Agni Constructions Pvt. Ltd. vs GNB Brothers Pvt. Ltd.

Anil Kumar, J.—This is petition u/s 11 of Arbitration and Conciliation Act, 1996 by the petitioner seeking appointment any of the three suggested persons named in the notice dated 12th June, 2008 as an arbitrator in place of the Arbitrator appointed by the respondent.

The petitioner contended that an inquiry was issued by Corozo Fashion Clothing through their architect, M/s. Sachdeva Consultants, for the civil and plumbing works involved in the construction of an industrial building at Manesar. The work was sub divided into two phases. The petitioner contended that after discussions and negotiations, the petitioner was awarded work by Corozo Fashion Clothing on 14th August, 2006. The work letter contained an arbitration Clause in terms of Clause 5.9.5. The petitioner under the terms of the work letter was entitled for two percent bonus on completion of the work within the scheduled time.

It is asserted by the petitioner that though the work was awarded to them by Corozo Fashion Clothing, due to paucity of funds, Corozo Fashion Clothing had entered into some arrangements with M/s. GNB Brothers Pvt. Ltd., the respondents herein.

The plaintiff has contended that though the terms of payment in the work letter dated 14th August, 2006 were in accordance with Clauses 5.7 and 5.7.3 of the tender enquiry, later on an agreement, dated 17th November, 2006, for item rate contract within the rate for recovery of material to be supplied by the respondent was entered into with the respondent. It is contended that though the petitioner had already executed work worth 62 lacs by the time the agreement dated 17th November, 2006 was entered into, the petitioner was only paid 25 lacs and the balance was retained by the respondent.

The petitioner has contended that even though the various hindrances and delays on the part of the respondent, which had brought about a delay in the completion of phase I of the work, were brought to the notice of the respondent, they failed to rectify the same. It was also contended that on account of the delay the petitioner had to execute additional work and submitted bills for the same, however, the same has not been paid by the respondent. The allegation has also been made by the petitioner that the respondent committed breach of contract by non certifying bills, the details of which are given by the petitioner in the petition.

The petitioner has contended that despite the breaches committed by the respondent, he further failed to release the payment for the work already executed and made the petitioner to sign an agreement dated 25th October, 2007 which contained an arbitration Clause which is reproduced below.

Arbitration Clauses:

In the event of any dispute arising out of any way connected with M/s. Agni Constructions Pvt. Ltd., its terms and conditions or its interpretation or validity, such disputes shall firstly be attempted to be sorted out amicably, falling which they shall be referred to the sole arbitration of M/s. G.N.B. Bros Pvt. Ltd. The arbitration shall be conducted at Delhi under the terms of the arbitration and conciliation Act, 1996 and the award of the arbitration shall be final and binding on both the parties. The arbitrator shall be appointed by G.N.B. Bros. Pvt. Ltd. who shall have the sole discretion to appoint the arbitrator in the event of any of the above said party raising disputes under this contract. The court of contempt jurisdiction shall be exclusively that of our registered head office (Delhi at present) even when there are several defendants or in the case of an appeal. However we can also take our suppliers/service providers to the court corresponding to their own registered offices. Neither our notes nor our acceptance of payment shall represent either a novation or derogation to the Clause allocating the jurisdiction.

The petitioner contended that the contract with him was terminated by the respondent by a letter dated 21st April, 2008 and after termination petitioner submitted a bill for Rs. 44,958,325/- dated 6th May, 2008, however, the amounts were not paid and the disputes arose between the parties.

The plea of the petitioner is that in order to sort out the disputes, a meeting was called on 11th March, 2008. It is pleaded that the respondent prepared an incorrect minutes of the said meeting and, therefore, petitioner did not sign the same and wrote to the respondent a letter dated 12th March, 2008 to have further meeting at a neutral venue. The petitioner, without disclosing the details of the letters written to him by the respondent, has alleged that the respondent threatened the petitioner. It is also alleged that by a letter dated 22nd April, 2008 the respondent had asked the petitioner to agree with the choice of arbitrator of the respondent or else the petition would be filed for the appointment of arbitrator under the provisions of Arbitration and Conciliation Act, 1996. According to the petitioner, he did not accept the appointment of arbitrator by respondent and issued a letter to the respondent, dated 5th May, 2008, indicating the same. The petitioner contends that the claims of the petitioner are absolutely technical in nature and the disputes relate to construction work of an industrial unit and the nature of the claims are engineering and technical, therefore, it is essentially necessary to have an arbitrator who is a civil engineer and well experienced. According to the petitioner by notice dated 12th June, 2008, petitioner suggested three names, i.e., Mr.C.B. Lal, Retired Director General, CPWD; Mr.M.K. Goyal, Retired Chief Engineer, CPWD and Shri Ganu Lal, Superintendent Engineer, and asked the respondent to choose any of the names within seven days of the receipt of the notice. The petitioner has also raised the disputes which are detailed in para 7 (B) of the petition and the present petition u/s 11 of the Arbitration and Conciliation Act, 1996 was filed on 29th July, 2008.

