Full Text
HIGH COURT OF DELHI
Date of Order : 7th December, 2022
PURVANCHAL VIDYUT VITRAN NIGAM LTD ..... Petitioner
Through: Mr. Amit Gaurav Singh, Advocate
Through: Mr. Harsh N. Gokhale and Mr. Haider Ali, Advocates
CHANDRA DHARI SINGH, J (Oral)
ORDER
1. The instant petition under Section 14 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Act 1996”) has been filed on behalf of the petitioner seeking termination of the mandate of the sole arbitrator appointed by the Delhi International Arbitration Centre vide notice dated 16th June, 2022 referred by the MSME Council in Case No. DL/10/M/SWC/00031.
2. The brief facts leading to the present petition are that the petitioner is a company registered under the Companies Act, 1956 and its functioning includes procurement, transmission and supply of electricity within the State of Uttar Pradesh.
3. On earlier occasion, distribution and transmission of electrical energy was in the hands of U. P. State Electricity Board (UPSEB), a statutory body constituted under Section 5 of the Electricity Supply Act,
1948. With the expansion of the generation unit, a government company namely, Uttar Pradesh Rajya Vidyut Utpadan Nigam Limited, was incorporated under the Companies Act, 1956. It was wholly owned by the State of Uttar Pradesh. Thereafter a major reform was introduced by promulgation of the Uttar Pradesh Electricity Reforms Act, 1999 (hereinafter referred to as the “Reforms Act, 1999”). Section 13 of the Reforms Act, 1999 provides for the formation of a company namely Uttar Pradesh Power Corporation Limited (UPPCL) registered under the Companies Act, 1956 which was required to undertake planning and coordination with respect to transmission, to determine electricity requirement in the state and be a legal successor of UPSEB in relation to all the power purchase and transmission agreements. Section 23 of the Reforms Act, 1999 provides that all the properties, interest, rights of UPSEB shall be vested in the State Government and thereafter, shall be re-vested in UPPCL and its subsidiaries.
4. The petitioner is a subsidiary of UPPCL and was constituted on 5th July, 2003, which aimed for distribution of electric power in Eastern U. P. covering 21 Districts.
5. A letter of intent dated 3rd March,2016 bearing NO. 611/PuVVNL(V)/MM/EAV-53/RADRP-B/15-16 was issued in favour of the Respondent awarding tender for an amount of Rs. 6,81,80,795.78/- (Six crore eighty one lakh eighty thousand seven hundred ninety five and seventy eight paise) for Kopaganj Town under R-APDRP Part-B Scheme allotting total package value of Rs. 6,21,51,546.36/- for supply of material vide order No. 783/MD/PuVVNL(V)-MM/EAV- 53/RAPDRP- B/15-16 dated 21st March, 2016 and order no. 784/MD/PuVNNL(V)- MM/EAV-53/RAPDRP-B/15-16 dated 21st March, 2016 for a value of Rs. 60,29,248.43/- for erection of material, testing and commissioning in respect of Kopaganj Town by the petitioner.
6. Similarly, Letter of Intent (LOI) vide letter NO. 1127/PuVVNL(V)/MM/EAV-55/RADRP-B/15-16 dated 27th April, 2016 was issued in favour of the respondent awarding tender for an amount of Rs. 5,37,84,634.84/- for Ghosi Town under RAPDRP Part-B Scheme in favour of Respondent for total package value of Rs 4,81,67,687.59/- for supply of material vide order No. 1259/MD/PuVVNL(V)-MM/EAV- 55/RAPDRP-B/15-16 dated 10th May, 2016 and order NO. 1260/MD/PuVVNL(V)/EAV- 55/RADRP/15-16 dated 10th May, 2016 for a value of Rs 56,76,947.30/- for erection of material, testing and commissioning in respect of Ghosi town by the petitioner.
7. In consequence to the aforesaid letter of intent, agreement/contract was executed between the petitioner and the respondent on 21st March, 2016 and 10th May, 2016 in respect of Kopaganj and Ghosi town, respectively. The rights and liabilities between the parties were governed by the contract executed between the parties.
