissions of the first respondents that the reconciliation
statement has been obtained under duress/coercion.
c)The validity or otherwise of the reconciliation statement in view
of the non-payment of the amount appearing in the reconciliation statement.
d)The apparent arithmetical inaccuracy in the said reconciliation
statement.
e)The unilateral act of the deduction by the respondents of a
certain amount from the figure appearing in the reconciliation statement,
and
f)The applicability of law of limitation
can be decided on the basis of the evidence produced in the trial.
Final conclusion by majority members was reached to the effect that the
matters can be taken in trial and decided upon, including the matter relating
to application filed under Section 16 of Arbitration and Conciliation Act,
1996, in the final award. The dissenting member made a separate note and
the learned member is of the view that the arbitration proceedings are
without jurisdiction and it has to be discontinued.
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C.R.P.(N.P.D).No.1232 of 2021
14. Certain documents are filed to show that parties have
reached settlement and payments have been made in pursuance of the
settlement. The case of the first respondent is that the respondent is a small
contractor. It completed its work. For some reason or other, the petitioner
discontinued the respondent's contract and reduced the payments. The
respondent was in dire need of funds and it was bludgeoned and forced to
enter into an unconscionable settlement. Left with no option and there was
immediate need for money to sustenance, the respondent was forced to enter
into settlement. The respondent was not paid proper and reasonable amount
for the work completed. It is submitted by the respondent that the alleged
settlement was a forceful settlement, written on a blank sheet. A proper
settlement would have been entered into in a proper document. Unless, the
respondent signed the alleged settlement, petitioner would have withheld
the amount. Even the amount agreed to be settled was not paid. Petitioner
paid only Rs.2,50,000/- as evident from schedule 1. Petitioner admitted in a
letter dated 12.12.2019 that substantial part payment out of the alleged
settlement is yet to be made. Respondent is a small contractor and he was
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C.R.P.(N.P.D).No.1232 of 2021
under the patronage of the petitioner. Therefore, he was made to enter into a
sham settlement under duress.
15. Thus, it is clear that there are discrepancies in the
account and the claim of settlement between the parties is itself arbitrable in
the light of the reasons stated above. First respondent should be given an
opportunity to prove that the settlement was not voluntary but a forced
settlement, taking advantage of the plight of the first respondent as a poor
contractor. Necessitas non habet legem is an old age maxim which means
necessity knows no law. A person may sometimes has to succumb to the
pressure of other party to the bargain, who is in a stronger position. It is
observed in Chairman and MD, NTPC Ltd., v. Reshmi Constructions,
Builders & Contractors, reported in (2004) 2 SCC 663, that,
27. Even when rights and obligations of the parties
are worked out, the contract does not come to an end inter
alia for the purpose of determination of the disputes arising
thereunder, and, thus, the arbitration agreement can be
invoked. Although it may not be strictly in place but we
cannot shut our eyes to the ground reality that in a case
where a contractor has made huge investment, he cannot
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C.R.P.(N.P.D).No.1232 of 2021
afford not to take from the employer the amount under the
bills, for various reasons which may include discharge of his
liability towards the banks, financial institutions and other
persons. In such a situation, the public sector undertakings
would have an upper hand. They would not ordinarily
release the money unless a “No-Demand Certificate” is
signed. Each case, therefore, is required to be considered on
its own facts. There are arbitrable issues involved in this
case.
16. Whether, the claim of the first respondent is true or not
is required to be examined. Merely because notice prior to invoking
arbitration was not issued, we cannot subvert the arbitration proceedings.
Admittedly, there is an arbitration agreement. Reference of dispute to site
engineer or site incharge under clause 18 of general conditions of contract,
would not resolve the issue, for the reason that they are the employees of
the petitioner. Therefore, we cannot find fault with respondent for
approaching Indian Council of Arbitration for settling the issue with the
petitioner.
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C.R.P.(N.P.D).No.1232 of 2021
17. It is pertinent here to refer to certain provisions of the
Arbitration and Conciliation Act, 1996. Section 7 deals with the arbitration
agreement. As per Section 7 (2), an arbitration agreement may be in the
form of an arbitration clause in a contract or in the form of a separate
agreement. Admittedly, in this case, there is no dispute with regard to the
fact that there is an arbitration agreement between the parties. Only
grievance of the petitioner is that arbitration proceedings was initiated
without any arbitral issue and without any prior notice. Section 5 restricts
the scope of judicial intervention in matters governed by part I. It is made
clear that no judicial authority shall intervene except provided in part I. We
are concerned about Section 16 in this case. This Section deals with
jurisdiction of Arbitral Tribunals. The Arbitral Tribunal may rule on its own
jurisdiction, including ruling on any objections with regard to the existence
or validity of the arbitration agreement. If a plea is raised with regard to the
jurisdiction of the Arbitral Tribunal, the Arbitral Tribunal may take a
decision rejecting the plea and continue with the arbitral proceedings and
make an arbitral award. The party aggrieved by such an arbitral award may
make an application for setting aside such award in accordance with Section
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C.R.P.(N.P.D).No.1232 of 2021
34. This is a statutory remedy provided when a question of jurisdiction of
Arbitral Tribunal is raised and that was rejected and an arbitral award is
passed. In the case before hand, the petitioner instead of filing an
application for setting aside, the interim award of Arbitral Tribunal under
Section 34 of the Act, filed a petition under Article 227 of the Constitution
of India. The reading of the judgments relied by both, especially judgment
reported in 2021 SCC Online SC 8 shows that, "power of judicial
interference needs to be exercised in exceptional rarity, wherein one party is
left remedyless under the statute or clear bad faith shown by one of the
parties. If the petitions are filed under Article 226/227 of the Constitution of
India against orders passed in appeals under Section 37, the entire arbitral
process would be derailed and would not give frutition for many years". It is
clear from this judgment, that the judicial interference under Article 227 of
the Constitution of India is permitted only in exceptional cases and when
statutory remedy is not provided under the Act.
18. As pointed out by the learned counsel for the
respondent, Arbitration and Conciliation Act, 1996 is a self contained Act, it
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C.R.P.(N.P.D).No.1232 of 2021
has provisions to meet every situation. If the petitioner is aggrieved against
the interim award passed by the Arbitral Tribunal, it has to file an
application only under Section 34 and it cannot file a petition, under Article
227 of Constitution of India.
19. In this view of the matter, this Court finds that petitioner
has to go through the process of arbitration before the Arbitral Tribunal.
This petition filed under Article 227 of the Constitution of India by passing
the remedy provided in Section 34 of the Arbitration and Conciliation Act,
is not maintainable. Thus, this Civil Revision Petition is dismissed with the
costs of the respondent. Consequently, connected miscellaneous petitions
stand closed.
Ep/At 01.02.2022
Index:Yes/No
Internet:Yes/No
Speaking Order: Yes/No
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C.R.P.(N.P.D).No.1232 of 2021
To
The Section Officer,
VR Section,
High Court of Madras.
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C.R.P.(N.P.D).No.1232 of 2021
G.CHANDRASEKHARAN.J,
Ep/At
C.R.P.(N.P.D)No.1232 of 2021
and C.M.P.Nos.9564 & 9565 of 2021
01.02.2022
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