M/S Tiara Infrastructure Private ... vs Bharat Heavy Electricals Limited
2024 Latest Caselaw 3829 Tel

Telangana High Court

M/S Tiara Infrastructure Private ... vs Bharat Heavy Electricals Limited on 18 September, 2024

Author: K. Lakshman

Bench: K. Lakshman

         HONOURABLE SRI JUSTICE K. LAKSHMAN
         ARBITRATION APPLICATON No.22 OF 2024
ORDER:

Heard Mr. G Durga Charan, learned counsel for the applicant

and Mr. Ch. Pushyam Kiran, learned counsel appearing for the

respondent.

2. The applicant, M/s Tiara Infrastructure Private Limited, a

company duly incorporated under the Indian Companies Act, 1956,

engages in various construction-related activities, including the

provision of construction machinery on rent, and undertaking projects

related to factory, warehouse, and building construction.

3. The respondent issued a tender notification, vide No.

TOASX00035/ NIT_46574 dated 29.05.2019, for "Civil, Structural &

Architectural Works for 1 x 3MLD Sewage Treatment Plant at Budha

Talab for RSCL Raipur Chhattisgarh." Upon evaluating the bids, the

respondent was satisfied with the price bid submitted by the applicant

and consequently awarded the contract vide Letter of Award

(LOA)/Work Order bearing No.TOASX00035/PESD/ PUR/CIVIL/

RSCL-3MLD STP /TIL/WO-01 dated 17.07.2019.

4. In compliance with the terms and conditions outlined in the

LOA, the applicant entered into a formal Contract Agreement with the

respondent, vide Agreement No. PESD/HYD/TOARX00035/ RSCL_

Civil-3MLD STP/TIL/CA/01 dated 28.09.2019. The contract, valued

at Rs.4,21,58,701/- was subject to adjustment based on the actual

quantities executed during the project.

5. In accordance with the agreement, the applicant furnished a

bank guarantee amounting to ₹21,08,000/- videreference number

040BG01192130001 dated 01.08.2019, in favor of BHEL PE & SD,

Ramachandrapuram. Following this, the applicant proceeded to install

the requisite plant and machinery, including power installations

necessary for the project's completion, and commenced work on

01.08.2019.

6. However, on 08.12.2019, the respondent abruptly halted the

work without prior notice and directed that the suspension would

remain in effect until further instructions were provided.

Subsequently, on 01.05.2020, the respondent informed the applicant

that a revised plot plan was nearing finalization and assured that

instructions regarding the resumption of work would be

communicated promptly. Thereafter, on 23.07.2020, the respondent

instructed the applicant to extend the bank guarantee, indicating that

the contract was still in force and thus necessitating the extension.

7. Applicant, after initiating work as per the contractual

obligations, awaited response from the respondent, under the

assumption that the suspended work would resume in due course.

During this period of inactivity, the applicant's plant, machinery,

equipment, and manpower remained idle for an extended duration,

leading to significant financial loss. These losses were incurred both

due to the costs associated with the initial installation and subsequent

demobilization of the equipment, as well as the ongoing expense of

maintaining a workforce that could not be deployed effectively.

8. Several attempts were made by the Applicant to reconcile

accounts and settle outstanding disputes with respondent but for no

avail. Consequently, the applicant issued a legal notice dated

17.04.2023, which detailed the investment and expenditures incurred

for the project and demanded payment of ₹1,68,79,630/-. The notice

also proposed the appointment of an arbitrator to resolve the disputes

in accordance with Clause 2.21 of the General Conditions of the

Contract (hereinafter referred to as 'The GCC'). However, the

respondent responded evasively, denying any outstanding dues.

9. According to Clause 2.21 of the GCC, any disputes arising

between the parties must be referred to a sole arbitrator, to be

appointed by the Head of the BHEL Power Sector Region. Given the

circumstances, the applicant has suffered substantial mental anguish

and financial loss, including loss of anticipated profit, estimated to be

Rs.1,68,79,630/-.

10. In response to the disputes that have arisen under the Contract

Agreement No. PESD/HYD/TOARX00035/RSCL_Civil-3 MLD

STP/TIL/CA/01 dated 28.09.2019, and the associated GCC, the

applicant formally invoked the arbitration clause through a legal

notice dated 17.04.2023. The respondent, however, continued with an

evasive stance, failing to address any of the applicant's claims.

11. Learned Counsel for the respondent denied the existence of any

dispute necessitating arbitration between the parties, asserting that the

agreement between the applicant and the respondent had been

mutually terminated on 22.12.2020, with the applicant accepting

₹48,92,947/- as full and final settlement from the respondent.

Subsequently, on 28.12.2020, the applicant issued a "no claim, no

demand" certificate to the respondent, thereby establishing that the

present case was not arbitrable and is deadwood and vexatiously

litigious as there are no arbitral disputes to be referred for arbitration.

