Full Text
HIGH COURT OF DELHI
Date of
JUDGMENT
STERLITE TECHOLOGIES LIMITED ..... Petitioner
Through Mr Rajiv Tyagi, Mr Abhinav Mukherji, Mr Rohit Gupta and
Mr Rahul Tyagi, Advocates.
Through Ms Ruchi Gour Narula, Ms Sangeeta Sondhi and Ms Surbhi
Mehta, Advocates.
1. The petitioner has filed the present petition under Section 11(6) of the Arbitration & Conciliation Act, 1996 (hereinafter the ‘A&C Act’), inter alia, praying as under: “a) Appoint the Arbitrator named in the request for arbitration or any other suitable person, as Arbitrator to adjudicate the disputes between the Petitioner and the Respondent under the Tender No. CA/CNP/NFS/OFC/T-441-2013 issued on 21.6.2013 and the Purchase Order No. CT/PO/02/2014-15 dated 24.7.2014.” 2021:DHC:2679
2. On 21.06.2013, the respondent (hereinafter ‘BSNL’) issued a Notice Inviting Tender (NIT) for the ‘procurement, supply, trenching, laying, installation, testing and maintenance of Optical Fiber Cables, P.L.B., duct and accessories for construction of exclusive Optical NLD backbone and optical access routes on turnkey basis for Defence Network’ (Tender No. CA/CNP/NFS/OFC/T-441-2013).
3. The petitioner submitted its bid pursuant to the aforesaid NIT quoting an amount of ₹1810.57 crores for execution of the works and was declared the lowest bidder (L[1]) for Package-A in the State of Jammu & Kashmir.
4. After negotiations between the parties, the petitioner offered certain discounts and BSNL issued an Advance Purchase Order (APO) dated 30.06.2014 to the petitioner at a value of ₹1640.57 crores. Thereafter, on 24.07.2014, BSNL issued a Purchase Order (PO) for supply and execution of the works for the aforesaid value, after taking into account, the discount of ₹170 crores offered by the petitioner.
5. One of the controversies that has arisen between the parties in respect of the aforesaid contract is in respect of the ‘depth penalty’ levied by BSNL. It is the petitioner’s case that the tender did not contemplate that the petitioner would make trenches of the depth as claimed by BSNL. The petitioner contends that the tender sufficiently indicated that the depth of trenches would depend on the condition of the soil, which was classified as rocky and non-rocky.
6. The petitioner claims that in case of rocky soil, the depth of the trench, to be dug for laying the cables, was stipulated to be lower as compared to the depth that was required to be dug in case of non-rocky soil.
7. The petitioner claims that a substantial amount has been withheld by BSNL from the payments due to the petitioner, as BSNL has levied the ‘depth penalty’ on account of the alleged default on the part of the petitioner in laying trenches of lower depth which was lower than as purportedly agreed in terms of the contract between the parties. The petitioner also claims that it had specifically requested for relaxation of the depth requirement in certain areas where it had encountered hard rock strata, however, no written decision in this regard has been rendered by BSNL.
8. As the disputes raised by the petitioner remained unresolved, on 11.07.2018, the petitioner issued a notice calling upon BSNL to immediately resolve the said issue, failing which, to refer the disputes to arbitration. The petitioner issued another notice dated 24.08.2018 reiterating the same. However, BSNL has not taken any steps for appointment of an arbitrator or reference of disputes to arbitration.
9. BSNL does not dispute that it had issued a Purchase Order and the terms and conditions of the contract between the parties include an agreement to refer the disputes to arbitration.
