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Gujarat High Court · body

2018 DIGILAW 116 (GUJ)

KIRIT CONSTRUCTION COMPANY v. MONTE CARLO LIMITED

2018-01-12

M.R.SHAH

body2018
ORDER : M.R. SHAH, J. 1.0. Present petition has been preferred by the petitioner herein to appoint a sole arbitrator as per Arbitration Clause 14(a) of the MOU dated 27.01.2015 to adjudicate upon the dispute between the parties and such claims that arise out of the said MOU, in exercise of powers under Section 11(6) of the Arbitration and Conciliation Act, 1996 as amended from time to time. 2.0. It is the case on behalf of the petitioner that Rail Vikas Nigam Limited invited tender for the Project namely execution of gauge conversion of meter gauge track between Sabarmati and Botad, construction of road bed, bridges, supply of ballast dismantling of existing M.G. Track, installation of track, electrical (general electrification) signaling and telecommunication works of Ahmedabad and Bhavnagar Divisions of Western Railway, Gujarat, India in two packages. It is the case on behalf of the petitioner that represented that it had adequate experience and expertise in track linking work and it is willing to exclusively execute the ballast supply and track linking work involved in Package-I and Package-II of the aforesaid project. Therefore, the petitioner approached the respondent and offered rates before bidding and the said rates were accepted by the respondent before bidding. According to the petitioner, for package-II the estimated cost of the project was to the tune of Rs.266,88,44,553/-and for the work to be undertaken and carried out by the petitioner, the rates quoted are to the tune of Rs.56,44,88,689.09. According to the petitioner, for Package II, the estimated cost is to the extent of Rs.265,62,47,593/-and for the work to be undertaken and carried out by the petitioner, the rates offered are to the tune of Rs. 61,79,25,153.93. According to the petitioner, the respondent has therefore, entered into Memorandum of Understanding with the petitioner on 27/01/2015. It is the case on behalf of the petitioner that as per the terms and conditions of the said MOU, the petitioner was required to raise IPC/RA Bill to the respondent every month for the executed ballast supply and track linking only after approval from the competent authority. It is the case on behalf of the petitioner that as per the terms and conditions of the said MOU, the petitioner was required to raise IPC/RA Bill to the respondent every month for the executed ballast supply and track linking only after approval from the competent authority. Since the petitioner expressed its inability to provide performance security deposit and guarantee of 10% of ballast supply and track linking work value to the respondent on back to back basis, the respondent has insisted from the petitioner to provide deposit of Rs.50,00,000/-by cheque immediately on signing of the said MOU and also to provide Rs.1.5 crore back to back performance bank guarantee to the respondent in its format from any Nationalized/Scheduled Bank on award of the project to the respondent/joint venture. According to the petitioner, it was also agreed with regard to retention money that the respondent would deduct or withhold security deposit/retention money amount of 5% of each bill payment for work executed by the petitioner and 50% of which withheld amount of retention money shall be released to the petitioner on completion of work and issue of completion certificate by the competent authority and balance 50% of the withheld amount of retention money shall be released on completion of defect liability period as per condition of contract with the competent authority. According to the petitioner, it was also agreed that the respondent will not pay any kind of interest on retention money withheld from the petitioner. According to the petitioner, the petitioner was not required to provide any mobilization advance facility or loan of whatsoever kind to the respondent. 2.1. It is the case on behalf of the petitioner that in anticipation of the said MOU dated 27.01.2015 to be executed by and between the respondent and the petitioner, the petitioner has paid the amount of Rs. 50,00,000/-by way of cheque dated 28.01.2015 drawn on Axis Bank Limited, Ahmedabad. Subsequent to the execution of the MOU on 27.01.2015 and payment of Rs.50,00,000/-by the petitioner to the respondent on 28.01.2015, the petitioner has started the requisite procedure for bank guarantee limit, CC Limit, execution for plan of work etc. and have not taken any other work on hand as the petitioner has very much focused and were interested towards the said work. and have not taken any other work on hand as the petitioner has very much focused and were interested towards the said work. It is the case on behalf of the petitioner that despite the MOU dated 27.01.2015 with respect to the Package II, instead of issuing letter of intent in favour of the petitioner, the respondent has refused to act as per the said MOU and the dispute has arisen between the parties for which correspondence has taken place between the parties. 2.2. It is the case on behalf of the petitioner that MOU dated 27.10.2015 is concluded contract between the parties. According to the petitioner, with regard to Dispute Resolution & Jurisdiction, if any, arising out of or in connection with the subject matter between the parties shall be sorted out mutually and if no solution be reached within 30 days of such reference then the dispute shall be communicated in writing by one party to the other and the same shall be referred to Managing Director of respondent, who shall be sole Sole Arbitrator for Arbitration under the Arbitration & Conciliation Act, 1996. The venue of arbitration shall be at Ahmedabad. 