North East Engineering and Construction v. Brahmaputra Cracker and Polymer Limited

8. No response having been received from the respondent within a period of 30 days of the said notice, the petition asserts that the efforts in conciliation had failed, resulting in the petitioner being entitled to invoke the provision for arbitration. Accordingly, on 14th September, 2019, notice, invoking Clause 107.[1] of the General Conditions of Contract, providing for arbitration, was issued by the petitioner to the respondent. The respondent was, therefore, requested to suggest a panel of three independent persons, from whom the petitioner could select one to act as a sole arbitrator to arbitrate on the disputes.

9. The respondent replied on 24th February, 2020 taking a stand that the invocation of arbitration by the petitioner was premature, to which the petitioner submitted a response on 18th March, 2020 followed by a reminder on 30th May, 2020.

10. It is in these circumstances that, on 1st July, 2020, the petitioner has filed the present petition before this Court seeking intervention by this Court under Section 11(6) of the 1996 Act, to appoint an arbitrator to arbitrate on the disputes between the petitioner and the respondent.

11. Mr. N.L. Ganapathi, learned counsel for the respondent, seriously opposes the request. He has specific, and distinct, objections, qua Claims II and III and qua Claims I, IV to IX, of the nine enumerated claims of the petitioner. Essentially, Mr. Ganapathi contends that Claims II and III are premature, whereas Claims I, IV to IX are not arbitrable in view of Clause 91.[1] of the GCC, which reads thus: “91.[1] Should the CONTRACTOR consider that he is entitled to any extra payment for any extra/additional WORKS or MATERIAL change in original SPECIFICATIONS carried out by him in respect of WORK he shall forthwith give notice in writing to the ENGINEER- IN-CHARGE that he claims extra payment. Such notice shall be given to the ENGINEER-IN-CHARGE upon which CONTRACTOR bases such claims and such notice shall contain full particulars of the nature of such claim with full details of amount claimed. Irrespective of any provision in the CONTRACT to the contrary, the CONTRACTOR must intimate his intention to lodge claim on the EMPLOYER within 10 (ten) days of the commencement of happening of the event and quantify the claim within 30 (thirty) days, failing which the CONTRACTOR will lose his right to claim any, compensation/reimbursement/damages etc. or, refer the matter to arbitration. Failure on the part of CONTRACTOR to put forward any claim without the necessary particulars as above within the time above specified shall be an absolute waiver thereof. No omission by EMPLOYER to reject any such claim and no delay in dealing therewith shall be waiver by EMPLOYER of any of this rights in respect thereof.”

12. Qua Claims II and III, Mr. Ganapathi contends that the final bill (which constituted Claim II and to which Claim III also pertained) was deficient in various particulars, as necessary documents were not submitted with the final bill. This compelled the respondent to address communications to the petitioner on 27th February, 2017, 31st July, 2017, 22nd June, 2018 and 27th October, 2018, requiring the petitioner to submit the requisite documents. He submits that it was only after the issuance of the notice invoking arbitration on 14th September, 2019 that the petitioner, on 3rd October, 2019, submitted the said documents, relating to Claims II and III. Thereafter, he submits that payments, against the said Claims, were released by his client and, by 11th August, 2020, out of the total claim of ₹ 7.[2] crores of the petitioner, as much as ₹ 6.[4] crores already stood released by the respondent. As such, he submits that the very basis of these Claims as ventilated in the petition, stood fundamentally altered by the conduct of the petitioner after issuance of the notice invoking arbitration and the release of the aforesaid amounts by the respondent to the petitioner amounting to partial satisfaction of the claim of the petitioner. Mr. Ganapathi is, however, careful to point out that, as per his client, the entire amount payable to the petitioner, even against the final bill, Claims II and III, stands released, as the amount certified by its Engineer has been released by the respondent to the petitioner. No amount remains to be paid to the petitioner, therefore, in the estimation of the respondent, even qua Claims II and III.

13. In any event, he submits that the present petition does not factor in the developments that took place after issuance of the notice invoking arbitration and cannot, therefore, be maintained at this juncture.

