2022 (10) TMI 1283
X X X X Extracts X X X X
X X X X Extracts X X X X
....here the petitioner viz. L & T Hydrocarbon Engineering Limited is a wholly owned subsidiary of Larsen & Toubro Limited (hereinafter referred to as "L&T"). It primarily caters to the Oil and Gas sector around the world under Offshore, Onshore, Construction Services, Modular Fabrication and Engineering Services verticals. 3. Whereas the Respondent viz. Indian Oil Corporation Limited (hereinafter referred to as "IOCL") is a Public Sector Undertaking, with business interests including, inter alia, refineries, pipeline transportation & marketing of petroleum products, exploration & production of crude oil & gas and marketing of natural gas and petrochemicals. 4. It is the case of the petitioner that on June 11, 2012, the respondent issued a Letter of Award for Mainline works including small HDD works, Civil works, Mechanical works, TCP & Electrical works, OFC laying works and Instrumentation works for Salaya Mathura Pipeline (SMPL) De-bottlenecking Pipeline Project ("Project") to the petitioner and a formal contract (hereinafter referred to as "Contract") was executed between the parties on July 11, 2012. 5. It has been specifically pleaded that the Contract was particularly awarded t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Hydrocarbon has been extending the BG from time to time. 12. It is also the case of the petitioner that in March 2019, the respondent had also threatened to fraudulently and illegally invoke the BG issued by L&T Hydrocarbon and as a result of which L&T Hydrocarbon had approached this court by filing a petition under section 9 of the Act of 1996, wherein as per the petitioner, this court gave the following directions: (a) L&T Hydrocarbon would extend the BG till a period of 1 year from 31 May 2019, i.e. till 31 May 2020; (b) L&T Hydrocarbon would invoke the dispute resolution procedure prescribed under the Contract; (c) In case the Respondent intends to invoke and/or encash the subject performance bank guarantee, it shall serve on L&T Hydrocarbon in this behalf a prior written notice at least two (2) weeks before. 13. It is the submission of Mr. Rajshekhar Rao, Ld. Sr. Counsel, appearing on behalf of the petitioner that there is an arbitration agreement which was entered between the parties and as such contains the following arbitration clauses:- "SECTION 9 ARBITRATION AND ALTERNATIVE DISPUTE RESOLUTION MACHINERY 9.0.0.0 ARBITRATION 9.0.1.0 Subject to the provi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ONTRACTOR is a Notified Claim; (iii) Whether or not a Notified Claim is included in the CONTRACTOR's Final Bill in accordance with the provisions of Clause 6.6.3.0 hereo;. (iv) Whether or not the CONTRACTOR has opted for the Alternative Dispute Resolution Machinery with respect to any Notified Claim included in the CONTRACTOR's Final Bill. 9.0.3.0 The provisions of the Indian Arbitration & Conciliation Act, 1996 and any re-enactment (s) and/or modification(s) thereof and of the Rules framed thereunder shall apply to arbitration proceedings pursuant hereto subject to the following conditions: (a) The Arbitrator shall give his Award separately in respect of each Claim and Counter-Claim; and (b) The Arbitrator shall not be entitled to review any decision, opinion or determination (howsoever expressed) which is stated to be final and/or binding on the CONTRACTOR in terms of the Contract Documents. 9.0.4.0 The venue of the arbitration shall be New Delhi, provided that the Arbitrator may with the consent of the OWNER and the CONTRACTOR agree upon any other venue. " 14. According to him, on April 20, 2019, L&T issued a notice of arbitration seeking reference of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the petitioner, the respondent did not accept either of the names of the arbitrators suggested by the petitioner. Instead, the respondent nominated a panel of three persons and called upon the petitioner to select one of them whereas none of the names were acceptable to the petitioner. It is further the case of Mr. Rao that Clause 9.0.1.1 restricts/limits the right of the petitioner to choose its arbitrator only from the panel prepared and forwarded by the respondent and thus this procedure is invalid in law. Therefore, it was submitted that in the absence of a valid procedure in law for the appointment of a tribunal, the parties are left with no other option but to seek appointment of an Arbitrator from this court. 