Telangana High Court
M/S. Koneru Constructions Pvt. Ltd. vs M/S. Sembcorp Energy India. Limited on 25 January, 2024
Author: K. Lakshman
Bench: K. Lakshman
HON'BLE SRI JUSTICE K. LAKSHMAN
ARBITRATION APPLICATION No.70 of 2020
ORDER:
Heard Sri S.V.S. Chowdary, learned counsel for the
petitioner and Sri R.N.Hemendranath Reddy, learned Senior
Counsel representing Sri Thoom Srinivas, learned counsel for the
respondent.
2. This application is filed under Section 11 (6) of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as
'the Act') to appoint an arbitrator of its choice to adjudicate the
arbitrable disputes and differences between applicant and
respondent and pass the award in the interest of justice.
3. CONTENTS OF THE APPLICANT:-
(i) It is a construction contractor executing civil and
infrastructure works across India.
(ii) It was originally awarded two (2) contracts i.e.,
(1) Contract for Construction of 2 Nos "B" Type and 1 No.
"C" Type Residential Blocks and Community Hall.
2
(2) Contract for Construction of 2 Nos "B" Type and 3 Nos.
"C" Type Residential Blocks named "SGPC Towers and
Community Hall" in TPCIL (SEMBCORP) Township at
Nellore, Andhra Pradesh., vide the following Work Orders:-
(a) Vide Work Order dated 10 July 2014,
(b) Amendment No.1 to Work Order dated 12 January 2015,
(c) Work Order dated 09 November 2015,
(d) Work Order dated 09 November 2015,
(e) Amendment No.1 dated 12 May 2016,
(f) Amendment dated 12 March 2018,
(g) Amendment to Work Order dated 12 March 2018 and
(h) Amendment No.2 dated 12 March 2018.
(iii) The value of the contract was originally
Rs.58,17,50,264. Pursuant to the subsequent amendments, the
modified contract value was Rs.46,17,44,350/-. The same was
further modified to Rs.45,40,62,637/-. While they were carrying
out works in full scale, they have received a communication from
respondent on 12.01.2015 to stop the work immediately without
offering any reasons.
3
(iv) The subject contracts were put to tender even
without approval of building plans for the township buildings and
community hall etc.
(v) Criminal cases and municipal actions were initiated.
The project was virtually abandoned subject to the applicant to a
situation where their entire plant, machineries and inventories are
locked up in the project premises in addition to subjecting the
applicant to huge financial losses.
(vi) By the time the contract was reopened, the applicant
was subjected to complete stoppage of work between 12.01.2015
to 30.09.2015. The applicant incurred additional financial loss.
(vii) In addition to the blockage of their plant and
machinery in the project site, they were further subjected to
financial distress as the respondent has with-held the processing
and releasing of pending RA Bill amounts on the specious plea of
want of time extension.
(viii) Pursuant to the efforts made by the applicant,
approvals were received from the municipal authorities. 4
(ix) While the works with respect to B Type and C Type
Blocks and Club House were completed by 15.06.2017 and the
works with respect to C Type & B Type were completed by
31.10.2017. The respondent had subjected the applicant to
financial black mail with levy of Liquidated Damages and
encashment of Bank Guarantee, coerced the applicant into
signing a Minutes of Meeting (hereinafter referred to as 'MOM')
dated 15.12.2017. The respondent compelled the applicant to
accept levy of Liquidated Damages of a huge amount of Rs.75
lakhs without taking responsibility of the delays on the part of the
respondent in not providing the required drawings. The
non-provision of drawings by the respondent was also admitted
in the said MOM.
(x) Thus, according to the applicant, the respondent has
coerced the applicant with threat on the following events:
(i) Huge threatened illegal recoveries for variations/deviations.
(ii) Threat of levy of liquidated damages, running to crores of rupees.
(iii) Threat of Encashment of Bank Guarantee 5
(xi) The said coercive acts would have completely
destroyed the Applicant financially.
(xii) It is a small contractor who had been subjected to
huge fraud and coercion to restrain it from initiating any legal/
contractual remedies. The Applicant had to sign the said MOM
dated 15.12.2017 under severe coercion and threats of
encashment of bank guarantees.
(xiii) The so called full and final settlement canvassed by
the respondent was on 15.12.2017, the final payment was
released to the applicant only on 15.11.2018. The Applicant's
Performance Bank Guarantee was also released only on
06.02.2019.
(xiv) Under the said coercive threats of the respondent,
the applicant had to wait until Performance Bank Guarantee was
released to them on 06.02.2019, as the Applicant was under
serious apprehension that action for legal entitlement would
trigger encashment of Performance Bank Guarantee which would
ruin the Applicant financially and cripple them as a contractor.
(xv) The release of the said Performance Bank Guarantee
on 06.02.2019, the applicant had notified their claims to the 6
respondent firstly. Vide letter dated 12.04.2019, followed by the
recent notice dated 12.08.2020.
(xvi) Vide its letter dated 12.04.2019, the applicant had
raised a dispute on the legal validity of the MOM dated
15.12.2017, on the ground that the same is not binding on the
Applicant pursuant to it being a product of intentional black mail,
fraud and coercion. Accordingly, the validity of the MOM dated
15.12.2017 is one of main disputes raised by the applicant.
(xvii) Finally, applicant raised claims against the
respondent vide letters dated 12.04.2019 and 12.08.2020 and the
same are specifically mentioned in Paragraph No.21 of the
application.
