Shahi Shipping Ltd v. Oil And Natural Gas Corporation Limited
2018-12-18
G.S.KULKARNI
body2018
DigiLaw.ai
JUDGMENT G.S. Kulkarni, J. - This is a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (for short, "ACA") whereby the petitioner is seeking interim reliefs pending the arbitration proceedings. 2. Facts:- It is the petitioner''s case that the respondent following an open bidding process awarded a contract (for short "the principal contract") dated 8 February 2018 to the petitioner, "for charter hire of self propelled barge M.V. Royal Sharavati" of minimum 2500 KL capacity for carrying out the respondent''s off shore operations conforming to the specifications as contained in the said contract. 3. There is a separate agreement titled as "Integrity Pact" executed between the parties and annexed to the principal agreement which provides for various obligations inter-alia, providing for disqualification of the bidder and for termination of the contract for matters falling under the Integrity Pact. Under the principal contract, in clause 27 the parties have agreed for reference of the disputes to arbitration in case disputes and differences arise between the parties, however there are excepted matters which are not arbitrable. 4. On 25 May 2018, the petitioner''s barge being subject matter of the contract, was seized and arrested by the Police (Crime Branch, Thane) in connection with a crime of theft of High Speed Diesel (HSD) transported by the said barge under the contract, from the ground to the rigs of the respondent, located in the sea. An application was moved by the petitioner before the Controller of Rationing and Director of Civil Supplies, Mumbai under Section 6A of the Essential Commodities Act, 1955 praying for release of the said barge. By an order dated 25 May 2018, the petitioner''s barge was conditionally released pending further investigation. The condition being that the petitioner would execute an indemnity bond and that the release shall be subject to the decision of the Criminal Court trying the offence and that the barge would be made available to the Criminal Court for its examination/inspection. 5. On the premise that the said barge of the petitioner was involved in a criminal offence, the respondent invoking the "Integrity Pact" and the relevant terms and conditions under the principal contract, by a notice dated 28 June 2018 terminated the said contract dated 8 February 2018.
5. On the premise that the said barge of the petitioner was involved in a criminal offence, the respondent invoking the "Integrity Pact" and the relevant terms and conditions under the principal contract, by a notice dated 28 June 2018 terminated the said contract dated 8 February 2018. The termination notice categorically refers to the "Integrity Pact" being invoked as also contractual terms and conditions which would authorise the respondent to terminate the contract subject to the rights to recover losses and damages from the petitioner, in accordance with the principal contract. 6. Consequent to the termination of the contract the respondent has issued a notice dated 13 July 2018 to the petitioner informing the petitioner that an inquiry has been initiated to consider banning business dealings with the petitioner. It is stated that after completion of the inquiry, if it is found that the petitioner is at fault, in that event, the petitioner shall be put on a holiday i.e. neither any tender inquiry would be issued to the petitioner by the respondent against any type of tender nor its offer would be considered by the respondent against any ongoing tenders. 7. The petitioner being aggrieved by the respondent''s action of termination of the contract and the said notice dated 13 July 2018, has filed this petition under Section 9 of the ACA seeking the following reliefs, pending the arbitration proceedings:- "a. that pending the hearing and final disposal of arbitration proceedings, this Hon''ble Court be pleased to stay the effect of termination notice dated 28th June 2018; b. that pending the hearing and final disposal of arbitration proceedings, this Hon''ble Court be pleased to stay the effect of Notice dated 13th July 2018; c. that pending the hearing and final disposal of the arbitration proceedings, this Hon''ble Court be pleased to direct the respondents to reinstate the performance bank guarantee invoked and executed by them; d. that pending the hearing and final disposal of arbitration proceedings, this Hon''ble Court be pleased to restrain the Respondent by an order in form of an injunction from floating a new tender and creating third-party interests with respect to the contract awarded to the Petitioner." 8. Mr.Sawant, learned Senior Counsel for the respondent, has raised a preliminary objection to the maintainability of the above prayers.