19. To crystallize and substantiate his case, Mr. Rao categorically argued that it is the respondent itself which had waived the requirement of clause 9.0.2.0 of the GCC. In order to weigh this contention, he pointed out the following facts: (a) That the petitioner had made a specific request to the respondent to refer the issue of Notified Claims to its General Manager on April 20, 2019. However, respondent has not referred the matter to its General Manager till ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not referring the claims to the General Manager clearly manifest that there is a subsequent agreement between the parties and that in the present case, the arbitrator can decide whether the claims raised are notified or not. It was further urged by Mr. Rao that even in the past, the respondent had filed proceedings under Section 16 of the Act of 1996 before the tribunal for deciding whether claims are notified or not. To substantiate this, Mr. Rao relied upon two judgments viz. Triune Energy Services Pvt. Ltd. vs. Indian Oil Petronas Pvt. Ltd., 2018 SCC OnLine Del 9312 and China Petroleum Pipeline Bureau vs. India Oil Corporation Limited, 2020 SCC OnLine Del 122. 21. Mr. Rao then pleaded that the respondent cannot be permitted to take advantage of its own wrongs. To substantiate this, he relied upon clause 9.0.2.0, which, according to him, mandates that the issue of whether the claims are notified or not shall have to be decided by the General Manager. According to Mr. Rao, the respondent is in clear breach of its obligation under the said clause of the GCC by not referring the issue of Notified Claims to its General Manager. 22. It was then asserted by Mr. Rao that it is a trite....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the General Manager nor provides the time period for the General Manager to render a decision. Mr. Rao also relied upon Section 46 of the Indian Contract Act, 1872 to argue that it was incumbent upon the respondent to refer the matter to its General Manager within a reasonable time and the respondent had clearly failed to act within reasonable time. 27. According to Mr. Rao, the respondent has now waived its right to get any decision by the General Manager by not referring the disputes to the him for a period of over three years (which is, as per Mr. Rao, double the period provided under section 29A of the Act of 1996 for the completion of entire arbitration proceedings). Therefore, he contended that, now it cannot be argued that the petition ought to be dismissed because the General Manager did not render his decision. 28. Another argument of Mr. Rao is that the court is also not bound to decide the issue of arbitrability of the claims and for this he relied upon the judgment of the Supreme Court in Indian Oil Corporation Limited (supra). It was submitted by Mr. Rao that in the afore-said judgment, the Supreme Court had held that the court while exercising its jurisdiction und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent to unilaterally nominate a panel of members is invalid. For this, Mr. Rao highlighted Clause 9.0.1.1 of the GCC wherein this right has been given to the respondent. To support this contention, he took the aid of the judgment of the Supreme Court of India in TRF Ltd. vs. Energo Engg. Projects Ltd., (2017) 8 SCC 377 and Perkins Eastman Architects DPC vs. HSCC (India) Ltd., (2020) 20 SCC 760. As per Mr. Rao, the Supreme Court in the latter judgment while following the former judgment had held that the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator and therefore, clauses where only one party has a right to appoint a sole arbitrator, are not valid in law. 33. Mr. Rao further argued that the respondent's reliance on the judgment of the Supreme Court in Central Organisation for Railway Electrification vs. ECI-SPIC-SMO-MCML (JV), (2020) 14 SCC 712 to contend that right to provide a panel is valid in law, is highly misplaced. To support this argument, Mr. Rao submitted that the correctness of Central Organisation for Railway Electrification (supra) has already been doubted by the Supreme Court in Union of India ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee or five persons give rise to suspicion of bias. 36. He also relied upon the judgment of the Coordinate Bench of this Court in CMM Infra projects Ltd. vs. Ircon International Ltd., MANU/DE/1982/2021 and the judgment of the High Court of Karnataka in JMC Atepl Joint Venture vs. Bangalore Metro Rail Corporation Limited, MANU/KA/1062/2021, to argue that this court as well as other High Courts have also not followed the judgment of Central Organisation for Railway Electrification (supra) in certain cases and have instead made appointments in exercise of their power under Section 11 of the Act of 1996. This was on the basis that Central Organisation for Railway Electrification (supra) did not consider the finding of the earlier judgments and also on the pretext that if selection from such a panel is permitted, it would lead to permitting the interested party to set up a 2/3rd of the tribunal. 