Telangana High Court

Kirloskar Brothers Limited vs M/S Navayuga Engineering Company ... on 5 July, 2022

Bench: A.Abhishek Reddy

      THE HON'BLE SRI JUSTICE A.ABHISHEK REDDY

     ARBITRATION APPLICATION Nos.86 and 169 of 2021

COMMON ORDER:

      These applications are filed under the provisions of the

Arbitration and Conciliation Act, 1996 (for short 'the Act'),

seeking appointment of an Arbitrator.


2.    It is the case of the applicant that three companies,

namely, SEW Infrastructure Limited (respondent in AA.No.86 of

2021), M/s. Navayuga Engineering Company Limited

(respondent in AA.No.169 of 2021) and IVRCL Infrastructure &

Projects Limited, formed a Consortium and entered into a joint

venture agreement for executing the portion of electro-

mechanical work pertaining to various pump houses relating to

Sripada Sagar Project Stage-II Phase-I. The Consortium, in

turn, has initially awarded a work to the applicant for carrying

out survey, design, model, study, manufacturing, supply,

erection, testing, commissioning, operation and maintenance of

complete Electro Mechanical works relating to the Project, vide

work order dated 27.12.2008, and the same has been accepted

by the applicant in terms thereof. Accordingly, the applicant

has started execution of the work on time and has raised

Running Account (RA) bills. However, the Consortium, despite

several reminders and requests, has failed to release the

amounts due to the applicant even after receiving the same from

its employer. Therefore, with the intervention of the employer,

the Consortium and the applicant entered into a Settlement

Agreement and pursuant thereto, the respondents have made

part payments. While so, on 16.04.2016 the Consortium has

issued a fresh work order for supervision charges in favour of

the applicant and again committed default in payment of

supervision charges. Despite several reminders, the respondents

herein did not respond. Therefore, the applicant has issued

notices to the respondents invoking arbitration clause. The

respondent in AA.No.86 of 2021, after receipt of the notice

issued reply dated 22.12.2020, denying the allegations raised by

the applicant and rejecting the nomination of senior advocate as

Sole Arbitrator and instead, sought consent to nominate and

appoint a former Judge of High Court of Madras as Sole

Arbitrator to adjudicate the dispute. Whereas, the respondent

in AA.No.169 of 2021, after receipt of the notice, did not issue

any reply, however gave its consent to appoint an Arbitrator or

in alternate to nominate an Arbitrator of its choice. In those

circumstances, the applicant has filed the present Arbitration

Applications.

3. Learned counsel for the applicant has stated that as per

the Settlement Agreement dated 11.03.2016 entered into

between the parties, in particular Sub-Clause (12) of Clause 8,

in case there is any dispute between the parties, the same shall

be referred to a Sole Arbitrator. Learned counsel has also

drawn the attention of the Court to Sub-Clause (10) of Clause 8

the Settlement Agreement and has laid special emphasis on the

word "severally" to buttress his contention that even though the

Settlement Agreement is between the applicant on the one hand

and the Consortium of three companies, consisting of

M/s. IVRCL Limited, M/s. Navayuga Engineering Company

Limited and M/s. SEW Infrastructure Limited on the other

hand, the present arbitration applications are filed only against

M/s. SEW Infrastructure Limited (respondent in AA.No.86 of

2021) and M/s. Navayuga Engineering Company Limited

(respondent in AA.No.169 of 2021). Learned counsel has

further stated that the liability of the individual members of

Consortium has been clearly segregated and defined in Clause

(6) of the Settlement Agreement, which provides that the

individual partner shall pay its respective portion of the

retention amount to the applicant within seven days from the

date of receipt the same. Learned counsel has stated that the

applicant has rightly invoked the arbitration clause and

moreover the respondents while agreeing for arbitration, have

suggested a different Arbitrator other than the one proposed by

the applicant, however subsequently, after filing of the present

Arbitration Applications, the respondents have taken a

somersault and are opposing the same stating that the

Settlement Agreement is entered into between all the

constituents of the Consortium jointly on the one hand and the

applicant on the other hand and not between the individual

constituents of the Consortium, therefore, the arbitration clause

cannot be invoked, as against the individual member of the

Joint Venture and the same is legally untenable in view of the

Clause (6) and Sub-Clause (12) of Clause (8) of the said

Settlement Agreement.