(xviii) The total amount claimed against the Respondent is
Rs.14,99,15,991-60 ps. (Rupees Fourteen Crores, Ninety Nine
Lakhs, Fifteen Thousand, Nine Hundred Ninety One and Paise
Sixty Only).
(xix) The Respondent has rejected the request of the
applicant for arbitration vide their letter dated 12.08.2020 on the
ground that there was a full and final settlement between the 7
parties and that they are objecting to invocation of arbitration as
nothing survives for adjudication.
(xx) The MOM of Full and Final Settlement dated
15.12.2017 is not legally valid, a dispute inherently arose with
respect to the validity of the Minutes of Full and Final Settlement
dated 15.12.2017 which has to be adjudicated in terms of the said
Work Orders i.e. Arbitration.
4. Since the respondent has rejected the request made by the
applicant to appoint an arbitrator, it has filed the present
application under Section 11 (6) of the Act seeking appointment
of an arbitrator to adjudicate the disputes and differences
between applicant and respondent and to pass an award.
CONTENTS OF THE RESPONDENT:-
5. The said application was opposed by the respondent on the
following grounds:-
(i) Pursuant to the aforesaid work orders, execution of
the same by the applicant, delays etc, the representatives of the
applicant, respondent have discussed the same and entered into
full and final settlement and MOM dated 15.12.2017 was signed.
8
The said settlement agreement was subsequently effectuated and
acted upon by the parties, thus putting a quietus to any disputes
that would emanate from the work orders. The alleged disputes
set out under the application are not amenable to the arbitration.
(ii) The settlement agreement does not dispute that the
parties therein shall submit to the jurisdiction of an arbitral
tribunal for adjudicating disputes emanating from the said
settlement agreement. Thus, in the absence of existence of an
arbitration agreement or a specific reference to the arbitration
clauses set out in the work orders any request in referring the
disputes qua the Settlement Agreement to arbitration is erroneous
and bad in law.
(iii) In the back ground of the said Settlement
Agreement, a quietus has been put to all the alleged disputes
between the parties. Even for the sake of argument, disputes
emanating from the Work Orders ought to be referred to arbitral
tribunal (s) constituted independently under each work order.
(iv) The respondent emphasizes that each work order
constitutes an independent contract and inter alia stipulates an
independent arbitration agreement and as such the said 9
agreements/contracts are not intrinsically linked to one another.
Therefore, a unilateral request for composite reference to a Sole
Arbitrator is extra contractual, erroneous and bad in law.
(v) The applicant has admittedly benefited and acted in
furtherance of the Settlement Agreement so much so that
respondent has to settle with liquidated damages for delayed and
defective performance by the applicant under the work orders for
a meagre sum of Rs.75 lakhs. It is only pursuant to unduly
enriching itself from the benefits of the Settlement Agreement,
has the applicant chosen to conveniently invoke arbitration by
misrepresenting the true and correct facts.
(vi) The allegation of the applicant that the Settlement
Agreement was a product of intentional black mail, fraud and
coercion is false and baseless. The applicant invited the same
only for the purpose of filing the present application. The
disputes between the applicant and respondent were negotiated,
settled as agreed in MOM dated 15.12.2017. The said settlement
was effected and the applicant was benefited out of the same.
Therefore, there are no disputes much less arbitral disputes 10
between the applicant and the respondent. The present
application is liable to be dismissed.
6. Applicant had filed rejoinder to the counter filed by
respondent denying the allegations made therein.
7. Sri S.V.S. Chowdary, learned counsel for the applicant
made his submissions extensively referring to the various
documents and clauses of the said documents. He has also
placed reliance on the following judgments:-
(i) Avitel Post Studioz Limited v. HSBC PI Holdings
(Mauritius) Ltd 1
(ii) Perkins Eastman Architects DPC v. HSCC (India)
Limited 2
(iii) Ameet Lalchand Shah and Others v. Rishabh
Enterprises and Another 3
(iv) Chloro Controls India Private Limited v. Severn
Trent Water Purification INC 4.
1
(2014) SCC Online Bom 929 2 (2019) SCC Online SC 1517 3 (2018) 15 SCC 678 4 (2013) 1 SCC 641 11
(v) Mayavati Trading Private Limited v. Pradyuat Deb
Burman 5 and
(vi) Vidya Drolia and Others vs. Durga Tading
Corporation 6
8. Sri R.N. Hemendranath Reddy, learned Senior Counsel
representing Sri Thoom Srinivas, learned counsel for the
respondent had also made his submissions extensively and he
has placed reliance on the following judgment.
(i) Vidya Drolia and Others v. Durga Tading
Corporation 7
(ii) NTPC Limited v. M/s SPML Infra Limited 8
(iii) Duro Felguera, S.A v. Gangavaram Port Limited 9
(iv) The Iron and Steel Company Limited v. Tiwari Road
Lines 10
(v) National Insurance Company Limited v. Boghara
Polyfab Private Limited 11
5 (2019) 8 SCC 714 6 (2021) 2 SCC 1 7 (2021) 2 SCC 1 8 Civil Appeal No.4778 of 2022 dated 10.04.2023 9 (2017) 9 SCC 729 10 2007 (3) SCC 1066 12
(vi) Sree Vishnu Constructions v. Chief Engineer (Air
Force) and others 12
(vii) Agastya Agro Limited vs. United India Insurance
Company Limited 13
FINDINGS OF THE COURT:-
9. In the light of the aforesaid discussion, the following
issues fell for consideration before this Court:
(i) Whether High Court under Section 11(6) of the Act can
decide the validity of MOM dated 15.12.2017 entered between
the parties?
(ii) Whether the allegations of financial duress, fraud and
coercion can be considered by the High Court under Section
11(6) of the Act?