The petition for appointment of arbitrator is contested by the respondent contending inter alia that according to the terms of the agreement between the parties, the arbitrator is to be appointed by the respondent. The respondent has contended that it had appointed Hon''ble Mr. Justice K. Ramamoorthy (retired Judge of the Delhi High Court) as the sole arbitrator in terms of Clause of 5.9.5 of the tender document read with amended arbitration Clause in agreement dated 25th October, 2007 forming part of the contract for civil and plumbing work of industrial building at Plot No. 14, IMT Maneshar, Gurgaon, to resolve the disputes arising under the said contract. Despite the letter dated 22nd April, 2008 appointing the said arbitrator, the petitioner wrote a letter dated 12th June, 2008 and sought appointment of any one of the three names indicated by him in his communication as the arbitrator. The respondent contended that the appointment of arbitrator by it is in consonance with the arbitration agreement and the petitioner cannot insist for appointment of any other person as an arbitrator, in the facts and circumstances.

Relying on National Highways Authority of India and Another Vs. Bumihiway DDB Ltd. (JV) and Others, and Rite Approach Group Ltd. Vs. Rosoboronexport, , it was contended that unless the arbitrator appointed according to the terms of the arbitration agreement fails to exercise its jurisdiction, the Court cannot assume jurisdiction u/s 11(6) of the Arbitration & Conciliation Act, 1996.

The respondent contended that the petitioner has no cause to file the present arbitration petition as the petitioner is accepting the appointment of arbitrator in terms of the arbitration Clause in agreement dated 25th October, 2007 and is also trying to have his appointment superseded by filing petition u/s 14 of Arbitration and Conciliation Act, 1996 which is also pending adjudication in this Court. In the circumstances it has been contended that attitude of the petitioner is malafide and his conduct is illegal. The respondent also contended that facts in issue in the present petition are substantially similar to the facts of the claim filed by the respondent before the arbitrator and there cannot be two different arbitration proceedings going on simultaneously. The respondent also contended that the petitioner had filed an application u/s 16 of the Arbitration and Conciliation Act, 1996 raising objection to the jurisdiction of the sole arbitrator. The application of the petitioner u/s 16 was heard by the learned Arbitrator and the objection was dismissed on 27th August, 2008.

The respondent also contended that the arbitrator had been appointed pursuant to communication dated 22nd April, 2008, however, this fact has been concealed by the petitioner who had deliberately made a wrong averment in para 4 of the petition alleging that no arbitrator is appointed to adjudicate the claims of the petitioner.

In the circumstances, it is prayed that the petition be dismissed.

Learned Counsel for the petitioner had contended vehemently that fees demanded by the Arbitrator appointed pursuant to letter dated 22nd April, 2008 is exorbitant and, therefore, the arbitration by such an Arbitrator be superseded and has relied on Bharat Sanchar Nigam Ltd. and Another Vs. Motorola India Pvt. Ltd., ; Union of India (UOI) Vs. Bharat Battery Manufacturing Co. (P) Ltd., ; Datar Switchgears Ltd. Vs. Tata Finance Ltd. and Another, ; Harcharan Das Gupta v. Govt. of NCT of Delhi and Anr. AA No. 349/2006, decided on 19th December, 2007; Shri Satya Pal Gupta v. Municipal Corporation of Delhi AA No. 437/2006, decided on 14th December, 2007. 14. Learned Counsel for the petitioner has also referred to arbitration Clause 5.9.5 which has been referred to by the learned Arbitrator while dealing with the application u/s 16 of the Arbitration and Conciliation Act, 1996 which was dismissed by order dated 27th August, 2008.

