TaxTMI 
TaxTMI 
2014 (2) TMI 1252
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....difice of the said arbitration clause stood adhered and on a conjoint reading of original Clause 25 with modification effected by the supplementary agreements, there was no question of arbitration between the appellant and the respondent at this stage. To appreciate this contention, one will have to traverse through the relevant clauses of the main contract as well as supplementary agreements. Thus, we would like to state along with the events, as they occurred, in chorology. In fact, as we proceed to unfurl the events with our comments thereon, there and then we shall be getting answer as well to the issue involved. 2. An agreement dated 29.2.1988 was entered into between the Standing Conference of Public Enterprises (SCOPE) and the appellant namely Larsen & Toubro (L&T Ltd.). This agreement was for construction of Twin Tower Office Complex at Laxmi Nagar District Centre, Delhi which was awarded by the SCOPE to the appellant. Original contract value for this work was stipulated at Rs. 27.48 Crores. Works comprised of the Civil Works and also subsidiary works, that could be ordered from time to time by SCOPE/Architect. This agreement also permitted the appellant to sub-contract. A....
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....r the award which L&T may get in its favour on the subject matter of work." 5. The position which prevailed up to this stage was that for the works undertaken by the respondent, it could receive the payments only when such payments were made by SCOPE to the appellant. Further, all questions and disputes between the appellant and the respondent were to be referred to a sole arbitrator where the claim was up to Rs. 10 lakhs and three arbitrators for claims beyond 10 lakhs. The arbitrator(s) was not supposed to deal with "excepted matters", so stated in the certificates. However, even if the award of the arbitrator/umpire was in favour of the respondent, respondent could not receive payment under the said award unless such a payment was received by the appellant from SCOPE under the award. In that event, the respondent was to provide an opportunity to the appellant to raise those claims with SCOPE. On receiving the payments from SCOPE either under the arbitration award between SCOPE and the appellant or otherwise, the appellant was supposed to honour the award passed in favour of the respondent. In essence, the parties understood that as the Principal/Employer was SCOPE, for whom the....
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....scope of work. The award of the arbitration on all such matters in dispute claims and counter claims relating to the MHB's scope of works shall be binding on both MHB and L&T and all such disputes between MHB and L&T shall be deemed to have been settled accordingly and shall not be referable to arbitration again between MHB and L&T under the agreement." 7. This clause acknowledges the fact that for the work done by the respondent under the sub contract, there could be two kinds of situations. There could be a situation where there would be disputes and differences between the appellant and the respondent for the works done by the respondent. This could be regarding the workmanship or the amounts payable for the work done etc. There could also be a situation where SCOPE is not satisfied with the workmanship or may raise dispute about the quantum of bills etc. resulting into denial of payment or short payment to the appellant for the work undertaken by the respondent under the sub contract. The Clause (viii) in the first supplementary agreement provided that such disputes will be deemed to have been raised jointly between the respondent and appellant on the one side and SCOPE on the....
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....ing the payment from SCOPE under the award, the appellant was to give the money to the respondent as per the award between the appellant and the respondent. It amounted to indulging in double exercise, viz. (1) an arbitration between the parties herein and thereafter another arbitration relating to subject matter between the appellant and SCOPE. (2) In order to rationalize and eliminate the dual exercise, the parties agreed that instead of resorting to arbitration between themselves, both would join together and prefer those claims with SCOPE. This modified process of arbitration, as envisaged in the first supplementary agreement, was much more rationale which appealed to reason. 9. The next event which took place cemented the aforesaid mechanism between the parties. It appears that there were further claims of the respondent which were raised by the appellant with SCOPE. SCOPE agreed to make payments and to apportion those payments between the appellant and the respondent, these two parties entered into another supplementary agreement dated 8.12.1993. The recital to this agreement is of paramount importance for our purposes. It records: "L&T has, therefore, invoked the arbitrat....
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....on of the project shall be in accordance with the terms of first supplementary agreement dated 31.01.1990. Any further arbitration if referred to the owner after completion of the work, the Award arising out of this arbitration shall be share in promotion of the claims referred to the works of each of the parties herein. Clause 16 - The parties further agrees amend and modify clause 25 of the General Conditions of Contract dated 3.3.1988 which deals with settlement of Disputes by Arbitration to the limited extent that in the event of any fresh reference of disputes to arbitration, the Arbitrator or arbitrators as the case may be shall be bound to give speaking award. This Clause 25 is subject to the terms of the first supplementary agreement dated 31.01.1990 which modified the agreement dated 03.03.1988." 12. Following aspects emerge from the reading of these two Clauses: (a) The parties herein agreed to settle the claims between themselves through negotiations, in the first instance. (b) Even if there were disputes between the appellant and the respondent they were only to be identified but could not be referred to arbitration with SCOPE until completion of the project. (....
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.... Court holding that Clause 25 still survived and the arbitral tribunal can be constituted for adjudication of the disputes between the appellant and the respondent. The High Court has further held that though the respondent had nominated its arbitrator, since the appellant had failed to do so in spite of notice, the appellant lost its right to nominate its own arbitrator. For this reason, it is the High Court which has appointed/nominated an arbitrator for the appellant with direction that two arbitrators may appoint presiding arbitrator. 16. While narrating the aforesaid events, we have also commented on the effects of the three supplementary agreements and impact thereof on Clause 25. It is too obvious, from the reading of the relevant clause in the supplementary agreements, that there could not have been any arbitration between the appellant and respondent, at this stage. Clause 25 of the original agreement has undergone material change. The modalities of raising arbitration are completely novated. As per the modified understanding between the parties, which is so eloquently recorded in writing, in the first instance, the claims of the respondent are to be taken up by the appel....
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....s argument may be convincing in so far as equities are concerned. However, merely thereby the legal position which is contractually defined between the parties by way of written agreements does not alter. It would be necessary to record here that when the High Court had passed the impugned orders, the claim had not been made with SCOPE. That may be one of the reasons for the High Court to pass the impugned order. However, the said position has undergone substantial change thereafter. Even after the filing of the Special Leave Petition against the impugned order and grant of leave in the matter, in November 2009, there have been joint meetings of the appellant and the respondent with the officials of SCOPE. Few such meetings took place in April 2012. Pursuant to those meetings, SCOPE had called upon the appellant to complete the residual work rectification so that SCOPE was in a position to settle the final bills, Thereafter in June 2012, after detailed discussion on various issues concerning the project, SCOPE asked the appellant to submit revised final bill. Accordingly, bill dated 16th June, 2012 was prepared by the appellant in consultation with the representatives of the respon....