Full Text
HIGH COURT OF DELHI
Date of Decision: 18th January, 2022
EGIS INDIA CONSULTING ENGINEERS PRIVATE LIMITED..... Appellant
Through: Mr. Nakul Deewan, Senior Advocate with Mr. S.K. Virmani, Mr. Ashish Virmani, Mr. Harsha Gollamudi and
Ms. Neelu Mohan, Advocates.
Through: Mr. Puneet Taneja, Advocate with Ms. Laxmi Kumari and Mr. Manmohan Singh Narula, Advocates.
JUDGMENT
SANJEEV NARULA, J. (Oral):
1. The present appeal has been preferred under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 [hereinafter, “the Act”] assailing the Order dated 10th January, 2022 passed by the Sole Arbitrator, wherein the application filed by the Appellant (Claimant at Arbitration) under Section 17 of the Act was rejected – to the extent of declining stay of the impugned termination notice dated 13th April, 2021. 2022:DHC:310 FACTUAL BACKGROUND
2. The Appellant-Egis India Consulting Engineers Private Limited [hereinafter, “EGIS”] was the successful bidder for providing a consultancy service for planning, designing and commissioning of a proposed Heliport and related infrastructure at Sector-36, Rohini, Delhi [hereinafter, “Project”]. In this regard, a letter of award dated 4th November, 2011 was issued to EGIS, followed by execution of an Agreement dated 29th November, 2011 between EGIS and the Respondent-Pawan Hans Limited [hereinafter, “PHL”].
3. In terms of the said Agreement, EGIS issued two bank guarantee(s) for Rs. 11,27,836.3/- and Rs. 2,00,000/- respectively, in favour of PHL. EGIS contends that construction of the Heliport has been long complete and PHL has been operating the same after its inauguration in and around January/ February, 2017. EGIS also contends that no proper completion certificate has been issued, despite having fulfilled all obligations under the Agreement. EGIS had called upon PHL to release the afore-noted bank guarantees and settle its outstanding dues under invoices raised from time to time. PHL, however, retained the bank guarantees and unilateral granted extensions to EGIS, without there being any work to be performed. Besides, to avoid payments, PHL issued show-causes notices. In this background, EGIS invoked arbitration on 18th March, 2021 for adjudication of disputes relating to non-payment of the dues and for the release of the bank guarantee.
4. PHL issued the impugned ‘termination notice’ on 13th April, 2021, whereby EGIS was called upon to make a payment of Rs. 31.96 Crores within two weeks. The said notice, also invoked Clause 2.9.1(a) of the GCC, which forms part of the terms and conditions of the letter of award.
5. EGIS responded to the said communication vide reply dated 27th April, 2021 and controverted the allegations made by PHL and disputed the “illegal” termination notice, and further, sought a reference of the disputes to arbitration.
6. EGIS then approached this Court under Section 9 of the Act[1] and inter alia sought a stay on the operation of the impugned termination notice. In the said petition, this Court vide order dated 29th April, 2021, granted an interim stay on the operation of the said termination notice. Subsequently, on EGIS’ application under Section 11 of the Act, this Court vide order dated 20th July, 2021 appointed an Arbitrator, and also simultaneously, disposed of the petition under Section 9 of the Act by directing that the same would be treated as one under Section 17 of the Act to be adjudicated by the Arbitrator. Till such time, the afore-noted interim order passed by the Court dated 29th April, 2021, was directed to remain operational.
7. In this background, the Arbitrator passed the impugned Order finding no legal foundation to stay the operation of the impugned termination notice. However, at the same time, invocation of the bank guarantees was stayed during pendency of the arbitration proceedings. In O.M.P.(I) (COMM) 148/2021.
8. EGIS is aggrieved with the rejection of the prayer qua stay of termination notice.
CONTENTIONS BY EGIS [APPELLANT]
9. Mr. Nakul Dewan, Senior Counsel for EGIS, assails the impugned Order on several grounds. Mr. Dewan submits that there is a specific provision qua termination under the Agreement binding the parties, which has not been appreciated by the Arbitrator, and therefore, there is perversity in the impugned Order. The said clause reads as follows: “2.9.[6] DISPUTE ABOUT EVENS OF TERMINATION If either party disputes whether as event specified in paragraphs (a) through (e) of clause GC 2.9.[1] or in the clause GC 2.9.[2] hereof has occurred, such party may, within 45 days after receipt of notice of termination from the other party, refer the matter to arbitration pursuant to clause GC 8 hereof, and this contract shall not be terminated on account of such event except in accordance with the terms of any resulting arbitral award.”