2.3. It is the case on behalf of the petitioner that in view of dispute between the parties with respect to and/or arising out of the MOU dated 27.10.2015 and as petitioner was firm view that the respondent has committed breach of the terms and conditions of the aforesaid MOU and though the petitioner was entitled to carry out the work for Package II, the respondent has entrusted the said works to someone else. In the meantime, the petitioner has already incurred huge expenses for carrying out the above work timely and successfully and for non granting to the said work to the petitioner, the petitioner has suffered huge loss and hence the petitioner is entitled to claim not only the reimbursement of expenses incurred by the petitioner but the petitioner is also entitled to the damages. Therefore, the petitioner served legal notice dated 27.03.2017 along with the statement of the expenses incurred and the damages claim. According to the petitioner, thereafter the respondent has given very vague and evasive reply. Therefore, the petitioner served legal notice dated 27.03.2017 along with the statement of the expenses incurred and the damages claim. According to the petitioner, thereafter the respondent has given very vague and evasive reply. It is the case on behalf of the petitioner that thereafter the petitioner wrote letter to the respondent and its Managing Director raising dispute between the parties, out of and in connection with the aforesaid MOU and since same could not be sorted out and no solution could be reached, the petitioner informed respondent that such issue would have to be disputed by appointing independent and neutral sole arbitrator, if the parties agreed to any particular name. It is the case on behalf of the petitioner that since the petitioner could not expect from the Managing Director of the respondent Company to resolve such issue independently and impartially, the petitioner has requested the respondent to refer the dispute raised by the petitioner to independent, neutral and sole Arbitrator, preferably retired High Court Judge under an intimation and with the consent of the petitioner within 30 days from the date of receipt of the communicated dated 10.05.2017. It is the case on behalf of the petitioner that thereafter there is no agreement between the parties with respect to the name of the sole arbitrator and/or resolve such dispute by a sole arbitrator, the petitioner has preferred present petition to appoint sole arbitrator to resolve the dispute between the parties in connection with the MOU dated 27.01.2015 which contains the Arbitration Agreement. 3.0. In response to the notice issued by this Court, Shri Mihir Thakore, learned Senior Advocate has appeared on behalf of the respondent and has opposed the present application. An affidavit in reply is filed on behalf of the respondent opposing the present application. Present petition for appointment of sole arbitrator is opposed on the following grounds/reasons. (I). The clause referred and relied upon by the petitioner as “Arbitration Agreement” provides for disputes to be referred to the Managing Director of respondent company only and to no one else, hence there is no agreement in existence to resolve the disputes, if any, by way of arbitration, if the same are to be referred to a person other than named person: (ii). At the time when the parties mutually decided that the MOU is not workable, no disputes were in existence under the said MOU. At the time when the parties mutually decided that the MOU is not workable, no disputes were in existence under the said MOU. The parties by conduct have agreed that MOU is not workable and stands terminated; (iii). The petitioner has not followed the condition precedent before invoking alleged arbitration clause, therefore, the petition is premature; (iv). The bid as contemplated by MOU was not awarded, therefore, MOU stood automatically terminated in accordance with clause 15(a) and further due to agreement being arrived at between the parties on 08.12.2015 regarding non workability of MOU, as communicated in minutes of meeting by email on 10.12.2015; (v). The mandatory requirement of Partnership Act are not complied with, therefore, also the petition is not maintainable; (vi). The alleged arbitration agreement is not complying with the requirements of law, therefore, it cannot be said to be an arbitration agreement having a binding effect on parties; 3.1. Shri Mihir Thakore, learned counsel for the respondent has vehemently submitted that as Arbitration Agreement provides for disputes to be referred to the Managing Director of the respondent company only and to no one else and considering Section 12(5) of the Arbitration and Conciliation Act, 1996 as amended, the disputes between the parties cannot be referred to the Managing Director of the respondent company and in that case, the dispute is required to be referred to a person other than named persons as there is no agreement in existence to resolve the dispute, if any, by way of arbitration, by the person other than named persons i.e. Managing Director of the respondent Company, the dispute cannot be referred to a sole arbitrator to a person other than named person, named in the Arbitration Agreement. Therefore, it is submitted that the present application to appoint sole arbitrator other than named in the arbitration agreement i.e. other than Managing Director of the respondent Company is required to be dismissed. In support of his above submission, Shri Thakore, learned counsel for the respondent has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Indian Oil Corporation Limited and Ors vs. Raja Transport Private Limited reported in (2009) 8 SCC 520 and another decision of the Hon'ble Supreme Court in the case of Shailesh Dhairyawan vs. Mohan Balkrishna Lulla reported in (2016) 3 SCC 619 . 