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2022 DIGILAW 108 (TS)

Consultants v. Loesche India Pvt. Ltd.

2022-03-02

UJJAL BHUYAN

body2022
ORDER : 1. Heard Mr. Ram Mohan, learned counsel for the applicant and Mr. Rahul Sarella, learned counsel for the respondent. 2. This application has been filed under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (briefly ‘the 1996 Act’ hereinafter) for appointment of arbitrator. 3. Case of the applicant is that it is a registered partnership firm and engaged in the business of civil construction work. Respondent awarded a contract work to the applicant vide Work Order dated 23.07.2014 for executing basic and detail engineering work for civil and steel structures for 7 Nos. of coal handling and grinding plants at Nigeria for an amount of Rs. 1.40 crores. 4. According to the applicant, the contractual works commenced as scheduled and the applicant was successful in completing the same. However, certain additional works were assigned by the respondent to the applicant on account of revision in mechanical drawings supplied by the respondent while the above projects were pending. Applicant wrote to the respondent on 26.12.2014 and on 27.12.2014 stating that it was agreeable to carry out the revised work at the revised fee of Rs. 125 lakhs plus Rs. 20.00 lakhs. It was brought to the notice of the respondent that applicant had been carrying out various additional works due to revision in the mechanical drawings for which it was assured by the respondent that it would be paid extra, the quantum of which would be mutually agreed upon. It was also pointed out that in case of differences of opinion in finalizing quantum of compensation, the decision of head of the civil engineering of the respondent Mr. Lurtz would be final and binding on both the parties. The above work was stated more in detail in letter dated 27.12.2014. 5. Respondent replied vide e-mail dated 15.01.2015 to the same. Applicant was assured that its concerns would be settled amicably. Applicant was requested to provide the details with relevant documents for verification of the respondent. Thereafter, another email was sent by the respondent to the applicant on 22.01.2015. As regards additional work due to revision in mechanical drawings, reference was made to the earlier letter dated 15.01.2015 as well as to letter of the applicant dated 27.12.2014. 6. Applicant thereafter submitted bill dated 01.08.2016 to the respondent as per which applicant claimed an amount of Rs. 67,26,120-00. 7. As regards additional work due to revision in mechanical drawings, reference was made to the earlier letter dated 15.01.2015 as well as to letter of the applicant dated 27.12.2014. 6. Applicant thereafter submitted bill dated 01.08.2016 to the respondent as per which applicant claimed an amount of Rs. 67,26,120-00. 7. Respondent, vide their e-mail dated 09.02.2017, while appreciating the efforts put in by the applicant, stated that it had engaged an external agency for review, rectification and release of structural and civil drawings which resulted in extra cost. However, considering their business relationship, respondent agreed to pay Rs. 5,00,000-00 additionally to the applicant as a gesture of goodwill. Subsequently, in their letter dated 02.02.2018, respondent contended that there was no arbitration agreement between the parties in terms of Section 7 of the 1996 Act; therefore, question of nominating an arbitrator would not arise. However, it was reiterated that respondent was still willing to offer an amount of Rs. 5,00,000-00 to the applicant purely as a gesture of goodwill and on account of their longstanding business relationship. 8. Continuing with the correspondence, applicant vide e-mail dated 20.04.2017 requested the respondent to settle the bill expeditiously, failing which to appoint an arbitrator on mutually agreed terms and conditions. As there was still no response, applicant wrote to the respondent on 13.07.2017 requesting the respondent to appoint Mr. Lurtz, head of civil engineering unit of the respondent as the arbitrator. In its letter dated 03.10.2017, respondent informed the applicant that it cannot appoint an arbitrator to adjudicate upon the alleged disputes between the parties. However, respondent proposed a meeting at its office to settle the outstanding disputes between the parties. It is at that stage the present application came to be filed seeking a direction for appointment of an independent and impartial arbitrator to adjudicate the disputes between the parties. 9. Respondent has filed counter affidavit. At the outset it is contended that the application for appointment of arbitrator is misconceived as there is no arbitration agreement between the parties. Respondent has never given its consent for arbitration of any dispute it may have with the applicant arising out of or in connection with the work order dated 23.07.2014. As per the work order dated 23.07.2014, the work was to be completed by 15.09.2014. The said work order does not contain any arbitration agreement/clause between the parties. Respondent has never given its consent for arbitration of any dispute it may have with the applicant arising out of or in connection with the work order dated 23.07.2014. As per the work order dated 23.07.2014, the work was to be completed by 15.09.2014. The said work order does not contain any arbitration agreement/clause between the parties. When the respondent found that the work was not being executed expeditiously by the applicant, respondent was constrained to exclude some work from the scope of the work order given to the applicant. Thereafter, reference has been made to the correspondence between the parties. It is stated that the accommodative spirit shown by the respondent in trying to amicably settle the concerns of the applicant would not amount to acceptance of the respondent to any arbitration between the parties proposed by the applicant. 10. It is stated that in response to the bill raised by the applicant, respondent vide e-mail dated 09.02.2017 informed the applicant that due to several mistakes made by the applicant in the drawings, respondent had to engage an external agency for review, rectification and release of the structural and civil drawings for which respondent had to incur additional cost. Notwithstanding the same, in view of maintaining good relationship, respondent proposed to pay Rs. 5,00,000-00 to the applicant towards extra work as a goodwill gesture. It has, however, been rejected by the applicant. 