Consolidated Construction Consortium Limited v. South Delhi Municipal Corporation

10. I have, therefore, heard Mr. Anand Jha, learned counsel for the petitioner, and Mr. Mittal in detail.

11. Section 7 of the Act lays down the procedural or formal requirements on the basis of which the parties can claim the existence of an arbitration clause. There is no dispute in the present petition that those requirements are satisfied. The dispute is centered around the interpretation of the terms.

12. It is necessary to clarify at the outset the reasons which have led me to the conclusion that the present case would not be governed by SMS Ltd.[5] Although there is undoubtedly a great deal of overlap between the clauses in question in the two cases, there is also significant difference between them, which will be apparent from the following table: - Article 20 of the concession agreement dated 20.04.2012 between SMS Ltd. vs. SDMC Article 20 of the Agreement dated 14.03.2011 between the present petitioner and SDMC ARTICLE 20: DISPUTES In the event that any dispute, controversy or claim arises among the Parties in connection with or under this Agreement or the interpretation of any of its provisions or upon the occurrence of an event of Default any party shall refer the dispute, controversy or claim to the ARTICLE 20: DISPUTES In the event that any dispute, controversy or claim arises among the Parties in connection with or under this Agreement or the interpretation of any of its provisions or upon the occurrence of an event of Default any party shall refer the dispute, controversy or claim to the Commissioner, MCD. Supra (note 1). Commissioner, MCD. Section 20.[1] Mediation by Commissioner The Party that initially issue the notice of intention to refer the matter to the MCD and MCD in Consultation with Consultant will appoint a officer from within or outside MCD who will look into the written documents; (i) a description of dispute; (ii) a statement of that party's position; and (iii) copies of relevant documentary evidence in support of such position. Section 20.[1] Mediation by Commissioner The Party that initially issued the notice of intention to refer the matter to the MCD and MCD in Consultation with Consultant will appoint a officer who will look into the written documents; (i) a description of dispute; (ii) a statement of that party’s position; and (iii) copies of relevant documentary evidence in support of such position. (a)Within 10 days of receipt of the above documents, the other parties shall submit; (i) a description of the dispute; (ii) a statement of that party’s position; and (iii) copies of relevant documentary evidence in support of such position. (b)The officer appointed by MCD may call for such further documentary evidence and/or interview such persons, as it may deem necessary in order to reach a decision.

(c) The officer appointed by

MCD shall give notice to the parties of its decision within 20 days of receipt of the documents provided by the parties pursuant to subsection (b) and (c) above. The decision of the officer appointed by MCD shall be binding. (d)The officer appointed by the MCD should give decision in writing. The decision of the MCD shall be final and binding on party. Section 20.[2] Performance during Dispute Resolution Pending the submission of a dispute, controversy or claim to the officer appointed by the MCD and thereafter until the final decision of the officer appointed by the MCD, as the case may be, the parties shall continue to perform all of their obligations under this Agreement, without prejudice to a final adjustment in Section 20.[2] Performance during Dispute Resolution Pending the submission of a dispute, controversy or claim to the officer appointed by the MCD and thereafter until the final decision of the officer appointed by the MCD, as the case may be, the parties shall continue to perform all of their obligations under this Agreement, without prejudice to a final adjustment in The provisions relating to indemnification contained in Section 15.2, intellectual property The provisions relating to indemnification contained in Section 15.2, intellectual property contained in Section 18, confidentiality contained in Section 19.[1] and the dispute resolution provisions contained in this Article 20 shall survive the termination of this Agreement. contained in Section 18, confidentiality contained in Section 19.[1] and the dispute resolution provisions contained in this Article 20 shall survive the termination of this Agreement. The sub-clauses which are printed in bold above are part of Article 20 in the present case, but were not incorporated in the agreement in SMS Ltd.6, which is in issue before the Supreme Court in the pending Special Leave Petition.

13. Clauses (a) to (d), which are incorporated in Article 20 of the Agreement, provide for an opportunity to each side to submit its case including documentary evidence, and for “interview” of persons by the concerned officer. The decision is expressly stated to be “final and binding” by virtue of Article 20 (d).

14. These differences are significant in the context of the decisions of the Supreme Court on the characteristics of an arbitration agreement.

15. The attributes of an arbitration agreement have been laid down by the Supreme Court in K.K. Modi vs. K.N. Modi & Ors.7, in the following terms: - Ibid.

20. The authorities thus seem to agree that while there are no conclusive tests, by and large, one can follow a set of guidelines in deciding whether the agreement is to refer an issue to an expert or whether the parties have agreed to resolve disputes through arbitration.

