M/S. Sri Avantika Contractors 1 ... vs M/S. National Buildings ...
2021 Latest Caselaw 2245 Tel

            HIGH COURT FOR THE STATE OF TELANGANA

                                   ***

ARB.APPL Nos.85, 86 and 87 of 2019

Between:

M/s Sri Avantika Contractors (I) Ltd.

.........Applicant

AND

M/s National Buildings Construction Corporation Limited

.......Respondent

Date of Judgment pronounced on : 30.07.2021

THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM

1. Whether Reporters of Local newspapers : Yes / No May be allowed to see the judgments?

2. Whether the copies of judgment may be marked : Yes / No to Law Reporters/Journals:

3. Whether The Lordship wishes to see the fair copy : Yes / No Of the Judgment?

_____________________ CHALLA KODANDA RAM, J

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM

ARB.APPL Nos.85, 86 and 87 of 2019

% 30.07.2021

# 1. M/s Sri Avantika Contractors (I) Ltd.

.........Applicant

AND

$ 1. M/s National Buildings Construction Corporation Limited .......Respondent

< GIST:

> HEAD NOTE:

! Counsel for the Applicant     :        Sri K.C. Reddy

^ Counsel for the Respondent :           Sri T. Anand Subramaniam
            for Vakil Associates


? Cases referred
1.    (2009) 1 SCC 107
2.    (2009) 2 SCC 55
3.    (2009) 2 SCC134
4.    (2010) 3 SCC 1
5.     (2013) 9 SCC 32


                                                         Arb.Appl.Nos.85, 86 & 87 of 2019
                                                                                    CKR, J




         THE HON' BLE SRI JUSTICE CHALLA KODANDA RAM

ARBITRATION APPLICATION Nos.85, 86 and 87 of 2019

COMMON ORDER:

ARB.APPL No.85 of 2019 is filed seeking appointment of independent

Sole Arbitrator for adjudication of dispute under LOA.No.NBCC/SBG-

INFRA/CIVIL/IDCT-RIHAND/2010/LOA-2228-1160/ D.No.2226 dated

17/08/2010. ARB.APPL No.86 of 2019 is filed seeking appointment of

independent Sole Arbitrator for adjudication of dispute under

LOA.No.NBCC/SBG-I/CIVIL/IDCT-VINDHYACHA/2010/LOA-2228-1136/

D.No.1405 dated 14.05.2010. ARB.APPL No.87 of 2019 is filed seeking

appointment of independent Sole Arbitrator for adjudication of dispute

under LOA.No.NBCC/SBG-I/CIVIL/IDCT-MOUDA/2010/LOA-2228-1129/

D.No.1445 dated 19.04.2010.

2. As the applications are connected, they are taken up for disposal

by this Common Order. At the request of the applicant's counsel, the

facts contained in ARB.APPL No.86 of 2019 are taken for discussion.

3. The brief facts which are not in dispute are that pursuant to the

notice inviting tender for carrying out "Civil, Structural and Misc. Civil

Works of Induced Draught Cooling Towers 11A, 11B, 12A, 12B, 2 Nos.

Auxiliary tower and 1 No. Switch Gear Room Vindhyachal-STPP Stage-IV,

(2x500 MW), Singrauli District, Madhya Pradesh". The applicant was

issued with a Work Order on 19.05.2010 followed with an entering into

an Agreement on 22.11.2010. Disputes arose between the applicant and

respondent in the course of, and in relation to, execution of the contract

resulting in cancellation of the work order by letter dated 10.04.2013 and

certain claims have been made by the applicant on the respondent under

various Heads. In an effort to settle the disputes amicably, the

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

respondent appointed one Sri K.B.Dubey, Former Director (Projects)

NTPC, (hereinafter referred to as 'conciliator') on 09.12.2013, as sole

conciliator to review the disputes/claims raised by the applicant in

relation to the contract between the parties and to assist the parties in

their attempt to reach an amicable settlement in an independent and

impartial manner, and to submit a report to the respondent. The

appointed conciliator submitted his report on 09.07.2014 opining certain

claims to be admissible and certain other claims as not admissible. In

relation to the claims which were not admitted by the conciliator and also

certain other claims, the applicant vide letter dated 27.11.2017

requested the respondent to appoint a sole arbitrator under the

Arbitration and Conciliation Act, 1996. The same was rejected by the

respondent vide letter dated 17.11.2017 specifically refuting the claims.

