Arpit Projects Limited. vs Gurgaon Recreation Park and Another

Mukul Mudgal, C.J.—In this petition filed u/s 11(5) of the Arbitration and Conciliation Act, 1996, the Petitioner has prayed for appointment of sole Arbitrator to settle the dispute between the parties.

The arbitration clause contained in the agreement, reads as follows:

Any dispute or difference arising between the parties in relation to or in any manner touching upon this MOU shall be settled by Arbitration in accordance with the provisions of the Arbitration & Conciliation Act, 1996. The Governing law will be Indian. The venue of Arbitration shall be at Delhi. The Courts at Delhi shall have sole and exclusive jurisdiction over this MOU.

The arbitration was invoked by the Petitioner in on Ist June, 2010 seeking to appoint its Arbitrator. The Respondents replied to the same on 19.6.2010. The sum and substance of the Respondents'' case set up in the reply was that on account of non grant of Consent/N.O.C. By the HSIIDC, the MOU had become frustrated and therefore, it could not enter into any agreement to sell or sale deed. It was further submitted by the Respondents in that letter that it was prepared to return a sum of Rs. 20 Crores along with interest @ 14% per annum as specified in the MOU w.e.f. 27.4.2009 till 20.6.2010 amounting to Rs. 2,35.66,666/-and these amounts were available by way of specified cheques for delivery to the Petitioner provided the Petitioner agreed to accept the same. It was also stated that the arbitration was not maintainable in view of such quantified damages. In the alternative, a name of the Arbitrator was also suggested.

Mr. Anand, learned Senior Counsel appearing for the Petitioner has submitted that arbitration clause and invocation under the said clause clearly indicate that there was no defence to the request for appointment of an Arbitrator and the Court may appoint the Court nominated Arbitrator to decide the dispute between the parties.

On the other hand, learned Counsel for the Respondents submitted that the claim raised, in addition to the Respondents, was against three other parties and since third parties interests were involved, the dispute was not referable to arbitration and the only remedy of the Petitioner was filing of a civil suit. He further submitted that in so far as the claim set up by the Petitioner is concerned, the damages already stood quantified and crystallized and such quantified and crystallized damages had been offered to the Petitioner by the Respondents vide its reply dated 19.6.2010. He has relied upon a judgment of Bombay High Court in case Tulip Hotels Pvt. Ltd. and Dr. Ajit B. Kerkar of Mumbai Vs. Trade Wings Ltd., Dr. Shailendra P. Mittal of Mumbai and Trade Wings Hotels Ltd., , to contend that when quantified damages were specified and upon offering of such damages, no further proceedings of arbitration could be undertaken as there remains no subsisting dispute between the parties.

To rebut the arguments raised by learned Counsel for the Respondents, Mr. Anand has submitted that even in respect of quantified damages, this Court has the right to appoint an Arbitrator in view of law laid down by the Hon''ble Supreme Court in Bharat Sanchar Nigam Ltd. and Anr. V. Motorola India Pvt. Ltd. 2009 (1) ALD 92 (SC), which is to the following effect:

16.2. Should the tenderer fail to deliver the goods and services on turn key basis within the period prescribed, the purchaser shall be entitled to recover 0.5% of the value of the delayed quantity of the goods & services, for each week of delay or part thereof, for a period upto 10 weeks and thereafter at the rate of 0.7% of the value of the delayed quantity of the goods and services for each week of delay or part thereof for another 10 weeks of delay. In the present case of turn key solution of supply, installation and commissioning, where the delayed portion of the delivery and provisioning of services materially hampers effective user of the systems, Liquidated Damages charged shall be levied as above on the total value of the concerned package of the purchase order. Quantum of liquidated damages assessed and levied by the purchaser shall be final and not challengeable by the supplier.

Having heard the learned Counsel for the parties and after examining the judgment of the High Court and the other materials on record, we are of the view that this [4]

appeal must be dismissed. Clause 20 is the arbitration clause and provides that any question, dispute or difference arising under this agreement or in connection therewith would be referred to arbitration. To this, an exception is also provided which lays down that the matters, the decision to which is specifically provided under this agreement, would not be referred to arbitration. From a bare reading of Clause 16.2 of Section III of the tender document, it is clear that if the tenderer fails to deliver the goods and services on turnkey basis within the period prescribed, the purchaser shall be entitled to recover liquidated damages and the quantum of the liquidated damages assessed and levied by the purchaser shall be final and not challengeable by the supplier.

We are in full agreement with the findings of the High Court that there was a dispute as to whether the Respondent had at all acted in breach of any terms and conditions of the tender document.

The question to be decided in this case is whether the liability of the Respondent to pay Liquidated Damages and the entitlement of the Appellant, to collect the same from the Respondent is an excepted matter for the purpose of Clause 20.1 of the General Conditions of contract. The High Court has pointed out correctly that the authority of the purchaser (BSNL) to quantify the Liquidated Damages payable by the supplier Motorolla arises once it is found that the supplier is liable to pay the damages claimed. The decision contemplated under Clause 16.2 of the agreement is the decision regarding the quantification of the Liquidated Damages and not any decision regarding the fixing of the liability of the supplier. It is necessary as a condition precedent to find that there has been a delay on the part of the supplier in discharging his obligation for delivery under the agreement.

