Madras High Court
M/S.Pioneer Hydrothermal ... vs M/S. Techsharp Engineers Pvt.Ltd on 24 March, 2022
C.M.A.No.84 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 24.03.2022
CORAM:
THE HONOURABLE Ms. JUSTICE P.T.ASHA
C.M.A.No.84 of 2022
M/s.Pioneer Hydrothermal Services Pvt.Ltd.,
Pioneer House, 3-10-4/B/2,
Near St.Joseph's High School,
Ramanthapur, Hyderabad- 500 013,
Represented by its Director and Authorized Signatory,
Konghot Krishn Prasad,
Residing at Flat No.E-304, 3rd Floor,
Aparna Sarovar Granda, Kanchi Gachibowli,
Nallagandia, Lingampally,
K.V.Rangareddy, Hyderabad – 500 013 ... Appellant
vs.
1. M/s. Techsharp Engineers Pvt.Ltd.,
Represented by its Authorized Officer,
C-39, 2nd Avenue, Anna Nagar,
Chennai 600 040,
presently having Office at
No.10/17, 8th Street, M-Block, Anna Nagar East,
Chennai 600 102.
2. M/s.Bharath Petroleum Corporation Limited (BPCL),
Kochi Refinery,
Karimughal Road, Thrippunithura,
Ambalamugal, Kochi, Kerala – 682 302 ... Respondents
1/14
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C.M.A.No.84 of 2022
PRAYER: Civil Miscellaneous Appeal filed under Section 37 of the
Arbitration and Conciliation Act, 1996 praying to set aside the order dated
07.01.2021 passed by the learned Arbitrator which had arisen out of the
dispute between the Appellant and the respondents and thereby passing an
Award directing the first respondent to pay the costs of the petition.
For Appellant : Mr.Vipin Warrier
for M/s.Indian Law LLP
For Respondent-1 : Mr.Jayesh B.Dolia
For Respondent-2 : Mr.M.Vijayan
JUDGMENT
Aggrieved by the Order dated 07.01.2021 passed by the Arbitral
Tribunal in allowing an application filed under Section 16 of the
Arbitration and Conciliation Act, 1996, the claimant is before this Court.
2. Since the issue, which has been placed for consideration of
this Court is with reference to the correctness of the order passed in a
Section 16 application, I do not intend to traverse through the entire
pleadings of the parties. Suffice it to state that the appellant herein, who is
a Sub Contractor of the first respondent herein, has a dispute with the first
respondent, for which, they have invoked the Arbitration Clause contained
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C.M.A.No.84 of 2022
in the work order that was issued by the first respondent to the claimant /
appellant herein. The work order that has been issued is for the Supply and
application of Insulation of Piping system on back to back basis for offsite
(Part-A) of IREP Project of BPCL, Kochi Refiner. The second respondent
has engaged the services of the first respondent, who in turn, has engaged
the services of the appellant. The appellant would contend that though they
had completed their work, the first respondent had not cleared the bills and
therefore, they had raised a dispute and requested the first respondent to
appoint an Arbitrator. However, the request was not considered favourably
by the first respondent, which compelled the appellant to file a petition in
O.P.No.688 of 2019 under Section 11 of the Arbitration and Conciliation
Act, 1996 (hereinafter, for the sake of brevity, referred to as "the 1996
Act") before this Court. In O.P.No.688 of 2019, by order dated 18.11.2019,
this Court was pleased to appoint an Arbitrator.
3. The appellant had filed their claim statement before the learned
Arbitrator and after the first respondent had entered appearance before the
learned Arbitrator instead of filing their defense statement, they had taken
out an application under Section 16 of the Arbitration and Conciliation Act,
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C.M.A.No.84 of 2022
which is impugned in this appeal. The application was filed stating that the
claim had to be terminated, since the cause of action for the claimant to file
the claim is pre-mature. The grounds, on which the application has been
filed by the first respondent, has been set out in paragraphs 10 and 11 of the
affidavit filed in support of the said impugned application.
4. The appellant has filed a counter before the Arbitral Tribunal ,
denying that the allegations and disputing that the contract is back to back
in nature. They had countered the allegations by stating that the first
respondent herein is a chronic defaulter and that the bills were never paid
on time. The appellant had also contended that for every RA Bill (Running
Account Bill), 10% had been retained by the first respondent. The
appellant would submit that they had completed their part of the work and
despite the second respondent clearing the Bank Guarantee issued by the
first respondent, payments have not been made to the appellant. The
appellant had also submitted that they had information that the first
respondent had received substantial payments, which they have diverted
elsewhere.
