Full Judgment Text
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CASE NO.:
Arbitration Petition 18 of 2007
PETITIONER:
Shristi Infrastructure Development Corporation Ltd
RESPONDENT:
Sunway Construction SDN BHD
DATE OF JUDGMENT: 12/03/2007
BENCH:
Lokeshwar Singh Panta
JUDGMENT:
JUDGMENT
O R D E R
ARBITRATION APPLICATION [C] NO. 18 OF 2007
1. This is an application under Section 11(6) read with
Section 11(12) of the Arbitration and Conciliation Act 1996
(hereinafter referred to as ’the Act’) and relates to a dispute
under an agreement between a foreign company and an Indian
company. The application is filed by an Indian company
against the foreign company seeking reference of the disputes
to an arbitrator. The claim of the petitioner is that the
respondent-company is liable to pay the petitioner a sum of
Rs.98,72,68,531.00 as per Annexure P/1 with interest at the
rate of 21% per annum; the petitioner is entitled to interest
pendente lite and future interest on the amount claimed from
the date of the petitioner invoking arbitration till the date of
decree by a Competent Forum at 21% per annum and cost of
arbitration from the respondent-company.
2. The relevant facts set out in the petition by the petitioner
are as follows:-
The petitioner is a public limited company incorporated
under the Indian Companies Act, 1956 having its registered
office at New Delhi. The respondent-company is registered
and incorporated in Malaysia as per Malaysian Laws and it
has its principal place of business at Level 8, Mentara
Sunway, Jalan Lagoon Timur, Bandor Sunway, 46150 Petaling
Jaya, Selangor Darul Ehsan, Malaysia. It has its office at New
Delhi and it is carrying contract work for constructing,
rehabilitation and up-gradation of NH-25 to Four Lane
configuration in the State of Uttar Pradesh, being a part of
East West Corridor Project (EWC Project) on the terms and
conditions contained in the Letter of Acceptance dated 30th
June, 2005 issued by the National Highway Authority of India
(NHAI). The said Project is funded by International Lending
Agency and is being executed with funds from Asian
Development Bank.
3. On 19.11.2005, the petitioner entered into a contract
with the respondent-company for construction of one-third
portion of the above-mentioned stretch of the NH from 143.6
Kms to 170 Kms. The total value of this sub-contract is to the
tune of Rs.134,37,91,938/-. Three separate agreements were
entered into between the parties herein on 22.12.2005. On
29.11.2005, the petitioner furnished Performance Bank
Guarantee to the respondent-company in the sum of
Rs.6,71,89,597/- which was valid till 30.04.2009. The
petitioner also furnished mobilization advance Bank
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Guarantee to the respondent-company in the sum of
Rs.6,71,89,597/- on 16.12.2005, which was valid till
30.04.2009. In December 2005, the petitioner mobilized its
resources to commence the work at site. It is stated that on
04.03.2006, the respondent-company belatedly released
Rs.6,09,72,130/- as mobilization advance to the petitioner.
Apart from the financial crunch, the petitioner faced several
difficulties and hindrances in the execution of the contract
which was duly intimated to the respondent-company, but to
no avail.
4. On 03.01.2007, the petitioner filed a petition under
Section 9 of the Act in the High Court of Calcutta seeking
direction to restrain the respondent-company from encashing
the bank guarantee tendered by the petitioner and further not
to supplement the petitioner with any other contractor which
was later on dismissed as withdrawn. The petitioner stated
that on 20.03.2007, a meeting was held between the
respondent-company and NHAI where the respondent-
company has acknowledged such difficulties being faced by
the petitioner at the site. On 12.04.2007, second meeting was
convened between the respondent-company and NHAI where
again the NHAI was informed by the respondent-company
about the lack of funds and other problems being faced at site.
