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Judgment
Surjit Singh, J.—By means of the present Writ Petition, under Article 226 of the Constitution of India, petitioner, which is a Company registered in India, has sought quashing of communication dated 9.4.2010, Annexure PAG, letter dated 13.4.2010, Annexure PAH, communication dated 16.4.2010, Annexure PAL and two communications addressed by respondents No. 3 and 4, earlier to communication dated 9.4.2010, i.e., communication dated 13.1.2010, Annexure PT and letter dated 17.3.2010, Annexure PZ.
Facts relevant for the disposal of the petition may be noticed. Petitioner is a Company, registered under the Companies Act and is engaged in the business of drilling wells, for exploration of oil and natural gas etc, as a contractor for operators. Respondent, Oil and Natural Gas Corporation Limited, a Public Sector Undertaking, is engaged in the business of exploring oil and natural gas and is an operator. It engages contractors for exploration purpose. Respondent, Oil & Natural Gas Corporation Limited, hereinafter referred to as ONGC, wanted to explore hydro carbons in the area of Jawalamukhi in Kangra District, for which it invited tenders. Petitioner was one of the tenderers. Its tender was accepted and work was awarded to it vide letter dated 25.2.2009, Annexure PB. According to this letter, the contract was for a period of two years and this period was to commence when the drilling rig alongwith the services and its personnel was fully rigged up at first drilling site. Petitioner was supposed to have mobilized their rig and other services etc. within 180 days from the date of issue of letter of award, i.e. dated 25.2.2009. Thereafter an agreement was executed, which is Annexure PE. Agreement, vide Clause 1.1, however, provided that period of two years was to be counted, when the drilling rig alongwith other services and its personnel was fully rigged up at the first drilling site and was ready for commencement of drilling operation at the site of first well designated by the Operator, with the objective of continued rig operation thereafter. Rigging of the first well commenced on 12.12.2009. It was complete on 17.2.2010 and the well was then handed over to ONGC.
Soon after the signing of the agreement, ONGC had been writing letters to the petitioner that the rigging was being delayed, on account of non-mobilization of Rig and other equipments required for drilling. Petitioner had been making explanations, whenever delays were pointed out. One of his explanations was that on account of heavy rains a portion of the road had sagged and because of that their Rig, which was required to be transported by road, could not be taken to the site for about two months. This explanation, it appears, was accepted by the ONGC.
From a number of communications, which are available on record, it appears, that inspection of site by a third party was arranged, in terms of the contract and in the course of such inspection, deficiencies were noticed. Petitioner was called upon by the ONGC (respondent No. 1) through its functionaries, also impleaded as respondents in this petition, to remove those deficiencies so that the Rig and other equipment were ready for drilling the second well before lapse of Petroleum Exploration Licence (PEL). Petitioner had been responding to those letters. Ultimately, on 16.3.2010, a meeting of the functionaries of ONGC and some representatives of the petitioner was held. Minutes of that meeting were drawn, which are Annexure PX. Following decisions were taken in the meeting:
It has been agreed upon by both the parties that ONGC may only agree for release of payment for operating period from 12.12.2009 to 17.2.2010 after deduction of the L.D. to be imposed as per contractual provision on mobilization charges and the cost of chemicals to be replenished to ONGC as per rates mentioned in the contract.
No mobilization charges will be paid by ONGC till all the compliance of deficiencies is met by the firm.
M/s DRIPL will give an undertaking that ONGC may be at liberty to take suitable action, as deemed fit without any prejudice, in the event of failure of the firm to comply the deficiencies within 15 days of issuance of this minutes and M/s DRIPL, Mumbai would not claim any amount for the period beyond 17.2.2010 till the spudding of the next well inter-alia zero operating rate would be applicable during the intervening period to make the rig fully compliant to all the deficiencies as pointed out by TPI.
M/s DRIPL also agrees to deploy TPI agency to assess the full compliance of the pending deficiencies of the rig at their cost, in case ONGC desires so.
M/s DRIPL Mumbai must commit compliance of all the deficiencies within 15 days time from the date of issuance of this minutes and only on full compliance, ONGC would release mobilization charges as per the contractual provision.