8. The respondent completed the entire project and submitted the report to the petitioner. The completion certificate for Kopaganj Project and Ghosi Project was issued on 23rd December, 2017 by the Superintending Engineer, Mau. The respondent raised bills for additional work which was done without approval and a total amount of Rs. 14,10,17,848/- was demanded. The petitioner disputed an additional amount of Rs. 2,39,28,783/- as the additional work was performed beyond the scope of aforesaid tender and agreement/contract.
9. The Respondent filed an application on 23rd February, 2018 bearing no. DL/10/M/SWC/0003 before the MSME Council under the MSME Act, 2006 for an amount of Rs. 4,43,13,938/- against the petitioner.
10. The respondent issued a demand notice dated 3rd September, 2019 against the petitioner under Rule 5 of the Insolvency and Bankruptcy (application to adjudicating authority) Rules, 2016 demanding the payment.
11. The Respondent also filed Company Petition (IB) NO. 486/ALD/2019 against the petitioner before the NCLT, Allahabad Bench, Prayagraj claiming the amount in default since 3rd October, 2016. The MSME Council sent the matter to Delhi International Arbitration Centre, whereby, Delhi International Arbitration Centre sent a notice dated 4th May, 2021 of hearing to the petitioner for initiating the conciliation proceedings. The said conciliation proceedings failed between the parties.
12. The Delhi International Arbitration Centre sent a notice to the petitioner dated 16th June, 2022 intimating the initiation of arbitration proceedings. The learned Arbitrator i.e. Sh. Deepak Bhanwala, was appointed as the Sole Arbitrator and he issued a notice to the petitioner which was received by the petitioner on 15th August, 2022. The petitioner filed its reply on 13th September, 2022 before the learned Sole Arbitrator, thereby raising the issue of maintainability amongst other preliminary objections. The respondent filed rejoinder on 22nd September, 2022 before the learned Sole Arbitrator alongwith certain additional documents. The parties were directed to file evidence by way of affidavit.
13. It is submitted on behalf of the petitioner that the respondent was not registered as Micro, Small and Medium Enterprises (hereinafter referred as “MSME”) at the time of entering into the contractual agreement with the respondent. It is further submitted that neither the respondent was registered under the provisions of Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred as “MSME Act”) at the time of award of the tender nor was registered with the MSME Act when the alleged amount became due on 3rd October,
2016. The respondent registered itself only on 27th May, 2021.
14. Therefore, the present arbitration proceedings are not maintainable as the learned Sole Arbitrator does not have jurisdiction as referred under the MSME Act to adjudicate upon the present claim. It is further submitted that in fact, the MSME council also did not have jurisdiction to refer the present matter to arbitration as per the MSME Act.
15. Learned counsel appearing on behalf of the petitioner submitted that the claim filed before the learned Sole Arbitrator as referred to by MSME council is bad in law, misconceived and not maintainable in law. The respondent suppressed vital facts from the learned Sole Arbitrator and did not approach the MSME Council with clean hands.
16. Learned counsel appearing on behalf of the petitioner further submitted that learned Sole Arbitrator refused to decide the preliminary issue of jurisdiction vide its order dated 31st October, 2022 while stating that the application will be decided at the final stage. For strengthening his arguments, learned counsel for the petitioner referred to the judgment of the Hon’ble Supreme Court in the case of McDermott International Inc. v. Burn Standard Co. Ltd. And Ors, (2006) 11 SCC 181.
17. It is vehemently submitted that the respondent was not registered under the provisions of the MSME Act during the period of completion of project and during accrual of the payment of said bills. Therefore, the appointment of learned Sole Arbitrator is illegal, arbitrary and contrary to the provisions of law and thus, mandate of the arbitrator is likely to be terminated by this Court.
18. Learned counsel for the petitioner submitted that the appointment of learned Sole Arbitrator is contrary to law and the established principles of impartiality and independence of appointment of Arbitrator. These principles are now statutorily recognized in the form of amendments made to the Act, 1996 more particularly to the Section 12 of the Act, 1996 and the introduction of Schedule 5 and 7 to the said Act of 1996.
19. It is further submitted that the appointment of learned Sole Arbitrator is against the law laid down by the Hon’ble Supreme Court in its judgment titled as Silpi Industries and Ors. Vs. Kerala State Road Transport Corporation and Ors; MANU/SC/0390/2021.