Mr.Sawant, learned Senior Counsel for the respondent, has raised a preliminary objection to the maintainability of the above prayers. Mr.Sawant submits that the contract is terminated by the respondent on 28 June 2018 almost six months back. He submits that a careful reading of the prayers clearly reflect that the prayers are made with an intention to facilitate the petitioner''s participation in the tenders to be issued by the respondent, and/or that there is no prohibition on the petitioner, participating in the ongoing and future bidding process. It is submitted that there is no other intention behind these prayers. Mr.Sawant submits that it is clear that in view of the notice dated 13 July 2018 of the respondent, an inquiry has been initiated against the petitioner, to consider banning, business dealings with the petitioner. Clause 27.3(1) of the contract is referred by Mr.Sawant to contend that the above prayers of the petitioner as made in the application are clearly hit by the said clause. At the out set, it is necessary to note the said clause which reads thus:- "27.3(1) Parties further agree that following matters shall not be referred to conciliation or arbitration: i) Any claim, difference or dispute relating to connected with or arising out of ONGC''s decision to initiate any proceedings for suspension or banning, or decision to suspend or to ban business dealings with the Bidder / Contractor and/or with any other person involved or connected or dealing with bid/contract/ bidder/contractor. ii) Any claim, difference or dispute relating to, connected with or arising out of ONGC''s decision under the provisions of Integrity Pact executed between ONGC and the Bidder / Contractor." (Emphasis supplied) Mr.Sawant, submits that thus clause 27.3(1) (i) (supra) specifically covers issues in regard to the respondent''s decision to initiate proceedings for suspension or banning the business dealings with the Bidder/Contractor and hence, a remedy of arbitration on such issues is not available. It is submitted that by prayer clause (b) the petitioner seeks a stay on this inquiry. Referring to prayer clause (a), Mr.Sawant submits that the termination notice dated 28 June 2018 makes it clear that the respondent has invoked Integrity Pact. He submits that the clause 27.3(1)(ii) [supra] clearly stipulates that once a decision is taken by the respondent under the Integrity Pact, then such issues are not arbitrable. 9.
Referring to prayer clause (a), Mr.Sawant submits that the termination notice dated 28 June 2018 makes it clear that the respondent has invoked Integrity Pact. He submits that the clause 27.3(1)(ii) [supra] clearly stipulates that once a decision is taken by the respondent under the Integrity Pact, then such issues are not arbitrable. 9. Mr.Sawant, learned Senior Counsel for the respondent, submits that apart from the issues being non-arbitrable, the petitioner is not entitled to such blanket reliefs in as much as there is a gross delay on the part of the petitioner seeking such reliefs. It is submitted, that in any case such relief can be granted only in a final adjudication and cannot be granted as interim measures by exercising powers under Section 9 of the ACA. 10. Mr.Setalvad, learned Counsel for the petitioner, on the other hand, has contested the above preliminary objection. Mr.Setalvad submits that the termination of the principal contract itself is illegal being not in conformity to the express terms of the contract and more particularly clause 18.4 of the contract which requires the respondent to notify to the petitioner in writing the cause of dissatisfaction and only thereafter the respondent was required to terminate the agreement by giving 30 days notice in writing, in the event the petitioner failed to comply with the requisitions contained in the said written notice. 11. Mr.Setalvad submits that the "Integrity Pact" forms part and parcel of the principal contract and the conditions as contained in "Integrity Pact" cannot be dehors the clauses of the principal contract, under which the parties have agreed on the method of termination of contract. It is submitted that even a perusal of the termination notice would indicate that the observations in regard to the petitioner being involved in a criminal act are prima-facie. It is submitted that considering the conditions of the "Integrity Pact" the respondent cannot come to a conclusive finding that there is a breach of the "Integrity Pact" requiring termination of the contract. It is submitted that this is also clear from the order passed by the Controller of Rationing and Director of Civil Supplies, when the barge in question was released to the petitioner subject to certain terms and conditions and adjudication of the competent criminal court. It is submitted that these issues are required to be considered by the arbitral tribunal.
It is submitted that this is also clear from the order passed by the Controller of Rationing and Director of Civil Supplies, when the barge in question was released to the petitioner subject to certain terms and conditions and adjudication of the competent criminal court. It is submitted that these issues are required to be considered by the arbitral tribunal. It is thus submitted that the arbitral tribunal would have jurisdiction to decide whether disputes are arbitrable, considering the various contractual terms and conditions between the parties. Mr.Setalvad has drawn my attention to clauses 18.4 and 18.6 as also the clauses 27 and 30 of the contract in support of his submissions. 12. Mr.Setalvad referring to the decision of Supreme Court in Duro Felguera, S.A. Vs. Gangavaram Port Limited , (2017) 9 SCC 729 submits that the endeavour of the court would be merely to consider the existence of an arbitration agreement and the issue as raised by the respondent can be preliminary issue and will be required to be decided by the arbitral tribunal under Section 16 of the ACA. 13. I have heard learned Counsel for the parties. I have also perused the documents as placed on record and more particularly the terms and conditions of the principal contract dated 8 February 2018 and the "Integrity Pact" as executed between the parties. At the outset, it would be appropriate to note certain clauses of the principal contract dated 8 February 2018. Clause 18 provides for termination of the contract. Clause 18.4 provides for termination for unsatisfactory performance. Clause 18.6 provides for consequences of termination. Clause 27 is the arbitration clause between the parties. Clause 27.3(1) as noted above provides for those matters which shall not be referred to conciliation or arbitration. These clauses read thus:- "18. Termination. 18.4 Termination for unsatisfactory performance. If the ONGC considers that the performance of the CONTRACTOR is unsatisfactory or, not upto the expected standard, the ONGC shall notify the CONTRACTOR in writing and specify in detail the cause of such dissatisfaction. The ONGC shall have the option to terminate this Agreement by giving 30 days notice in writing to the CONTRACTOR, if, CONTRACTOR fails to comply with the requisitions contained in the said written notice issued by the ONGC.