A copy of the minutes of the meeting was made available to the petitioner''s representatives on 19.3.2010, vide Annexure PZ. It appears that ONGC (respondent No. 1) was not satisfied with the progress made by the petitioner, in compliance with the aforesaid decisions. So, letter dated 6.4.2010, Annexure PAB, was written to the petitioner, asking it to inform the complete status of implementation of third party inspection observations, within three days (latest by 9.4.2010). It was stated in that letter that in case petitioner failed to comply with the letter, respondents will be constrained to take a final view in terms of suitable (sic) contractual provisions. Petitioner submitted status of compliance vide letter dated 8.4.2010, Annexure PAC (Colly).
On 9.4.2010, respondents addressed a letter, copy Annexure PAG, to the petitioner by which they intimated that under the prevailing circumstances it was felt that Frontier Basins, Dehradun, had no other option but to invoke termination of contract w.e.f. 9.4.2010, as per contractual Clauses 3.5, 3.9 and 22.5 of the above referred to contract. Thereafter, letter dated 13.4.2010, copy Annexure PAH, was written by the respondents to the petitioner, intimating that the contract termination process had been initiated by Drilling Services, Frontier Basins, Dehradun. Another letter dated 16.4.2010, copy Annexure PAL, was written to the petitioner by the respondents, refuting its claim that almost all the points raised in TPI report had been complied with.
According to the petitioner, action of the respondents in issuing communications dated 9.4.2010, Annexure PAG, letter dated 13.4.2010, Annexure PAH and letter dated 16.4.2010, Annexure PAL, is illegal, contrary to the letter and spirit of the agreement and in contravention of the agreement between the parties as to the manner in which the contract can be terminated. Also, it is alleged by the petitioner that on coming to know, after the drilling of first well, that it was not commercially viable to get Hydro Deposit Carbons in the area of Jawalamukhi, respondents started looking for excuses to wriggle out of the agreement and that all the communications, which they wrote before or after issuance of communication dated 9.4.2010, Annexure PAG, were aimed at getting out of the agreement, Annexure PE, because they felt that rigging of further wells was not going to a fruitful exercise.
Besides seeking the quashing of aforesaid communications, petitioner has also prayed for issuance of writ of mandamus to the respondents to make recommendation to the Director General of Hydro Carbons, Noida, to issue Essentiality Certificate in respect of the goods, imported by the petitioner from various foreign countries, which are stated to be lying in Custom Bonded Warehouse at New Delhi, where they were brought by air-lifting from different countries. It is stated in the petition that it was one of the conditions of the agreement, vide Clause 15.7.1, that such recommendatory letters would be issued by the respondents to the Director General of Hydro Carbons, but they had not issued the letter, as they were not interested in the drilling of the wells at the designated locations on account of sufficient quantity of Hydro Carbons having not been found in the area on rigging of first well.
In the rejoinder another plea was raised that petitioner did not get their PEL renewed beyond 31.12.2009 and this fact also indicated that they were no longer interested in the exploration of hydro carbons and natural gas in the area. According to the petitioner, huge amount of money is required to be paid, by way of fee, for renewal of PEL.
Respondents in their written reply have raised a number of preliminary objections. It is stated that as per agreement, the matter raised by the petitioner in this petition is arbitrable and, therefore, the Court does not have jurisdiction. Territorial jurisdiction of this Court has also been challenged by reference to Clauses 28.12 and 29 of the agreement, which are reproduced below:
28.12. The Arbitration shall be held at the place from where the contract has been awarded. However, parties to the contract can agree for a different place for the convenience of all concerned.
29.0 JURISDICTION AND APPLICABLE LAW
This agreement including all matter connected with this Agreement, shall be governed by the laws of India (both substantive and procedural) for the time being in force and shall be subject to exclusive jurisdiction of the Indian Courts (the place where the contract is signed in India).
On merits, it has been stated that petitioner''s apparatus for doing the drilling job was not upto the mark. It is stated that a number of strongly worded letters were written to the petitioner to remove deficiencies pointed out during third party inspection and to update the apparatus, but the petitioner did not pay any heed, with the result that the respondents were left with no alternative, but to terminate the agreement.