20. It is submitted that the application filed by the petitioner under Section 16 of the Act, 1996 before the learned Sole Arbitrator, challenging his jurisdiction, was refused to be decided as a preliminary issue. In view of the aforesaid submissions, it is contended that the appointment of learned Sole Arbitrator would be null and void ab initio.
21. Learned counsel appearing on behalf of the petitioner further submitted that the learned Sole Arbitrator failed to consider that the MSME Act provides for an appeal subject to deposit of 75% of the awarded amount. Therefore, if any final award is passed along with a decision pertaining to the aspect of jurisdiction which needs to be challenged before this Court, it would cause irreparable loss to the petitioner.
22. Per contra, learned counsel for the respondent vehemently opposed the submissions advanced on behalf of the petitioner and submitted that there is no merit in the instant petition and the same is liable to be dismissed.
23. Learned counsel for the respondent submitted that he has filed the reply to the petition vide Diary No. 1982892/22 dated 5th December, 2022 but the same is not on record. During the arguments, he has submitted the hard copy of the reply and the same has been taken on record.
24. In response to the aforesaid submissions, learned counsel for the respondent submitted that the petitioner has raised no grounds in the petition stating how the learned Arbitrator is falling afoul the Act. Furthermore, the petitioner has also approached this Court at an extremely belated stage despite having the knowledge of the entire proceedings since May, 2021. The petitioner had received the intimation with respect to appointment of the learned Arbitrator under the MSME Act in the month of August, 2022. The petitioner has also filed its Statement of Defence and evidence.
25. Learned counsel for the respondent submitted that the petitioner has also filed an application under Section 16 of the Act, 1996 challenging the jurisdiction of the learned Arbitrator on 31st October,
2022. The learned Arbitrator, despite the application being nonmaintainable since it was filed after submission of statement of defence by the petitioner, has agreed to consider the plea of jurisdiction, even at this belated stage.
26. It is submitted that Section 16 of the Act, 1996 has been framed in accordance with Article 16 of the UNCITRAL Model law, which embodies elemental jurisprudential doctrine i.e., "Kompetenze Kompetenze". It is submitted that this doctrine empowers the court or an arbitral tribunal to rule upon its 'own' jurisdiction, brought forth by one of the parties to the dispute. Section 16 (1) of the Act, 1996 states that an arbitral tribunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement therefore allowing any party to seek recourse on issue of jurisdiction. However, it is submitted that in the instant case the petitioner loses the challenge under Section 16 of the Act, 1996, it is open to the petitioner to raise the same ground under Section 34 while challenging the award, as provided under Section 16(6) of the Act, 1996.
27. It is submitted that the petitioner via the present petition has attempted forum shopping inasmuch as that the Application filed under Section 16 of the Act, 1996 by the petitioner is pending before the learned Arbitrator and has not been decided yet. Therefore, filing of the present petition is pre-mature and an act of forum shopping and for the said reason also, the petition is liable to be dismissed.
28. It has been alleged by the petitioner that the certificate of the respondent bears an incorrect nomenclature. In response to the said averment, it is submitted on behalf of the respondent that Udyam and Udyog registration are the same as the Ministry of MSME had replaced the erstwhile Udyog Aadhaar Registration for MSME with the nomenclature Udyam Registration, vide its Notification 26th June, 2020. Consequently, the then existing MSME registered enterprises were required to migrate from Udyog to Udyam from 1st July, 2020 onwards. However, the existing enterprises registered prior to 30th June, 2020 were allowed a transition period up to 31st March, 2021 to migrate from Udyog to Udyam i.e., Udyog Aadhaar registrations were kept valid only up to 31st March, 2021.
29. It is submitted that in any case, the issue of applicability of the MSME Act and the issue of jurisdiction is pending before the learned Arbitrator and is yet to be decided by the learned Arbitrator at the stage of final hearing. Therefore, approaching this Court by way of the present petition, the petitioner is in gross misuse of process of law.