The ONGC shall have the option to terminate this Agreement by giving 30 days notice in writing to the CONTRACTOR, if, CONTRACTOR fails to comply with the requisitions contained in the said written notice issued by the ONGC. In case ONGC suffers any damage due to unsatisfactory performance on the part of the Contractor, the same shall be recovered from the Contractor without prejudice to any other rights available to ONGC under the contract. 18.6 Consequences of termination In all cases of termination herein set forth, the obligation of the ONGC to pay shall be limited to the period upto the date of termination. Notwithstanding the termination of this Agreement, the parties shall continue to be bound by the provisions of this Agreement that reasonably require some action or forbearance after such termination. In case of termination of Contract herein set forth, except under 18.1 and 18.2, and / or annulment of the contract due to non-submission of Performance Security, following actions shall be taken against the Contractor; i. ONGC shall conduct an inquiry against the Contractor and consequent to the conclusion of the inquiry, if it is found that the fault is on the part of the Contractor, then they shall be put on holiday [i.e. neither any tender inquiry will be issued to such a Contractor by ONGC against any type of tender nor their offer will be considered by ONGC against any ongoing tender(s) where contract between ONGC and that particular Contractor (as a bidder) has not been concluded] for a period of two years from the date the order for putting the Contractor on holiday is issued. However, the action taken by ONGC for putting that Contractor on holiday shall not have any effect on other ongoing contract(s), if any with that Contractor which shall continue till expiry of their term(s). ii. Pending completion of the enquiry process for putting the Contractor on holiday, ONGC shall neither issue any tender enquiry to the defaulting Contractor nor shall consider their offer in any ongoing tender." 14. To consider the issue as to whether the dispute falls in ''excepted matters'', it would also be necessary to note the contents of the Integrity Pact. The relevant clauses being Section 2 of the Integrity Pact providing for commitments of the bidder/contractor. Section 3 providing for disqualification from tender process and exclusion from future contracts.
To consider the issue as to whether the dispute falls in ''excepted matters'', it would also be necessary to note the contents of the Integrity Pact. The relevant clauses being Section 2 of the Integrity Pact providing for commitments of the bidder/contractor. Section 3 providing for disqualification from tender process and exclusion from future contracts. Section 4 providing for compensation for damages. Section 7 providing for criminal charges against violating bidders/ contractors/sub-contractors. It would be appropriate to note these clauses of the Integrity Pact which read as under:- "Section 2 Commitments of the Bidder/contractor (1) The Bidder/Contractor commits itself to take all measures necessary to prevent corruption. He commits himself to observe the following principles during his participation in the tender process and during the contract execution. 1. The Bidder / Contractor will not, directly or through any other person or firm, offer, promise or give to any of the Principal''s employees involved in the tender process or the execution of the contract or to any third person any material or immaterial benefit which he/she is not legally entitled to, in order to obtain in exchange any advantage of any kind whatsoever during the tender process or during the execution of the contract. 2. ............ 3. ............ 4. ............ (2) The Bidder / Contractor will not instigate third persons to commit offences outlined above or be an accessory to such offences. Section 3 Disqualification from tender process and exclusion from future contracts ...... (1) If the Bidder / Contractor has committed a transgression through a violation of Section 2 such as to put his reliability or credibility into question, the Principal is entitled also to exclude the Bidder / Contractor from future contract award processes. The imposition and duration of the exclusion will be determined by the severity of the transgression. The severity will be determined by the circumstances of the case, in particular the number of transactions, the position of the transgressors within the company hierarchy of the Bidder and the amount of the damage. The exclusion will be imposed for a minimum of 6 months and maximum of 3 years.
