Full Text
HIGH COURT OF DELHI
Date of Decision: 20th October, 2022
SUPREME INFRASTRUCTURE INDIA LTD.
Supreme House, Plot No. 94/C, Pratap Gad, Opp. 1.1.T Main Gate, Powai, Mumbai - 400076, Maharashtra, India.
Through its authorised signatory Mr. Brijesh Kumar Mishra .....Petitioner
Represented by: Ms. Kiran Suri, Sr. Advocate with
Mr. Suryadeep Singh, Mr. Sumit K.
Shukla, Ms. Radha R. Tarkar, Ms. Aishwarya Kumar & Mr. Aaron Shaw, Advocates.
FOR EXECUTION OF NATIONAL AUTOMOTIVE TESTING AND
R AND D INFRASTRUCTURE PROJECT NBCC Place, South Tower, 3rd Floor, Bhishma Pitamah Marg, Pragathi Vihar, Lodhi
Road, New Delhi - 110003 ..... Respondent Represented by: Mr. Ravi Varma & Ms. Abhilasha Sharma, Advocates.
J U D E M E N T
NEENA BANSAL KRISHNA, J. (ORAL)
JUDGMENT
1. The present petition has been filed under Section 14 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “A & C Act, 1996”) on behalf of the petitioner for deciding the question of mandate of the Arbitral Tribunal and for its reinstatement for the adjudication of the disputes between the parties.
2. Facts in brief are that the parties entered into an Agreement dated 26th May, 2011 pursuant to it being awarded in terms of the Letter of Award dated 29th April, 2011. The petitioner has submitted that the respondent was in default and various disputes arose which could not be settled despite amicable settlement process being initiated.
3. The petitioner invoked Arbitration Clause in terms of the Agreement vide its Letter dated 31st December, 2013. The Arbitral Tribunal was constituted which had its first meeting on 05th November, 2016. The schedule of the arbitration proceedings was fixed and the fee of the Arbitral Tribunal was agreed to be shared equally by the parties. The petitioner submitted its claims of Rs. 39,99,00, 115/- against the respondent before the Arbitral Tribunal. The respondent raised a Counter-Claim on 15th February, 2017 of Rs. 17,17,14,000/-.
4. The hearings were conducted by the Arbitral Tribunal but because of the ill-financial health, the petitioner was unable to make partial payment of the arbitral fees. In the year, 2017, the financial condition of the petitioner became extremely precarious and it was unable to deposit the arbitral fees fixed by the Arbitral Tribunal. The respondent intentionally declined to pay arbitral fee. The Arbitral Tribunal vide its Order dated 31st May, 2017 suspended the proceedings till full payment was made.
5. The proceedings were revived when the petitioner made balance payments of the Arbitrators’ fee. Thereafter, few more sittings were conducted by the Arbitral Tribunal. However, because of the deteriorating financial health of the petitioner, it was not again in a position to deposit the arbitral fee. The respondent as well, despite having raised a counter-claim of Rs. 17,17,14,000/-, did not deposit the arbitral fee. Thus, vide Order dated 07th November, 2017, the Arbitral Tribunal terminated the arbitral proceedings under Section 38(2) of the A & C Act, 1996 on the ground of non-payment of a portion of the arbitral fees.
6. The financial position of the petitioner improved and it moved an Application dated 02nd November, 2020 i.e. after about three years, requesting the Arbitral Tribunal to recall its Order dated 07th November, 2017 and recommence the arbitral proceedings. However, vide E-mail dated 06th November, 2020, the Arbitral Tribunal declined to recommence the arbitral proceedings on the ground that the mandate of the Arbitral Tribunal stands terminated as per Section 32 of A & C Act, 1999[6]. Moreover, Section 29A of A & C Act, 1996 also provided that the mandate of the Arbitrators shall terminate unless the period is extended by the Court beyond the period. In the opinion of the Arbitral Tribunal, the mandate of the Arbitrators had ceased to exist on the date of application and the request made on behalf of the petitioner, was not acceded to.
7. The petitioner has asserted that the Arbitral Tribunal has wrongly disallowed the Application dated 02nd November, 2020 by not appreciating that the Order made under Section 38(2) of A & C Act, 1996 can be recalled, as the defect i.e., non-payment of the arbitral fee is curable by the Petitioner. Furthermore, the Order under Section 25 of A & C Act, 1996 can be recalled by the Arbitral Tribunal and the proceedings revived if the party files the statement of claim. The Order dated 07th November, 2017 of the Arbitral Tribunal is, therefore, liable to be recalled. Hence, the prayer has been made that the question of the mandate of the Arbitral Tribunal be decided and the Arbitral Tribunal be reinstated in terms of Section 14 of A & C Act, 1996.