10. Mr. Dewan argues under the afore-noted provision, if either party disputes the notice of termination within 45 days of the receipt thereof – the Agreement shall not be terminated on account of such event, except in accordance with the terms of any resulting arbitral award. He emphasises that the impugned termination notice was duly disputed by EGIS vide letter dated 27th April, 2021 i.e., well-within 45 days from the date of the termination notice. The arbitrator also failed to consider the Order dated 29th April, 2021 passed by this Court, which stayed the termination of the contract in view of Clause 2.9.[6] of the contract. Moreover, the dichotomy in the impugned Order is evident from the fact that on the one hand, the Arbitrator stayed the invocation of bank guarantees on the ground that it is yet to be seen whether the termination of the contract is legally valid, and on the other hand, despite the validity of the termination not being certain and EGIS having challenged the same within the stipulated timeframe of 45 days, the Arbitrator failed to stay the termination letter. In passing the impugned order, the Arbitrator has failed to appreciate that as a creature of the Agreement, the Arbitrator is bound by the terms of the Agreement and should have taken the same into consideration, before passing the impugned Order. Thus, in light of the aforenoted stipulation, till such time the Arbitrator adjudicates upon the grounds of termination, the termination order ought to be stayed.
11. It is further argued that the Arbitrator has completely erred in holding the ‘termination notice’ to be a “termination order”. It is submitted that the Arbitrator entered into a hair-splitting exercise to distinguish between ‘termination notice’ and ‘termination order’, which was totally an incorrect interpretation of the terms of the Agreement as also the impugned termination notice. The Arbitrator also failed to appreciate that the notice dated 13th June, 2019 was a “show-cause notice”, and not a ‘termination notice’ under Clause 2.[9] of the Agreement. The ‘termination notice’ is effectively the same as the ‘termination order’, but completely misunderstood by the Arbitrator. This is because termination notice would have the same effect as the termination order i.e., to terminate the Agreement, and not to issue a show-cause notice. Lastly, Mr. Dewan further submits that EGIS successfully completed its obligations under the Agreement and has no objection to PHL engaging other consultants, but, if the effect of the impugned termination order is not stayed, it would seriously prejudice EGIS – especially, wherever EGIS would participate in any further bids floated by any Public Sector Undertakings (“PSUs”) and other parties.
CONTENTIONS BY PHL [RESPONDENT]
12. Mr. Puneet Taneja, counsel for PHL, on the other hand, defends the impugned Order and submits that the Agreement between the parties is determinable in nature, and therefore, PHL was well within its right to terminate the same. He submits that the Arbitrator’s view is completely in consonance with the judicial precedents and well-established legal principles relating to determination of commercial contacts. Mr. Taneja further submits that there were sufficient grounds for PHL to invoke Clause 2.9.[1] of the Agreement. He refers to the communications exchanged between the parties in this regard, which according to him, started much earlier in time. He explains that sufficient opportunities were given to EGIS to cure the defaults, before PHL finally terminated the Agreement. He submits that nevertheless now that the Agreement has been terminated, EGIS cannot seek any enforcement pending adjudication of the dispute. The Order – granting a stay of the termination – would amount to specific enforcement of the Agreement, which is not permissible in view of the provisions of the Specific Relief Act, 1963.
13. Mr. Taneja further also emphasises that the show-cause notices dated 11th July, 2018, 23rd May, 2019 and 13th June, 2019 were all issued under Clause 2.9.1, and EGIS, at that stage, could have invoked Clause 2.9.6, but chose not to do so.
