Bhagheeratha Engineering Limited vs . North Eastern Electric Power
2024 Latest Caselaw 290 Meg

High Court of Meghalaya

Bhagheeratha Engineering Limited vs . North Eastern Electric Power on 20 May, 2024

Author: H.S. Thangkhiew

Bench: H.S. Thangkhiew

 Serial No. 05
 Regular List

                      HIGH COURT OF MEGHALAYA
                          AT SHILLONG
Arb. Pet. No. 8 of 2023
                                       Date of Order :20.05.2024

Bhagheeratha Engineering Limited Vs.       North Eastern Electric Power
                                           Corporation Ltd.


Coram:
                 Hon'ble Mr. Justice H.S. Thangkhiew, Judge.

Appearance:
For the Petitioner               :     Mr. George Thomas, Adv.
                                       Mr. R. Gurung, Adv.

For the Respondent(s)            :     Mr. V.K. Jindal, Sr. Adv. with

Ms. B. Jyrwa, Adv.

1. By way of this application under Section 11 (6) of the

Arbitration and Conciliation Act, 1996, (hereinafter referred to as the

'Act') the petitioner company is seeking the appointment of an Arbitrator

on behalf of the respondents, to act along with the arbitrator nominated by

the petitioner under the Act for adjudication of all disputes between the

parties.

2. The brief facts are that the petitioner had entered into a

contract with the respondent corporation, and during the execution of the

same, as certain disputes had arisen, the same were referred to arbitration

under the terms of the contract. During the arbitral proceedings, the

respondent had then filed an application under Section 16 of the Act,

contending that the disputes were not arbitrable. After the application of

the respondents had been heard by the Arbitral Tribunal, it was held that

the same would be decided along with the award that was to be passed. The

arbitral award was then declared allowing a few claims of the petitioner

but, the application filed by the respondents though reserved to be passed

along with the award, was not decided. Thereafter, both the petitioner and

the respondents challenged the award before the Commercial Court at

Shillong.

3. The learned Commercial Court then by order dated 28-06-2022

set aside the award on the ground that the Section 16 application should

have been decided by the Arbitral Tribunal. While setting aside the award,

opportunity was also given to the petitioner to avail of Section 43 of the

Act, as it was not to blame for the non-passing of the order under Section

16 of the Act by the Tribunal. The petitioner then invoked arbitration, vide

a letter dated 15-07-2022, and though there were attempts made thereafter

on the suggestion of the respondents for conciliation, the same did not bear

fruit as the respondents were not willing to conciliate the referred claims,

on the ground that the claims were contrary to the contract. As the

conciliation failed, the petitioner continued with the arbitration as invoked

by it vide notice dated 15-07-2022, and the same was notified vide letter

dated 26-06-2022. The petitioner then notified about the appointment of its

nominee Arbitrator and requested the respondents to appoint its Arbitrator

within a period of 21 days. The respondents however, did not appoint its

nominee Arbitrator even though a reminder and added time of 15 days was

granted, and instead vide letter dated 18-08-2023 informed the petitioner

that once the petitioner had agreed for conciliation, it has lost its rights to

proceed with arbitration. As such, in view of this stale mate, the petitioner

is before this Court for the appointment of the nominee Arbitrator on

behalf of the respondent under Section 11 (6) of the Act.

4. Mr. George Thomas, learned counsel on behalf of the

petitioner has submitted that this Court in adjudicating a petition under

Section 11 (6) of the Act, is exercising summary jurisdiction limited to

examining as to whether there is a written agreement between the parties

for the resolution of disputes through arbitration, whether the aggrieved

party has made out a prima facie case, and whether the respondents have

failed to act as required as per procedure. He submits that there should be

no impediment in allowing the petition, as it can be seen that the

respondents have admitted all the ingredients required for disposal of the

petition, such as the existence of the contract and arbitration agreement, the

disputes related to the contract and the admission of the receipt of notice

dated 15-07-2022 and 26-06-2023, for appointment of an Arbitrator. In this

context, the learned counsel has referred to the judgment of this Court in

the case of Mala Bhattacharjee vrs. Indusind Bank Limited & Anr.

reported in 2023 (1) ARBLR 68 (Meghalaya), which he submits has

reiterated the law regarding jurisdiction of the Court to refer parties to

arbitration and further submits that petitions under Section 8 and Section

11 (6) are almost identical.