4. Per contra, learned counsel appearing on behalf of the

respondents has vehemently opposed the arbitration

applications in the present form and stated that there is no

written agreement between the individual constituents of the

Consortium/Joint Venture and therefore, there is no liability of

the single constituent against whom the Agreement can be

invoked. The applicant cannot invoke the arbitration clause

against the individual constituents of the Consortium but only

against the Joint Venture. He submits that the remedy

available to the applicant is to file a Civil Suit before the Civil

Court against the Individual Member of the Consortium and not

the present arbitration applications. Learned counsel has laid

special emphasis on Section 7 of the Act and has also relied on

the judgment of the Bombay High Court in the case of Larsen &

Toubro Ltd. vs. Mumbai Metropolitan Region1 to buttress his

contention that the present applications are not maintainable

and are liable to be dismissed.

5. In order to appreciate the various contentions raised by

the learned counsel for the parties, it is necessary to extract the

relevant portion of the Settlement Agreement, more particularly

Clauses (6) and Sub-Clauses (10) and (12) of Clause (8), which

read as under:-

"(6). It is further clarified that each of the JV partners shall pay to KBL its respective portion of the said Retention amount, as more particularly described in this Agreement, within 7 days from the day the individual Partner receives it from the department namely I & CADD.

8(10). This Agreement shall be legally enforceable and valid till the completion of the Project and release of all the above stated amounts to KBL by the said IVRCL, NEC and SEW, as the case may be severally- and this Agreement shall not be terminated by either Party for whatsoever reasons.

8(12). In the case of any dispute between the Parties herein with respect to the interpretation of the contents of this Agreement, then the Senior Executives of the Parties herein shall endeavour to settle the dispute through a mutual dialogue. If, however the dispute remains unresolved for a period of 15 days, the same will be referred to Arbitration under Arbitration & Conciliation Act, 1996, and/or any modifications and amendments thereto and the same shall be conducted by a sole Arbitrator appointed mutually by all the Parties

2016 SCC OnLine Bom 13348

herein within the next 10 days. If the parties are not able to decide upon a single Arbitrator within these 10 days, then they will approach a court of competent jurisdiction, for appointment of this sole Arbitrator. The language of Arbitration shall be English. It is agreed that the Award of the Arbitrator shall be binding on all the Parties herein."

(Emphasis added)

6. A combined reading of the above Clauses clearly shows

that irrespective of the fact whether the present arbitration

applications are filed against the individual constituents of the

Consortium or against the Consortium as a whole, a plain

reading points to the fact that the arbitration clause can be

invoked against the individual constituent of the Consortium,

more so as the liability of the individual partner is segregated,

quantified and defined in the Settlement Agreement and as per

Sub-Clause (10) of Clause (8) of the Settlement Agreement

which provides that the agreement is legally enforceable

"severally". Moreover, in reply to the notices issued by the

applicant invoking the arbitration clause, the respondents have

themselves agreed for appointment of Arbitrator but only sought

for appointment of a different person from the one proposed by

the applicant.

7. Having regard to the above, the contention of the learned

counsel for the respondents that there is no enforceable written

agreement between the parties and the only remedy available to

the applicant is to file a Civil Suit before the Civil Court is not

correct. Even the judgment relied on by the learned counsel for

the respondents in Larsen & Toubro Ltd.'s case (supra) is

clearly distinguishable with that of the facts in the present case

and the same has no application. As a matter of fact, the

learned Single Judge in that very same judgment, relying on the

judgment rendered by that very High Court in the case of Oil

and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd., has

held as under:-

"...wherein similar objection has been turned down by this Court by holding that the petition filed by one of the members of the consortium was maintainable. In the judgment cited this Court at paras 12 and 13, extensively referred to the terms for the contract between the parties before it and on the basis thereof concluded that the claim in the arbitral proceedings was restricted. The constituents of the consortium in fact under the agreement itself were entitled to different and exclusive payments for each. As such the claim in the arbitral proceedings was restricted to the claim to which the constituent of the Consortium alone was entitled to. It did not form part of the claim relating to any amount which was due and outstanding to the other constituent of the Consortium. Hence, the arbitral proceedings were held to be correctly initiated by a constituent. The facts of the case on hand are exactly contrary."

Therefore, the contention of learned counsel for the respondents

that the arbitration clause cannot be invoked against the

individual constituent of the Joint Venture/Consortium is

without any legal basis, more so, as the individual liability of the

Joint Venture partners is clearly defined.

8. In the aforesaid fact situation, and in view of Section 10 of

the Act, a sole Arbitrator is required to be appointed. Since the

parties are not in agreement as to the identity of the Arbitrator,

this Court has to take requisite measure under Section 11(6) of

the Act to make such appointment.

9. In the result, the Arbitration Applications are ordered

appointing Sri Justice A. Rajasheker Reddy, retired Judge of the