Learned Counsel for the petitioner cannot deny the appointment of Arbitrator in terms of arbitration Clause in agreement dated 25th October, 2007, as by letter dated 5th May, 2008. The petitioner had sought appointment of arbitrator by mutual consent or by the court.

If the arbitrator was not appointed by the respondent in terms of the arbitration clause, only then would the petitioner have had a lis to approach this Court for appointment of an arbitrator in terms of the arbitration agreement. Arbitration agreement contemplates sole arbitration by M/s. G.N.B. Bros. Pvt. Ltd. who had to appoint an arbitrator at their sole discretion which had been done by them. The arbitration Clause in the award of work dated 14th August, 2006 and subsequent agreement dated 17th November, 2006 shall stand modified by the arbitration Clause in the agreement dated 25th October, 2007.

Learned Counsel for the petitioner has also vehemently contended that the disputes of the petitioner are not being adjudicated by the Arbitrator. The contention of the petitioner is misleading and contrary to the petitioner''s stand. The petitioner has not filed his claims before the Arbitrator nor has the Arbitrator refused to adjudicate the disputes raised by the petitioner. Rather, the petitioner has filed an application u/s 16 of Arbitration and Conciliation Act, 1996 seeking dropping of the arbitration proceedings on the ground that the Arbitrator has no jurisdiction till this Court passes an order in the application filed by the respondent u/s 11 of the Act.

Since the respondent had invoked the arbitration agreement in terms of arbitration Clause and appointed the sole arbitrator as contemplated under the agreement, there was no necessity for the respondent to approach this Court for appointment of the arbitrator. If the appointment of the Arbitrator was not in consonance with the arbitration Clause in the agreement dated 25th October, 2007, only then the petitioner could have approached this Court for appointment of an arbitrator in terms of the arbitration Clause between the parties. The petitioner is taking contradictory stands as the petitioner has also filed a petition to terminate the mandate of the Arbitrator u/s 14 of the Arbitration and Conciliation Act, 1996 on the ground that the fees demanded by the Arbitrator is prohibitory and consequently the arbitration be superseded as Arbitrator has become de jure or de facto unable to perform his functions. The plea for the terminating the mandate of the arbitrator is pending separately before this Court, however, that does not entitle the petitioner to get an arbitrator appointed u/s 11 of the Arbitration and Conciliation Act, 1996 so long as the appointment of the Arbitrator is in accordance with the arbitration clause.

The petitioner has also made incorrect averments in the petition. By a letter dated 22nd April, 2007, the Arbitrator was appointed, however, in para 4 of the petition which is also verified by the petitioner it is stated that no Arbitrator had been appointed to adjudicate the claims of the petitioner. The precedents relied on by the petitioner also do not support the claim of the petitioner.

In Bharat Sanchar Nigam Ltd. (supra), it was held that the disputes raised by the petitioners were not "excepted matters" and that the respondents were not to decided whether they were excepted matters and whether they were excepted matters was also to be adjudicated before the Arbitrator. Apparently, the ratio of the case relied on by the petitioner is not relevant to the present facts and circumstances. In Union of India v. Bharat Battery Manufacturing Co. P. Ltd. (supra), Union of India had failed to appoint an Arbitrator within 30 days of invocation of the arbitration agreement and the petition u/s 11(6) of the Arbitration and Conciliation Act, 1996 was filed on 30th March, 2006. The Union of India, however, appointed an Arbitrator after the petition u/s 11(6) of Arbitration and Conciliation Act, 1996 was filed. It was held that the Union of India had lost its right to appoint an Arbitrator and that the appointment of the Arbitrator by the court was justified. The other decisions relied on by the petitioner, Harcharan Das Gupta (supra) and Shri Satya Pal Gupta (supra) are also distinguishable and on the basis of the ratio of the said judgments, the petitioner is not entitled to have another Arbitrator appointed u/s 11 of Arbitration and Conciliation Act, 1996 after challenging his jurisdiction u/s 16 of the Arbitration and Conciliation Act, 1996 before the Arbitrator and on account of pendency of another petition u/s 14 of the Arbitration and Conciliation Act, 1996 seeking termination of his mandate.

In the totality of facts and circumstances, the petition u/s 11 of the Arbitration and Conciliation Act, 1996 by the petitioner is an abuse of process of law and is without any merit and it is, therefore, dismissed with a cost of Rs. 10,000/- payable by the petitioner to the respondent. The cost be paid to the respondent within four weeks.