3.3. 3.3. Shri Mihir Thakore, learned counsel for the respondent has also made some submission on merits as the disputes between parties, more particularly, in support of his ground nos. 2 and 4 referred to herein above. By submitting that the disputes are not in existence under the said MOU. Making above submissions and relying upon the above decisions, it is requested to dismiss the present application. 4.0. In reply to the above, Shri D.K. Puj, learned advocate for the petitioner has heavily relied upon the recent decision of the Hon'ble Supreme Court in the case of Voestalpine Sachienen Gambh vs. Delhi Metro Rail Corporation Limited reported (2017) 4 SCC 665 . It is submitted that now in view of Section 12(5) of the Arbitration Act name of Arbitrator – Managing Director of the respondent Company is incapable to become the Arbitrator and therefore, any statute is debarred to be a sole arbitrator. It is submitted that therefore and considering the intention between the parties, as reflected in the Arbitration Agreement to resolve the dispute through arbitration, present application under Section 11(6) of the Arbitration and Conciliation Act, 1996 to appoint sole arbitrator to resolve the dispute between the parties arising out f the MOU dated 27.01.2015 shall be maintainable. It is vehemently submitted that in the facts and circumstances of the case the decision relied upon by the learned counsel for the respondent in the case of Raja Transport Private Limited (supra) and Shailesh Dhairyawan (supra) shall not be applicable to the facts of the case on hand. 4.1. Now, so far as submission, made on behalf of the respondent on merits and submission that at the time when parties mutually deciding MOU is not workable no disputes were in existence under the said MOU and that the MOU stood automatically terminated in accordance with clause 15(a) of the MOU is concerned, it is submitted that the aforesaid dispute on merits are not required to be gone into and/or dealt with by this Court while exercising power under Section 11(6) of the Act and said should be left to the sole arbitrator to be appointed. 4.2. 4.2. Now, so far as submission on behalf of the respondent that mandatory requirements of Partnership Act are not complied with as the petitioner is unregistered partnership firm and therefore, the present application at the instance of the partnership shall not be maintainable is concerned, relying upon the decision of the Hon'ble Supreme Court in the case of Umesh Goel vs. Himachal Pradesh Cooperative Group Housing Society Limited reported in (2016) 11 SCC 313 , it is submitted that said objection is not sustainable. It is submitted that as observed by the Hon'ble Supreme Court in the said decision that arbitration proceedings will not come under the expression, other proceedings of Section 69 (3) of the Partnership Act and therefore, the ban imposed under the said Section 69 can have no application to Arbitral proceedings as well as arbitration award. 4.3. It is submitted that as the dispute has arisen between the parties arising out of and with respect to aforesaid MOU dated 27.01.2015 which contains arbitration agreement, an intention of the parties to the MOU to resolve the dispute through arbitration, it is requested to allow the present application and to appoint sole arbitrator as requested. 5.0. Heard the learned advocates for the respective parties on the objection raised on behalf of the respondent on maintainability of present application under Section 11(6) of the Arbitration and Conciliation Act. 5.1. It is mainly contended on behalf of the respondent that as even as per the arbitration agreement contained in the MOU in case of dispute between the parties, such dispute is required to be referred to by the Managing Director of the respondent Company and therefore, even as per Section 12(5) of the Arbitration and Conciliation Act, Managing Director is ineligible and/or incapable to become sole arbitrator, in absence of any provision to resolve the dispute, if any, by way of arbitration, by person other than named person, the dispute is not required to be referred to by any other person other than named in the arbitration agreement. In support of above, learned counsel for the respondent has relied upon the decisions of the Hon'ble Supreme Court in the case of Raja Transport Private Limited (supra) and Shailesh Dhairyawan (supra). 5.2. In support of above, learned counsel for the respondent has relied upon the decisions of the Hon'ble Supreme Court in the case of Raja Transport Private Limited (supra) and Shailesh Dhairyawan (supra). 