8. Submission heard.
9. The present petition has been filed under Section 14 of A & C Act, 1996 with the prayer that the question of mandate of Arbitral Tribunal be determined and the Arbitral Tribunal may be reinstated in terms of Section 14 of A & C Act, 1996 with respect to the disputes between the parties herein.
10. In the present case, to understand the factual background, it would be significant to refer to various Orders that have been made by the Arbitral Tribunal in the present case.
11. The Arbitral Tribunal comprising of three Arbitrators was constituted, the proceedings were initiated and the Claims and Counter-Claims were submitted by the parties. On 31st May, 2017, the Arbitral Tribunal suspended the arbitration proceedings since the Claimant vide E-mail dated 30th May, 2017 informed that he was able to pay only part payment was being made to the three Arbitrators because of the financial difficulties and that the balance payment shall be made by 05th June, 2017. It also expressed its desire to continue with the proceedings. However, the proceedings were suspended on account of inability of the Claimant to pay the fee of the Arbitrators.
12. The matter was again taken up by the Arbitral on 26th July, 2015. The Order dated 31st May, 2017 of the Arbitral Tribunal was confirmed and it fixed the three dates for addressing of arguments by the parties. However, the directions were given for release of the payments for six hearings and the meeting was directed to be scheduled for 31st August, 2017.
13. In the minutes of meeting recorded on 09th September, 2017, it was noted that part arguments had been addressed on the Application dated 06th September, 2017 and the matter was adjourned for 25th September, 2017 with the directions to pay balance fees of the Arbitrators.
14. In the minutes of meeting dated 07th November, 2017, it was observed as under: ―1. NATRIP Implementation Society (the Respondent) awarded the work of "Construction of Automotive Test Tracks and associated works at Campus II, ICAT, Manesar, Haryana" for a contract price of Rs. 27,88,09,895/- to M/s Supreme Infrastructure India Limited (the Claimant). The LOA was issued on 29.04.2011 and the Notice to Proceed with the work was issued on 18.07.2011 with a completion period of 11 months from the date of Notice to Proceed with the work. The date of completion as per contract was 17.06.2012. During currency of the contract, certain disputes arose between the Claimant and the Respondent. The Claimant issued notice to initiate arbitration. Accordingly, the Arbitral Tribunal (AT) was constituted on 24.10.2016 with Shri R. L. Kaul as Presiding Arbitrator, with Shri Subir Baran Basu and Shri V. S. Karandikar as arbitrators.
2. First / Preliminary meeting of AT was held on 05.11.2016. In this meeting, schedule of submissions and the procedure for conducting arbitral proceedings were decided in consultation with both the parties and fee structure and mode of payment were also fixed and were agreed to by both the parties. The parties were also directed to deposit sitting fees for five (5) hearings and the reading charges with the arbitrators to begin with. The Claimant was also directed to deposit a standing advance of Rs.2,00,000/- for its nominee arbitrator to cover his travel, lodging and boarding expenses.
3. The Claimant was directed to submit its Statement of Claim by 15.12.2016. As the submission of the Statement of Claim w·as delayed by the Claimant, the Respondent filed an application on 22.12.2016 under section 25(a) of the Arbitration and Conciliation Act, 1996 (the "Act"), seeking termination of the proceedings. The said application was taken up for hearing on second hearing of AT held on 13.01.2017, wherein the AT disposed of the application disallowing the same in the interest of justice. Keeping in view the delays in submissions of the Statement of Claim by the Claimant, the revised schedule for submission was fixed.
4. The Claimant submitted its Statement of Claim on 03.01.2017, the Respondent submitted its Statement of Defense along with its Counter Claims on 16.02.2017 instead of 10.02.2017, as directed. The rejoinder to the Statement of Claim was directed to be filed by 06.03.2017 which was filed during the course of hearing on 27.03.2017. The reply to counter claim was filed on 03.04.2017. The rejoinder to counter claim was filed on 17.04.2017 as directed.
5. The Claimant filed an application on 15.03.2017 under section 17 of the Act. The reply to the application was filed by the Respondent on 03.04.2017. At the fourth hearing of the AT held on 03.04.2017, the application filed under Section 17 by the Claimant was taken up for arguments.
6. Third hearing was held on 27.03.2017, when the question of delay in payments was brought out to the notice of the Claimant.