(iii) Whether there are any disputes much less arbitral
disputes between the applicant and respondent to be adjudicated
by an arbitrator to be appointed by this Court?
(iv) To what relief?
11
(2009) 1 SCC 267 12 (2021) 1 ALD 330 13 2022 SCC Online TS 1323 13
10. There is no dispute with regard to the awarding of work
orders to the applicant and amendments. Since the same are not
in much dispute, there is no need to refer the same in detail.
According to the applicant, the respondent addressed a letter
dated 12.01.2015 requesting the applicant to stop the work.
Criminal cases were lodged. Municipal actions were taken.
Therefore, according to the applicant, there is no delay in
execution of work.
11. Whereas, according to the respondent, there are delays in
execution and completion of the work. Therefore, both the
representatives of the applicant and the respondent sat together
negotiated, discussed on the said issues and entered into a
settlement dated 15.12.2017. Even the applicant is also not
disputing with regard to signing of the said MOM dated
15.12.2017. But, according to applicant, the respondent has
obtained the same under financial duress, fraud and coercion.
12. In the light of the same, the said MOM dated 15.12.2017 is
relevant and the same is extracted below:
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"MoM between M/s.SGPC & M/s Koneru on 15.12.2017 Contract closure of Townshle Building Blocks, SOPC Towers Nellore
Members Present SGPC Koneru Constructions
Mr. DAK Prasad Mr.KV Prasad
Mr.Suresh Babu B Mr.Charan
Mr. Williams Mr.Ch.Ramesh
Mr.K.Bhaskar Reddy
Mr.P.M.V Suresh
Discussion held on contractual Issues i.e, recoveries, balance payments, applicable LD, additional areas executed as per the final drawings etc.,
1. Recoveries from the Contract price Rs. 31.0 Lacs
a) Koneru confirmed that the differential cost of steel between CRS & Non-CRS about @Rs. 2,500/- per MT for 420MT Le, 10.5 Lacs.
b) Collapsible door not been executed by Koneru accordingly the same need to be recovered from bills however M/s. Koneru requested to recover for the cost of collapsible door as per original drawing which was having brick works of about 3m on either side inside the club house. Koneru confirmed for recovery on account of collapsible door about 14.5 Lacs.
c) Koneru confirmed recovery of about 6.0 Lacs for 06 Blocks due to deletion of structure at terrace level as per revised drawings wherein it was the part of original tender drawing.
2. SGPC agreed to make payment of Rs. 29.18 lacs towards additional areas executed as per the final drawings against Koneru's request letter dated 21.06.17
3. Time Extension: Prolonged discussions were held between SGPC and Koneru on the various reasons for delay in completion viz.. Stoppage and Re-start of works due to drawing approvals, Idle labour, Delay in release of drainage drawings, delay in 15
release of fronts for finishing due to ongoing Interior decoration work. Koneru Construction finally accepted for the levy of delay LD of Rs. 75.0 Lacs on the total contract value for all the Contracts. This will be adjusted from the final 5% cash retention amount and the balance will be released on submission of BG as per contract provisions.
4. Subsequent to above agreement, Time of completion of different contracts is extended as under:
i) For Blocks 81, B2, C1 and Club House - upto 15th June'17
ii) For Blocks C2, B3 and 84 - upto 31" October 17
The above dates shall be considered for contractual warranty period.
5. There are no further claims and recoveries from either party other than mentioned above."
13. Perusal of the aforesaid MOM would reveal that the
attendees of the said meeting have discussed on contractual issue
i.e. recoveries, balance payments, applicable LD, additional areas
executed as per the final drawings etc. Recoveries were
specifically mentioned therein. The respondent agreed to make
payment of Rs.29.18 lakhs towards additional arrears executed as
per final drawings against the applicant's request vide letter dated
21.06.2017. The applicant finally accepted for the levy of
Liquidated Damages of Rs.75 lakhs for delay on the total
contract value for all the contracts. The same will be adjusted
from the final 5% cash retention amount and the balance will be
released on submission of Bank Guarantee as per the contract
provisions. Finally, they have agreed that "There are no 16
further claims and recoveries from either party other than
mentioned above".
14. Thus, according to the respondent, the said agreement was
entered in full and final settlement of all the claims and disputes
between the applicant and respondent. Attendees of the meeting
have signed the said MOM. There was no coercion or fraud as
alleged by the applicant. The said MOM was acted upon. The
applicant is beneficiary out of the said MOM dated 15.12.2017.
15. According to applicant, pursuant to the said full and final
settlement dated 15.12.2017, final payment was released to the
applicant only on 15.11.2018. The applicant's Performance Bank
Guarantee was also released on 06.02.2019. Therefore, the
applicant was under serious apprehension that action for legal
entitlement would trigger encashment of the Performance Bank
Guarantee which would ruin the applicant financially and cripple
them as a contractor.
16. Whereas according to the respondent, the applicant having
benefited from out of the said settlement, received final payment
on 15.11.2018 and Performance Bank Guarantee was also
released on 06.02.2019. Two months thereafter, applicant had 17
issued notice dated 12.04.2019 contending that it has made to
sign the said MOM dated 15.12.2017 due to financial duress,
fraud and coercion.
17. After one and half year of entering into the said MOM
dated 15.12.2017, for the first time applicant had made
allegations of financial duress, fraud and coercion with a mala
fide intention for wrongful gains and also to file the present
application. The applicant is also seeking to adjudicate the
validity of the said MOM dated 15.12.2017 by an arbitrator to be
appointed by this Court.