12. The work at the site was commenced on 30.08.2019, with a

completion deadline of 29.02.2020. However, following the execution

of certain works, local agitation on 08.12.2019 led to a complete halt

of the project. As a result, all construction activities were suspended,

and work could not be resumed. The cessation of work was attributed

to the local agitation and subsequent instructions from RSCL.

13. The respondent verbally instructed the applicant to demobilize

manpower and shift the Tools and Plants (T&Ps) back to the nearby

Sewage Treatment Plant (STP) project site, to which the applicant

promptly complied on 08.12.2019 owing to the imminent threat of

damage by agitators. It was further submitted that there was no

cement on-site as Ready Mix Concrete had been utilized, and the

required steel for the project had already been exhausted.

Consequently, no material belonging to the applicant remained at the

site.

14. The respondent refuted the applicant's claim that they were

informed of a forthcoming revised plot plan and assured of the work's

resumption. Due to the absence of communication from RSCL, the

respondent did not advise the applicant to restart the work.

15. Furthermore, as per Clause 2.7.8 (b) of the General Conditions

of Contract (GCC), in cases where no significant work had occurred

in the past six months or was expected in the next six months due to

circumstances beyond the respondent's control, the contract could be

short-closed. Following a request from the applicant, joint

measurements were conducted, and the executed work value was

recorded. The particulars of the same were also mentioned by the

respondent.

16. The joint measurement between the parties was formally

documented and signed on 12.10.2020, vide document No.

Tiara/RSCL/Budhatalab/Final bill certification. Following this, in

accordance with the provisions of the GCC clauses 2.7 and 2.7.8(b),

the contract was short-closed. The respondent subsequently issued a

"Letter of Short Closure" on 22.12.2020, under reference

TOASX00035/PESD/PUR/CIVIL/RSCL-3MLD STP/TIL/LOA-short

closure/01, informing the applicant of the contract's termination. In

the said letter, it was explicitly stated that the applicant was not

entitled to any compensation as per clause 2.7, paragraph 1, of the

GCC. The applicant acknowledged and accepted the terms of this

letter by signing and stamping it, indicating unconditional acceptance

to the same.

17. On 28.12.2020, the applicant formally requested the respondent

to release the bank guarantee previously furnished. Along with this

request, the applicant provided a certificate confirming that there were

no outstanding claims or demands related to the contract and that the

payment received would be considered as full and final settlement of

all claims.The respondent then proceeded to release the agreed sum of

Rs.48,92,947/- to the applicant and returned the bank guarantee No.

040BG01192130001 dated 01.09.2019, as well as the extended bank

guarantee dated 06.08.2020, issued by M/s Yes Bank Limited to the

tune of Rs.21,08,000/-.

18. The respondent acknowledged the legal notice dated 17.04.2023

from the applicant containing erroneous claims and demands. In

response, the respondent issued a reply to the said legal notice on

11.05.2023, unequivocally denying the applicant's claims.

19. The respondent emphasized that the sum of Rs.48,92,947/- had

been paid to the applicant as the final settlement for the short closure

of the contract, and a "no claim, no demand" certificate had been

issued by the applicant. However, the applicant contested the

legitimacy of the letter of short closure dated 22.12.2020, submitted as

Ex-R4 by the respondent. The applicant alleged that the said

document, purportedly signed by them, did not bear their signature

and was forged by the respondent with malicious intent to deprive the

applicant of rightful compensation for the losses incurred due to the

respondent's alleged neglect.

20. Considered the rival submissions and perused the record.

Disputes have arisen between the parties and further repeated attempts

to amicably settle the disputes regarding the nonpayment of amounts

due to applicant.

21. The applicants invoking said Clause 2.21 from the GGC

agreement have issued a legal notice dated 17.04.2023. The Clause

2.21 of the subject agreement is relevant and the same is extracted

below:-

"Clause 2.21 Except as provided elsewhere in this Contract, in case amicable settlement is not reached between the Parties, in respect of any dispute or difference; arising out of the formation, breach, termination, validity or execution of the Contract; or, the respective rights and liabilities of the Parties; or, in relation to interpretation of any provision of the Contract; or, in any manner touching upon the Contract, then, either Party may, by a notice in writing to the other Party refer such dispute or difference to the sale arbitration of an arbitrator appointed by Head of the BHEL Power Sector Region issuing the Contract. It shali not be open to the Contractor to object to such arbitrator only on the ground that such arbitrator is an employee/ ex-employee of BHEL or has dealt with or has expressed any opinion on any issue touching upon the Contract.The Arbitrator shall pass a reasoned award and the award of the Arbitrator shall be final and binding upon the Parties."

22. The disputes arose when the machinery and tools were idling

out for over an year. The applicant claims that the respondent failed to

fulfil contractual obligations, resulting in significant financial losses.

The applicant contends that, despite several attempts to resolve the

issue, including a legal notice to initiate arbitration, the respondent

avoided settling the dispute and denied owing any compensation.