The severity will be determined by the circumstances of the case, in particular the number of transactions, the position of the transgressors within the company hierarchy of the Bidder and the amount of the damage. The exclusion will be imposed for a minimum of 6 months and maximum of 3 years. Section 7 Criminal charges against violating Bidders/Contractors/ Subcontractors If the Principal obtains knowledge of conduct of a Bidder, Contractor or Subcontractor, or of an employee or a representative or an associate of a Bidder, Contractor or Subcontractor which constitutes corruption, or if the Principal has substantive suspicion in this regard, the Principal will inform the Vigilance Office." 15. A bare reading of the termination notice dated 28 June 2018 in the light of the specific terms and conditions of the contract and the integrity pact clearly indicates that the contract is terminated by the respondent invoking the Integrity Pact on the ground of involvement of the petitioner''s barge in a theft of the material which is subject matter of investigation under a registered offence vide C.R. No.I-18/2018 under various sections of the Indian Penal Code. The letter of termination clearly refers to the seizure of the said barge/vessel, and records that major contractual terms and conditions as laid down in the Integrity Pact under the contract have been violated/breached by the petitioner during the subsistence of the subject contract. As substantial arguments are advanced on behalf of the parties on the contents of the termination letter, it is necessary to reproduce the extract of the termination letter:- " Please refer to the subject Contract No. ONG/COL/HMM/CSR/CH/ML/S.P.Barge/10/2017/P76BC17008/ M. V. Sharavati/9010026516 dated 08th Feb 2018 for charter hire of Self Propelled Barge "M.V. Sharavati" of minimum 2500 KL Capacity for a period of 2 years from 01.01.2018 (i.e. the date of mobilization of barge). It is to inform that Shri R.R.Daundkar Sr.Inspector of Police, AHTC, Crime Branch, Thane visited Nhava on 27/6/2018 and informed about involvement of Barge "M.V.Shravati" in the theft of HFHSD,AHTS.,Crime Branch Thane has registered an offence vide C.R.No.1 18/2018 as per their letter reference O.W.No.1163/2018 dated 27.6.2018 under various sections of IPC besides other Acts/Orders. Vide above letter reference, AHTS, Crime Branch Thane also intimated ONGC to make the said fuel barge "M.V.Sharavati" available for its seizure for the purpose of further investigation.
Vide above letter reference, AHTS, Crime Branch Thane also intimated ONGC to make the said fuel barge "M.V.Sharavati" available for its seizure for the purpose of further investigation. In view of this, it is observed prima facie that major contractual terms and conditions as laid down under Integrity Pact of contract agreement have been violated/breached by the contractor during the currency of the subject contract Agreement. . In view of above, ONGC is left with no other option but to terminate the subject Contract forthwith with effect form 27.6.2018 invoking the contractual terms and conditions for violation of provisions laid down under Integrity Pact of the contract agreement. Further it is to intimate that ONGC shall have, without prejudice to any other clause of the said contract, the right to recover all the consequential loss/damages from the contractor in accordance with the provisions of subject contract." S/d S.M.Agarwal) Chief Manager (MM)" (emphasis supplied) 16. It is also quite clear that consequent to the termination of the contract, the respondent issued to the petitioner communication dated 13 July 2018, inter-alia initiating an inquiry to ban dealings with the petitioner. A relief is sought by the petitioner in terms of prayer clause (b) for a stay on this communication. This prayer if granted, the consequence is that the inquiry by the respondent to ban the dealings with the petitioner would be required to be stayed by the respondent. Thus this issue clearly falls under Clause 27(1)(ii) of the Integrity Pact and hence the issue is prima-facie non arbitrable. 17. It needs to be observed that the termination of the contract by the respondent is not on any issues which pertain to the actual performance of the contractual work namely the carriage of the HSD from land to the offshore rigs, but on issues wherein the respondent has invoked the Integrity Pact. It is also not the case of the petitioner that the respondent has terminated the contract on issues other than the integrity pact. If this is the clear position on facts, then the argument of Mr.Setalvad that the termination should fall under clause 18.4 (supra) of the contract, cannot be accepted. Clause 18.4 can be invoked to terminate the contract only when the contractual work is unsatisfactorily performed, and not of expected standard.