11. It is stated that applicant again sent an e-mail dated 01.12.2017 to the respondent reiterating its demand for arbitration and proposing name of arbitrator viz. V.S. Rao. Since there is no arbitration agreement between the parties, question of appointing arbitrator did not arise. 12. Learned counsel for the parties have made detailed arguments based on the pleadings. They have also relied upon their respective memos filed in the Court. 13. While learned counsel for the applicant would contend that on a careful and conjoint reading of the correspondence between the parties, their intention can be culled out; it is very clear i.e., to refer the dispute to arbitration. Though there is no agreement between the parties containing an arbitration clause, the intention to have arbitration can be culled out from the various correspondence exchanged between the parties. In this connection, reliance has been placed on a decision of the Supreme Court in Shakti Bhog Foods Limited vs. Kola Shipping Limited, (2009) 2 SCC 134 . Though there is no agreement between the parties containing an arbitration clause, the intention to have arbitration can be culled out from the various correspondence exchanged between the parties. In this connection, reliance has been placed on a decision of the Supreme Court in Shakti Bhog Foods Limited vs. Kola Shipping Limited, (2009) 2 SCC 134 . On the other hand, learned counsel for the respondent has painstakingly referred to various documents on record and contends therefrom that there is no consent by the respondent to make a reference to arbitration. As a matter of fact, the work order dated 23.07.2014 does not contain any arbitration clause. From the exchange of letters also it can be deduced that there was no intention to refer any dispute between the parties to arbitration. In the absence of any arbitration clause, question of making a reference to arbitration and appointing an arbitrator does not arise. In this connection, reliance has been placed on a decision of the Supreme Court in Jagdish Chander vs. Ramesh Chander, (2007) 5 SCC 719 . 14. Submissions made by learned counsel for the parties have received the due consideration of the Court. Also perused the materials on record. 15. Section 7 of the 1996 Act deals with arbitration agreement. As per Sub-Section (1), arbitration agreement would mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship. Sub-Section (2) says that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. But in terms of Sub-Section (3), an arbitration agreement shall be in writing which is explained in Sub-Section (4). Sub-Section (4) says that 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. (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. 16. (b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement. (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. 16. Sub-Section (5) says that 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. In Jagdish Chander (2 supra) Supreme Court analyzed Section 7 of the 1996 Act in the following manner: 7. Sub-Section (1) of Section 7 of the Act defines “arbitration agreement” as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Sub-Section (2) provides that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Sub-Section (3) requires an arbitration agreement to be in writing. Sub-Section (4) provides that an arbitration agreement is in writing, if it is contained in - (a) document signed by the parties; or (b) in an exchange of letters, telex, telegrams or other means of telecommunication 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. 17. After referring to various decisions as to attributes or essential elements of an arbitration agreement, Supreme Court set out the well settled principles in regard to what constitutes an arbitration agreement as follows: (i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and an willingness to be bound by the decision of such tribunal on such disputes, it is arbitration agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and an willingness to be bound by the decision of such tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement. (ii) Even if the words “arbitration” and “arbitral tribunal (or arbitrator)” are not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are: (a) The agreement should be in writing. (b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. (d) The parties should have agreed that the decision of the Private Tribunal in respect of the disputes will be binding on them. (iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to Arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically excludes any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically excludes any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the Authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the Authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement. (iv) But mere use of the word “arbitration” or “arbitrator” in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as “parties can, if they so desire, refer their disputes to arbitration” or “in the event of any dispute, the parties may also agree to refer the same to arbitration” or “if any disputes arise between the parties, they should consider settlement by arbitration” in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that “if the parties so decide, the disputes shall be referred to arbitration” or “any disputes between parties, if they so agree, shall be referred to arbitration” is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future. 18. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future. 18. Again Supreme Court in the case of Shakti Bhog Foods Limited (supra) had an occasion to examine Section 7 of the 1996 Act and thereafter held that it is clear from the provisions made under Section 7 that the existence of an arbitration agreement can be inferred from a document signed by the parties, or upon an exchange of letters, telex, telegrams or other means of telecommunication, which provide a record of the agreement. It was held as follows: Therefore, it is clear from the provisions made under Section 7 of the Act that the existence of an arbitration agreement can be inferred from a document signed by the parties, or an exchange of letters, telex, telegrams or other means of telecommunication, which provide a record of the agreement. 