21. Therefore our courts have laid emphasis on (1) existence of disputes as against intention to avoid future disputes; (2) the tribunal or forum so chosen is intended to act judicially after taking into account relevant evidence before it and the submissions made by the parties before it; and (3) the decision is intended to bind the parties. Nomenclature used by the parties may not be conclusive. One must examine the true intent and purport of the agreement. There are, of course, the statutory requirements of a written agreement, existing or future disputes and an intention to refer them to arbitration. (Vide Section 2 Arbitration Act, 1940 and Section 7 Arbitration and Conciliation Act, 1996.)”

16. In Jagdish Chander vs. Ramesh Chander & Ors.,[8] the Supreme Court relied upon its earlier judgments in K.K. Modi[9], Bharat Bhushan Bansal vs. U.P. Small Industries Cropn. Ltd.10, Bihar State Mineral Development Corpn. & Anr. vs. Encon Builders (I) (P) Ltd.11, and State of Orissa vs. Damodar Das12 to distill the following principles in this regard: -

(c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it.

(d) The parties should have agreed that the decision of the private tribunal in respect of the disputes will be binding on them.

(iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically exclude any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement.

(iv) But mere use of the word “arbitration” or “arbitrator” in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as “parties can, if they so desire, refer their disputes to arbitration” or “in the event of any dispute, the parties may also agree to refer the same to arbitration” or “if any disputes arise between the parties, they should consider settlement by arbitration” in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that “if the parties so decide, the disputes shall be referred to arbitration” or “any disputes between parties, if they so agree, shall be referred to arbitration” is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future.”

17. Applying the principles to the present case, the first, and perhaps the most glaring, fact is that the word “arbitration” does not appear in Article 20 of the Agreement at all. Instead, the heading of Section 20.[1] specifically refers to “Mediation by Commissioner”. This, however, cannot be dispositive of the matter. Paragraphs 8(ii) and (iv) of Jagdish Chander13 reflect the general principle that, in construction of a contractual clause, the Court should be guided by the substance of the agreement between the parties rather than by the nomenclature employed. For this purpose, reference may also be made to paragraph 21 of K.K. Modi14. In Punjab State and Ors. vs. Dina Nath15, this Court held that a clause which provided for reference of disputes to the Superintending Engineer of one of the parties, whose decision would be “final and acceptable/binding on both the parties” constitutes an arbitration clause, despite the absence of any express reference to “arbitration”. Examples of converse cases-where contractual provisions have been held not to constitute an arbitration clause despite the use of the word “arbitration” - can be found in the judgments of the Supreme Court in Mahanadi Coalfields Ltd. vs. Supra (note 8). Supra (note 7).

IVRCL AMR Joint Venture16 and the recent decision of this Court in Foomill (P) Ltd. vs. Affle (India) Ltd.17.

18. In the context of the aforesaid judgments, the following features of Article 20 of the Agreement in the present case must be noted:a. The Agreement is in writing. b. The jurisdiction of the designated authority derives from the consent of the parties, as reflected by the Agreement. c. The reference of disputes, controversies, or claims to the Commissioner, MCD can be made by any party. d. The reference is mandatory, inasmuch as the opening clause of Article 20 uses the words “shall refer”. e. The reference is of existing disputes. f. The decision-making authority is obliged to take evidence from both sides and to interview such persons as it may deem necessary in order to reach a decision. Both sides are to be given an opportunity to adduce evidence and put forth their contentions. Parties have thus been given equal opportunity to put forth their case before the authority. g. The substantive rights of the parties are to be determined by the concerned officer. h. Sections 20.[1] (c) and (d) assert that the decision shall be final and binding. i. There is nothing to suggest that the decision of the authority is not intended to be enforceable in law. j. Article 20 does not contain any of the elements mentioned in the aforesaid judgments, which may detract from its character as an arbitration agreement.

19. Looking to these features of Article 20 of the Agreement, I am of the view that it possesses the attributes of an arbitration agreement, despite the use of the word “mediation”. In fact, many of the features (e.g. recording evidence, determination of rights, and irrelevance of mutual agreement to the final resolution of the dispute), are prima facie inconsistent with the label of “mediation”.