I have heard the learned Counsel for the parties and gone through the record.
Objection raised by the respondents that the matter is required to be determined by an Arbitrator, in view of Clause 28.12 of the agreement does not appear to be well founded. Respondents were required to have filed an application, under Sub-section (2) of Section 8 of the Arbitration and Conciliation Act, 1996, for referring the matter to the Arbitrator and such an application could have been moved, per Sub-section (1) of Section 8 of the said Act, before or at the time of filing of the reply. They having not made any application, u/s 8(2) of the Arbitration and Conciliation Act, 1996, cannot be heard to say that this Court''s jurisdiction is ousted by Clause 28.12 of the Agreement, Annexure PE.
Above stated position apart, action taken by the respondents, which has been impugned by the petitioner in the present petition, does not seem to be a matter covered by arbitration clause. action, as per letter dated 9.4.2010, annexure PAG, purports to have been taken under Clauses 3.5, 3.9 and 22.5 of the agreement, Annexure PE. Under the said clauses, it is open to the Operator, i.e. the respondents, to terminate the agreement in certain situations by following the procedure laid down in those Clauses and, therefore, in my considered view, termination of agreement, under the aforesaid clauses, would not be a matter covered by arbitration clause. In this view of the matter, I find support from a judgment of the Supreme Court in Vishwanath Sood Vs. Union of India (UOI) and Another,
Coming to the next contention regarding lack of territorial jurisdiction of this Court, no doubt a reading of Clause 29 of the agreement does suggest that indian courts, at the place where the contract is signed, will have the exclusive jurisdiction, but the reference appears to be to the courts of ordinary jurisdiction, because the words used are "subject to exclusive jurisdiction of the indian courts (the place where the contract is signed in india)." Contract in this case was signed at badodra. That means, the clause speaks of the courts at badodra, which implies that the clause refers to courts of ordinary jurisdiction and not the courts exercising extra ordinary jurisdiction of high court under Article 226 of the constitution of india.
Otherwise also, Article 226(2) of the Constitution of India confers power upon a high court within the territorial jurisdiction of which, cause of action stated in the writ petition, arises to deal with a writ petition. It is doubtful if this power can be excluded by an agreement between the parties, especially when no precedent, indicating that the jurisdiction conferred upon a High Court under Article 226(2) can be excluded by an agreement.
Reliance is placed by the learned Counsel for the respondents upon a judgment of the apex Court in support of his contention that jurisdiction of the High Court is excluded. Judgment is reported in 2009 (1) Civil Court Cases 597 SC (Sardar Satanam Singh and Ors. v. Surender Kaur and Anr.). That was a case in which a civil suit u/s 20 of the Arbitration Act, 1940 had been filed in the High Court. It was not a case of writ petition. Hon''ble Supreme Court held that in terms of the agreement between the parties, jurisdiction of the High Court, in which the suit had been filed, had been expressly excluded.
Coming to the merits of the case, Clauses 3.5, 3.9 and 22.5 of the agreement, by invoking which the respondents have issued communication annexure PAG (dated 9.4.2010) provide for procedure, which is required to be followed before terminating the contract. The clauses are reproduced for ready reference.
3.5. DEFICIENCIES
3.5.1 Contractor''s equipment shall be maintained by Contractor in sound and efficient operating condition at time. Should the performance of Contractor''s drilling equipment and other services becomes unsatisfactory or the general standard of performance of work hereunder be materially reduced because of defective drill pipe, drill collars, or other Contractor''s furnished equipment or by reason of contractor''s incompetence or negligence, Operator shall give contractor written notice specifying the causes of its dissatisfaction to correct the specified deficiency within 15 days failing which Operator shall have the right to terminate this Agreement by giving thirty (30) days advance written notice to the Contractor, unless the specified deficiency is corrected within such thirty (30) days period. In this event no de-mob fees will be payable by the Operator notwithstanding the provision contained in the Contract, Operator shall recover the mobilization charges, if any, paid in terms of Clause 3.2, in case the deficiency occurs during pendency of the contract, on pro-rata basis for the period of performance, in addition to invoking of performance bond due to failure of the contractor in not executing the contract faithfully.