On 28.04.2007, the respondent-company threatened to
terminate the Work Order allegedly as per Clause 14 of the
Agreement dated 19.11.2005. On 03.05.2007, the petitioner
sent reply to the letter refuting the allegations levelled by the
respondent-company and apprising it of the ground realities
as admitted by respondent-company before NHAI in meetings
held on 20.03.2007 and 12.04.2007 respectively. The
petitioner filed another petition on 25.05.2007 under Section 9
of the Act in the High Court of Calcutta praying inter alia that
the respondent-company be restrained from terminating the
contract without paying the outstanding dues of the petitioner
and further restraining the respondent-company from
encashing the bank guarantees. On 30.05.2007, an
agreement was signed between the parties pursuant to the
meetings dated 08.05.2007, 19.05.2007, 22.05.2007 and
28.05.2007 in a meeting held at Malaysia and in India for
resolving the disputes wherein the respondent-company
agreed to make payment for the work done by the petitioner,
i.e. both certified and uncertified as well as to take over site
establishment and material of petitioner at actual cost and the
parties jointly agreed to pursue the claims with NHAI. It is
stated that this was not honoured by the respondent-company
resulting in failure of amicable settlement process. On
16.06.2007, the respondent-company arbitrarily terminated
the contract without paying the withheld outstanding dues to
the petitioner. The respondent-company further threatened to
enter upon the work site within 14 days. On 20.06.2007, the
High Court of Calcutta dismissed the Arbitration Petition
No.186 of 2007 of the petitioner and declined any relief to the
petitioner on the ground that bank guarantee is irrevocable.
5. In June 2007, the petitioner filed an application under
Section 9 of the Act in the High Court of Delhi for restraining
the respondent-company from acting in pursuance or giving
effect to letter of termination dated 16th June, 2007 and from
utilizing any proceeds and/or monies received from invocation
of bank guarantees. However, this petition was subsequently
withdrawn as the High Court was of the view that since the
petitioner invoked the adjudication of High Court of Calcutta,
any subsequent petition would lie before the same High Court.
It is further stated that on 02.07.2007, the respondent-
company invoked the bank guarantees of Rs.6.71 crore each,
furnished by the petitioner and encashed Rs.11.72 crores
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although in none of the previous meetings held between the
parties there was even a whisper of any claim of the
respondent-company against the petitioner.
6. On 03.07.2007, the petitioner requested the respondent-
company to refer the disputes between the parties to the sole
arbitrator named by the petitioner, but on 11.07.2007, the
respondent-company declined to accede to the above-said
request of the petitioner terming the invocation of arbitration
clause by the petitioner as pre-mature without assigning any
reason. The petitioner again attended several rounds of
meetings with the respondent-company but the talks of
amicable settlement failed.
7. In these circumstances, the petitioner is seeking
appointment of a sole Arbitrator. These are the broad
contentions of the petition. The respondent-company filed a
counter affidavit through Subba Rao, Senior Project Manager.
In para 2 thereof, it is stated as under:-
"Whilst the respondent is not opposing the aforesaid
application for the appointment of an Arbitrator to
arbitrate on the disputes that have arisen between
the parties hereto, I say and submit that the various
allegations made by the petitioner against the
respondent on merits are wholly irrelevant for the
purposes of the disposal of the present application
and are therefore unwarranted. The petitioner has
unduly burdened the section 11 Application with all
sorts of allegations pertaining to respondent’s
alleged breaches etc. though these are not relevant
or germane for the disposal of the present
application. As such, all allegations in the
applications pertaining to any alleged breach or
non-fulfillment of obligations by the respondent are
denied and the respondent reserves its right to deal
with the said allegations if and when they are made
by the petitioner in the arbitration proceedings."
8. On merits, the respondent-company stated that the
petitioner continuously failed, refused and neglected to carry
out the works with due diligence and delayed execution of the
work, as a result of which the work of rehabilitation and up-
gradation of the National Highway was way behind schedule.
The respondent-company has furnished the details of the
defaults allegedly committed by the petitioner in the counter
affidavit in these proceedings which I think are not necessarily
to be dealt with. Besides other averments made in the
counter, the respondent-company submitted that it has
grievances against the petitioner and therefore the respondent-
company also seeks to join in with the request for an
appointment of an Arbitrator.