37. He further submitted that in any event, immense prejudice would be caused if the judgment of Central Organisation for Railway Electrification (supra) is followed despite its correctness being doubted. This is because, if subsequently the said judgment is held to be incorrect in law, the ent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ghly impermissible in law. According to him, the petitioner cannot go contrary to terms of the arbitration agreement as incorporated in the GCC. 43. It is also the case of the respondent that as per clause 9.0.1.0 only the Notified Claims of the contractor included in the final bill in accordance with the provisions of 6.6.3.0 thereof and the claims of the owner against the contractor can only be referred to the sole arbitrator and no other claims. 44. According to the respondent, the agreed procedure for selection of the sole arbitrator is specified in clause 9.0.1.1 of the GCC as per which it is the contractor who has to select a sole arbitrator amongst the panel of three arbitrators nominated by the owner for the purposes of selection. In case the contractor would fail to select the sole arbitrator within thirty days, then the sole arbitrator has to be selected by the owner out of the said panel. 45. Mr. V.N. Koura, Ld. Counsel for the respondent then submitted that the arbitration agreement forms the part of the Contract dated July 11, 2012 executed between the parties and thus both the parties have to abide by the terms of the arbitration agreement. 46. He further submitte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2.0 of the GCC has already been upheld by this court in: (a) IOT Infrastructure & Energy Service Ltd. vs. Indian Oil Corporation Ltd., Arb. P. 334/2014; (b) Institute of Geoinformatics (P) Ltd. vs. Indian Oil Corporation Ltd., 2015 SCC Online Del 9562; (c) Srico Projects Pvt. Ltd vs. Indian Oil Foundation, 2017 SCC OnLine Del 6446. 53. He then argued at length to assert that the petitioner can neither ignore the arbitration agreement executed between the parties at its sweet-will nor can it ask the court to re-write the arbitration agreement. He relied upon the following judgments to plead that it is a duty of the court while exercising jurisdiction under section 11(6) Act of 1996 to give effect to the arbitration agreement executed between the parties: (a) Union of India vs. Parmar Construction, 2019 SCC Online 442; (b) Kadimi International Pvt. Ltd. vs. Emaar MGF Land Ltd., Arb.P.485/2019. 54. He also emphasized that the liberty of the parties to the contract cannot be taken away unless the contract itself is "illegal". To crystallize this argument, Mr. Koura relied upon the following judgments: (a) DLF Universal Ltd. vs. Director Town & Country Planning, (2010) 14 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6. 61. To plead that such a clause which gives a party the right to maintain a panel of arbitrators, is valid in law, Mr. Koura relied upon the judgment of this court in SP. Singla Construction Pvt. Ltd. vs. DMRC, 2017 SCC OnLine Del 10689. According to him, this case had also dealt with the same arbitration agreement which is the subject matter of the present case and the court while relying upon the dictum of Voestalpine Schienen GmbH (supra) held that Voestalpine Schienen GmbH (supra) never invalidates an arbitration agreement wherein the right is given to one party to suggest a panel of names to other party. To this effect, Mr. Koura also relied upon the judgment of this court in Bhayana Builders Pvt. Ltd. vs. Oriental Structural Pvt. Ltd., (2018) SCC OnLine Del 7634. 62. Mr. Koura then emphasized that Clause 9.0.1.1 of the GCC does not require the respondent to maintain and prepare a panel of arbitrators and the only requirement is that the owner has to propose three names to the contractor and thus this clause is completely valid and legal. 63. He then took the following judgments at his disposal to show that this court has, time and again, recognized the right of a party ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect bearing upon the present case whereas on the other hand Mr. Rao has argued differently and vehemently opposed the applicability of this judgment in the facts of the present case. 67. Mr. Rao has unequivocally argued that it is well settled that "excepted matters" cannot be referred to arbitration. He asserted that even the interpretation of clause 9.0.2.0 of the GCC is not in dispute. 