7. During the fourth hearing on 03.04.2017, the question of delayed payments by the Claimant was once again taken up and it was directed to make payment by 30.04.2017. This was reiterated during the course of proceedings of 5th & 6th hearing held on 17.04.2017 as well. The Claimant was also informed that it will be liable for payment of fees and expenses in case the meetings are cancelled due to non-payment of fees.
8. Since the Claimant failed to make payments after repeated requests, AT in its order dated 31.05.2017 suspended the proceedings pending release of full payment by the Claimant.
9. The proceedings were however revived when Claimant made additional part payments. The application under section 17 of the Act was also disposed off by an order dated 26.07.2017. During the 9th & 10th hearing, they were directed to release entire pending payments by 20.09.2017 besides making advance payment for further 7 hearings by 06.11.2017.
10. Since the Claimant did not release pending payment by 20.09.2017, they were reminded by e-mail on 10.10.2017.
11. Details of payments due from the Claimant as on date are as under: a. Shri R. L. Kaul (Presiding Arbitrator) - Rs. 3.65 lakhs; b. Shri Subir. Baran Basu (Arbitrator) - Rs. 6.00 lakhs; and c. Shri V. S. Karandikar (Arbitrator} - Rs. 4.475 lakhs. This apart, both parties are yet to pay advance for further seven (7) healings as directed during the 11th and 12th hearings of the AT held on 08.09.2017 and 09.09.2017.
12. Statement of dues/ drawn has been separately sent by the Arbitrators to the parties.
13. Failing any positive response from the Claimant, AT decided to convene a meeting on 07.11.2017.
14. The Claimant has defaulted in making timely payments repeatedly. This has resulted in cancellation of the series of hearings leading to delay in completion of the arbitral proceedings. With a view to mitigate the problems, the Respondent were requested during the deliberations of the AT on 07.11.2017 as to whether they are prepared to make the payment on behalf of the Claimant under Section 38 of the A & C Act. This was not agreed to by the Respondent.
15. The section 38 o f the Arbitration and Conciliation Act 1996 provides that "Where one Party fails to pay his share of the deposit the other Party may pay that share. Provided further that where the other Party also does not pay the aforesaid share in respect of the claim or the counter-claim the Arbitral Tribunal may suspend or terminate the Arbitral Proceedings in respect of such claim or counter-claim as the case may be. In view of these provisions and in view of the fact that share of deposit has not been paid either by one Party o r the other, the Arbitral Proceedings stand terminated.
16. The Arbitration and conciliation Act 1996 as amended provides that the Arbitral Tribunal shall make the Award within 12 months. There is however a provision to grant extension of time of 6 months to the Tribunal by the Parties. In the present case the period of 12 months was over on 23.10.2017. As per paragraph-11 of the minutes of the meeting held o n 08.09.2017 and 09.09.2017 the Parties had verbally agreed to extend the period and the AT had directed the Parties to formally inform the Tribunal accordingly through their authorized representatives by 15.10.2017. The AT has however not received any letter from either party regarding the said extension.
17. Copy of the documents received by the AT (Presiding Arbitrator) are returned to the parties.‖
15. By virtue of this Order dated 07th November, 2017, the proceedings had been terminated under Section 38 of A & C Act, 1996 on account of failure to pay the entire fee of the Tribunal. Furthermore, it was observed that the mandate of the Arbitral Tribunal was till 23rd October, 2017. The parties had agreed to extend the mandate of the Arbitral Tribunal by six months, but they had failed to submit the approval duly signed by the respective competent authority till 23rd October, 2017. The parties also failed to submit any letter in regard to the extension of period. Hence, the documents received by the Arbitral Tribunal were returned to the parties.
16. Thereafter, an application dated 02nd November, 2020 was filed on behalf of the Claimant after three years, seeking recall of the Order dated 07th November, 2017 on the ground that the Claimant was now in sound financial position to deposit the balance payment as well as the fee of the Arbitrators and further arbitration proceedings may be conducted by the Arbitral Tribunal. Hence, the application was filed for revival of the proceedings before the Arbitral Tribunal.