5. He then contends that the stand taken by the respondents, that

the award was set aside on merits and therefore resjudicata will apply,

making a second reference impermissible, is misplaced and incorrect,

inasmuch as, the order of the learned Commercial Court had set aside the

award due to the procedural irregularity committed by the Arbitral Tribunal

and in fact, had also granted liberty to the petitioner to take appropriate

action in accordance with law, apart from allowing the benefit of Section

43 of the Act. He further submits that it is settled law that when an award is

set aside for procedural irregularity, the same disputes can be referred to a

newly constituted Arbitral Tribunal and in support of his arguments has

relied upon the following decisions:

i) Juggilal Kamlapat Vs. General Fibre Dealers Ltd., AIR 1962 Supreme Court 1123.

ii) The Baranagore Jute Factory Co. Ltd., Vs. M/s. Hulasehand Rupchand AIR 1958 Calcutta 490 (Para 11, 12).

iii) Firm Gulab Rai Girdhari Lal and Others Vs. Firm Bansi Lal Hansraj AIR 1959 Punjab 102 (Para 5 and 6).

iv) B.S.Jaireth Vs. Sri. S.P.Sinha - AIR 1994 Calcutta 68 (Para 2, 9, 10).

6. It is also submitted that under the Act, there is no such power

for supersession of reference when an award is set aside for procedural

irregularity or for technical default, and that jurisdiction is conferred on a

new Arbitral Tribunal so constituted, who is also to decide the arbitrability

of the disputes in the first instance itself. Learned counsel has referred to a

judgment of Mcdermott International Inc. vrs. Burn Standard Co. Ltd. &

Ors. reported in (2006) 11 SCC 181 on the point that the jurisdictional

question was required to be determined as a preliminary ground. The

petitioner has also placed reliance on the following judgments:

     i)           M/s B.K. Gupta & Co. Vs. Union of India
                  AIR 2008 Gauhati 60 (Para 10, 11)

     ii)          Govind Singh Vs. Satya Group Pvt. Ltd and Anr.
                  2023 (1) ARBLR 570 DB Delhi High Court (Para 25)



      iii)   KRR Infra Projects Pvt. Ltd. Vs. Union of India
            OMP (COMM) 87/2018 High Court of Delhi (Para 11)

     iv)    Mohana Rao Dandamudi Vs. The Government of Tamil

Nadu O.P. No. 549 of 2016, High Court of Judicature at Madras (Para 21)

7. Mr. V.K. Jindal, learned Senior counsel assisted by Ms. B.

Jyrwa, learned counsel on behalf of the respondents submits that the

Arbitral Tribunal had passed a reasoned award dated 18-01-2020, but

however, did not deal with the plea of the respondents that the claims were

not maintainable in view of the non-compliance of the prerequisites of the

arbitration clause. However, he submits, since both the parties were not

satisfied with the award dated 18-01-2020, they filed petitions under

Section 34 of the Act, but before arguments could be commenced, the

counsel for the petitioner had made a prayer to set aside the award, as the

Tribunal had committed a procedural irregularity by not first deciding the

issue raised by the respondents. After the award was set aside by the

Commercial Court, he submits that the seeking of a fresh reference by the

petitioner vide letter dated 15-07-2022, was unsustainable, as the claims

sought to be referred were already adjudicated and decided by a competent

Tribunal, under a valid reference. He contends that the instant application

under Section 11 (6) of the Act, is not maintainable, inasmuch as, after the

award was set aside, the arbitration agreement ceased to have any effect

with regard to the claims which had been referred to a duly constituted

Arbitral Tribunal and that the disputes were no longer arbitrable, on the

ground of the principles of res-judicata and constructive res-judicata.

8. The learned Senior counsel further submits that the case put up

by the petitioner, that since the Arbitral Tribunal failed to decide the

application filed by the respondents under Section 16 of the Act made the

award defective and unenforceable, is incorrect as the award was not only

set aside on the ground of procedural irregularity, but also on other

grounds. Further, it is submitted, the issue raised that the Section 16

application having been heard at length, but no final order passed

amounted to procedural irregularity, is of no consequence because, if an

issue or claim is raised or made by a party and heard by the Tribunal, but

not finally decided, the same should be deemed to be rejected. Coupled

with this fact, learned Senior counsel submits that the issue raised in the

Section 16 application also no longer survives, in view of the amendment

of Section 28 of the Indian Contract Act. It is further argued that the

appointment sought by the petitioner for appointment of fresh Arbitrator,

and not for continuation, amounts to a second reference or de novo trial, as

can be made out from the letter dated 15-07-2022 which is not tenable, as

there exists no provision in the contract agreement between the parties, or

in the arbitration clause for having a second reference or a continuation of

the first reference, in the event the award is set aside. It is also submitted

that a second reference or continuation of the first reference, is permissible

only when the first reference is itself invalid, or the Arbitral Tribunal was

not properly constituted, or there exists a provision in the contract

agreement or arbitration clause. He contends that in the instant case, none

of the conditions aforementioned were the reason for the award being set

aside and as such, the petitioner is not entitled for a second reference or

even a continuation of the first reference. The learned Senior counsel has

then placed reliance upon the following judgment in support of his

arguments:

i) The Baranagore Jute Factory Company Ltd. vs. M/s Hulaschand Rupchand, AIR 1958 Cal 490 (Para 10.1 , 17 and