14. Apropos Claims I and IV to IX, Mr. Ganapathi relies on Clause 91.[1] of the GCC, which has already been extracted hereinabove. Mr. Ganapathi points out that Clause 107.1, which provides for resolution of disputes, starts with the words “unless otherwise specified”, thereby making the said Clause subject to Clause 91.1. Clause 91.1, for its part, he points out, permits the contractor to seek recourse to arbitration, in respect of claims relating to “any extra payment for any extra/additional works or material change in original specifications” only after lodging of the claim with the employer within 10 days of the commencement of the happening of the event and quantification of the period of 30 days. This protocol, he submits, was never followed by the petitioner qua Claims I, IV to IX and, therefore, Clause 91.[1] of the GCC specifically proscribed any recourse to arbitration at this stage. Mr. Ganapathi places reliance, in this context, on the following passage, from the judgment of the Supreme Court in Oriental Insurance Co. Ltd. v. Narbheram Power & Steel Pvt. Ltd[1], which was extracted and followed in United India Insurance Co. Ltd. v. Hyundai Engineering & Construction Co. Ltd..[2]

17. The law relating to Section 11(6) of the 1996 Act, and the scope of inquiry and examination by a Court exercising jurisdiction under the said provision, stand exhaustively clarified by the Supreme Court in its recent decision in Vidya Drolia v. Durga Trading Corporation Analysis, which also takes stock, inter alia, of the judgments in Oriental Insurance Company[1] and United India Insurance Company[2] on which Mr. Ganapathi places reliance. The judgment in Vidya Drolia[3] holds that, while exercising jurisdiction under Section 11(6) of the 1996 Act, the Court is required to examine only (i) the existence of an arbitration agreement between the parties, to which the parties are bound and (ii) the existence of an arbitrable dispute. Mr. Ganapathi, very fairly, states that he does not join issue on the existence of an arbitration agreement between the parties, but seriously contests the arbitrability of the disputes being sought to be raised by the petitioner, inter alia, for the reasons already noted hereinabove.

18. I have, this morning, pronounced a detailed judgment in Hero

Electric Vehicles Pvt Ltd v. Lectro e-Mobility Pvt Ltd[4], in which I have examined the exact scope of inquiry by the court, into the arbitrability of the disputes, in the light of the law laid down in Vidya Drolia[3]. The following propositions, according to me, emanate from Vidya Drolia[3]

(i) The ambit of the jurisdiction of the High Court, under

(ii) The parties can be relegated to arbitration, in respect of a dispute regarding which the suit is pending, only if the entire subject matter of the suit is arbitrable under the arbitration agreement between the parties, who are bound by the said arbitration agreement. The cause of action in the suit cannot be bifurcated and referred, in part, to arbitration.

(iii) Section 8 jurisdiction cannot be exercised to compel third parties, who are not privy to, or bound by, the arbitration agreement, to submit themselves to arbitral proceedings. This violates the principle of party autonomy and the consensual nature of arbitral proceedings.

(iv) The arbitrability of the dispute forming subject matter of the suit, and the arbitrability of the claim, are different. A claim may be non-arbitrable because of the scope of the arbitration agreement, not because the subject matter of the claim is essentially not amenable to arbitration. On the other hand, the subject matter of the suit is normally non-arbitrable only if it is not amenable to resolution by arbitration, in law.

(v) Non-arbitrability may be said to exist

(a) where the cause of action, and the subject matter of 2020 SCC OnLine SC 1018 CS (Comm) 98/2020 the dispute, related to actions in rem, which do not pertain to subordinate rights in personam arising from rights in rem, (b) where the cause of action and subject matter of the dispute affects third party rights, or has erga omnes effect, i.e. affects rights owed to all,

(c) where the cause of action and subject matter of the dispute require centralised adjudication, and for which mutual adjudication would not be appropriate or enforceable,

(d) where the cause of action and subject matter of the dispute relate to inalienable sovereign and public interest functions of the State, not amenable to adjudication by the arbitral process, or (e) where the subject matter of the dispute is nonarbitrable by mandatory statutory fiat. These principles are, however, not watertight, and have to be applied with care and caution.

(vi) Specific instances of non-arbitrable disputes are-

(a) insolvency disputes, (b) internal company disputes which have to be addressed by a centralised forum, which would be more efficient and have complete jurisdiction to dispose of the entire matter, being actions in rem,

(c) grant and issue of patents and registration of trademarks being exclusive matters falling within the sovereign or government function, having erga omnes effect, conferring monopoly rights,

(d) criminal cases, as they relate to sovereign functions of the State,

(e) violations of criminal law, as they are offences against the State and not just against the victim, (f) matrimonial disputes relating to dissolution of marriage, restitution of conjugal rights, etc., which have no commercial or economic value and have erga omnes effect, and (g) matters relating to probate or testamentary disposition, which are actions in rem, resulting in a declaration to the world at large.

(vii) Landlord-tenant disputes to be decided as per the

Transfer of Property Act, 1882, are arbitrable, as they (a) pertain to subordinate rights in personam arising from rights in rem, (b) do not normally affects third party rights, or have erga omnes effect, requiring centralised adjudication,

(c) do not relate to inalienable sovereign functions of the State,

(d) are not excepted from resolution by arbitration, by the provisions of the Transfer of Property Act, and (e) result in a resolution which can be executed and enforced like a decree of a civil court.