18. In Avitel Post Studioz Limited (Supra), a Division Bench
of Bombay High Court held that issues of coercive and fraud has
to be considered by the arbitrator to be appointed by the High
Court under Section 11 (6) of the Act. But the facts of the said
case are altogether different to the facts of the present case. In
the present case, the MOM was dated 15.12.2017 and the
applicant after receipt of benefits under the said settlement and
on effectuating the said settlement, issued notice only on
12.04.2019 raising financial duress, fraud and coercion for the
first time.
18
19. The facts of Perkins (Supra) are also different to the facts
of the present case.
20. In Ameet Lalchand Shah and Others (Supra), wherein
Apex Court held that coercion has to be considered by the
arbitrator to be appointed by the High Court under Section 11(6)
of the Act. The facts are slightly different therein to the facts of
the present case.
21. In Chloro Controls India Private Limited (Supra), Apex
Court held that in exceptional conditions when composite
reference can be made without prior consent of non-signatories
or third parties, enumerated and explained in detail. It was held
that where various agreements constitute a composite transaction,
court can refer the disputes to arbitration existing between
signatory or non-signatory parties if: (i) all ancillary agreements
between them are relatable to principal agreement and (ii)
performance of one agreement is so intrinsically interlinked with
other agreements that they are incapable of being beneficially
performed without performance of others or served from the rest
i.e., it is possible to invoke principle of "composite
performance". Whereas, in the present case the facts are
altogether different. There are three Work Orders, amendments, 19
arbitration clauses are different and the procedure mentioned
therein is also different. Therefore, the principle laid down
therein is not applicable to the facts of the present case.
22. In Mayavati Trading Private Limited (Supra), the Apex
Court held that High Court while considering any application
under Section 11 (4) to 11 (6) of the Act has to confine itself to
examination of existence of arbitration agreement, nothing more,
nothing less, and leave all other preliminary issues to be decided
by the arbitrator.
23. The Hon'ble Supreme Court in Vidya Drolia v. Durga
Trading Corporation 14 laid down the test to exercise power
under Section 11 of the Act, 1996. The courts while exercising
power under Section 11 of the Act, 1996 shall examine as to
whether an arbitration agreement, prima facie, exists. The Courts
cannot conduct a roving enquiry involving facts and
interpretation of contractual terms. The relevant paragraph is
extracted below:
"244. Before we part, the conclusions reached, with respect to Question 1, are:
244.1. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference.
14
. (2021) 2 SCC 1 20
244.2. Usually, subject-matter arbitrability cannot be decided at the stage of Section 8 or 11 of the Act, unless it is a clear case of deadwood.
244.3. The court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.
244.4. The court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above i.e. "when in doubt, do refer".
244.5. The scope of the court to examine the prima facie validity of an arbitration agreement includes only:
244.5.1. Whether the arbitration agreement was in writing? or 244.5.2. Whether the arbitration agreement was contained in exchange of letters, telecommunication, etc.?
244.5.3. Whether the core contractual ingredients qua the arbitration agreement were fulfilled? 244.5.4. On rare occasions, whether the subject-
matter of dispute is arbitrable?"
24. In the light of the aforesaid discussion, it is relevant to note
that after amendment of the act in 2015 and the scope of power
under Section 11(6) of the Act is extremely limited. The said
principle was also laid by the Apex Court in Vidya Drolia and
Others (supra).
25. In NTPC Limited (Supra) the Hon'ble Apex Court
considered the scope of 11 (6) of the Act and that whether the 21
High Court can consider the validity settlement arrived between
the parties under Section 11(6) of the Act. In the said case, the
settlement agreement was dated 27.05.2020. The applicant
contended that there were no subsisting disputes between the
parties in view of the Settlement Agreement dated 27.05.2020
and that the application for the arbitration is an afterthought and
abuse of the process. After the said settlement of disputes,
followed by its implementation, SPML Infra Limited, respondent
therein repudiated the Settlement Agreement and filed an
application under Section 11(6) of the Act in Delhi High Court
seeking appointment of an arbitrator. An allegation was made
that the retention of the Bank Guarantees compelled SPML Infra
Limited to accept the terms of Settlement Agreement. Apex
Court referring the arbitration clause in the terms of settlement
dated 27.05.2020 and considering the principle laid down in
Vidya Drolia (Supra), Pravin Electricals Private Limited v.
15
Galaxy Infra and Engineering Private Limited , Sanjiv
Prakash v. Seema Kukreja and Others 16 and Indian Oil
Corporation Limited v. NCC Limited 17 held that the parties were
referred to arbitration, as the prima facie review in each of these 15 (2021) 5 SCC 671 16 (2021) 9 SCC 732 17 (2022) SCC OnLine SC 896 22
cases on the objection of non-arbitrability was found to be
inconclusive. Following to the exception to the general principle
that the Court may not refer parties to arbitration when it is clear
that case is manifestly and ex facie non-arbitrable, in BSLN and
another vs. Nortel Networks India Private Limited 18 and
Secunderabad Cantonment Board v. B. Ramachandraiah and
Sons 19 arbitration was refused as the claims of the parties were
demonstrably time-barred.
26. In paragraph Nos.25, 26, 27 and 28 of NTPC Limited
(Supra), Apex Court held as follows:-
"25. Eye of the Needle: The above-referred precedents crystallize the position of law that the pre-referral jurisdiction of the courts under Section 11(6) of the Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an enquiry as to the parties to the agreement and the applicant's privity to the said agreement. These are matters which require a thorough examination by the referral Court. The secondary enquiry that may arise at the reference stage itself is with respect to the non-arbitrability of the dispute.