10. The Arbitration Clause as contained in General Conditions of the Contract (GCC) as forming a part of the contract between the parties is set out below: “71. Arbitration 71.[1] In the event of any question, dispute or difference arising under this agreement or in connection there-with (except as to the matters, the decision to which is specifically provided under this agreement up to the installation and commissioning stage), the same shall be referred to the sole arbitration of the CMD, BSNL or in case his designation is changed or his office is abolished, then in such cases to the sole arbitration of the officer for the time being entrusted (whether in addition to his own duties or otherwise) with the functions of the CMD, BSNL or by whatever designation such an officer may be called (hereinafter referred to as the said officer), and the if the CMD, BSNL or the said officer is unable or unwilling to act a such, then to the sole arbitration of some other person appointed by the CMD, BSNL or the said officer. The agreement to appoint an arbitrator will be in accordance with the Arbitration and Conciliation Act,
1996. There will be no objection to any such appointment on the ground that the arbitrator is a Government Servant or that he has to deal with the matter to which the agreement relates or that in the course of his duties as a Government Servant he has expressed his views on all or any of the matters in dispute. The award of the arbitrator shall be final and binding on both the parties to the agreement. In the event of such an arbitrator to whom the matter is originally referred, being transferred or vacating his office or being unable to act for any reason whatsoever, the CMD, BSNL or the said officer shall appoint another person to act as an arbitrator in accordance with terms of the agreement and the person so appointed shall be entitled to proceed from the stage at which it was left out by his predecessors. 71.[2] The arbitrator may from time to time with the consent of both the parties enlarge the time frame for making and publishing the award. Subject to the aforesaid Arbitration and Conciliation Act, 1996 and the rules made there under, any modification thereof for the time being in force shall be deemed to apply to the arbitration proceeding under this clause. 71.[3] The venue of the arbitration proceeding shall be the office of the CMD, BSNL or such other places as the arbitrator may decide. 71.[4] The venue of the arbitration proceeding shall be office of Arbitrator appointed by the Ministry of Defence (MoD) or such other places as the arbitrator may decide.”
11. Ms Narula, learned counsel appearing for BSNL, states that there is no dispute as to the existence of an agreement to refer the disputes to arbitration in terms of Clause 71 of the GCC. She, however, submits that the said clause does not cover the disputes sought to be raised by the petitioner. According to her, the same constitute excepted matters. She drew the attention of this Court to the words in parenthesis in the opening sentence of Clause 71.[1] – “except as to the matters, the decision to which is specifically provided under this agreement up to the installation and commissioning stage” – and submitted that the said clause carves out an exception in respect of certain matters. Such matters, in respect of which a decision is specifically contemplated under the Agreement up to the installation and commissioning stage are not arbitrable.
12. Ms Narula relied upon Clause 96.4.[6] of the GCC, which provides that the decision of the Engineer-in charge shall be final in respect of measurements in certain cases. Clause 96.[4] reads as under: “96.[4] Method of measurement. The measurement of the work shall be done activity-wise as and when the item of work is ready for measurement. The methods of measurement of various items are enumerated as under: 96.4.[1] Measurement of Depth of Trenches. The cable route shall be divided into a number of segments each of maximum 200 Meters length bounded by identifiable landmarks at both the ends of the segments. If landmarks are not available, length of segment may be maintained at 200 Meters. The measurement of depth shall be recorded at each point of measurement (POM) in the measurement book in Meters in the multiples of 5 cms. For example 97 cms will be recorded as 95 cms and 103 cms as 105 cms. The points of measurements shall be a distance of 10 Meters starting from 0 (Zero) Meter. For example, if the length of segment is 75 Meters, the POMs shall be at 0 M, 10 M, 20 M, 30 M, 40 M, 50 M, 60 M, and 70 M. The last POM shall be at 75th to be recorded against residual POM. Normally the workers tend to dig shallow trenches due to effort involved. As standard depth of the trench is important for future life and protection of cables, this tendency has to be discouraged. In order to discourage the bidder to provide less depth due to site constraints, the following scale of payment shall be applied for digging trenches:- Payment = Approved rate x (Actual Depth in cm/165) Note: However, bidder shall take prior permission of BSNL and PICG for digging lesser depth based on site constraints such as rocky areas, presence of pipelines, power cables etc. 96.4.