19)

ii) Juggilal Kamlapat Vs. General Fibre Dealers Ltd.

AIR 1962 SC 1123, (Para 8, 10 and 15)

9. The learned Senior counsel has also supplemented his main

submissions by contending that the petition is barred by the principles of

res-judicata and constructive res-judicata, as the disputes claims which are

now being sought to be referred to another Tribunal were already directly

and substantially in issue before the previous Arbitral Tribunal, which was

constituted in accordance with the arbitration clause and decided

accordingly. With regard to the objections raised by the petitioner to the

applicability of the CPC, the learned Senior counsel has cited the following

cases:

i) K.V. George vs. Secretary to the Government , Water and Power Department, Trivandrum & Anr. (1989) 4 SCC 595(Para 16-18)

ii) Dore Sangma; John Sangma; Mega Marak & Ors. vs. Chief Executive Member, GHADC & Ors. (1988) 2 GLR 120 (Para

22)

10. Learned counsel for the petitioner in reply to the arguments,

has submitted that it is settled law that when an award of an Arbitral

Tribunal is set aside for any reason other than on the merits of the disputes

referred, the reference will subsist for adjudication. He further submits that

the respondent counsel could not point out any law or precedent that when

an award is set aside for procedural irregularity, the disputes cannot be

adjudicated under the same reference. With regard to the point raised by

the respondents that there should be provision in the contract or in the

arbitration clause, stipulating for a second reference of the same disputes or

the continuation of the first reference, learned counsel submits that there is

no basis for such a proposition of law, inasmuch as, when the arbitration

agreement stipulates that the disputes are to be settled by arbitration, any

dispute which does not attain finality in an award, could therefore be again

subjective to arbitration. It is lastly submitted that the principles of res

judicata and constructive res-judicata are not relevant for the reason that

there is no enforceable award in existence. As such, he prays that the

petition be allowed, and appropriate orders be passed for appointment of an

Arbitrator.

11. Heard learned counsels for the parties. In normal

circumstances, this application under Section 11(6) of the Act, would not

have deserved lengthy arguments for consideration, as the jurisdiction of

this Court under this provision is limited only to examining as to whether

an agreement exists between the parties for resolution of disputes through

arbitration and whether in the prevalent circumstances therein, a prima

facie case has been made out for arbitration.

12. In the instant case, the disputes between the parties herein, had

been put to arbitration as far back as on 12.02.2003, when the respondent

finally rejected the claims of the petitioner vide a letter dated 05.03.2003.

The Arbitral Tribunal which was constituted as per clause 66 of the

contract, commenced its proceedings on 08.05.2004, published the award

on 18.01.2020, after a period of nearly 16 years had elapsed, which was

then challenged by both parties by way of a Section 34 application before

the learned Commercial Court. As noted from the facts and submissions,

the respondents had filed an application under Section 16 of the Act on the

question of the Arbitral Tribunal's jurisdiction to adjudicate upon certain

claims, which was never decided in the final award.

13. An application under Section 16 of the Act, vests the Arbitral

Tribunal with the competence to rule on its own jurisdiction and the

arbitrators are entitled to be the first to determine their jurisdiction which is

later reviewable by the Court, when there is action to enforce or set aside

the arbitral award. In the instant case, an application under Section 16 had

been filed by the respondents before the Arbitral Tribunal and as recorded

in the order of the learned Commercial Court, the Arbitral Tribunal had

framed issues number 2 and 3, which were the issues raised by the

respondent under Section 16 of the Act. These two issues were never

decided by the Arbitral Tribunal in the award as it was wont to do, though

they were clubbed together at the final hearing. Further, as noted from the

judgment of the learned Commercial Court, the challenge to the award at

Ground G of the application, is on the failure of the Arbitral Tribunal to

decide on the Section 16 application, thus vitiating the award which was

not substantially rebutted by the respondent.