26. As a general rule and a principle, the arbitral tribunal is the preferred first authority to determine and
18 (2021) 5 SCC 738 19 (2021) 5 SCC 705 23
decide all questions of non-arbitrability. As an exception to the rule, and rarely as a demurrer, the referral Court may reject claims which are manifestly and ex-facie non-
abitrable. Explaining this position, flowing from the principles laid down in Vidhya Drolia (supra), this Court in a subsequent decision In Nortel Networks (supra) held:-
45.1 While exercising jurisdiction under Section 11 as the judicial forum, the Court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the Courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time-barred and dead, or there is no subsisting dispute."
27. The standard of scrutiny to examine the non-
arbitrability of a claim is only prima facie. Referral Courts must not undertake a full review of the contested facts; they must only be confined to a primary first review and let facts speak for themselves. This also requires the courts to examine whether the assertion on arbitrability is bona fide or not. The prima facie scrutiny of the facts must lead to a clear conclusion that there is not even a vestige of doubt that the claim is non-arbitrable. On the other hand, even if there is the slightest doubut, the rule is to refer the dispute to arbitration.
28. The limited scrutiny, through the eye of the needle is necessary and compelling. It is intertwined with the duty of the referral Court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and 24
private resources. Further, as noted in Vidya Drolia (supra), if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court. Therefore, this Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator as explained in DLF Home Developers Limited vs. Rajapura Homes Private Limited 20."
27. The Apex Court in paragraph No.38 of the said Judgment
also considered the facts in the said case that during the pendency
of the Writ Petition, parties engaged themselves in multiple
discussions about their claims and counter-claims. All that
culminated in to Settlement Agreement dated 27.05.2020. In
compliance with the said Settlement Agreement, NTPC released
the Bank Guarantees on 30.06.2020 which were the subject
matter of the Writ Petition.
28. On examination of facts of the said case, in paragraph
Nos.46, 47 and 48, the Apex Court held as follows:-
"46. We will now examine whether the allegations of coercion and economic duress in the execution of the Settlement Agreement are bona fide or not. This inquiry has a direct bearing on the arbitrability of the dispute. It was during the subsistence of the Writ Petition and the High 20 (2021) SCC Online SC 781 25
Court's interim order, when SPML had complete protection of the Court, that the parties entered into the Settlement Agreement This agreement was comprehensive. It inter alia provided for (i) the release of Bank Guarantees by NTPC, (ii) the withdrawal of SPML's Writ Petition, (iii) restraining NTPC from filing contempt proceedings against SPML for letting the Bank Guarantees expire, and finally, (iv) restraining SPML from initiating any proceedings under the subject contract, including arbitration. The Settlement Agreement also recorded that there were no subsisting issues pending between the parties.
47. The plea of coercion and economic duress must be seen in the context of the execution of the Settlement Agreement not being disputed, and its implementation leading to the release of the Bank Guarantees on 30.06.2020 also not being disputed. Almost three weeks after the release of the Bank Guarantees, a letter of repudiataion was issued by SPML on 22.07.2020. This letter was asued about two months after the Settlement Agreement was executed and in fact during the subsistence of the Writ Petition After reaping the benefits of the Settlement Agreement, the Writ Petition was withdrawn on 21.09.2020. It is thereafter that the present application under Section 11(6) of the Act was filed. The sequence of events leads us to conclude that the letter of repudiation was issued only to wriggle out of the terms of the Settlement Agreement.
48. The foregoing clarifies beyond doubt that the claims sought to be submitted to arbitration were raised as an afterthought Further, SPML's allegations of coercion and economic duress in the execution of the Settlement Agreement lack bona fide. They are liable to be knocked down as ex facie frivolous and untenable."
26
29. Finally the apex Court found fault with the order of the
High Court appointing an arbitrator under Section 11(6) of the
Act. Apex Court observed that High Court ought to have
examined the issue of the final settlement of disputes in the
context of the principle laid down in Vidhya Drolia (Supra).
30. In Agastya Agro Limited (Supra), paragraph Nos.18 and
19 are relevant and the same are extracted below:-
"18. Further, the argument of the Applicant that the existence of duress and fraud is to be decided by the arbitrator only cannot be accepted. If such an argument is accepted then any party seeking appointment of an arbitrator can allege existence of fraud/duress/distress/coercion and initiate the arbitral process. At this stage, it is apt to refer to the decision of the Supreme Court in Oriental Insurance Co. Ltd. v. Dicitex Furnishing Ltd.
"26. An overall reading of Dicitex's application (under Section 11 (6)) clearly shows that its grievance with respect to the involuntary nature of the discharge voucher was articulated. It cannot be disputed that several letters spanning over two years stating that it was facing financial crisis on account of the delay in settling the claim, were addressed to the appellant. This Court is conscious of the fact that an application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for appointment of an arbitrator. It cannot be conclusive of the pleas or contentions that the claimant or the party concerned can take in the arbitral proceedings. At this stage, therefore, the court which is required to ensure that 27
an arbitrable dispute exists, has to be prima facie convinced about the genuineness or credibility of the plea of coercion; it cannot be too particular about the nature of the plea, which necessarily has to be made and established in the substantive (read arbitration) proceeding. If the court were to take a contrary approach and minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus precluding the applicant of its right event to approach a civil court. There are decisions of this Court (Associated Construction v. Pawanans Helicopters Ltd. [Associated Construction Pawanhans Helicopters Ltd., (2008) 16 SCC
128) and Bogharalyfab [National Insurance Co. Ltd. v. BogharaPolyfab (P) Ltd., (2009) 1 SCC 267: (2009) 1 SCC (Ov) 117] which upheld the concept of economic dress.
