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2017 (10) TMI 1304
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....s the crucial question arising for consideration in this case. 3. Section 11(6A) added by the 2015 Amendment, reads as follows: 11(6A) 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(6A), 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. 4. On the facts of the instant case, there is no dispute that there are five distinct contracts pertaining to five different works. No doubt that all the works put together are for the expansion of facilities at Gangavaram Port. However, the parties took a conscious decision to....
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....2) An arbitration agreement may be in the form of an arbitration Clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in -- (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration Clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration Clause part of the contract. Section 7(5) deals with incorporation by reference. The words "the reference is such as to make that arbitration Clause part of the contract" are of relevance. Essentially, the parties must have the intention to incorporate the arbitration clause. In M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 S....
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....uld contain a clear reference to the documents containing arbitration clause, (2) the reference to the other document should clearly indicate an intention to incorporate the arbitration Clause into the contract, (3) the arbitration Clause should be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract. (ii) When the parties enter into a contract making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration Clause from the referred document into the contract between the parties. The arbitration Clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause. (iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, an....
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....reads as follows: 47. We, therefore, sum up our conclusions as follows: (i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India Under Section 11(6) of the Act is not an administrative power. It is a judicial power. (ii) The power Under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief Justice of the High Court only to another Judge of that Court and by the Chief Justice of India to another Judge of the Supreme Court. (iii) In case of designation of a Judge of the High Court or of the Supreme Court, the power that is exercised by the designated Judge would be that of the Chief Justice as conferred by the statute. (iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to ....
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....e. (xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd. is overruled. 12. This position was further clarified in National Insurance Co. Limited v. Boghara Polyfab Private Limited (2009) 1 SCC 267 To quote: 22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal Under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application Under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide. 22.1. The issues (first category) which the Chief Justice/his designate will have to decide are: (a) Whether the party making the application has approached the appropriate High Court. (b) Whether there is an arbitration agreement and whether the party who has applied Under Section 11 of the Act, is a party to such an agreement. 22.2. The issues (second category)....
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....reinafter referred to as 'the FGI') for appointment of Signature Not Verified Digitally signed by JAYANT KUMAR ARORA Date: 2017.10.10 17:52:31 IST Reason: Domestic Arbitral Tribunal for resolving the dispute pertaining to the contract awarded to FGI. Arbitration Petition No.31 of 2016 has been filed by M/s. Gangavaram Port Limited (hereinafter referred to as 'the GPL') to appoint an arbitrator under the Memorandum of Understanding (MoU) dated 11.08.2012 and to constitute a single Arbitral Tribunal by a composite reference for adjudication of all the disputes between the parties in connection with the "Works" covered under all the five Package Contracts and the Corporate Guarantee dated 17.03.2012 executed by Duro Felguera. 2. As the parties and issues in both the arbitration petitions and the transferred cases are one and the same, both arbitration petitions and the transferred cases shall stand disposed of by this common order. For convenience, parties are referred to as per their array in Arbitration Petition No.30 of 2016. 3. Brief Facts: The Respondent-Gangavaram Port Limited (GPL) developed a green-field, ultra-modern, all-weather sea-port near Gangavaram ....
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....s general conditions of contract. Each one of the Contract/Agreement for works under split-up Packages contains an arbitration clause namely sub-clause 20.6. Duro Felguera had also entered into a Corporate Guarantee dated 17.03.2012 guaranteeing due performance of all the works awarded to Duro Felguera and FGI. The said Corporate Guarantee had its own arbitration clause namely clause (8). 6. Duro Felguera and FGI have executed a tripartite Memorandum of Understanding (MoU) with M/s Gangavaram Port Limited (GPL) on 11.08.2012. In the said MoU, Duro Felguera and FGI have agreed to carry out the works as per the priority of documents listed therein. Case of GPL is that the MoU dated 11.08.2012 being the latest covers all the five contracts namely New Package No. 4 awarded to M/s Duro Felguera and Packages No. 6 to 9 awarded to FGI. According to GPL, since MoU refers to original Package No. 4 Tender Document (TD) which contains arbitration clause, the Original Package No. 4 TD with its arbitration clause shall be deemed to have been incorporated in the MoU. 7. Case of M/s. Gangavaram Port Limited is that the petitioner-M/s Duro Felguera, S.A. and its Indian Subsidiary-FGI failed to p....