It is clear from the reading of Clause 15.2 that the supplier is to be held liable for payment of liquidated damages to the purchaser under the said clause and not under Clause 16.2. The High Court in this regard correctly observed that it was not stated anywhere in Clause 15 that the question as to whether the supplier had caused any delay in the matter of delivery will be decided either by the Appellant/BSNL or by anybody who has been authorized on the terms of the agreement. Reading Clause 15 and 16 together, it is apparent that Clause 16.2 will come into operation only after a finding is entered in terms of Clause 15 that the supplier is liable [5]

for payment of liquidated damages on account of delay on his part in the matter of making delivery. Therefore, Clause 16.2 is attracted only after the supplier''s liability is fixed under Clause 15.2. It has been correctly pointed out by the High Court that the question of holding a person liable for Liquidated Damages and the question of quantifying the amount to be paid by way of Liquidated Damages are entirely different. Fixing of liability is primary, while the quantification, which is provided for under Clause 16.2, is secondary to it.

There is no provision in the agreement, apparent on the face of it, relating to a decision made by any specified authority on the issue of levy of Liquidated Damages, as is contemplated under Clause 20.1 of the agreement which is excepted from the purview of arbitration. No decision coming within the scope of excepted matters under Clause 20.1 is envisaged by any portion of the agreement regarding the liability of the supplier to liquidated damages.

Quantification of liquidated damages may be an excepted matter as argued by the Appellant, under Clause 16.2, but for the levy of liquidated damages, there has to be a delay in the first place. In the present case, there is a clear dispute as to the fact that whether there was any delay on the part of the Respondent. For this reason, it cannot be accepted that the appointment of the arbitrator by the High Court was unwarranted in this case. Even if the quantification was excepted as argued by the Appellant under Clause 16.2, this will only have effect when the dispute as to the delay is ascertained.

Clause 16.2 cannot be treated as an excepted matter because of the fact that it does not provide for any adjudicatory process for decision on a question, dispute or difference, which is the condition precedent to lead to the stage of quantification of damages.

The above stated position can be ascertained through the judgment of this Court in the case of State of Karnataka v. Shree Rameshwara Rice Mills (1987) 2 SCC 160. This Court in the said case, made a clear distinction between adjudicating upon an issue relating to a breach of condition of contract and the right to assess damages arising from a breach of condition. It was held that the right conferred to assess damages arising from a breach of condition does not include a right to adjudicate upon a dispute relating to the very breach of conditions and that the power to assess damages is a subsidiary and consequential power and not the primary power.

Mr. Anand further urged that in so far as objection with regard to third party interest is concerned that is not tenable because the Memorandum of Understanding was entered into between the Petitioner and the Respondent only and Clause 7 thereof clearly lays down that the first party i.e. Respondent will ensure clear title in all respects and receipt of all necessary approvals and NO Cs from the concerned authorities for the sale and transfer of possession of the said property and the First party i.e. the Respondent has clearly undertaken and ensured that it shall obtain written NO Cs in regard to the Transaction from (i) Sun Media Private Limited ; (ii) HSIIDC; and (iii) Country Development and Management Services Private Limited within 60 days of the signing of this MOU and it shall provide that within seven business days from the date of execution of this MOU, a letter from HDFC confirming the amount disbursed so far by HDFC for the construction of the said four star hotel, shopping area and office space on the Land is approximately Rs. 33 crores (Rupees Thirty Three Crores only). He further argued that there was breach of contract on the part of the Respondent in not obtaining the N.O.C''s in time, and therefore, it being a dispute is required to be adjudicated upon by the Arbitrator.

I have gone through the case law cited by learned Counsel for both the parties and found that the question of crystallized and quantified damages raised by the learned Counsel for the Respondent stands fully covered by the law laid down by the Hon''ble Supreme Court in Bharat Sanchar Nigam Ltd.''s case (supra). The Hon''ble Supreme Court in the said judgment has laid down that whether the [7] Respondent had at all acted in breach of any term and condition of the tendered document, is a dispute and whether there any liability of the Respondent to pay liquidated damages and the entitlement of the Appellant to collect the same from the Respondent and whether there was any default on the part of the Respondent in performance of the conditions of Memorandum of Understanding could only be gone into by the Arbitrator and this Court cannot go into such questions while exercising jurisdiction u/s 11 of the Act. In view of the law laid down by the Hon''ble Supreme Court in Bharat Sanchar Nigam Ltd. case (supra), the view taken by the High Court of Bombay at Goa in Tulip Hotel Pvt. Ltd. case (supra) does not hold the field. In so far as the objection raised by learned Counsel for the Respondent that third party interest is also involved and that those parties have not been impleaded as party to the present case, the same is also not sustainable because the Memorandum of Understanding was entered into only between the Petitioner as well as the Respondent. Therefore, the third parties not being signatories to the agreement would not be parties to the proceedings in the present case.

Accordingly, the present petition is allowed. Since the arbitration has to be conducted at Delhi as per arbitration clause, Mr. Justice R.C. Chopra, a former Judge of Delhi High Court is appointed as sole Arbitrator to adjudicate the dispute between the parties. In the meanwhile, the parties will exchange the statements of claim and response thereof. The statement of claim be supplied to counsel for the Respondent within four weeks and response to the statement of claim shall be supplied to the counsel for the Petitioner within four weeks thereafter. The parties shall appear before the Arbitrator on 11.02.2011 or on an agreed date convenient to the parties but not later than a fortnight from the date of exchange of pleadings ad directed aforesaid. The Arbitrator shall make an endaveour to dispose of the reference as far as possible not later than six months from the date of first appearance of the parties. The arbitrator shall fix his own fee.

With these directions, the petition stands disposed.