If this is the clear position on facts, then the argument of Mr.Setalvad that the termination should fall under clause 18.4 (supra) of the contract, cannot be accepted. Clause 18.4 can be invoked to terminate the contract only when the contractual work is unsatisfactorily performed, and not of expected standard. Thus, in my opinion, the contention as urged by Mr.Setalvad that the prayers as made in the petition do not fall under the integrity pact, and the termination of the contract is required to be considered under clause 18.4 of the contract requiring 30 days notice to be issued to the petitioner, to remedy such dissatisfaction, cannot be accepted. The argument of Mr.Setalvad, learned Senior Counsel for the petitioner, that an opportunity of hearing ought to have been given or that the petitioner could remedy/rectify, the issues before the termination, may not be a tenable argument for the present proceedings, considering the reason for termination, as set out in the termination letter dated 28 June 2018 issued by the respondent. 18. A perusal of the Integrity Pact clearly demonstrates that there are certain obligations on the contractor in performing such contract of a public company like the respondent. The terms and conditions as agreed between the parties in the Integrity Pact are quite strict. The court would be required to consider a holistic reading and application of the terms and conditions of the integrity pact. It was thus not completely beyond the terms and conditions of the principal contract and the integrity pact for the respondent to come to a conclusion to invoke the integrity pact in terminating the contract. 19. Mr.Sawant, learned Senior Counsel for the petitioner, in my opinion, would be correct in referring to the decisions of the Supreme Court in (i) General Manager, Northern Railway and Another Vs. Sarvesh Chopra , (2002) 4 SCC 45 and (ii) Harsha Constructions Vs. Union of India and Others , (2014) 9 SCC 246 , to contend that if there are excepted matters under the arbitration agreement, then the arbitration proceedings are not available to the parties in regard to such excepted matters.
Sarvesh Chopra , (2002) 4 SCC 45 and (ii) Harsha Constructions Vs. Union of India and Others , (2014) 9 SCC 246 , to contend that if there are excepted matters under the arbitration agreement, then the arbitration proceedings are not available to the parties in regard to such excepted matters. Although the first decision is in the context of Section 20 of the Arbitration Act 1940 and the second decision is in the context of a challenge to an award under section 34 of the ACAs the principles of law as laid down in these decisions are clearly attracted. The Supreme Court in these decisions has held that when the parties to the contract have agreed for excepted matters not to be referred to arbitration then in regard to such disputes falling in excepted matters, there can be no adjudication of the disputes, by an arbitral tribunal. The law in these decisions apply to the facts in hand . As noted above the reliefs as sought in this petition fall under the Integrity Pact. Consequently, a Section 9 petition moved to seek interim reliefs, on a foundation that the dispute itself is not arbitrable, would not be maintainable. 20. Mr.Setalvad''s reliance on the decision of the Supreme Court in Duro Felguera, S.A. (supra) to contend that the objection of the respondent can be a preliminary issue which can be gone into by the arbitral tribunal, in my opinion, in the facts of the present case, is not well founded. The Court in exercise of its jurisdiction under Section 9 of the ACA cannot be oblivious and overlook the basic tenets of the matter and not consider the issue of arbitrability of the disputes in considering, whether to grant interim reliefs. Overlooking such basic requirements as the law would obligate to be applied, would entail serious consequences. In the present case, it is clear from the termination notice dated 28th June 2018 that the respondent has invoked the Integrity Pact which stands incorporated in clause 27(1)(ii) of the principal contract, so as to except matters which fall under the non arbitrable matters. Even considering the provisions of Sub-Section (6A) of Section 11 as incorporated by the amended Act 3 of 2016 in my opinion, would not assist the petitioner as much as the test of existence of an arbitration agreement on issues which fall under the integrity pact would fail.
Even considering the provisions of Sub-Section (6A) of Section 11 as incorporated by the amended Act 3 of 2016 in my opinion, would not assist the petitioner as much as the test of existence of an arbitration agreement on issues which fall under the integrity pact would fail. 21. Apart from the above observations, even otherwise Mr.Sawant, learned Senior Counsel for the respondent, would be correct in his submission that considering the nature of reliefs, these reliefs cannot be granted to the petitioner in exercise of jurisdiction under Section 9 as these are in the nature of final reliefs. 22. Mr.Sawant is also right in his contention that the petitioner is not entitled for these interim reliefs also on the gross delay on the part of the petitioner in approaching this Court, as the termination of the contract was by the respondent''s notice dated 28 June 2018. The bank guarantee was also invoked on 30 June 2018 as also the notice prohibiting the participation of the petitioner in the contracts of the respondent was issued on 13 July 2018. The petitioner immediately on issuance of the termination notice and the further notice dated 13 July 2018 never thought it expedient to approach this Court, for any of these reliefs, and now as contended by the respondent, when the petitioner feels that it is not in a position to participate in the tenders issued/to be issued by the respondent, the present proceedings are moved in December 2018, after a substantial delay. This itself would also not entitle the petitioner for the interim reliefs as prayed in the petition. 23. For the above reasons, I find no merit in the petition. It is accordingly dismissed. No costs. 24. Needless to observe that the above findings are prima-facie and only in the context of adjudication of the Section 9 application. 25. The dismissal of the present application would not preclude the petitioner from invoking appropriate proceedings as permissible in law.