68. To demonstrate that the afore-said judgment passed by the Supreme Court has no relevance to the facts of the present case, Mr. Rao submitted that the said judgment was passed in a fact situation where there existed a prior decision by the General Manager on whether the claims were "Notified or not". It was in this context that the Supreme Court held that- "Therefore, once the General Manager, on the basis of the material on record takes a conscious decision that a particular claim sought to be referred to arbitration is not a Notified Claim, such a claim thereafter cannot be referred to arbitration." According to Mr. Rao, this judgment of the Supreme Court did not consider the question (as in the present case) as to what would be the situation if, (i) IOCL does not refer the question of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubmitted by the respondent. 72. On the first issue, the submissions of Mr. Rao are primarily the following:- (i) The General Manger does not have any authority to decide the issues set out in Clause 9.0.2.0 of the GCC or to bind the parties to his decision; (ii) The issues involved could only be decided by an Arbitrator; (iii) Nonetheless, the petitioner had called upon the respondent to refer the claims to the General Manager for him to render a decision in terms of Clause 9.0.2.0 of the GCC; (iv) As the Clause 9.0.2.0 of the GCC does not stipulate the time period, the petitioner suggested a period of two weeks for the General Manger to take a decision; (v) The period of two weeks having expired on May 04, 2019, the petitioner in its letter dated May 08, 2019 stated that unilateral appointment of Arbitrator under Clause 9.0.1.1 of the GCC by the respondent or the panel of three Arbitrators provided by the respondent to the petitioner is not valid in law. So, the petitioner proposed the names of two retired Judges for appointment as Sole Arbitrator, which was not accepted by the respondent. (vi) It is not the plea of the respondent that as the General Manger has not ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r authority with respect thereto. The dispute or difference whether or not a claim sought to be referred to arbitration by the contractor is a Notified Claim shall not and cannot form the subject matter of any reference or submission to arbitration. Therefore, on a fair and conjoint reading of Clause 9.0.1.0 and 9.0.2.0, it can safely be concluded that (i) only the Notified Claims of the contractor included in the Final Bill of the contractor in accordance with the provisions of Clause 6.6.3.0 shall have to be referred to arbitration; (ii) whether or not a claim sought to be referred to arbitration by the contractor is a Notified Claim or not, the Arbitrator or Arbitral Tribunal shall have no jurisdiction at all; (iii) whether or not a claim is a Notified Claim or not shall have to be decided by the General Manager and that too, prior to arbitration proceeding with or proceeding further with the reference. Therefore, once the General Manager, on the basis of the material on record takes a conscious decision that a particular claim sought to be referred to arbitration is not a Notified Claim, such a claim thereafter cannot be referred to arbitration. The language used in Clauses 9.0....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not bound to decide the issue of arbitrability of the claims. According to him, the Supreme Court in the case of Vidya Droila (supra) has held that the issue of arbitrability should be decided by the Courts when the facts of the case are clear and glaring. 78. The conclusion of the Supreme Court in Indian Oil Corporation Limited (supra) on which much reliance has been placed by Mr.Rao is primarily with regard to the issue of "accord and satisfaction" in the background of acceptance of Rs.4,53,04,021/- by the respondents NCC. The Supreme Court has held that if it is an "open and shut" case then the aspect of "accord and satisfaction" can be considered at the stage of deciding a petition filed under Section 11 of the Act of 1996 and in case of debatable and disputable facts, the same should be left to the Arbitral Tribunal. The Supreme Court also held if in the factual situation, the aspect of accord and satisfaction and notified claims are interlinked then the same can be decided by the Arbitral Tribunal as is seen in paragraph 13.1 of the judgment. It is not such a case here. Hence, the claims need to be looked into by the General Manager. 79. Mr. Rao, in support of his submissi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing right of appointment to one party cannot be challenged unless the stipulation is invalid on the anvil of Section 12(5) of the Act of 1996. 