3.5.2 Should contractor be denied access to the location of drilling operations due to lack of compliance of any permits or licenses required by the Operator pursuant to Article 13.1 hereof time lost as a result thereof shall be compensated at the non-operating Day Rate.
3.9 PERFORMANCE
The Contractor undertakes to perform all its services under this Agreement with all reasonable skill, diligence and care in accordance with sound industry practice to the satisfaction of the operator and accepts full responsibility for the satisfactory quality of such services.
Operator shall give Contractor written notice specifying the causes of its dissatisfaction to correct the specified deficiency, within 15 days failing which Operator shall have the right to terminate this Agreement by giving thirty (30) days advance written notice to the Contractor, unless the specified deficiency is corrected within such thirty (30) days period.
In this event, no de-mob fees will be payable by the Operator and notwithstanding provisions contained in the contract, Operator shall recover the mobilization charges, if paid in terms of Clause 3.2 on pro-rata basis for the period of performance, in addition to invoking of performance bond due to failure of the contractor in not executing the contract faithfully. If at any time during the term of this contract, break down of contractor''s equipment results in Contractor being unable to perform its obligations hereunder for a period of 15 successive days (not including Force Majeure delay or break down of Contractor''s equipment caused by a Well blow-out or all the consequences thereof), Operator, at its option, may terminate this ontract, in its entirety without further right or obligation on the part of Operator except for the payment of money then due. No notice shall be served by the Operator under the condition stated above.
22.5 TERMINATYION FOR UNSATISFACTORY PERFORMANCE
If the Operator considers that the performance of the Contractor is unsatisfactory or not upto the expected standard, the Operator shall notify the Contractor in writing and specify in detail the cause of such dissatisfaction. The Operator 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 Operator, in accordance with Articles 3.6 and 3.10.
In the present case, procedure prescribed in the aforesaid three clauses was not followed, inasmuch as no notice was issued to the petitioner, in terms of any of the three clauses at any stage before issue of letter dated 9.4.2010. All communications, which were addressed to the petitioner prior TO 9.4.2010, were in the nature of requiring him to make up the deficiencies noticed in the course of third party inspection so that work on the drilling site of second well could be started before the expiry of pel or there was no delay in the exploration of hydro carbons.
In any case, all the communications addressed to the petitioner prior to 17.3.2010 were waived, when a meeting between the functionaries of the petitioner and respondent No. 1 was held and certain decisions, reproduced hereinabove, were taken and noted down in the minutes, annexure px. thereafter, time was given to the petitioner to comply with the report of third party inspection and to remove the deficiencies.
On 6th April, 2010, another communication, Annexure PAB, was addressed to the petitioner, by which it (the petitioner) was required to submit compliance status with regard to third party inspection and also to intimate within three days (latest by 9.4.2010), whether any equipment was in the process of being imported or transported to the site. Petitioner submitted a status report on 8.4.2010, Annexure PAC (Colly). there is no reference to this report in the letter Annexure PAG, dated 9.4.2010, which omission suggests that the report was not taken into consideration before passing the order of invoking termination clause of the agreement.
Moreover, when time had been given to the petitioner to submit status report upto 9.4.2010, respondents ought to have waited for some further or supplementary report from the petitioner upto 9.4.2010. they passed the impugned order on 9.4.2010 itself and that too without considering the compliance report dated 8.4.2010, submitted by the petitioner, leave alone rejecting it or pointing out that there were still some major deficiencies, which had not been removed or addressed to.
In view of the above stated position, writ petition is allowed. communication dated 9.4.2010, Annexure PAG, letter dated 13.4.2010, annexure pah and letter dated 16.4.2010, annexure pal, are quashed. Also, the respondents are directed to consider the request of the petitioner for writing of a recommendatory letter to the director general of hydro carbons, Noida, for issuance of essentiality certificate, to get the imported material released, without payment of custom duty and to take the final decision in this regard, within one month.
Writ petition stands disposed of accordingly.