17. The Arbitral Tribunal responded to the said application vide Letter dated 06th November, 2020 which reads as under: ―From: R.L. Koul Former Member NHAI In the matter of Arbitration between: Supreme Infrastructure India Ltd. ……….Claimant And NATRIP Implementation Society (NATUS) constituted for Execution of national Automotive Testing and R&D Infrastructure Project (NATRIP) ……..Respondent Contract for construction of Automotive Test Tracks and associates works at ICAT Campus II, Manesar, Haryana – C.A. No. NAT/SIIL/CWT/MSR-2/10/103 dated 26.05.2011. Please refer to your application dated 02.11.2020 on the subject cited above requesting the then AT to recall the termination order dated 07.11.2017 under Section 38(2) of the Arbitration and Conciliation Act, 1996. The matter has been discussed with Shri Subir Baran Basu and Shri V.S. Karandikar, the members of the erstwhile AT and our views are as under: - As per Section 32 of A & C Act 1996, the mandate of the AT shall terminate with the termination of the arbitral proceedings. Further, as per Section 29-A (4) of the A & C Act 1996, the mandate of the Arbitrator(s) shall terminate unless the court has extended the period. In view of above, we are of the opinion that the said Tribunal and the Arbitrators do not exist as on date. Consequently, it is not possible to accede to your request. (R.L. Koul)‖
18. The question is whether the termination of the mandate of the Arbitral Tribunal was for the reasons stated under Section 14 of A & C Act, 1996 or arbitral proceedings got terminated due to efflux of time i.e., 12 months from the date of entering into arbitration, for which extension can be done under Section 29A of the A & C Act, 1996.
19. To understand the scope of the petition, it would be significant to reproduce Section 14 of A & C Act, 1996 which reads as under: ―Section 14: – Failure or impossibility to act.– (1) The mandate of an arbitrator shall terminated and he shall be substituted by another arbitrator, if– (a) he becomes de jure or de factor 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. (2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate. (3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.‖
20. Section 15 of A & C Act, 1996 further provides for termination of mandate and substitution of Arbitrator which reads as under: ―Section 15: – Termination of mandate and substitution of arbitrator.– (1) In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator an arbitrator shall terminate– (a)where he withdraws from office for any reason; or (b)by or pursuant to agreement of the parties. (2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. (3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal. (4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.‖
21. Section 14 of A & C Act, 1996 provides for termination of the mandate of the Arbitrator if he becomes de jure or de facto unable to perform his functions or withdraws from his office.
22. Likewise, Section 15 of A & C Act, 1996 provides for termination of mandate of the Arbitrator either on the ground that the Arbitrator withdrawing from the office for any reason or pursuant to the Agreement between the parties.
23. These Sections further provide that where the mandate of the Arbitrator is terminated, the substituted Arbitrator shall be appointed according to the rules that are applicable to the appointment of the Arbitrator being replaced.
24. In both the situations, it is only the mandate of the Arbitrator which comes to an end and, therefore, provision is made for the appointment of substitute Arbitrator who can continue from the stage where the earlier proceedings are left. For this, a reference may be made to the decision in Chemical Sales Corporation vs. A & A Laxmi Sales and Service Private Limited (2011) SCC OnLine Del 3847, wherein the Co-ordinate Bench of this Court observed that the termination of arbitral proceedings is different from the termination of the mandate of Arbitrator. The mandate of the Arbitrator depending upon the facts and circumstances of the case may come to an end, but not the arbitral proceedings. For example, if the parties to the Arbitration Agreement had fixed a period of six months for the completion of arbitral proceedings and the Arbitral Tribunal fails to do so, the mandate of the Arbitral Tribunal shall come to an end, but not the arbitration proceedings and in such eventuality, the substitute Arbitrator, if appointed, shall continue with the arbitration proceedings from the stage where it has been left by the earlier Arbitrator.
25. Similarly in the recent case of SREI Infrastructure Finance Limitd vs. Tuff Drilling Private Limited. (2017) SCC OnLine SC 1210, the Hon’ble Supreme Court highlighted the distinction between ―termination of arbitral proceedings‖ and ―termination of the mandate of the Arbitrator‖. In the first case, since the proceedings itself do not survive there is no scope for the appointment of a substitute Arbitrator whereas in the other instance of termination, the proceedings survive thereby leaving the scope for appointment of a substitute Arbitrator.
26. Section 32 is another provision in the Act which provides for termination which 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.‖
27. The termination of the proceedings under Section 32 of A & C Act, 1996 can be directed by the Arbitral Tribunal if the Claimant withdraws the Claim or the parties agree to the termination of the proceedings or the Arbitral Tribunal finds that the continuation of proceedings for any other reason has become unnecessary or impossible. Sub-Section 3 of Section 32 of A & C Act, 1996 further provides that once the arbitral proceedings are terminated, the mandate of the Arbitral Tribunal shall also terminate.