ANALYSIS
14. The Court has considered the submissions of the parties. In the opinion of the Court, Mr. Dewan’s contention that EGIS is entitled to a stay of the termination notice, pending adjudication of arbitral disputes, is devoid of merit. This contention is premised on an incorrect interpretation of Clause 2.9.[6] extracted above. The said clause only provides that if either party disputes the occurrence of an event specified in paragraphs (a) through (e) of Clause 2.9.[1] or in Clause 2.9.2, it can within 45 days after receipt of termination notice from the other party, refer the matter to arbitration. In such eventuality, the Agreement shall not be terminated on account of the alleged event, except in accordance with the terms of any resulting arbitral award. The said clause nowhere provides that pending adjudication of arbitral disputes, the Agreement will continue to subsist or remain in force. Clause 2.9.[6] only enables either party to dispute the event/ cause for termination and seek reference to arbitration. Thereafter, the final decision would be that of the Arbitrator. It cannot be construed that just because the termination event is disputed, the same is not binding. The decision of termination is of the parties and legality thereof, is of course, subject to the decision of the Arbitrator. In other words, whether the action of termination is justified, would ultimately have to be determined by the Arbitrator. Further, it must also be noted that under Clause 2.9.1(f) of the Agreement, PHL has a right of termination at its sole discretion, for any reason whatsoever. The said clause reads as follows: “ 2.9.[1] BY THE CLIENT: The client may be not less than (30) days written notice of termination to the consultants (except in the event listed in paragraph (f) below, for which there shall be a written notice of not less than forty five (45) days, such notice to be given after the occurrence of the events specified in the paragraph (a) through (f) of this clause GC 2.9.[1] terminate this contract. […] (f) If the client, in its sole discretion and for any reason whatsoever, decides to terminate this contract.”
15. The aforesaid clause clearly makes it abundantly clear that the Agreement is determinable in nature and that PHL is entitled to unilaterally terminate the Agreement, without assigning any reason. Since the Agreement is determinable, it is not capable of being specifically enforced, and thus, no injunction can be granted even otherwise.
16. Next, the Court finds no merit in the contention of Mr. Dewan that the Arbitrator has failed to consider the interim order dated 29th April, 2021, passed by this court under Section 9 of the Act. The said order was at an interim stage and rendered on a prima facie basis. The same has been considered by the Arbitrator, as noted in the impugned Order, however, on consideration of the entire gamut of the case, he did not find merit in the EGIS’ case. The Arbitrator was even otherwise, required to examine the case afresh, uninfluenced by the observations made in the interim order.
17. For the foregoing reasons, the Court does not find any ground to interfere with the impugned order.
18. That said, it is noticed that EGIS is in fact, not even pressing for an order to seek an enforcement of the contractual obligations. This becomes clear in view of the specific pleadings to that effect, as contained in their written submissions filed before the Arbitral Tribunal, which reads as follows: “17. The balance of convenience lies in favour of the Claimant since in case the interim orders prayed herein are not granted, the Petitioner will suffer a huge loss in the form of potentially huge consultancy contracts due to the purported termination of the Agreement and the disclosure thereof in all future bids by the Petitioner. However, grant of the interim orders herein will not cause any loss or damage to the Respondent. It has been specifically clarified by the Claimant that while the construction of the Project is complete in all respects and helicopters take-off from the helipad without any issue or problem whatsoever, the Claimant has no objection to the Respondent appointing any other consultant for the purported repairing of any part of the Project. In any case, the Claimant is only a consultant and not the contractor. Thus, in case the interim orders prayed herein are not granted, the Petitioner is likely to suffer incalculable damage to its reputation, while the Respondent will not suffer any such damage. The Claimant has specifically pleaded that the balance of convenience lies in its favour in para 39 page 34 of the section 9/section 17 application.” [Emphasis Supplied]
19. The above-noted extract makes it clear that the EGIS’ grievance is essentially that till such time the Arbitrator adjudicates upon the legality of termination, EGIS should not be prejudiced qua future contracts. On this limited aspect, it is notice that the termination notice specifically invokes Clause 2.9.1(a) of the Agreement, which is undoubtedly disputed in view of EGIS’ reply dated 27th April, 2021. Now, this precise question is pending final adjudication before the Arbitrator. Therefore, till such time the Arbitrator would decide this question and come to the conclusion whether the ground of termination is indeed valid or not, no view can be expressed as to whether the cause for termination is valid or not.
20. However, merely because EGIS intends to enter into future contracts, the same cannot be taken as a ground to stay the termination. The future contracts that may be executed by EGIS is not a subject-matter of adjudication in arbitration, and therefore, the plea of financial implication also does not justify stay of termination. The Court can only observe that since the termination notice is pending adjudication before the Arbitral Tribunal, till such time a final view is taken, it would not prejudice EGIS in future contracts.
21. Before parting, it must also be noted that Mr. Taneja also argued that in view of the termination, PHL would now be floating a fresh tender for appointing a third-party at the costs and risk of EGIS. EGIS obviously can have no grievance, which is clear from the pleadings extracted above. Any issue relating to award of work to a third-party, which relates to the fulfilment of EGIS’ obligations or termination of the Agreement, would of course have to be adjudicated by the Arbitral Tribunal. The Court can make no observation on the same.
22. In view of the above, the present petition is dismissed. The pending application also stand disposed of.