It was asserted that there being no provision for settlement of disputes

through Arbitration, the demand for appointment of Arbitrator is not

tenable; that condition No. 21 read with condition No.15 of Work Order

dated 19.05.2010 and Article 5 read with Article 2 of the Agreement

dated 22.11.2010 with regard to settlement of legal disputes, excludes

jurisdiction of any other Court other than Courts at Delhi. In General

Conditions of Contract which were made part of the letter of Award and

the Agreement, Clause 76 providing for Arbitration specifically stands

deleted.

4. Learned counsel Sri K.C. Reddy in an innovative and brief manner

while making references to various documents/correspondence filed with

the application, contends that notwithstanding there not being an

Arbitration Clause in the Agreement, the fact that the disputes were

referred to Conciliation invoking part-III of the Arbitration and

Conciliation Act (for short, 'the Act'), and the Conciliator had conducted

the proceedings and submitted a report by making specific reference to

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

the provisions of the Act more specifically Section 61 of the Act, and the

same has resulted in an Arbitration Agreement coming into existence. As

the conciliation which was conducted under the Act has failed, the natural

consequence of such failure would result in the unsettled disputes to be

settled through arbitration. Learned counsel would contend by making a

reference to Section 74 of the Act, just like the settlement reached before

the conciliator partaking the character of Award in terms of Section 30 of

the Act, which is enforceable under the Act, the failure to reach an

amicable settlement would automatically result in the matter to be

settled through arbitrator/arbitrators.

5. Learned counsel to buttress his arguments would place reliance on

the judgments of the Supreme Court in Unissi (India) Private Limited

v. Post Graduate Institute of Medical Education and Research1,

VISA International Limited v. Continental Resources (USA)

Limited2, Shakti Bhog Foods Limited v. Kola Shipping Limited3, and

TRIMEX International FZE Limited Dubai v. Vedanta Aluminimum

Limited, India4. Learned counsel would further submit that reference to

conciliation and appointing a Conciliator has by inference brought into

existence an Arbitration agreement between the parties.

6. On the other hand, learned counsel for the respondent would raise

a preliminary objection by making specific reference to the Agreement

dated 22.11.2010 entered into between the parties and by specifically

drawing attention to Article 5 Governing Law and jurisdiction and

contends that the Court(s) at Delhi alone would have jurisdiction to

consider the application under Section 11. Learned counsel for the

respondent would raise an objection with respect to maintainability of the

1 (2009) 1 SCC 107 2 (2009) 2 SCC 55 3 (2009) 2 SCC134 4 (2010) 3 SCC 1

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

application under Section 11 before this Court in view of the Article 5.0 of

the Agreement between parties restricting the jurisdiction to the Courts

at Delhi. Further, by drawing attention to Article 2.0 read with Clause 76

of GCC, would submit that the parties to the contract have specifically

omitted the Arbitration as mode of dispute resolution. He would also

specifically point to the Work Order dated 19.05.2010 by drawing

attention to Condition No.15 with respect to inclusion of GCC clauses,

and restriction of Courts jurisdiction to the Court(s) at Delhi and Clause

24 the work order came to be accepted by the applicant.

7. Learned counsel for the respondent would place reliance on the

judgments of the Hon' ble Supreme Court in Swastik Gases Private

Limited v. Indian Oil Corporation Limited5, Brahmani River Pellets

Limited v. Kamachi Industries Limited 6 . By relying on the above

judgments, learned counsel would submit that the jurisdiction of the

Court for dispute resolution having been specifically restricted to the

Courts at New Delhi, the application made before this Court is not

maintainable, and further the Arbitration Clause in the Agreement itself

being an independent contract, in the facts of the present case, there is

no material to come to the conclusion that the parties have agreed to

refer their disputes to Arbitration, more particularly in the face of specific

exclusion under Clause 76 of the GCC.

8. There being no dispute with respect to the applicant being

awarded with a contract, alleged failure of the applicant in execution of

contract resulting in termination of the contract, claims having been

made by the applicant, the reference of the same for consideration by a

Conciliator, the conciliator finally submitting a report, the applicant not

5 (2013) 9 SCC 32 6 (2020) 5 SCC 462

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

satisfied seeking appointment of arbitrator and the refusal to the same,

the questions which fall for consideration are:

1) Whether any arbitration agreement is said to have been come into existence merely on account of the respondent seeking to resolve the disputes amicably with respect to the claims made by the applicant by referring the claims to a Conciliator.