28. In the present case, as is evident from the Order dated 07th November, 2017 of the Arbitral Tribunal, the Arbitral Tribunal had made a reference to Section 38 of A & C Act, 1996 in regard to the non-payment of the fee by a party to the Arbitral Tribunal. Section 38 of A & C Act, 1996 deals with the deposit or supplementary deposit, as the case may be, as an advance for the costs referred to in Sub-Section 8 of Section 31 of A & C Act, 1996 which deals with the costs of arbitration that may be fixed in accordance with Section 31A of A & C Act, 1996. It further provides that where any party fails to pay the share in respect of the claim or counter-claim, the proceedings may be terminated or suspended as the case may be. Sub-Clause 3 of Section 38 of A & C Act, 1996 provides that upon the termination of arbitral proceedings, the Arbitral Tribunal shall render an accounting to the parties of the deposits received and shall return any unexpended balance to the party or parties as the case may be. Thus, the Order dated 07th November, 2017 passed by the Arbitrators is on account of non-payment of fees which is essentially an Order under Section 32 (2) (c) of A & C Act, 1996 and not under Section 38 of A & C Act, 1996 as stated by the learned Arbitrators.
29. The Order dated 07th November, 2017 had further stated that the tenure of the Arbitral Tribunal was for a period of 12 months which got over on 23rd October, 2017. Though the parties had verbally agreed for further extension by six months, but no letter of extension was received from either party.
30. It is evident from this Order that the proceedings vide Order dated 07th November, 2017 were not only terminated on account of non-deposit of fee by the parties under Section 32 (2) (c) of A & C Act, 1996 but also it was noted that the mandate of the Arbitral Tribunal had come to an end due to efflux of time.
31. This is further corroborated from the Response dated 06th November, 2020 of the Arbitral Tribunal, in response to Application dated 02nd November, 2020 of the petitioner wherein again, it was reiterated that the mandate of the Arbitral Tribunal has got terminated and since no further extension has been granted in terms of Section 29A(4) of A & C Act, 1996, the Arbitral Tribunal does not exist as on date.
32. It is quite evident that the termination of the tenure of the Arbitral Tribunal was on account of efflux of time. Though the Arbitral Tribunal had noted that the fee was not being paid by the parties, but it may be observed on the earlier occasion as well, when the payment was not being made by the Claimant/petitioner. The proceedings before the Arbitral Tribunal was suspended vide Order dated 31st May, 2017. Subsequently, the proceedings were revived by the Arbitral Tribunal when part payments were made by the Claimant, essentially because the mandate of arbitral Tribunal was still subsisting.
33. As discussed, in case the payments are not forthcoming, the Arbitral Tribunal may suspend the proceedings which can be revived on payment of the fee of the Arbitral Tribunal so long as the mandate has not got terminated. The difficulty arises when the Tribunal on account of nonpayment of fees, makes an order under Section 32(2)(c) of A & C Act, 1996 resulting in the mandate of the Tribunal being terminated under Section 32(3) of A & C Act, 1996 or by efflux of time; then unless the termination is recalled and the mandate of Arbitral Tribunal is extended under Section 29A of A & C Act, 1996 which may be done simultaneously, there can be no Order under Sections 14 and 15 of A & C Act, 1996 as has been claimed by the petitioner.
34. In the light of above discussion, it may be held that present case is not under Sections 14 and 15 of A & C Act, 1996, but it is the mandate of the Arbitral Tribunal which needs to be extended under Section 29A of A & C Act, 1996. Once the Arbitral Tribunal is revived by extension of its term, the application for payment to the Arbitral Tribunal can be considered by the Arbitral Tribunal.
35. A query was specifically put to the learned counsel for the petitioner that it is not a case of termination under Sections 14 and 15 of A & C Act, 1996, but it is a case where the proceedings before the Arbitral Tribunal have got terminated due to efflux of time and essentially, an Application under Section 29A of A & C Act, 1996 needs to be made for extending the tenure of the Arbitral Tribunal.
36. Though despite pointing it out specifically, learned counsel for the petitioner has insisted on this application being dealt with under Sections 14 and 15 of A & C Act, 1996 which is not attracted in this case, but no party can be left to suffer on account of technicalities.
37. Therefore, the present petition is treated to be under Section 29A of A & C Act, 1996 and the mandate of the Arbitral Tribunal is extended by 12 months from the date of the Order.
38. The parties are at liberty to move their application for payment of the fee of the Arbitral Tribunal, so that the Arbitral Tribunal may be able to proceed further with the proceedings in accordance with law.
39. Accordingly, the petition is allowed in the above terms.
JUDGE OCTOBER 20, 2022 S.Sharma