14. Before the learned Commercial Court, it is extremely

important to note that the learned Commercial Court at Para-13 of its order

dated 28.06.2022, had recorded as follows:

"13. On perusal of the reply filed by the Respondent, this Court finds that there is no substantive rebuttal of Ground- G, referred above. Further, on close reading of the impugned Award, this Court finds that the Tribunal has not returned any findings on, Issue No. 2 and No. 3. This Court without referring to any decision, to fortify its conclusion finds that the impugned Award suffers from violation of principle of natural justice. The Applicant has been deprived of the opportunity of being heard, as such, he was not given fair opportunity to present his case. The impugned Award, dated 18.01.2020, was pleased in breach of Section 18 of the Act, 1996, as such, it suffers from the infirmity under Sub- Section 2(iii)/(2A), of Section 34 of the Act, 1996, and liable to be quashed. This Court at the recital, had mentioned that the Respondent has not resisted or defended the legality of the impugned Award, on the above mentioned ground. Rarely, the Court encounters a very fair concession made, to the admitted position of law."

15. The respondents through its counsel before the learned

Commercial Court had also submitted that the impugned award does not

pass the test of the statutory requirement under Section 34 of the Act, and

as such it is not sustainable. This submission of the respondents is recorded

by the learned Commercial Court in paragraph 5 of the judgement, which

is also reproduced hereinbelow:

"5. Conventionally, the argument is commenced by the Applicant, however, in the instant case, the Ld Counsel for the Respondent has initiated the hearing of proceeding by

making a fair submission, that the impugned Award, does not pass the test of the statutory requirement under Section 34 of the Act, 1996, as such, it is not sustainable."

16. The learned Commercial Court then also allowed the benefit

of Section 34 of the Act to the petitioner to facilitate appropriate action in

accordance with law. However, without assailing the order of the learned

Commercial Court, especially on the findings recorded therein, when this

application has been preferred before this Court under Section 11(6) of the

Act, the respondents have put up a case that the earlier award was final,

had adjudicated on all the disputes and there being no provision for second

reference in the term of the contract, no further claims were sustainable

against the respondents by way of arbitration. This Court at this stage, and

on the facts of the case as presented, fails to understand the respondent's

contention that the petitioner is seeking a second reference. From the

materials and the chain of events, it is amply clear that the award was set

aside under Section 34 on mutual consent of the parties on account of the

procedural irregularity committed by the Arbitral Tribunal. Procedural

irregularity, does not touch upon the merits or substance of any dispute but

is concerned strictly with the maintenance of the sanctity of the

adjudicatory process as mandated by law. The respondents before this

Court however, have adopted a contrary stand by seeking to advance an

argument that their Section 16 application should have been deemed to be

rejected, whereas before the learned Commercial Court they had acceded

and concurred to the fact that the Section 16 application was never decided,

which was the only factor in consideration thereof, for the award being set

aside.

17. The award that was passed by the Arbitral Tribunal on being

set aside, has thus become unenforceable and non est in law. The same

having been set aside for procedural irregularity cannot therefore preclude

the disputes being adjudicated under the same reference. The judgments

placed by the respondents namely; The Baranagore Jute Factory

Company Ltd. vs. M/s Hulaschand Rupchand, AIR 1958 Cal 490 (supra)

and Juggilal Kamlapat vs. General Fibre Dealers Ltd., AIR 1962 SC

1123 (supra) will have no application as in the considered view of this

Court, the award being set aside on technical grounds, the disputes remain

unresolved or undecided and it is not a question of a party seeking a second

reference. The learned Commercial Court as has been discussed earlier had

passed the judgment in consideration and cognition of the stand and

submissions of the respective parties, and as such the grounds taken by the

respondents before this Court to thwart the prayers of the petitioners is

untenable and in fact deprecated. The earlier award therefore, which has

been set aside in effect has ceased to exist and the disputes as are present

are available for adjudication under the same reference.

18. The other authorities and propositions advanced by the

respondents need not be discussed, as in view of the facts and

circumstances of the same, the same are misplaced and have no

application.

19. Accordingly, the objections of the respondents to this

application under Section 11(6), stands rejected, and in view of the stand

taken by the respondents in seeking to frustrate the arbitration process,

which has already been unduly delayed, and runs counter to set convention

and principles in matters of commercial importance and value, the

respondents are directed to pay a cost of Rs. 50,000/- (Rupees Fifty

thousand only) to the petitioner within a period of 2(two) weeks from the

date of this order.

20. Further orders for appointment of an arbitrator on behalf of the

respondents will be taken up on the next date.

21. Accordingly list this matter on 05.06.2024.

JUDGE

Meghalaya 20.05.2024 "Samantha PS"