5.2. However, on considering both the aforesaid decisions, this Court is of the opinion that none of the aforesaid decisions shall be applicable to the facts of the case on hand. So far as decision of the Hon'ble Supreme Court in the case of Raja Transport Private Limited (supra) is concerned, it is required to be noted that the said case is prior to amendment in Arbitration Act and prior to introduction of Section 12(5) of the Arbitration and Conciliation Act, by which, now under the Arbitration Act itself there is a specific bar to refer the dispute to a person mentioned in Section 12(5) of the Act. Under Section 12(5) of the Act, now there is a statutory bar and subsection (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. Therefore, the decision of the Hon'ble Supreme Court in the case of Raja Transport Private Limited (supra) shall not be applicable to the facts of the case on hand, more particularly, in view of Section 12(5) of the Arbitration and Conciliation Act. 5.3. Now, so far as reliance placed upon the decision in the case of Shailesh Dhairyawan (supra) is concerned, the said decision shall not be applicable to the facts of the case on hand. In the case before the Hon'ble Supreme Court, the Hon'ble Supreme Court interpreted clause 8 of the terms of the consent in the suit providing for reference of disputes between the parties to arbitration. In the case before the Hon'ble Supreme Court, the Hon'ble Supreme Court interpreted clause 8 of the terms of the consent in the suit providing for reference of disputes between the parties to arbitration. It was found by the Hon'ble Supreme Court that parties agreed to refer the dispute between the parties to arbitration to a particular person only – named and no other, even in case such named arbitrator would not be available either due to resignation and/or otherwise and despite the above, when the High Court appointed Arbitrator other than named and in absence of any other clause and / or agreement between the parties to refer the dispute for arbitration to an arbitrator other than named, the Hon'ble Supreme Court has observed that only in case where arbitration clause clearly specifies that a particular person shall be appointed as arbitrator to resolve the dispute and in his absence no other person would be appointed as an arbitrator, in such case only matter cannot be referred to an arbitrator other than named. It is required to be noted that the said entire judgment would support the case of the petitioner rather than respondent. 6.0. Now, so far as submission on behalf of the respondent that as the petitioner is unregistered partnership firm and therefore in view of bar under Section 69 of the Partnership Act, present petition/ proceedings at the instance of the petitioner shall not be maintainable is concerned, the aforesaid is now not resintegra in view of the decision of the Hon'ble Supreme Court in the case of Umesh Goel (Supra). In the aforesaid decision, it is observed and held by the Hon'ble Supreme Court that arbitral proceedings will not come under the expression “other proceedings” of Section 69(3) of the Partnership Act and therefore, bar imposed under the said Section 69 can have no application to Arbitral proceedings. Therefore, the aforesaid objection is not sustainable. 7.0. In the aforesaid decision, it is observed and held by the Hon'ble Supreme Court that arbitral proceedings will not come under the expression “other proceedings” of Section 69(3) of the Partnership Act and therefore, bar imposed under the said Section 69 can have no application to Arbitral proceedings. Therefore, the aforesaid objection is not sustainable. 7.0. Now, so far as submission on behalf of the respondent on merits, more particularly, it is the case on behalf of the respondent that at the time when the parties mutually decided that MOU is not workable and therefore, no dispute is in existence under the said MOU and/or that bid as contemplated by MOU was not awarded, therefore, MOU stood automatically terminated in accordance with clause 15(a) and/or non workability of the MOU is concerned, considering Section 11 (6A) of the Arbitration and Conciliation Act, all these aspects are required to be dealt with and considered by the Arbitrator and all these issues are required to be left it to the Arbitrator. The MOU contains the arbitration clause/arbitration agreement and therefore, considering intention of the parties to the MOU to resolve the dispute through arbitration and clause 14(a) of the MOU, the submission made on behalf of the respondent on merits are not required to be gone into by this Court at this stage while exercising the powers under Section 11(6) of the Act. 8.0. In view of the above and for the reasons stated above, objections raised on behalf of the respondent with respect to the maintainability of present petition under Section 11(6) of the Arbitration and Conciliation Act deserves to be overruled and are overruled and disputes between the parties arising out the aforesaid MOU are required to be referred to sole Arbitrator and the sole Arbitrator is to be appointed in exercise of powers under Section 11(6) of the Arbitration and Conciliation Act, 1996. FURTHER ORDER Learned advocates appearing for the respective parties have suggested the name of Hon'ble Mr. Justice M.B. Shah, a retired Judge of the Hon'ble Supreme Court of India, to be the sole Arbitrator to resolve the dispute between the parties. Under the circumstances, Hon'ble Mr. Justice M.B. Shah, a retired Judge of the Hon'ble Supreme Court of India, is requested to act as the sole Arbitrator to resolve the dispute between the parties arising out the Memorandum of Understanding (MoU). Under the circumstances, Hon'ble Mr. Justice M.B. Shah, a retired Judge of the Hon'ble Supreme Court of India, is requested to act as the sole Arbitrator to resolve the dispute between the parties arising out the Memorandum of Understanding (MoU). Stand over to 19.01.2018, so as to enable either of the learned advocates to place on record the Declaration signed by the proposed sole Arbitrator, as required under the provisions of the Arbitration Act. Petition allowed.