DIC-NCC-JV vs M/s. Sri Harsha Constructions & others

By way of this application filed under Section 11 (6) of Arbitration and Conciliation Act, 1996 (for short "the Act"), the applicant seeks for appointment of a sole Arbitrator for resolution of disputes arising under the sub-contract agreement dated 15-02-2005 entered into by and between the parties.

The case of the applicant is that they are a construction joint venture of two companies viz. M/s.Daelim Industrial Company Limited and NCC Limited (formerly M/s.Nagarjuna Constructions Company Ltd., now M/s.DIC-NCC-JV. The applicant was awarded a contract by the National Highway Authority of India (NHAI) for "construction of surajbari bridge-package IV" on NH-15 and other works. 1st respondent is a partnership firm represented by its partners i.e. respondent no.2 and respondent no.3. That applicant had awarded respondent no.1 a portion of their work under the NHAI contract vide sub-contract agreement dated 15-02-2005, which was valued at Rs.29.94 crores. As per the terms of the sub-contract agreement, the time for completion of the work was 24 months from the date of agreement i.e. on or before 14-02-2007. Respondent no.1 was put on notice in terms of the sub contract agreement that time is the essence of the contract and as the sub-contractor, he is liable for any delay in achieving the mile stone and has to pay liquidated damages in proportionate to the value of the works awarded to them vis-a-vis the value of the contract awarded by NHAI to the applicant. That right from the beginning there has been consistent delay on the part of the respondent no.1 in the execution of the works and he was put on notice about the same through various correspondence from time to time. That because of the delays attributable to the 1st respondent, the contract works got delayed and consequently, the applicant's employer i.e. NHAI, had levied liquidated damages against the applicant to the tune of Rs.4,93,85,200/- (i.e. 10% of the total value of the work) vide letter dated 30-07-2012, which includes the work awarded to the 1st respondent under the sub-contract agreement. That as per clause 12 of the sub-contract agreement, the 1st respondent is liable to pay the liquidated damages proportionately to the value of their sub contract work. That considering delays and defaults on the part of the 1st respondent, which had the consequential affect of delaying the other parts of the contract works. That the 1st respondent also had an outstanding amount of Rs.5,85,69,116/- payable to the applicant towards refund of advances given to him. That pursuant to the defaults on the part of the 1st respondent in executing the works within the time lines stipulated in the sub-contract agreement, the applicant had to take over the balance works under the said sub contract and had executed the same at the risk and cost of the 1st respondent as provided under clause 27 (d) of the sub-contract agreement. That the total amount payable by 1st respondent to the applicant is Rs.26,36,13,061/-. That respondents 2 & 3 being the partners of 1st respondent, construction company, are jointly and severally liable to pay the amounts to the applicant. That the applicant had issued a notice dated 06-09-2013 to the respondents to make payment of the amounts in question with interest at 15% per annum from the respective due dates till the actual payment.

The applicant had also put the respondents on notice that if the payment as demanded is not made within the said period, clause 28 of the sub-contract agreement for settlement of disputes under the Act will be invoked. That the respondents had received the notice, but failed to respond. That since there was no response from the respondents with regard to the amounts due and payable to him, the applicant got issued legal notice dated 22-10-2013 to the respondents nominating a former Judge of erstwhile High Court of AP as the sole Arbitrator and calling upon the respondents to give their consent for the said nomination of the Arbitrator. That the respondents refused to receive the notice and returned with postal endorsement "not claimed". Hence, this application.

Counter affidavit is filed by the 2nd respondent, managing partner of 1st respondent-construction company along with 3rd respondent, on his behalf as also on behalf of the 3rd respondent. It is stated that it was the applicant who delayed the project by delaying the decisions and in making the payment beyond permissible limits. That the delay was on account of complete apathy towards works by the applicant due to its issues with the principal employer. That as against Rs.339,01,87,847/- work awarded to the applicant, the respondent was awarded only a fraction of construction of bridge work valued at Rs.26,36,13,061/-and this small segment of work was not the cause of delay and the consequent imposition of liquidated damages by the NHAI. As a matter of fact, the work was delayed due to delay in other segment of works and they did not contribute to the alleged delay of other segment of works. That the applicant had determined the liquidated damages having regard to the other delays in respect of other segment of works is only a façade to evade and avoid its responsibility and to saddle the respondents with the liquidated damages. That the claim made by the applicant is a counterblast to the claim being made by the respondents for release of balance payment and to settle other pending issues. That as a matter of fact, the bridge was commissioned only on account of the persistent efforts put in by the respondents and if the bridge was left to the applicant it could not have completed in the next ten years. That the applicant awarded the bridge work to the respondent-company due to its special expertise in construction of bridges.