30. Heard learned counsel for the parties at length and perused the records.
31. Considering the submissions made by learned counsel appearing on behalf of the parties, it would be appropriate to peruse the following provisions of the Act, 1996 that are reproduced herein.
32. Section 13 of the Act, 1996 reads as under:
33. Section 14 of the Act, 1996 reads as under:
35. Section 32 of the Act, 1996 reads as under: “32.Termination of proceedings. (1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2). (2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where- (a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute. (b) the parties agree on the termination of the proceedings, or
(c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible. (3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings."
36. Section 13 of the Act, 1996 provides that the parties are free to agree on a procedure for challenging an arbitrator and in case of failure to agree upon a procedure, the party aggrieved is to intimate the Arbitral Tribunal in writing of the challenge to its veracity.
37. What Section 14 of the Act, 1996 inter alia provides is a situation where there is a failure or impossibility to act by the Arbitral Tribunal/Arbitrator. Section 14(1) stipulates that the mandate of an Arbitrator shall terminate if: (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay and (b) he withdraws from his office or the parties agree to the termination of his mandate. Section 14(2) stipulates that if a controversy remains concerning any of the grounds referred to in clause (a) of subsection (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
38. Section 15 of the Act, 1996 talks about the appointment of substitute arbitrator which essentially provides that when the mandate of an arbitrator terminates, then a substitute arbitrator shall be appointed in accord with “rules that are applicable to the appointment of the Arbitral Tribunal”.
39. Section 32(1) stipulates that the arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2). Sub-section (2) of Section 32 provides that the arbitral tribunal shall issue an order for the termination of the arbitral proceedings where (a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognizes a legitimate interest on his part in obtaining a final settlement of the dispute, (b) the parties agree on the termination of the proceedings, or (c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible. Section 32(3) stipulates that subject to section 33 and subsection (4) of section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings.
40. The petitioner herein is aggrieved by the initiation of the arbitration proceedings under the MSME Act because the respondent was not registered under the provisions of the MSME Act on the date of execution of the agreement. However, it is also undisputed that the respondent was registered as MSME when the works/supplies were provided by the respondent to the petitioner.
41. It is also not in dispute that the arbitration proceedings in the present case is at the stage of final hearing including final hearing of application under Section 16 of the Act, 1996 filed by the petitioner challenging the jurisdiction of the learned Sole Arbitrator.
42. Section 14 of the Act, 1996 is merely limited to termination of the mandate of the Arbitrator. However, in the instant case, the petitioner has not been able to establish any ground as mentioned under Section 14 of the Act, 1996 to indicate the statutory grounds on which the mandate of the Arbitrator can be terminated.
43. Looking at the opening words the mandate of an arbitrator shall terminate appearing in Section 32(3) and the use of the exact words in the opening part of Section 14(1) would also indicate that in a situation where such as the one contemplated under Section 32(2)(c) would be covered by Section 14(1) and therefore, an application under Section 14(2) would not be maintainable.
44. In view of the foregoing discussions and settled law, the petitioner has not been be able to point out any ground for termination of the mandate of the learned Arbitrator as well as the termination of the arbitration proceedings at the stage when the same is to be concluded and decided finally.
45. This Court finds force in the arguments of learned counsel for the respondent that petitioner had the knowledge of the proceedings pending before the MSME Council since May 2021 and the petitioner had received the intimation of the appointment of Arbitrator under MSME Act in the month of August 2022. Despite having such knowledge of the proceedings before the Ld. Sole Arbitrator, the petitioner filed the application challenging the maintainability of the arbitration proceedings at a belated stage when the arbitration proceedings are about to be concluded.
46. On perusal of the records, it is clear that the application filed by the petitioner is still pending before the Arbitrator for adjudication and the Arbitrator already have fixed the date for final arguments in the instant proceedings.
47. In view above facts and circumstances, available records, the admitted facts and foregoing discussions, this Court does not find any merit in the instant petition for termination of the mandate particularly, when the pleadings in the arbitration proceeding has already concluded and the matter is fixed for the final hearing for deciding the application before passing the award.
48. Accordingly, the instant petition is dismissed along with pending applications, if any.
49. The order be uploaded on the website forthwith.
JUDGE DECEMBER 7, 2022 gs/ug