Having regard to the facts and circumstances, this Court is of the opinion that the reasoning in the impugned judgment (Dicitex Furnishing Ltd. v. Oriental Insurance Co. Ltd., 2015 SCC Online Bom 5055] cannot be faulted."
19. Therefore, the Applicant cannot make bald allegations regarding fraud and coercion just to get an arbitrator appointed. If duress/coercion are alleged the Applicant seeking appointment of an arbitrator has to prima facie satisfy the court regarding the existence of such facts constituting duress/coercion. In the absence of any prima facie proof regarding duress/coercion, the court can refuse to appoint an arbitrator. According to this Court, the requirement of such prima facie satisfaction regarding the allegations of fraud/coercion/duress/distress is in line with 28
the prima facie review test laid down in Vidya Drolia (Supra)."
31. In Sree Vishnu Constructions (Supra), paragraph Nos.10
and 11 are relevant and the same are extracted below:-
"10. It is pertinent to note that the applicant failed to offer any plausible explanation for not raising the issue of coercion and undue influence immediately after payment under Final Bill. As already, observed supra, the applicant, after receiving the payments under Final Bill, had signed 'no further claim' certificate. Since the full and final payment is made in the Final Bill and the applicant signed 'no further claim' certificate, as the arbitration application is liable to be dismissed on that ground alone, since the applicant signed the same without any protest/objection. A party who comes to the Court must come with clean hands When fraud, undue influence and coercion is pleaded, atleast some factual foundation must be laid in the pleadings, which is lacking. In the present application, by way of passing reference made allegations of undue influence and coercion, as such, this application is liable to be dismissed on the ground alone. When once there is full and final satisfaction, there exists no arbitral dispute, as rightly contended by the learned counsel for the respondents.
11. Since invocation of arbitration is prior to Amendment Act, 2015, the provisions of said Act, 2015 are not applicable to such arbitral proceedings which have commenced in terms of the provisions of Section 21 of the Principal Act, unless otherwise agreed by the parties. (See Union of India vs. Parmar Construction 29
Company, (2019) 15 SCC 682. The aforesaid principle was followed in the case of Union of India vs. Pradeep Vinod Construction Company, (2020) 2 SCC 464. While considering an application under Section 11 (6) of the Act, the Hon'ble Supreme Court held that if the party is unable to establish a claim of undue influence of fraud, or appears to be lacking in credibility, it is not open to the Court to refer the dispute to arbitration, (See ONGC Mangalore Petrochemicals vs. ANS Constructions Line (2018) 3 SCC 373. A bald plea of undue influence is not sufficient, the applicant has to establish a prima facie case. Without establishing the prima facie case, fraud and undue influence by placing material on record, applicant is not entitled for referring the matter to the arbitration. (See New India Assurance Company Limited vs Genus Power Infrastructure Limited, 2015 (2) ALD 167 (SC) (2015) 2 SCC 424). When once one of the parties adopts a path of full understanding and executes a document in furtherance of the same, it is not open to him to take recourse of arbitration thereafter (See Wapcos Limited vs. Salma Dam Joint Venture (2020) 3 SCC 169)."
32. In National Insurance Company (Supra), Apex Court
considered the fact that the claimant therein who is keen to have
a settlement and avoid litigation, voluntarily reduces the claim
and requests for settlement. The respondent therein agrees and
settles the claim and obtains a full and final discharge voucher.
If the claimant might have agreed for settlement due to financial 30
compulsions and commercial pressure or economic duress, the
decision was his free choice. There was no threat, coercion or
compulsion by the respondent therein. Therefore, the accord and
satisfaction is binding and valid and there cannot be any
subsequent claim or reference to arbitration.
33. In Iron and Steel Company (Supra), the Apex Court held
that the scope of the act and rules made therein.
"Sub-section (2) of Section 11 of the Act provides that subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator. The opening part of sub-sections (3) and (5) of Section 11 of the Act use the expression "failing any agreement referred to in sub-section (2)" Therefore, sub-sections (3) and (5) will come into play only when there is no agreement between the parties as is referred to in sub section (2) of Section 11 of the Act, viz. that the parties have not agreed on a procedure for appointing the arbitrator or arbitrators. If the parties have agreed on a procedure for appointing arbitrator or arbitrators, sub-sections (3) and (5) of Section 11 of the Act can have no application. Similarly, under sub-section (6) of Section 11 request to the Chief Justice or to an institution designated by him to take the necessary measures, can be made if the conditions enumerated in clauses (a) or (b) or (c) of this sub-section are satisfied. Therefore recourse to sub-section (6) can be had only where the parties have agreed on a procedure for appointment of an arbitrator but [a] a party fails to act as required under that procedure of (b) the parties, or the two appointed arbitrators, fail to reach an agreement 31
expected of them under that procedure, or (c) person, including an institution, fails to perform any function entrusted to him or it under that procedure Therefore a combined reading of the various sub-sections of Section 11 of the Act would show that the request to the Chief Justice for appointment of an arbitrator can be made under sub-sections (4) and (5) of Section 11 where parties have not agreed procedure for appointing the arbitrator as contemplated by sub-section (2) of Sec 11. A request to the Chief Justice for appointment of an arbitrator can also be made under sub-section (6) where parties have agreed on a procedure for appointment of an arbitrator as contemplated in sub-section (2) but certain consequential measures which are required to be taken as enumerated in clauses (a) or (b) or (c) of sub-section (6) not taken or performed.