23. The respondent contended that there is no dispute requiring

arbitration, asserting that the contract was mutually short-closed vide

letter dated 22.12.2020. The respondent states that the applicant

accepted final payment, issued a "no claim, no demand" certificate,

and requested to release the bank guarantee, thus settling all claims.

The respondent also refutes the applicant's claims by presenting

evidence of a short closure agreement, which the applicant later

challenged as forged.

24. In the light of the above submissions and contentions, the short

question which is posed for the consideration of this Court is:-

Whether the jurisdiction of the referral court at pre-referral stage, when the issue with respect to the existence of any arbitrable disputes between the parties which are already settled by accepting final settlement and issuing 'no claim, no demand certificate' to the respondent, necessitate appointment of a sole Arbitrator as prayed by the applicant?

25. Admittedly, there is no dispute with regard to the existence of

an arbitration agreement between the parties. It is relevant to note that

the scope of Section 11 of the Act, 1996, is extremely limited. The

Court has to only see whether prima facie an arbitration agreement

exists. The Court cannot go into disputed questions of facts which are

to be decided by the arbitrator.

26. It is apt to note that the Apex Court referring to the principle

laid down by it in various judgments including Vidya

Drolia v. Durga Trading Corpn. 1 and scope of Section 11 of the

Act, in NTPC Limited Vs. SPML Infra Limited 2 held as follows:-

Eye of the needle:-

25. 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 inquiry as to the parties to the agreement and the applicant's privity to the said agreement. These are matters which requires a thorough examination by the Referral Court. The secondary inquiry that may arise at the reference stage itself is with respect to non-arbitrability of the dispute.

26. As a general rule and a principle, the Arbitral Tribunal is the preferred first authority to determine and 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- arbitrable.

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 doubt, 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

(2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549

2023 (9) SCC 385

demonstrably non-arbitrable. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resources. If the said 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 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.

27. In the light of the law laid down by the Apex Court, coming to

the facts of the present case, there is no dispute with regard to the

existence of arbitration agreement between the parties.

28. It is also apt to note that the work at the site was commenced on

30.08.2019, with a completion deadline of 29.02.2020. Respondent

directed the applicant to suspend work until further instructions, due

to local agitation. According to the respondents, it has verbally

instructed the applicant to demobilize manpower and shift the Tolls

and Plants (T & Ps) back to the nearby Sewage Treatment Plant (STP)

project site, to which the applicant promptly complied on 08.12.2019

owing to the imminent threat of damage by agitators.

29. Respondent denied the applicant's contention that they were

informed of a forthcoming revised plot plan and assured of the work's

resumption.

30. It is also relevant to note that the details of joint measurement

between the parties were formally documented and signed on

12.10.2020. The subject contract was short-closed in accordance with

Clause No.2.7 and 2.7.8 (b) of the GCC. Subsequently, respondent has

issued a letter of short-closure on 22.12.2020 informing the applicant

of the contract's termination. In the said letter, it was explicitly stated

that the applicant is not entitled to any compensation as per Clause

No.2.7, paragraph No.1 of GCC. The applicant received and

acknowledged the said terms of letter by signing and stamping it,

indicating unconditional acceptance to the same.

31. On 28.12.2020, the applicant formally requested the respondent

to release the bank guarantee previously furnished. Applicant has also

provided a certificate confirming that there were no outstanding

claims or demands related to the contract and that the payment

received would be considered as full and final settlement of all claims.

Then, respondent proceeded to release the agreed sum of

Rs.48,92,947/- to the applicant and returned the bank guarantee

furnished on 01.09.2019 as well as the extended bank guarantee dated

06.08.2020. The applicant received the said amount of Rs.48,92,947/-

as final settlement for the short closure of the contract and a 'no claim,

no demand' certificate has been issued by the applicant. Having

received the said amount, now the applicant is contesting the

legitimacy of the short closure letter dated 22.12.2020 by way of

issuing a legal notice after three years i.e. on 17.04.2023.

32. As discussed supra, having issued a 'no claim, no demand

certificate', on receipt of agreed amount of Rs.48,92,947/-, the

applicant cannot dispute the short closure notice. As discussed supra,

both the applicant and the respondents measured the completed work

and it is a joint measurement. It was documented on 12.10.2020. In

the light of the said case, this Court is of the considered view that

there is no dispute much less arbitrable dispute between the applicant

and respondents.

33. As discussed supra, this Court being referral Court cannot

mechanically refer the matter to the arbitral Tribunal as held by the

Apex Court.

34. Therefore, the petitioner herein is failed to make out any case to

refer the matter to the arbitral Tribunal. Therefore, this application is

liable to be dismissed.

35. In view of the above discussion, this Arbitration Application is

dismissed.

As a sequel thereto, miscellaneous applications, if any, pending

in the Arbitration Application shall stand closed.

________________________ JUSTICE K. LAKSHMAN Date:18.09.2024

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