[2] In case of lesser depth the bidder shall compulsorily provide adequate protection to offset the reduced depth in the following manner 96.4.2.[1] 0 Cms. to 30 Cms. No Permission 96.4.2.[2] 30 Cms. to 60 Cms. GI Pipe class B (nominal bore 65 mm) with Concrete Work. 96.4.2.[3] 60 Cms. to 120 Cms. DWC 96.4.2.[4] ≥120 cm. No protection 96.4.[3] Measurement of lengths and profiles of strata and protection. The measurements of length of trenches are on running Meter basis, irrespective of type of soil encountered while digging. The type of protection utilized (item code - wise) to include RCC Half Round and Full Round Pipe, DWC HDPE Pipe, GI Pipe, MS Weld Mesh etc in a segment shall be recorded in the measurement book in the sheet provided for this purpose. 96.4.[4] Measure of length of cable. The length of cables laid in trenches, through pipes and through ducts shall be measured by use of OTDR. The payment for Services component shall be made as per the RODO Meter readings and not as per the OTDR readings. The length should be crossverified with the marking of lengths on the cables. The lengths shall be recorded in sheet provided in the measurement book. 96.4.[5] Measurement of other items. The measurement/ numerical details of other items shall be recorded in the sheets provided for respective items viz. 96.4.5.[1] Digging of joint pit/manholes and preparation of chambers along with details of its dimensions and location. 96.4.5.[2] Fixing, Painting and sign writing of route/joint indicators. 96.4.5.[3] Location and Marking of Electronic Route Indicators. 96.4.5.[5] Record splice loss details for each joint. 96.4.[6] The bidder shall sign all the measurement recorded in the measurement book. This will be considered as an acceptance by the bidder, of measurements recorded in the MB. In case bidder fails to attend at the measurements or fails to countersign or to record the difference within a week, than in any such events the measurements taken by Engineer-incharge, PICG and or by the subordinate as the case may be shall be final and binding on the bidder and the bidder shall have no right to dispute the same. 96.4.[7] Measurement of the work of cable for calculation of services portion will be taken equal to the length of the pipe/ duct (as measured in the RODO meter) through which the cable has been pulled and not the total length of the cable pulled through pipe/duct.” (emphasis supplied)
13. She submitted that the disputes between the parties essentially relate to the measurement of the depths of the trenches dug by the petitioner. The trenches laid by the petitioner were of a depth lower than as agreed, resulting in the levy of “depth penalty”. The said disputes were clearly excepted matters and were not arbitrable. She further submitted that the payments made to the petitioner for the work done commensurate with the depth of trenches made by the petitioner and, the disputes now sought to be raised are directly relatable to the measurement of the depth of the trenches that have been laid. She submits that the said dispute is not arbitrable because the decision of the Engineer In-Charge in this regard, is final.
14. Mr Tyagi, learned counsel appearing for the petitioner, countered the aforesaid submissions. He states that the disputes between the parties do not fall within the scope of the excepted matters. He states that the principal disputes relate to the ‘depth penalty’ levied by BSNL. He referred to Clauses 130.[4] and 130.4.[2] of the GCC, which expressly indicate that there are depths of trenches that are required to be dug are variable. He also referred to Clauses 3.3, 4.1, 4.3, 6.1.1. of Appendix ‘J’ to the NIT, in support of his contention that there is no fixed depth to which a trench has to be dug; the same depends on the strata of the soil. Thus, apart from the dispute regarding the depths of the trenches laid by the petitioner, the dispute, essentially, is whether any penalty can be levied on the petitioner on account of the depth of trenches which is lower than as purportedly agreed.
15. He states that, in addition, the petitioner was also entitled to apply for a waiver of the requirement of digging a trench up to a particular depth for technical reasons. He submits that the depth of the trenches dug by the petitioner is not dispositive of the disputes raised by the petitioner.
16. In terms of Section 11(6A) of the A&C Act, the scope of examination is confined to examining the existence of an agreement to refer the disputes to arbitration.
17. There is merit in Ms Narula’s contention that the question as to existence of an arbitration agreement also needs to be addressed in reference to the disputes in respect of which an Arbitral Tribunal is sought to be constituted. However, the standards of such examination do not require this Court to undertake any extensive adjudicatory exercise. Unless the disputes are, ex-facie, not arbitrable, this Court would appoint an Arbitral Tribunal and relegate the parties to agitate their disputes, at least at the first instance, before the concerned Arbitral Tribunal. The doctrine of kompetenz-kompetenz implies that the Arbitral Tribunal is fully competent to determine the question relating to its own jurisdiction.