9. A rejoinder was filed by the petitioner refuting the various
allegations made in the counter.
10. It is not in dispute that the parties are governed by the
terms of the Umbrella Agreement, copy whereof is placed on
record. Clause 18.4 of the agreement reads as under:-
"In the event we fail to arrive at any amicable
solution as referred to hereinbefore, the said claim,
dispute or difference arising thereof between us
shall be referred to arbitration to a sole arbitrator in
accordance with the subject to the provisions of the
Arbitration and Conciliation Act, 1996 or any
statutory modification or re-enactment thereof."
11. In view of the fact that the respondent-company has
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admitted the existence of disputes and differences arising
between the parties which are the subject-matters to be
referred to a sole arbitrator and in the circumstances of the
case and in as much as the respondent-company has no
objection for appointment of an arbitrator, I appoint Shri
Justice H. L. Agrawal (Former Chief Justice of Orissa High
Court) as the sole arbitrator in the case. The remuneration
payable for the case and other costs payable may be fixed by
the arbitrator after hearing the parties on both sides.
I.A. No.1 of 2007
12. This application has been filed by the petitioner seeking
the following interim reliefs and direction against the
respondent-company:-
(a) to restrain the respondent from undertaking any
further work at site, forming subject matter of the
petitioner’s agreement dated 19.11.2005 with the
respondent, through any other person, agency or
company whomsoever, or by itself, till such time the
entire process of recording of measurements of the
work done at site by the petitioner is finalized and
completed;
(b) to restrain the respondent from sub-contracting the
work, in question, forming subject matter of the
petitioner’s agreement dated 19.11.2005 with the
respondent, through any other person, agency or
company whomsoever or by itself in violation of the
terms of its main Contract dated 30.06.2005 with
NHAI;
(c) to direct the respondent\026Sunway Construction Sdn
Bhd to secure the petitioner for the amount in dispute
by depositing in this Hon’ble Court the amount
towards the petitioner’s claims against the respondent;
(d) pass ex-parte ad-interim orders in terms of prayers (a),
(b) & (c) above, and confirm the same after notice to
the respondent;
(e) pass such other measures of interim measures of
protection as may appear and deemed by this Hon’ble
Court to be just and convenient.
13. In reply to the said application, the respondent-
company contended that the petitioner is not entitled for any
interim relief as this application for such measures is not
maintainable in these proceedings. It is stated that the only
provision under which interim measure is sought for is under
Section 9 of the Act and for that the relevant "Court", as
defined vide Section 2(1) (e) of the Act, has to be approached.
It is further stated that the petitioner continuously has failed,
refused and neglected to carry out its obligations under the
Work Order and failed to carry out the work with due diligence
in terms of Clause 3.1 of the General Conditions of the Work
Order dated 19.11.2005. Further, the site management
provided by the petitioner was extremely poor, thus, resulting
in the petitioner defaulting in its obligations provided under
Clause 5.9 of the General Conditions of the Work Order. The
respondent-company has given many instances of defaults
allegedly committed by the petitioner and also undue delay in
execution of the contract work by the petitioner and it is also
stated that the petitioner failed and neglected to take any
proper action to protect the plants, equipments and material
on the site. It is stated that the petitioner was in default of its
obligations under the Work Order and the project which is of
national importance and in public interest was very behind the
schedule as a result of the act or omissions of the petitioner.
It is stated that second application filed by the petitioner
under Section 9 of the Act was dismissed by the High Court of
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Calcutta by Judgment dated June 20, 2007 with cost of
Rs.50,000/- imposed on the petitioner and no appeal was filed
by the petitioner against the said order and thus the order has
now become final. The respondent-company stated that the
petitioner having failed to get the interim order from the High
Court of Calcutta filed third application under Section 9 of the
Act in the Delhi High Court. The said petition came to be
dismissed as withdrawn in June 2007. On these premises, it
is submitted that the balance of convenience is entirely in
favour of the respondent-company and no irreparable loss
would be caused to the petitioner, if interim relief as prayed
for, is not granted to the petitioner. It is contended that in
fact the respondent-company would suffer irreparable loss and
would be liable to liquidated damages if timely completion of
the EWC Project is not done in obedience of the commitment
made with NHAI.