19. Thus, on a conjoint analysis of the two decisions of the Supreme Court in Shakti Bhog Foods Limited (supra) and Jagdish Chander (supra), it can be deduced that while the arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement, it is to be in writing. Further, the arbitration agreement would be construed to be in writing if it is contained in any document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication, or upon 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. Thus, existence of an arbitration agreement can be inferred from an exchange of letters or other means of communication. 20. Having noticed the above, we may once again advert to the correspondence between the parties. 21. In the first letter dated 26.12.2014, applicant pointed out to the respondent that it had carried out various additional works due to revision in mechanical drawing. It was stated that applicant was promised by the respondent about extra payment as would be mutually agreed upon. 21. In the first letter dated 26.12.2014, applicant pointed out to the respondent that it had carried out various additional works due to revision in mechanical drawing. It was stated that applicant was promised by the respondent about extra payment as would be mutually agreed upon. It was further pointed out that in the event of difference of opinion in finalizing the quantum of compensation, decision of the head of the civil engineering unit of the respondent would be final and binding on the parties. In the second letter dated 27.12.2014, while reiterating the above, it was also pointed out that in the event of disagreement, the matter would be referred to the sole arbitration of the head of the civil engineering unit of the respondent, as per the 1996 Act. In the e-mail dated 15.01.2015 respondent acknowledged the letter dated 26.12.2014 of the applicant and noted the concern regarding settlement of additional work due to revision in mechanical drawing. Applicant was assured that the same would be settled amicably and in this connection applicant was requested to furnish the relevant details. In the email dated 22.01.2015 respondent acknowledged the letter of the applicant dated 27.12.2014 and stated that insofar additional work was concerned, it would refer to and rely upon as it had stated in its e-mail dated 15.01.2015. It was thereafter that applicant submitted bill for the additional work undertaken which was quantified at Rs. 67,26,120-00. 22. Respondent in its e-mail dated 09.02.2017 stated that there were several mistakes in the drawings released by the applicant. It was stated that the respondent had engaged an external agency for review, rectification and release of structural and civil drawings which resulted in extra cost. However, considering the good business relationship it had with the applicant, respondent agreed to pay an amount of Rs. 5,00,000-00 additionally as a goodwill gesture. Applicant in its e-mail dated 20.04.2017 referred to the bill submitted on 01.08.2016, but stated that it did not receive any reply from the respondent. Respondent was called upon to settle the bill failing which to appoint an arbitrator on mutually agreed terms and conditions. In its subsequent letter dated 02.02.2018, respondent denied the existence of any arbitration agreement, but offered to pay an amount of Rs. 5,00,000-00 purely as a gesture of goodwill. Respondent was called upon to settle the bill failing which to appoint an arbitrator on mutually agreed terms and conditions. In its subsequent letter dated 02.02.2018, respondent denied the existence of any arbitration agreement, but offered to pay an amount of Rs. 5,00,000-00 purely as a gesture of goodwill. It was also stated that such offer did not in any manner amount to acceptance of the claims raised by the applicant. Respondent in its letter dated 03.10.2017 while denying existence of any arbitration clause, however, proposed to hold a meeting at its office to settle the outstanding issues between the parties, the schedule of which could be decided upon confirmation from the applicant. 23. From the above, it is evident that a dispute was raised by the applicant. Though the respondent would like to brush aside such dispute, by offering some payment purely as a measure of good will, nonetheless, it proposed to hold a meeting for settlement of outstanding issues between the parties. The outstanding issues have arisen because of alleged additional work executed by the applicant leading to raising of bill by the applicant for an amount of Rs. 67,26,120-00. According to the applicant, the alleged additional work had to be done because of revision in mechanical drawings by the respondent. As opposed to this, respondent is willing to pay only an amount of Rs. 5,00,000-00 that too purely as a gesture of goodwill. Further, we find that while applicant is insisting on appointment of sole arbitrator to resolve the dispute, respondent while denying arbitration clause, had proposed holding of meeting between the two sides to settle the outstanding issues. 24. Thus, from a careful reading of the correspondence, Court is of the view that existence of dispute between the parties and resolution of the same through arbitration can be inferred from the exchange of letters and e-mails between the parties. Court has already noticed the nature of dispute that has arisen between the parties. 25. That being the position, the Court hereby appoints Sri. N. Shankaraiah, District Judge (Retired), H. No. 11-9-256, Street No. 16, Plot No. 110, Vijayapuri Colony, Kothapeta, Hyderabad, Mobile No. 9912058689, as the sole arbitrator to arbitrate on the dispute raised by the applicant. Both the parties are hereby directed to appear before the learned arbitrator on 28.03.2022 at 11.00 A.M. whereafter learned arbitrator shall proceed with the matter in accordance with law. Both the parties are hereby directed to appear before the learned arbitrator on 28.03.2022 at 11.00 A.M. whereafter learned arbitrator shall proceed with the matter in accordance with law. 26. Let a copy of this order be forwarded by the Registry to both the parties and also to the learned arbitrator for doing the needful. 27. This disposes of the arbitration application.