20. I turn now to the judgment of the Supreme Court in SMS AAMW18, which concerns a clause in a similar concession agreement of the respondent herein. The relevant clauses of the agreement dated 14.05.2011, which were being interpreted in that case, are as follows: - “16. Dispute Resolution 16.[1] Except where otherwise provided in the Agreement, all questions and disputes in any way arising out of or relating to the Agreement shall be dealt with as mentioned below. 16.[2] In the event the contractor considers any work demanded of it as being outside the requirements of the Agreement, or disputes any record or decision given in writing by the competent officer in any matter in connection with or arising out of the Agreement, to be unacceptable, it shall promptly within [15] days request the competent officer in writing to give his instructions or decision in Supra (note 4). respect of the same. Thereupon, the competent officer shall give his written instructions or decision within a period of [30] days from the receipt of the contractor's letter. 16.[3] If the competent officer fails to give his instructions or decision in writing within the aforesaid period or if the contractor is dissatisfied with the instructions or decision of the competent officer, the contractor may, within [15] days of receipt of the competent officer's instructions or decision, appeal to the Commissioner who shall afford an opportunity to the contractor to be heard, if the latter so desires, and to offer evidence in support of its appeal. The Commissioner shall give his decision in writing within [30] days of receipt of contractor's appeal which shall be acceptable to the contractor.” xxxx xxxx xxxx “20. Miscellaneous Provisions 20.[1] Governing Laws and Jurisdiction (a) xxxx xxxx xxxx (b) All disputes arising out of this Agreement shall be subject to sole and exclusive jurisdiction of the courts of Delhi only.”

21. From a perusal of the aforesaid judgment of the Supreme Court, it is clear that the Court’s finding that the said clause is not an arbitration clause is predicated on the following factors: a. The Court found that the proceedings before the Commissioner are described in Clause 16.[3] as an “appeal”, and also found that the said procedure was indeed an appeal. The Court has thus proceeded not merely on the use of the word “appeal”, but on the substantive construction of the provision as an appellate provision.19 Paragraphs 19,20,25, and 26. b. The Court has noticed that the provision was liable to be invoked only by the contractor and not by the competent officer of the MCD.20 c. The Court has found that the Commissioner and the authority nominated by the Commissioner were not enjoined to act judicially, which would involve a consideration of the case of both sides.21

22. In the present case, in the light of Article 20 of the Agreement, these deficiencies do not arise. It is clear that either party can refer disputes to the Commissioner, that the other party would have an opportunity to meet the case with documentary evidence, that the decision-making authority can call for further documentary evidence and also interview such persons as it may deem necessary, and that the decision must be communicated to both sides, which would be final and binding upon them.

23. Looking at a few other judgments to the contrary, I find the reasoning to be based upon factors which are inapplicable to the present case: a. In State of Orissa & Ors. vs. Bhagyadhar Dash22, the Supreme Court found that the decision of the concerned authority was not made binding on either party, and did not provide for a Paragraphs 19,20,21, and 22. Paragraphs 26 and 27.

procedure where the authority was to act judicially after considering the submissions of the parties. b. In Karnataka Power Transmission Corpn. Ltd. & Anr. vs. Deepak Cables (India) Ltd.23, similarly, the Supreme Court found that the clause did not require the concerned authority to act judicially by following the principles of natural justice, or to consider the submissions of both the parties. It was provided in the clause that the decision would be only until the completion of the works. c. In Mahanadi Coalfields Ltd.24, although the concerned clause of the agreement was entitled “Settlement of Disputes/Arbitration,” the Court found no provision for a reference in the clause thereof. d. In the judgment of this Court in Foomill25 also, although the word “arbitration” was used in the heading of the clause, no substantive provision in this regard was engrafted in the agreement.

24. These decisions being inapplicable to the present case, I am of the view that Article 20 of the Agreement constitutes an arbitration agreement. As there is no other dispute raised by Mr. Mittal with regard to the appointment of an arbitrator, the disputes are liable to be referred to arbitration.

25. Although the clause in question provides for reference of disputes to the Commissioner of the respondent, who is empowered to nominate an officer to render a decision, such a course is admittedly indispensable in the context of the prevailing jurisprudence regarding unilateral appointment of an arbitrator. In the course of hearing on 13.10.2022, learned counsel for the parties submitted that, in the event the petition is to be allowed, the disputes may be referred to arbitration under the aegis of the Delhi International Arbitration Centre, Delhi High Court, Shershah Road, New Delhi-110503 [“DIAC”].

26. In view of the aforesaid, the petition is disposed of with the following directions: a. The disputes between the parties under the Concession Agreement dated 14.03.2011 are referred to the arbitration of Hon’ble Ms. Justice Indira Banerjee, former Judge, Supreme Court of India [Tel: +91-9560808777]. b. With the consent of learned counsel for the parties, the arbitration will be conducted under the aegis of the DIAC and will be governed by its Rules, including as to the remuneration of the learned arbitrator. c. The learned arbitrator is requested to make a declaration in terms of Section 12 of the Act prior to entering upon the reference.

27. All rights and contentions of the parties on the merits of the disputes between them are left for adjudication by the learned arbitrator.

28. The petition stands disposed of in the aforesaid terms.

PRATEEK JALAN, J. NOVEMBER 02, 2022 ‘Bhupi’