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C.M.A.No.84 of 2022
5. Considering the fact that there was a valid dispute between
the parties, the contention that there is no cause of action, is absolutely
without any basis. However, the learned Arbitrator relying upon Clause
10.3 of the Work Order, concluded that the appellant's cause of action for
claiming payments would arise, only after release of the final payments by
the second respondent to the first respondent. The claim of the appellant
herein would fructify only then and till such time, there is no cause of
action for invoking the arbitration clause. The Arbitral Tribunal therefore
held that it could not continue, when there is no dispute. The learned
Arbitrator allowed the application and consequently, the arbitration
proceedings were terminated. Aggrieved by the same, the appellant is
before this Court.
6. Mr.Vipin Warrier, learned counsel appearing for the appellant
would draw the attention of the Court to Clause 10.3, which is the basis on
which, the application has been allowed. He would submit that the learned
Arbitrator has not considered Clause 10.4, which gives the payment break-
up and the various stage of payment. It is his contention that, as per Clause
10.3, it is only the final payment that is considered which is clear from
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C.M.A.No.84 of 2022
reading Clause 10.4, which gives the payment break-up. Under Clause
10.4, the final payment that constituted 5% was to be kept back and 95% of
the payment had to be cleared. Therefore, the contention that the appellant
did not have the cause of action for filing the claim, is totally misconceived
and without any basis. He would further argue that the learned Arbitrator
had allowed Section 16 application only on the ground that the first
respondent had not received their final payment from the second respondent
and that the liability to pay had therefore, not fructified. However, in the
counter filed to the Section 9 application in Arb.Appl.180 of 2021, the first
respondent stated that they had submitted their final bill to the second
respondent as early as on 21.03.2019 and the amount that was due, was
only a sum of Rs.5,15,37,000/-. In fact, the second respondent herein had
submitted that they were willing to create a Fixed Deposit in respect of the
sum of Rs.4,00,37,000/-, which according to them, was due to the first
respondent. Therefore, he would contend that the statement that the final
payment has not been paid, would be totally incorrect, in the light of the
statement made in Section 9 application.
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C.M.A.No.84 of 2022
7. Per contra, Mr.Jayesh B.Dolia, learned counsel appearing for
first respondent would contend that the final payment, as per Clause 10.3,
was payable only after the payments were fully received from the second
respondent and admittedly, till date, the payments have not been made
available to the first respondent. Therefore, the liability to pay the
appellant, has not arisen. He would submit that the provisions of Clause
10.4 would have no application to the instant case. He would therefore
pray that the order of the learned sole Arbitrator be confirmed.
8. Mr.M.Vijayan, learned counsel appearing on behalf of the
second respondent-Corporation would submit that they are unnecessary
parties to the proceedings. The Arbitration contract is only between the
appellant and the first respondent and the second respondent is not a party
to the same. Therefore, the presence of the second respondent in the
proceedings, is totally unnecessary.
9. The learned counsel for the appellant would submit that
second respondent-Corporation has been made a party only for the purpose
of confirming as to whether the second respondent had made payments to
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C.M.A.No.84 of 2022
the first respondent.
10. Heard the learned counsels on either side and perused the
materials available on record.
11. The issue is in a narrow compass as to whether the appellant
could claim their payment from the first respondent. A perusal of the
documents would indicate that on 05.02.2018, the appellant herein had
issued a legal notice to the first respondent, demanding the final payment.
In the said notice, the appellant has stated as follows:
“We are told that the Company has paid an
amount of Rs.7,72,90,718/- in various installments dated
from 14.07.2016 to 22.09.2017 as part payments so far to
our client. The last part payment from the side of your
company was Rs.30 lacs on 22.09.2017. Now an amount of
Rs.6,62,17,343/- (Rupees six crore sixty two lacs seventeen
thousand three hundred and forty three only) is
outstanding after deduction of statutory recoveries.
Despite repeated reminders, e-mail and direct
communication made by the representatives of our client,
the Company did not paid the outstanding amount due to
our client.”