(viii) The scope of examination by the Court exercising jurisdiction under Section 8 or under Section 11, is prima facie in nature. The Court is not to enter into the merits of the case between the parties. It is only to examine whether the dispute is prima facie arbitrable under a valid arbitration agreement. This prima facie examination is intended to weed out manifestly and ex facie non-existent or invalid arbitration agreements or nonarbitrable disputes, thereby cutting the deadwood and trimming off the side branches, in cases where the litigation cannot be permitted to proceed. The proceedings are preliminary and summary in nature and should not result in a mini-trial. Unless there is a clear case of non-existence of a valid arbitration agreement, or of the dispute being ex facie non-arbitrable, tested on the above parameters, the court should leave these aspects to be decided by a competently constituted arbitral tribunal. Relegation to arbitration should be regarded as a rule, and resolution by the civil court, where a valid arbitration agreement exists and is sought to be invoked by one of the parties, as an exception. The expression “chalk and cheese situation”, as used by this Court has, in this background, been approved by the Supreme Court. “When in doubt,” says Ramana, J., in his concurring opinion, “refer”. (Having said that, the “doubt”, in my view, has to be real and substantial, and not merely an escape route to avoid examining the issue in perspective.)

19. The Supreme Court has, clearly and categorically, held that, it is only where, ex facie, no arbitrable dispute exists between the parties, relatable to the arbitration agreement between them, that the court can refuse to refer the dispute to arbitration, on an application being made by either of the parties to the agreement in that regard.

20. Where an arbitration agreement exists, the general rule is that all disputes which are capable of resolution by arbitration, ought to be referred to the Arbitral Tribunal. The court is not expected, while exercising jurisdiction under Section 11(6), to enter into a detailed analysis of the arbitrability of the disputes, and is to examine the matter from a purely prima facie point of view.

21. Thus viewed, I am unable to agree with Mr. Ganapathi that a case, for rejecting the petitioner’s request to refer Claims I, IV to IX, enumerated in para 1 (supra), to arbitration, under Clause 107 of the GCC, is made out.

22. Insofar as Claims II & III of the aforesaid nine claims are concerned, the only submission of Mr. Ganapathi is that the delay in making payments against the said claims was only because of the delay, on the part of the petitioner, in furnishing the requisite documents along with the final bill. He has invited my attention specifically, in this context, to the following passages from a communication dated 11th “We are thankful to BCPL for agreeing to release an ad-hoc payment of Rs.3.65 crores towards our pending Pre-final bill, Final bill and other claims. Payment of Rs.97,00,000/- has already been received by us on 05.10.2019 against the agreed ad-hoc amount of Rs.3.65 crores. kindly release balance adhoc amount urgently. October, 2019, from the petitioner to the respondent: We acknowledge the fact that the final settlement of our pending Pre-final and Final Bill will be done only when all documents submitted by us to EIL on 04.10.2019 are duly processed by them and forwarded to BCPL after verification and analysis at their end and BCPL also agreed to final settlement immediately thereafter We request BCPL to ensure processing payment of the pending amounts after making the statutory deductions, as and when final proposal is received from EIL. Further, since the final Bill processing is pending for want of verification of our documents and recommendation by EIL, we acknowledge and hereby undertake and declare that with the release of the pending payment, we will not claim interest of any type under any head in our notice invoking arbitration dated 14.09.2019 except the claim of BG/SD amount with interest.” Mr. Ganapathi would seek to contend that the second of the four extracted passages hereinabove, from the letter dated 11th October, 2019, amounts to a tacit acknowledgment, by the petitioner, of the fact that the failure, of the respondent, to make payments against the final bill raised by the petitioner was only owing to the default, on the part of the petitioner, in furnishing the requisite documents. He specifically stresses on the first sentence of the passage, especially the words “we acknowledge the fact that the final settlement of our pending Pre-final and Final Bill will be done only when all documents submitted by us to EIL on 04.10.2019 are duly processed by them….”. According to Mr. Ganapathi, this “acknowledgement”, amounts to an acceptance, by the petitioner, of its default in furnishing requisite documents along with its final bill. Having furnished documents after issuing notice invoking arbitration on 14th September, 2019, and payments having been released to the petitioner by the respondent thereafter, leaving a balance of a little over ₹ 80 lakhs, Mr. Ganapathi submits that the very basis of the prayer of the petitioner to refer the disputes to arbitration stands eroded.

23. This, in my view, cannot constitute a sufficient ground for me to refuse to refer the disputes to arbitration, qua claims II and III.