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.... all the works are inter-connected and inter-linked and if there are separate arbitrations for each of the packages, and separate arbitration for New Package No. 4 and the Corporate Guarantee take place, then in each arbitration, the respondent party will blame the lapse on the part of GPL in another Package and thereby attempt to escape liability. It was urged that the appointment of a single arbitral tribunal, under the MoU and the Corporate Guarantee will avoid conflicting awards between the parties, huge wastage of time, resources and expenses; and would be consistent with law and public policy. The learned Senior Counsel further submitted that MoU was executed by Duro Felguera and FGI on 11.08.2012 and the contents of MoU including the priority of the documents referred therein prevail over the contents of the Letters of Award and the Contracts. It was, therefore, submitted that the arbitration clause covered under sub-clause 20.6 of the conditions of contract, which forms part of the "Original Package No. 4 Tender Document" which is incorporated in the MoU shall prevail over the arbitration clause covered under sub-clause 20.6 of the contract for five packages. It was further....
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....d the issues pertaining to the Corporate Guarantee executed on 17.03.2012 by Duro Felguera-the foreign Company, the arbitral tribunal has to be for International Commercial Arbitration. 11. Reiterating the above submissions, Mr. Singhvi, the learned Senior Counsel appearing for Indian subsidiary-FGI contended that by conscious decision and agreement of the parties, Original Package No. 4 (TD) was superseded and five new TDs with different works namely TD for New Package No. 4 and Packages No. 6, 7, 8 and 9 were brought into existence and there were separate Letters of Award and five separate contracts for each one of those split-up packages. It was submitted that each of the contracts contain special conditions as well as general conditions of contract apart from the arbitration clause, (sub-clause 20.6), which is relevant for governing the contractual and arbitral relations between the parties and in case of dispute arising between the parties under any of the respective contracts or the Corporate Guarantee, the aggrieved party would have to invoke the respective arbitration clauses in the respective contracts in question and cannot invoke the MoU dated 11.08.2012. It was further....
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....tion 11(7), no appeal shall lie against such an appointment. Position prior to Amendment Act 3 of 2016 14. Under Section 11(6) of the Arbitration and Conciliation Act, 1996, as it stood prior to Amendment Act 3 of 2016, on an application made by any of the parties, the Chief Justice of the High Court appoints an arbitrator for adjudication. Initially, the line of decisions ruled that the appointment of arbitrator is an administrative order passed by the Chief Justice. In Konkan Railway Corporation Limited and Others v. Mehul Construction Company, (2000) 7 SCC 201, it was held that the powers of the Chief Justice under Section 11(6) of the Arbitration and Conciliation Act, 1996 are of administrative nature and that the Chief Justice or his designate does not act as a judicial authority while appointing an arbitrator. The same view was reiterated in the subsequent judgment of this Court in Konkan Railway Corporation Limited and Another v. Rani Construction Private Limited, (2002) 2 SCC 388. 15. However, in the year 2005, a Constitution Bench of Seven Judges in SBP and Co. v. Patel Engineering Limited and Another, (2005) 8 SCC 618, made a departure from the previous judgments and he....
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....s Section. The amended Section 11 reads as under:- "11. Appointment of arbitrators.- (1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. (2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. (3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. (4) If the appointment procedure in sub-section (3) applies and- (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by *[the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court]. (5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator....
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....son or institution designated by that Court] may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. *[(10) The Supreme Court or, as the case may be, the High Court, may make such scheme as the said Court may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6), to it.] (11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to *[different High Courts or their designates, the High Court or its designate to whom the request has been first made] under the relevant sub-section shall alone be competent to decide on the request. *[(12)(a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in an international commercial arbitration, the reference to the "Supreme Court or, as the case may be, the High Court" in those sub-sections shall be construed as a reference to the "Supreme Court"; and (b) where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in any other arbitration, the reference to "the Supreme Co....