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The total value of the work order has been set out in the Annexure to the
work order under the caption " Schedule of Rates". In the legal notice, the
first respondent was also informed that, if payments were not received, the
appellant would be constrained to take the legal re-course. In response to
the above legal notice, a reply has been sent on 01.03.2018, wherein, the
first respondent had denied their liability on the ground that the invoices
that had been forwarded, had not been certified on the basis of
measurement sheet, documents and other parameters and that the debris at
the site had not been cleared to the satisfaction of the first respondent. The
reply also set out that the appellant had not addressed the issue of the delay.
The first respondent had not raised the plea that the claim was pre-mature.
Neither in their response to the Arbitration notice nor in the Section 11
petition, had this plea been raised by the first respondent.
12. Clause 10.3, on which, the first respondent has based its
claim would read as follows:-.
“10.3: All RA Bill payments shall be regarded as
payment on account / advance against final payment and
not as value of work done. On satisfactory completion of
work and issue of taking over certificate and release of final
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C.M.A.No.84 of 2022
payment of Client, Sub Contractor will be paid the total
amount due after deduction of any liquidated damages due
under Contract, less payment already made and any other
recoveries due from the Sub-Contractor.”
In fact, Section 10.3 falls under the headings “Terms of payment”.
13. It is necessary to also consider Clause 10.4 as well as 10.5,
which reads as follows:
10.4 Payment break ups:-
40% progressive payment after receipt of materials at
site.
55% after Installation in all respect.
5% after completion of work in all respects and
acceptance thereof and submission of all final documents.
10.5 Retention amount:
10% retention amount would be withheld against all RA Bills
5% of which would be released on successful completion,
handing over to Client, material reconciliation and upon
receipt of final payment from Client by Company. Balance 5%
shall be released upon completion of 'defect liability period" as
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C.M.A.No.84 of 2022
per Clause No.2.2.
Contrary to the same, Sub-Contractor may exercise the option
of submitting a Bank Guarantee to the tune of % amount of the
Work order to be valid covering 'defect liability period' and in
such case Company shall release 5% payment upon receipt of
BG.
14. From a reading of Clause 10.4, it is seen that the schedule of
payment has been prescribed therein. The first two schedule of payments is
contemplated while the work is in progress it is only the final payment
which is contemporaneous to the final payment being received by the first
respondent from the second respondent. The final payment, which is only
5%, is the amount, which is payable, after completion of work in all
respects and acceptance thereof and on submission of all final documents.
Therefore, Clause 10.3 has to be read in conjunction with Clause 10.4 and
not in isolation, since a reading of 10.3 in isolation will give no meaning to
Clause 10.4.
15. The learned counsel for the first respondent had raised a plea
that the appellant / claimant had not completed the works satisfactorily.
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This is an issue, which has to be considered during the enquiry before the
Arbitral proceedings and not at this preliminary stage. What is now placed
for the consideration of this Court is whether the appellant has a cause of
action for institution of Arbitral proceedings, which this Court holds is
available for the appellant.
16. Considering the responses to the earlier notices and Section
11 petition and also taking into account Clause 10.3 and Clause 10.4, the
appellant definitely has a cause of action for instituting the Arbitral
proceedings. Therefore, the observation of the Arbitral Tribunal that the
payment to the appellant is dependent on payment of monies by the second
respondent to the first respondent, is not in keeping with the terms of the
Work Order as also the observations that the claim is pre-mature. It is only
the final tranche, which is linked to the payment received by the first
respondent from the second respondent.
17. Therefore, the order of the Arbitral Tribunal, dated
07.01.2021 is set aside and the matter is remitted back to the Arbitral
Tribunal for consideration. Considering the fact that the term of the
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Arbitral Tribunal has come to an end, the term of the Arbitral Tribunal is
extended by a further period of 6 months (i.e), till 27.10.2022.
Accordingly, the Civil Miscellaneous Appeal is allowed. No costs.
24.03.2022
Index : Yes/No
Speaking / Non-speaking order
srn
To
M/s.Bharath Petroleum Corporation Limited (BPCL),
Kochi Refinery,
Karimughal Road, Thrippunithura,
Ambalamugal, Kochi, Keral – 682 302
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C.M.A.No.84 of 2022
P.T.ASHA, J.,
srn
C.M.A.No.84 of 2022
24.03.2022
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