24. I am not able to read the passages, extracted hereinabove from the letter dated 11th October, 2019, from the petitioner to the respondent, as amounting ex facie, to an admission of default, on the petitioner’s part, in furnishing requisite documents along with its final bill. Prima facie, all that is stated in the letter is that the final settlement of the final bill would be done only when the documents submitted by the petitioner to the respondent till 4th October, 2019 were processed by the respondent.

25. In any event, the issue of whether there was, or was not, any default, on the part of the petitioner, in furnishing requisite documents with its final bill, can always be decided by a duly constituted Arbitral Tribunal.

26. Ms. Ginny J. Rautray, learned counsel appearing for the petitioner, emphatically refutes the submission that the final bill as deficient in any respect. I am not inclined to enter into this controversy, in exercise of my jurisdiction under Section 11(6) of the 1996 Act.

27. The fact of the matter is that, the final bill was raised, and, till the date of issuance notice invoking arbitration, payments against the final bill were still outstanding. The release of a major portion of the said final bill was, even as per the submission of Mr. Ganapathi, made only after the petitioner had approached this Court by way of present petition under Section 11(6).

28. As such, I am unable to agree with the submission of Mr. Ganapathi that, qua Claims II and III, the present petition is premature.

29. It is always open to the respondent to point out, to the learned arbitrator, that the final bill of the petitioner stands paid in its entirety, and it is equally open to the petitioner to assert otherwise. This is a matter which appropriately ought to be decided by the Arbitral Tribunal, and would, in fact, constitute justification for allowing the request by the petitioner in that regard.

30. Qua Claims I and IV to IX, too, I am unable to accept the submissions of Mr. Ganapathi. Ms. Rautray has pointed out that the claims do not pertain to “extra payment for any extra/additional work or material change in original specifications”, which is what clause 91.[1] of the GCC specifically caters to.

31. On a plain reading, Claims I and IV to IX do not purport to relate to extra payment of the kind contemplated by Clause 91.1. Of course, it would always be open to the respondent to seek to bring, before the learned arbitrator, Claims I and IV to IX as raised by the claimant, within the umbrella of Clause 91.1, and to seek to dispute the very arbitrability of the said claims, premised on Clause 91.1.

32. The entire issue of applicability of Clause 91.[1] to Claims I & IV to IX is, therefore, left open for decision by the learned Arbitral Tribunal. At this juncture, I may only observe that, given the mandate which the claims have been worded, it cannot be said, unexceptionally, that they fall within the ambit of Clause 91.[1] of the GCC and are, therefore, not arbitrable in nature. This, needless to say, is only a prima facie view, and would not bind the arbitrator.

33. I reiterate that the respondent would be at liberty not only to assail the said claims on merits but also qua the arbitrarily in the Arbitral Tribunal, and the Arbitral Tribunal would take an informed decision not only regarding the merits of the claims but also regarding the issue of whether they are arbitrable or not, in view of Clause 91.1. This issue is, therefore, left open for the decision of the Arbitral Tribunal.

34. In view of the above discussion, I am of the opinion that given the limited scope of examination, by this Court, exercising jurisdiction under Section 11 of the 1996 Act, it cannot be said that a prima facie case for rejection of the petitioner’s request for referring the dispute to arbitration, exists.

35. As such, I am not inclined to decline the request to refer the aforesaid Claims I & IV to IX, as enumerated by the petitioner in the petition, to arbitration.

36. Ms. Rautray points out that similar issues between the petitioner and the respondent are presently being arbitrated by Hon’ble Mr. Justice M.L. Mehta (Retd.), a learned retired Judge of this Court.

37. In view thereof, I am of the opinion that it would be in the fitness of things and would also expedite resolution of the dispute if the present dispute is also referred to Hon’ble Mr. M.L.Mehta (Retd.) for arbitration.

38. The learned Arbitrator would fix his fees after consultation with the parties.

39. The respondent would also be at liberty to prefer any counterclaim, if it so chooses, before the learned Arbitrator in accordance with law.

40. The learned Arbitrator would furnish the requisite disclosure under Section 12(2) of the 1996 Act within a week of entering on the reference.

41. This petition stands disposed of in the aforesaid terms and to the aforesaid extent, with no order as to costs.

42. Needless to say, the observations contained in this judgment are only related to the prayer for appointment of the Arbitrator under Section 11(6) of the 1996 Act and should not be treated as an expression of opinion, even tentative, regarding the merits of the case of the parties against each other.

43. All issues and facts in law, including the arbitrability of the disputes being raised by the petitioner, shall remain open for decision by the learned Arbitrator.

C. HARI SHANKAR, J.