2) Whether, in the facts of the present case and in the light of the Agreement dated 22.11.2010 between the parties, this Court has no jurisdiction to entertain an application made by the applicant under Section 8 of the Conciliation Act.

9. Section 2(1)(b) defines "Arbitration Agreement" as an Agreement

referred to in Section 7. Section 2(1)(h) defines a "party" as a party to

an arbitration agreement.

10. Now it is settled by a large number of judicial pronouncements

that an arbitration agreement can come into existence even by exchange

of letters, correspondence, or a demand which was not denied and acted

upon by other party.

11. In the present case on hand, there is no dispute that the original

award does not contain arbitration agreement and further the applicant

by signing the letter of award, had specifically accepted the award of the

contract in which Clause 76 of the GCC forms part of the agreement.

GCC specifically providing for arbitration stands deleted. The disputes

having arisen between the parties and the claims having been made by

the applicant, an effort was made by the parties to settle the disputes

amicably by seeking an independent technical expert. As a matter of

fact, the independent technical expert named as Conciliator had made his

report recommending acceptance of certain of the claims made by the

applicant.

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

12. The letter dated 09.12.2013 appointing the Conciliator is not

placed on record by either of the parties to verify as to whether there

was any specific reference by the respondent to the Arbitrator and

whether there was any specific request made by the conciliator, more

particularly the one under the Act. However, it appears that the

appointed conciliator had in fact followed the procedure prescribed under

the Act in conducting the conciliation proceedings.

13. None of the provisions in part-III, starting from Section 61 to 81,

provide for any straightjacket answer to the question that in the event of

there being a failure in the conciliation process, the same would create

an independent arbitration agreement between the parties even in cases

where there is originally no arbitration agreement.

14. The object of conciliation being resolving of disputes between the

parties, the conciliator is not bound by the technicalities of procedure

either under Code of Civil Procedure, 1908 or the Indian Evidence Act,

1872 (Section 66). Likewise, the role that is required to be played by the

Arbitrator under Section 66 is a role of a neutral mediator with an

objective to encourage both the parties to come to an amicable

settlement with respect to the matter in dispute. It is only for that

reason, the submissions to be made before the conciliator by the

respective parties need not be in writing and need not be accompanied

by a Statement of Reasons therefor. The conciliator cannot be called as

a witness in a judicial proceeding with respect to any of the information

provided to the conciliator in the process of conciliation (Section 80 of the

Act). If there is no settlement which is acceptable to both the parties,

the conciliation process would get terminated without prejudice to the

respective parties rights to resolve their disputes as per the original

agreement in agreed judicial fora or otherwise. While settlement arrived

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

at before the Conciliator resulting in a settlement agreement in terms of

Section 73 of the Act, for all purposes, be treated as an Arbitral Award

under the Act and enforceable, and in the event of no settlement

agreement, the rights of the parties are preserved as if there was no

conciliation proceedings.

15. Sections 77, 80 and 81 of the Act specifically make a reference to

Arbitral or Judicial proceedings, treating both as two independent

proceedings. If one takes a view that part-III conciliation being provided

as part of the Act and the reference to conciliation can be only in cases

where there is an agreement or contract providing for resolution of

dispute through arbitration, in the event of failure to arrive at a

settlement, the rights of parties under the Arbitration Agreement stands

preserved. Assuming that part-III under the Act as an independent part

whereunder, in the legislative wisdom, an opportunity is provided for the

parties to settle the disputes with an intermediary by making reference to

their disputes to an impartial intermediary, notwithstanding there being a

provision for pre-litigation amicable settlement either through arbitration

or otherwise, such conciliation under part-III cannot be said to create a

new agreement between the parties except to an extent that the parties

intended to make an attempt to settle their disputes amicably. However,

there can be cases where, while parties to the dispute agreeing to take

the aid of a conciliator by resorting to the conciliation proceedings, they

may also agree, at that stage, for making reference to arbitration in the

event of failure of conciliation proceedings. A finding with regard to there

being an agreement at that stage is required to be established on facts

by reference to specific facts in each case. Relegating the parties to the

dispute to avail arbitration or judicial proceedings under Section 77, 80

and 81 of the Act indicate that in cases wherever there is an arbitration

agreement, in the event of failure, the parties would take resort to

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

arbitration proceedings and wherever there is no such agreement and in

the absence of a new agreement being created, the parties are at liberty

to avail the judicial proceedings.