18. In Duro Felguera, SA v. Gangavaram Port Ltd.: (2017) 9 SCC 729, the Supreme Court held as under: “48. Section 11(6-A) added by the 2015 Amendment, reads as follows: “11. (6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement. From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. ********************
59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267: (2009) 1 SCC (Civ) 117. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists— nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.”
19. Following the aforesaid decision, the Supreme Court in Mayavati Trading Pvt Ltd v. Pradyuat Deb Burman: (2019) 8 SCC 714, held as under:
20. In Vidya Drolia v. Durga Trading Corporation: (2021) 2 SCC 1), the Supreme Court has clarified that in certain cases where it is, ex facie, apparent that the disputes are not arbitrable, the Court would refrain from referring the parties to arbitration (under Section 8 of the A&C Act) or from appointing an Arbitrator (under Section 11 of the A&C Act) as the same would be an exercise of futility. However, the Supreme Court also referred with approval a passage from the judgment of this Court in NCC Ltd. v. Indian Oil Corporation Ltd.: 2019 SCC OnLine Del 6964, whereby the Court had explained that “unless it is in a manner of speech, a chalk and cheese situation or a black and white situation without shades of grey, the concerned court hearing the Section 11 petition should follow the more conservative course of allowing parties to have their say before the arbitral tribunal”.
21. In Bharat Sanchar Nigam Ltd. And Ors. v. Nortel Networks India Pvt. Ltd.: SLP (C) No. 1531-32/2021 decided on 10.03.2021, the Supreme Court had referred to its earlier decision and held as under: “36. In a recent judgment delivered by a three-judge bench in Vidya Drolia v. Durga Trading Corporation MANU/SC/0939/2020: (2021) 2 SCC 1, on the scope of power under Sections 8 and 11, it has been held that the Court must undertake a primary first review to weed out “manifestly ex facie non-existent and invalid arbitration agreements, or non-arbitrable disputes.” The prima facie review at the reference stage is to cut the deadwood, where dismissal is bare faced and pellucid, and when on the facts and law, the litigation must stop at the first stage. Only when the Court is certain that no valid arbitration agreement exists, or that the subject matter is not arbitrable, that reference may be refused. In paragraph 144, the Court observed that the judgement in Mayavati Trading had rightly held that the judgment in Patel Engineering had been legislatively overruled. Paragraph 144 reads as:
144. As observed earlier, Patel Engg. Ltd. Explains and holds that Sections 8 and 11 are complementary in nature as both relate to reference to arbitration. Section 8 applies when judicial proceeding is pending and an application is filed for stay of judicial proceeding and for reference to arbitration. Amendments to Section 8 vide Act 3 of 2016 have not been omitted. Section 11 covers the situation where the parties approach a court for appointment of an arbitrator. Mayavati Trading (P) Ltd., in our humble opinion, rightly holds that Patel Engg. Ltd. Has been legislatively overrules and hence would not apply even post omission of Sub-section (6- A) to Section 11 of the Arbitration Act. Mayavati Trading (p) Ltd. has elaborated upon the object and purposes and history of the amendment to Section 11, with reference to Sub-section (6-A) to elucidates that the section, as originally enacted, was facsimile with Article 11 of the Uncitral Model of law of arbitration on which the Arbitration Act was drafted and enacted. (emphasis supplied) While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the Courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere “only” when it is “manifest” that the claims are ex facie time barred and dead, or there is no subsisting dispute.”
22. In the facts of the aforesaid case, this Court is unable to accept that ex facie, the disputes raised are not arbitrable and the controversy raised by the petitioner with regard to the arbitrability of disputes falls within the standards of examination under Section 11 of the A&C Act.
23. In view of the above, this Court considers it apposite to allow the present petition.
24. Accordingly, this Court proposes to appoint Justice (Retd.) Badar Durrez Ahmed, former Chief Justice of Jammu & Kashmir High Court (Mobile No. 7042205786) as the Sole Arbitrator to adjudicate the disputes between the parties.
25. The parties are at liberty to approach the learned Arbitrator for eliciting his consent and necessary disclosure as required under Section 12(1) of the A&C Act. Let the same be furnished to this Court before the next date of hearing.
26. List on 22.09.2021.
VIBHU BAKHRU, J AUGUST 31, 2021 nn