85. Having noted the challenge of the petitioner, it is to be seen whether the nomination of one person from a panel of three Members is invalid. Mr. Rao had opposed the procedure by relying upon the judgment in the case of Simplex Infrastructures Ltd. (supra), NCCL Premco (.JV) (supra), Larsen & Toubro Ltd. (supra) and Bernard Ingenieure ZT-GmbH (supra). In these judgments, the Courts have heavily relied upon the judgment in Voestalpine Schienen GmBH (supra). In the said judgment, the Supreme Court has considered the issue whether the panel of arbitrators prepared by the respondent (in that case) violates the amended provisions of Section 12 of the Act of 1996. The issue has been answered in paragraphs 23 to 29, which I reproduce as under: "23. It also cannot be denied that the Seventh Schedule is based on IBA guidelines which are clearly regarded as a representation of international based practices and are based on statutes, case law and juristic opinion from a cross-section on jurisdiction. It is so mentioned in the guidelines itself. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....employee, a consultant, an advisor or has any past or present business relationship with a party, he is rendered ineligible to act as an arbitrator. Likewise, that person is treated as incompetent to perform the role of arbitrator, who is a manager, director or part of the management or has a single controlling influence in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Likewise, persons who regularly advised the appointing party or affiliate of the appointing party are incapacitated. A comprehensive list is enumerated in Schedule 5 and Schedule 7 and admittedly the persons empaneled by the respondent are not covered by any of the items in the said list. 26. It cannot be said that simply because the person is a retired officer who retired from the government or other statutory corporation or public sector undertaking and had no connection with DMRC (the party in dispute), he would be treated as ineligible to act as an arbitrator. Had this been the intention of the legislature, the Seventh Schedule would have covered such persons as well. Bias or even real likelihood of bias cannot be attributed to such highl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ide that the DMRC may have picked up its own favourites. Such a situation has to be countenanced. We are, therefore, of the opinion that sub-clauses (b) & (c) of clause 9.2 of SCC need to be deleted and instead choice should be given to the parties to nominate any person from the entire panel of arbitrators. Likewise, the two arbitrators nominated by the parties should be given full freedom to choose third arbitrator from the whole panel. 29 Some comments are also needed on the clause 9.2(a) of the GCC/SCC, as per which the DMRC prepares the panel of 'serving or retired engineers of government departments or public sector undertakings'. It is not understood as to why the panel has to be limited to the aforesaid category of persons. Keeping in view the spirit of the amended provision and in order to instil confidence in the mind of the other party, it is imperative that panel should be broad based. Apart from serving or retired engineers of government departments and public sector undertakings, engineers of prominence and high repute from private sector should also be included. Likewise panel should comprise of persons with legal background like judges and lawyers of repu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....antia Constructions Ltd.(supra), thereby referring the said judgment to a larger Bench. I am informed that the issue is yet to be decided. 93. Mr. Koura has also relied upon the judgments in the cases of IWorld Business Solutions - I (supra) and IWorld Business Solutions - II (supra). I have seen the judgments. In IWorld Business Solutions - I (supra) this Court refused to interfere with the decision of the respondent to provide a panel of three arbitrators to the petitioner as the said panel consisted of three retired Additional District Judges whose impartiality could not have been doubted. Similarly, in IWorld Business Solutions - II (supra) this Court held that the mandate of the Arbitrator who was nominated by the petitioner from the panel provided by the respondent cannot be terminated merely on the ground that Central Organisation for Railway Electrification (supra) has been referred to a larger Bench. The above two judgments have been rendered in the facts and circumstances of those cases where this Court did not think it appropriate to interfere with the impugned action. 94. In Voestalpine Schienen GmBH (supra), the Supreme Court in paragraph 28 (which I have already repr....