16. Yet another view is that Section 89 of Code of Civil Procedure

provides for mediation and conciliation in Civil suits before a matter goes

for trial. It may be noted that by virtue of judicial pronouncements,

virtually it has become mandatory for a judicial officer to refer the matter

for mediation to see whether there is a possibility of mutual settlement

between the parties to the suit.

17. The Hon' ble Supreme Court while dealing with reference of

disputes to arbitration under Section 89 of Code of Civil Procedure in

Afcons Infrastructure Ltd v. Cherian Varkey Construction Co. (P)

Ltd., (2010 8 SCC 24) and Kerala SEB v. Kurien E. Kalathil, (2018

4 SCC 793) has held that Court cannot refer parties to arbitration unless

the parties to the lis consent (by a joint affidavit or joint application) in

the absence of an arbitration agreement.

18. In a given case, it is open for the Court, invoking Section 89 of

Code of Civil Procedure, to refer a case for conciliation invoking Part-III

of Arbitration and Conciliation Act, and the proceedings to be conducted

under the Rules framed under Part-III of the Act.

19. In such circumstances, there is no reason for this Court to

presume merely because in a particular case, in an effort to arrive at a

Settlement and to avoid long drawn litigation either through Arbitration

or through Court proceedings, it cannot be presumed that the parties

have agreed for Settlement of Disputes through arbitration.

20. Viewed from any angle, in the considered opinion of this Court,

failure of conciliation proceedings in a case where originally there was no

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

agreement to relegate the parties to arbitration proceedings does not

result in creation of an arbitration agreement.

21. Applying the above analogy to the facts of the present case, in the

face of specific prohibition of arbitration proceedings by consciously

deleting the Clause 76 of the GCC, it cannot be said that on account of

failure of the parties to arrive at an amicable settlement agreement

referable to Section 73, the parties are required to resolve their disputes

only through arbitration.

22. To put it in simple terms, the failure of conciliation efforts does not

automatically result in creation of a new contract between the parties by

creating an arbitration agreement as defined under the Act and satisfying

the conditions under Section 7 of the Act entitling the applicant to invoke

Section 8 of the Act.

23. Notwithstanding the innovative and intelligent arguments

advanced by the learned counsel for the applicant, in the light of the law

laid down by the Supreme Court interpreting Sections 7, 8 of the Act, the

questions are liable to be answered against the applicant.

24. In view of the above, question No.1 is answered in the negative by

holding that merely on account of the respondent seeking to resolve the

disputes amicably with respect to the claims made by the applicant by

referring the claims to a conciliator, and the conciliation efforts having

not been fruitful, the same would not create an arbitration agreement.

25. So far as question No.2 with respect to jurisdiction of this Court is

concerned, the argument of the learned counsel for the applicant that

certain actions i.e., the letter of award of contract was received by the

applicant at Hyderabad, the same was accepted by signing and

dispatching to the registered office of the applicant, men and machinery

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

was mobilized from Hyderabad, bank guarantee was provided from a

Bank at Hyderabad, all being within the jurisdiction of the Courts at

Hyderabad, a part of the cause of action is said to arise at Hyderabad

and thus the High Court of Telangana at Hyderabad has jurisdiction, is

liable to be rejected in view of the specific agreement between the

parties restricting the jurisdiction to the Court(s) at Delhi. The

judgments relied on by the learned counsel for the respondent are

squarely on the point and the same do not require much discussion.

26. In those circumstances, there being no dispute that as per the

agreement in the instant case, the resolution of disputes being restricted

to the Court(s) at Delhi, and more particularly in the light of the

judgment of the Supreme Court confining the jurisdiction to the agreed

fora, the question No.2 is answered in the negative by holding that the

arbitration applications are not maintainable before this Court.

27. Accordingly, the arbitration applications are dismissed. No costs.

Miscellaneous petitions, if any pending, shall also stand dismissed.

_______________________ CHALLA KODANDA RAM, J 30th July, 2021

ksm

Arb.Appl.Nos.85, 86 & 87 of 2019 CKR, J

THE HON' BLE SRI JUSTICE CHALLA KODANDA RAM

ARBITRATION APPLICATION Nos.85, 86 and 87 of 2019

30th July, 2021

ksm