7. In the present case the agreement executed between the parties contains an arbitration clause and clause 13.1 clearly provides that all disputes and differences whatsoever arising between the parties out of or relating to the construction, meaning and operation or effect of the contract of the breach thereof shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration sub-sections (3), (4) and (5) of Section 11 can have no application. The stage for invoking sub-section (6) of Section 11 had also not arrived. In these circumstances, the application moved by the respondent before the City Civil Court, Hyderabad, which was a designated authority in accordance with the scheme framed by the Chief Justice of the Andhra Pradesh High Court, was not maintainable at all and the City Civil Court had no jurisdiction or authority to appoint an arbitrator. Thus the order dated 31.03.2004 passed by the 32
Chief Judge, City Civil Courts Hyderabad, appointing a retired juridical officer as arbitrator is clearly without jurisdiction and has to be set aside.
8. The legislative scheme of Section 11 is very clear, if the parties have agreed on a procedure for appointing the arbitrator or arbitrators as contemplated by sub- section (2) thereof, then the dispute between the parties has to be decided in accordance with the said procedure and recourse to the Chief Justice or his designate cannot be taken straightaway. A party can approach the Chief Justice or his designate only if the parties have not agreed on a procedure for appointing the arbitrator as contemplated by sub-section (2) of Section 11 of the Act or the various contingencies provided for in sub-section (6) have arisen. Since the parties here had agreed on a procedure for appointing an arbitrator for settling the dispute by arbitration as contemplated by sub-section (2) and there is no allegation that anyone of the contingencies enumerated in clauses (a) or (b) or (c) of sub-section (6) had arisen, the application moved by the respondent herein to the City Civil Court, Hyderabad, was clearly not maintainable and the said court had no jurisdiction to entertain such an application and pass any order. The order dated 27.12.2004, therefore, is not sustainable.
9. In the matter of settlement of dispute by arbitration, the agreement executed by the parties has to be given great importance and an agreed procedure for appointing the arbitrators has been placed on high pedestal and has to be given preference to any other mode for securing appointment of an arbitrator. It is for this reason that in clause (a) of sub-section (8) of Section 11 of the Act it is specifically provided that the Chief Justice or the person or institution designated by him, in appointing 33
an arbitrator, shall have due regard to any qualifications required of the arbitrator by the agreement of the parties.
10. The judicial pronouncements also show that normally the clause in the agreement providing for settling the dispute by arbitration by arbitrators having certain qualifications or in certain agreed manner should be adhered to and should not be departed with unless there are strong grounds for doing so."
On consideration of the same and also on examination of
the facts therein, the Apex court set aside the orders of Civil
Court as well as High Court in appointing an arbitrator .
34. In Vidhya Drolia (Supra), Apex Court held that the scope
under Section 11 (6) of the Act is very limited.
35. In the light of the principle laid down by Apex Court,
coming to the facts of the case on hand, as discussed supra, there
are three work orders and there are amendments to the same.
Clause 12 of the Work Order I deals with Arbitration and the
same is extracted below:-
I. Work Order I
a. 12.0 Arbitration
'Any dispute or difference whatsoever arising between the parties out of or relating to the construction, meaning, scope, operation or effect of this contract or the validity or the breach thereof shall be settled by arbitration in accordance with Indian Arbitration and Conciliation Act 1996, and subsequent amendment thereof and as per the Rules of Arbitration of the Indian Council of Arbitration 34
and the award made in pursuance thereof shall be binding on the parties. The seat of arbitration shall be Hyderabad.'
36. Clause 12 of the Work Order II deals with Arbitration and
the same is extracted below:-
II. Work Order II
12.0 Arbitration
'Except where otherwise provided for in the contract any dispute or difference relating to the meaning of the specification designs, drawings and instruction herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings specifications, estimates, instructions, orders of these conditions or otherwise concerning the works, of the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the Chief Executive Officer, TPCIL and if the CEO, TPCIL is unable or unwilling to act, to the sole arbitration of some other person appointed by the CEO, TPCIL willing to act as such arbitrator There will be no objection if the arbitrator so appointed is an employee of TPCIL, and that he had to deal with the matters to which the contract relates and that in the course of his duties as such he had expressed views on all or any of the matters in dispute of difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason such CEO as aforesaid at the time of such transfer vacation of office or inability to act shall appoint (see note) another person to act as arbitrate accordance with the terms of the contract such person shall be entitled to proceed with the reference from the stage at which it was left by his 35
predecessor. It is also a term of this contract that no person other than a person appointed by CEO, TPCIL, as aforesaid should act as arbitrator and if for any reason that is not possible the matter is not to be referred to arbitration at all, in all cases where the amount of the claim dispute is Rs. 50,000 (Rupees fifty thousand) and above the arbitrator shall give reasons for the award In the event the Parties are unable to resolve any dispute or difference ("Dispute") whatsoever arising between the Parties out of or relating to the construction interpretation, meaning, scope, operation or effect of this Agreement or the validity or the breach thereof accordance with Section 31, the same shall be settled by arbitration in accordance with the Indian Arbitration and Conciliation Act-1996 as amended and as in effect of such time.
The seat of arbitration shall be Hyderabad The decision of the arbitrators shall be final and binding and shall be enforceable in any court of competent jurisdiction as decree of the court. The Parties hereby waive any rights to appeal or to review such award by any court or tribunal and the award shall be final and binding. The Parties agree that the arbitral award may be enforced against the Parties to the arbitration proceeding or their assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction thereof. Pending final resolution of any dispute, the Parties shall continue to perform their respective obligations hereunder to the extent such obligations are not being disputed in good faith or agreed otherwise between the Parties The costs of such arbitration or expert resolution shall be determined by and allocated between the Parties by the arbitral tribunal in its or his award.'