14. I have heard learned counsel for the parties. Dr. A.M.
Singhvi, learned senior counsel appearing on behalf of the
petitioner, submitted that the mobilization advance was
delayed by the respondent-company by a period of as long as
79 days after furnishing bank guarantee by the petitioner and
mobilization advance of Rs.6.09 crores only was released by
the respondent-company as against the bank guarantee of
Rs.6.71 crores; the respondent-company also defaulted in
paying the amounts due to the petitioner against various R.A.
bills submitted by it from time to time and an amount to the
tune of Rs.4.47crore was withheld against the petitioner’s bills
for no justifiable reasons and on flimsy pretext. He submitted
that the respondent had promised and assured for immediate
release of the outstanding amount for the works done, site
establishment and material costs and it was agreed that the
exercise of joint management shall immediately be carried out
for recording the measurements of the work done by the
petitioner as also to quantify the material available at site
which would be taken over by the respondent on actual basis,
but the respondent-company has failed to carry out its
obligations. He also contended that the respondent-company
fraudulently invoked the two bank guarantees furnished by
the petitioner towards mobilization advance and towards
Performance Bank Guarantee which shall be secured in these
proceedings before the Arbitrator would pass the final award.
According to the learned counsel, the Chief Justice or a person
designated by him under Section 11 of the Act is competent
and empowered to grant interim relief in these proceedings.
15. Per contra, learned counsel for the respondent-company
submitted that no interim relief can be granted in the
proceedings filed under Section 11(6) read with Section 11(12)
of the Act, in view of the fact that the petitioner could not
succeed in getting similar interim relief in A.P. No.1 of 2007
filed by it under Section 9 of the Act in the High Court of
Calcutta on 03.01.2007 which came to be dismissed on
11.06.2007 and second attempt to obtain interim relief under
Section 9 in A.P. No. 186 of 2007 filed in the High Court of
Calcutta on 25.05.2007 which was also dismissed on
20.06.2007 with cost of Rs.50,000/- imposed on the petitioner
and the interim order was vacated. The petitioner even could
not get interim relief third time in O.M.P. No. 337 of 2007 filed
by it under Section 9 of the Act in Delhi High Court which was
dismissed as withdrawn in June 2007. In view of the conduct
of the petitioner who has been dragging the proceedings for
the last many years in different courts, the learned counsel
submitted that the petitioner is not entitled to the interim
relief and this application deserves dismissal.
16. Having considered the rival contentions of the parties
and having taken into consideration the facts narrated
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hereinbefore, taking into consideration the fact that the
disputes and differences between the parties emanating from
the contract are required to be resolved through an arbitration
of sole arbitrator and further keeping in view the urgency of
the Project to be completed by the respondent-company, and
also the time-gap of about 3 years from the date of contract
entered into between the petitioner and the respondent-
company, I am of the view that at this stage granting of
interim relief sought for by the petitioner in these proceedings
will not be in the larger interest of both the parties and in
completion of the time-bound Project of public importance.
The question whether the Chief Justice or his designate
person is a ’Court’ within the meaning of Section 2(e) of the
Act, is left open for consideration and decision in some
appropriate proceedings as in this case the petitioner has
already approached High Court of Calcutta twice under
Section 9 of the Act and third time in the High Court of Delhi
for the grant of interim relief or measures. However, the
petitioner is at liberty to approach the Arbitrator for seeking
the interim measure or protection as warranted by the facts
and circumstances in respect of subject-matter of the dispute
in terms of Section 17 of the Act. It is made clear that any
observation made in this order shall not be construed as an
expression of opinion on the merits of the case which shall be
decided by the Arbitrator in accordance with law.
17. The Arbitration Application is accordingly disposed of.