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....nd Co. v. Patel Engineering Ltd., (2005) 8 SCC 618; and National Insurance Co. Ltd. V. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267. Now all preliminary issues have been left for the arbitral tribunal to decide in terms of Section 16 of the Act. 3. The Amending Act has categorically provided in sub-section (6-B) that designation of any person or institution by the Supreme Court or High Court would not be construed as delegation of judicial power. The order passed by a designated person or institution would continue to be regarded as a judicial order. 4. It has been provided is sub-section (7) that the order passed under this section shall not appealable. This change means that finality is attached to the order passed under this section and it would not be subject to further examination by an appellate court. 5. Sub-section (8) has been amended to bring it in conformity with amended section 12 with regard to ensuring independence and impartiality of the arbitrator. Before appointing any arbitrator, a disclosure in writing has to be obtained in terms of section 12(1) of the Act. This is to ensure that the appointed arbitrator shall be independent and impartial and also harmo....
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....tration agreement. Whether there has to be a Single Arbitral Tribunal for 'International Commercial Arbitration' or 'Multiple Arbitral Tribunals'? 20. Original Package No.4 Tender Document for Gangavaram Port Limited Expansion-2011 consisted of "Bulk Material Handling Systems including Engineering, Design, Procurement of Materials, Manufacturing, Supply erection, testing and commissioning of bulk material handling systems including all other associated works and integration of the same with the existing coal handling systems (Package 4-"Works"). By mutual consent and agreement of the parties, Original Package No.4 TD was split into five different Packages-New Package No. 4 [awarded to Duro Felguera (Spanish Company)] and Packages No. 6, 7, 8 and 9 awarded to its Indian subsidiary-FGI. Letters of Award dated 17.03.2012 was awarded to Duro Felguera and FGI for various Packages. Pursuant to Letters of Award, parties have entered into contract agreement on 10.05.2012. These split-up contracts have Volume I-Conditions of Contract; Volume II-Employer's Requirement, Scope of Work, Specifications and Drawings; and Volume III-Schedule of Prices. Five different Packages....
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....on proceeding shall be within the exclusive jurisdiction of court of law at Hyderabad, India. The place of Arbitration shall be Hyderabad and the Language of Arbitration shall be English. The Contractor shall continue to attend to discharge all his obligations under the Contract during pendency of the Arbitration proceedings." 23. Likewise, the four different contract Packages No. 6, 7, 8 and 9 which were awarded to FGI for different works also contain an arbitration clause. Sub-clause 20.6 of Package No.6-Design, manufacture, supply, installation, erection testing, commissioning of Bulk Material Handling Equipments etc., reads as under:- "Sub-Clause 20.6 - Arbitration Any dispute in respect of which amicable settlement has not been reached within the period stated in Sub-Clause 20.5, shall be finally and conclusively settled by Arbitration under the Arbitration and Conciliation Act, 1996 by appointing two arbitrators one by each party and a presiding arbitrator to be appointed by the said arbitrators. Any such arbitration proceeding shall be within the exclusive jurisdiction of court of law at Hyderabad, India. The place of Arbitration shall be Hyderabad and the Language ....
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.... No. 4 TD will still collectively cover all the five Packages to justify constitution of single Arbitral Tribunal. 25. The foreign company-Duro Felguera had executed a Corporate Guarantee dated 17.03.2012 guaranteeing the due performance of all the works awarded to Duro Felguera and FGI. The Corporate Guarantee itself has its own separate and distinct arbitration clause. The arbitration clause of the Corporate Guarantee i.e. clause (8) reads as under: "8. This Corporate Guarantee shall be governed by the Indian Laws. In case of any disputes, the Parties shall endeavor to settle the same amicably. In case of failure to settle the disputes amicably, the same shall be finally settled under the Arbitration and Conciliation Act 1996 of India by appointing two Arbitrators, one by each party and a Presiding Arbitrator to be appointed by the said Arbitrators. The award of the Arbitrators shall be final and binding on the Corporate Company and the Employer. Any such Arbitration proceeding shall be at Hyderabad and within the Jurisdiction of the Court of Law at Hyderabad, Andhra Pradesh, India.The Arbitration shall be conducted in English language." 26. In the Corporate Guarantee, Duro Fe....