37. Clause 13 of the Work Order III deals with Arbitration and
the same is extracted below:-
36
III. Work Order 3
12.0 Arbitration
'Except where otherwise provided for in the contract any disputes or difference relating to the meaning of the specification designs, drawings and instruction herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings specifications, estimates, instructions, orders of these conditions or otherwise concerning the works, of the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the Chief Executive Officer NCCPPL and if the CEO, NCCPPL is unable or unwilling to act, to the sole arbitration of some other person appointed by the CEO, NCCPPL willing to act as such arbitrator. There will be no objection if the arbitrator so appointed is an employee of NCCPPL and that he had to deal with the matters to which the contract relates and that in the course of his duties as such he had expressed views on all or any of the matters in dispute of difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason such CEO aforesaid at the time of such transfer vacation of office or inability to act shall appoint (see note) another person to act as arbitrator in accordance with the terms of the contract such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by CEO, NCCPPL as aforesaid should act as arbitrator and if for any reason that is not possible the matter is not to be referred to arbitration at all, in all cases where the amount of the claim dispute is Rs. 50,000/-
(Rupees fifty thousand) and above the arbitrator shall give reasons 37
for the award. In the event the Parties are unable to resolve any dispute or difference ("Dispute") whatsoever arising between the Parties out of or relating to the construction, interpretation, meaning, scope, operation or effect of this Agreement or the validity or the breach thereof accordance with Section 31, the same shall be settled by arbitration in accordance with the Indian Arbitration and Conciliation Act-1996 as amended and as in effect at such time. The seat of arbitration shall be Hyderabad. The decision of the arbitrators shall be final and binding and shall be enforceable in any court of competent jurisdiction as decree of the court. The Parties hereby waive any rights to appeal or to review such award by any court or tribunal and the award shall be final and binding. The Parties agree that the arbitral award may be enforced against the Parties to the arbitration proceeding or their assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction thereof. Pending final resolution of any dispute, the Parties shall continue to perform their respective obligations hereunder to the extent such obligations are not being disputed in good faith or agreed otherwise between the Parties. The costs of such arbitration or expert resolution shall be determined by and allocated between the Parties by the arbitral tribunal in its or his award.'
38. Perusal of the said work orders and arbitration
clauses would reveal that there are three separate work orders,
three distinct subject matters, separate and distinct nature and
quantum of work under each work order, separate time schedules
were also specified. Each work order contains a separate
arbitration clause signed by the respective parties to the Work 38
Orders. Thus, there are contracts each having an independent
existence with separate arbitration clauses, the disputes
emanating there from cannot collectively be referred to a single
composite arbitral tribunal for adjudication. The same are to be
referred to independent arbitral tribunals under each respective
work order. It is not in dispute that the contractual provisions
always take precedence over the convenience of the parties. The
said principle was laid down in Duro Felguera (Supra).
39. As discussed supra, pursuant to the said three Work
Orders, amendments thereto, there were disputes between the
applicant and respondents. Therefore, the representatives of
applicants and respondents sat together discussed the same at
length and entered into an agreement by way of signing MOM
dated 15.12.2017. In the said agreement, it is specifically agreed
that there are no further claims and recoveries from either party
other than mentioned above. It is also relevant to note that the
disputes between applicant and respondent were settled by way
of MOM dated 15.12.2017. There is no arbitration clause in the
said MOM.
40. It is also relevant to note that vide letters dated 12.03.2018
(three numbers) applicant informed the respondent about the 39
amendment to the contract for settlement of claims against the
work order. The details were specifically mentioned. Thus,
according to the applicant except the said claim, there is no
variations/claims/recoveries from either party. The same was
signed by both the applicant as well as respondents.
41. Applicant had issued a email dated 17.03.2018 to the
respondent stating that it is accepting the amendment order done
by TPCIL and as per the MOM on 15.12.2017, the recoveries in
contract price and Liquidity Damages should be recovered from
the security deposit and the amended value of Rs. 29,18,287
lakhs should be paid immediately. Thus, applicant requested the
respondent to provide with the work experience certificate for the
completed works. The said MOM dated 15.12.2017 was
effectuated, applicant has received final payment on 15.11.2018
and Performance Bank Guarantee was also released on
06.02.2019. Thus, the applicant has benefited out of the said
MOM dated 15.12.2017. After one and half year, it cannot make
bald allegations that they were compelled to sign MOM dated
15.12.2017 due to financial duress, fraud and coercion. The said
allegations are without any basis.
40
42. As rightly contended by Sri R.N.Hemendranath Reddy,
learned Senior Counsel representing Sri Thoom Srinivas, learned
counsel for the respondent that applicant has not issued notice in
terms of Section 11 (6) (a) of the Act and procedure laid down
under Rules were not followed. The applicant has filed the
present application under Section 16 of the Act straight away
before this Court seeking appointment of an arbitrator.
43. Thus, this Court is of the considered view that there are no
disputes much less arbitrable disputes between the applicant and
respondent to be adjudicated in view of MOM dated 15.12.2017.
Viewed from any angle, this application is liable to be dismissed
and accordingly it is dismissed.
Consequently, miscellaneous Petitions, pending if any,
shall stand closed.
__________________ K. LAKSHMAN, J 25.01.2024 ssy/sus