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....es, as if it is the Principal Contractor including for the works awarded to the Indian Subsidiary and therefore as per terms of Corporate Guarantee executed by Duro Felguera, there has to be a single arbitral tribunal for all the Packages. 28. As per the terms of Corporate Guarantee, it shall cease on issuance of the performance certificate under all the contracts. Of course, Duro Felguera has given the Corporate Guarantee for all the five contracts viz., New Package No.4, Packages No. 6 to 9. Corporate Guarantee executed by Duro Felguera dated 17.03.2012 also recognizes the split up of the original Package No. 4 Tender Document. As per the terms of the Corporate Guarantee, it is to be invoked only if breach is established in one of the five contracts. Since the Corporate Guarantee by itself has a separate arbitration clause, it cannot be contended that by virtue of the Corporate Guarantee executed by Duro Felguera, there has to be a 'composite reference' of 'International Commercial Arbitration' which would cover all the five Packages. The Corporate Guarantee by Duro Felguera cannot supersede the five split-up contracts and the special conditions of contract there....
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....reference is made to Original Package No.4 TD in MoU, arbitration clause 20.6 must be deemed to have become part of MoU. In support of their contention, learned Senior Counsel Mr. Mukul Rohatgi and Mr. Raju Ramchandran appearing for GPL, placed reliance upon Chloro Controls India Private Ltd. v. Severn Trent Water Purification Inc. and Others (2013) 1 SCC 641. 31. Per contra, the learned Senior Counsel for Duro Felguera and FGI submitted that merely because MoU refers to Original Package No.4 Tender Document, such mere reference cannot lead to an inference of arbitration clause being incorporated as it only depends upon the intention of the Parties. It was further submitted that the Memorandum of Understanding (MoU) is merely a supplementary document which was meant to lay down the priority of documents only to clarify the priority in execution of the work under different Packages. It was further submitted that MoU was neither intended to alter the nature of the rights, responsibilities and obligations of the parties involved in the respective contracts nor does it override the terms of the main contract including the arbitration clauses in the five different packages. 32. In lig....
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....contract between the parties, by reference to such independent document in the contract, if the reference is such as to make the arbitration clause in such document, a part of the contract. ..... 22. A general reference to another contract will not be sufficient to incorporate the arbitration clause from the referred contract into the contract under consideration. There should be a special reference indicating a mutual intention to incorporate the arbitration clause from an - other document into the contract. The exception to the requirement of special reference is where the referred document is not another contract, but a standard form of terms and conditions of trade associations or regulatory institutions which publish or circulate such standard terms and conditions for the benefit of the members or others who want to adopt the same. ...... 24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus: (i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled: (1) the contract should contain a clear reference to the documents containing arbitration clause, (2) the refer....
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....d execution related matters and the parties agreed that the works shall be carried out as per the priority of the documents indicated thereon. Mere reference to Original Package No.4 Tender Document in the sequence of priority of documents (as serial No.4) indicates that the documents Original Package No. 4 TD containing arbitration clause was not intended to be incorporated in its entirety but only to have clarity in priority of the documents in execution of the work. Be it noted that Original Package No.4 TD occurs as Serial No.4 in sequence, after three other documents viz..., "(i) Annexure 1 to the Letter of Award issued for Package No. 4 Contract; and (ii) Annexure III to the Letter of Award issued for Packages No. 4, 6, 7, 8 and 9 contracts; and (iii) Clarifications/Addendums No.1 to 4 (in the descending order) issued by the Employer to the Original Package No. 4 Tender Document." There are a number of contract agreements between the parties - GPL, Duro Felguera and FGI. It is pertinent to note that MoU dated 11.08.2012 itself does not contain an arbitration clause. When reference is made to the priority of documents to have clarity in execution of the work, such general re....
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....Felguera is concerned, the arbitral tribunal has to be for the international commercial arbitration. 40. The learned Senior Counsel for GPL relied upon Chloro Controls India Private Ltd. (supra), to contend that where various agreements constitute a composite transaction, court can refer disputes to arbitration if all ancillary agreements are relatable to principal agreement and performance of one agreement is so intrinsically interlinked with other agreements. Even though Chloro Controls has considered the doctrine of "composite reference", "composite performance" etc., ratio of Chloro Controls may not be applicable to the case in hand. In Chloro Controls, the arbitration clause in the principal agreement i.e. clause (30) required that any dispute or difference arising under or in connection with the principal (mother) agreement, which could not be settled by friendly negotiation and agreement between the parties, would be finally settled by arbitration conducted in accordance with Rules of ICC. The words thereon "under and in connection with" in the principal agreement was very wide to make it more comprehensive. In that background, the performance of all other agreements by res....