It is also stated that the 3rd respondent was not a party to the sub-contract agreement dated 15-02-2005 and this application is liable to be dismissed on the ground of mis-joinder of parties. That the applicant caused notice on 06-09-2013 demanding certain amounts with interest and failure of such compliance, clause 28 of agreement will be invoked, is not in the knowledge of the respondents as no notice was not served on them. The respondents admit the conditions of contract, but in the absence of any liability or notice of invocation of clause 28, this application is premature and liable to be dismissed. Similarly, the notice dated 22-10-2013 alleged to have been issued by the applicant invoking arbitration clause, was not served on the respondents. That, by virtue of minutes dated 15-09-2008, a new agreement came into existence and the agreement dated 15-02-2005 was superseded and obliterated. Since the novation of agreement dated 15-02-2005 took place on 15-09-2008, the conditions of the earlier agreement extinguished. That the parties are bound by the conditions agreed to in the agreement dated 15-09-2008 in which there is no mention of arbitration clause. That the agreement dated 15-02-2005 got worked out by virtue of novation of the agreement on 15-09-2008, the liabilities, if any, arising out of agreement dated 15-02-2005 got extinguished and the claim is barred by limitation and hence there is no cause of action to maintain this application and liable to be dismissed.

Heard the learned counsel for the applicant and the learned counsel for the respondents.

The admitted facts are the applicant and the respondents 1 and 2 entered into sub-contract agreement dated 15-02-2005 for construction of surajbari bridge-package IV" on NH-15 and 3rd respondent is not a party to the said agreement, but he is partner of respondent no.1 as such application need not be dismissed on that ground. It is the main contention of the learned counsel for the respondents that in view of novation by way of minutes of meeting dated 15-09-2008 which superseded the earlier sub-contact agreement, this application is not maintainable and barred by limitation and not maintainable on facts and law and also for mis-joinder of parties (3rd respondent).

It is to be seen that clause 28 of the sub-contract agreement dated 15-02-2005 provides for arbitration clause, which reads as follows:-

"28. Dispute Resolution:

Any dispute arising out of this Agreement shall be referred to a Sole Arbitrator to be appointed by mutual consent of both the parties and which proceedings shall be held as per the provisions of Indian Arbitration and Conciliation Act 1996.

Should the parties to this Agreement fail to reach an understanding with regard to the Sole Arbitrator, the dispute shall be referred for arbitration by a panel of three arbitrators. DIC-NCC(JV) and SHC shall appoint one arbitrator each and these two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. The decision of the majority of the arbitrators shall be final and binding on both the parties.

The venue of arbitration proceedings shall be at Hyderabad and all the related expenses incurred by the each party in connection with the preparation, presentation etc., of its proceedings as also the fees and expenses paid to the arbitrator shall borne by the concerned party itself.

It is hereby specifically agreed by and between DIC-NCC (JV) and SHC that notwithstanding anything contained in any other Agreement, Contract or other document entered into or executed whether prior to or subsequent to this Agreement, the Courts in the City of Hyderabad shall alone have jurisdiction to try any dispute or differences between the Parties to this Agreement with regard to the interpretation of the terms of this Agreement or any other matter relating to or arising out of this Agreement."

The minutes of meeting dated 15-09-2008, to which 3rd respondent is also a party reads as under:

"Minutes of meeting held at Laxmi Tower NCCL Hyd regarding Completion of Surajbari bridge at package IV; ADB Road Project,

Gujarat Representatives of NCCL

l. NCCL l) Mr.A.K.H.S Rama Raju, PD, RO, Ahmedabad 2. Mr. Kanchan Roy, SVP RP

Representatives of M/s Sri Harsha Constructions

2.M/s. Sri Harsha Constructions (SHC)

l. Mr.Venkateswara Rao, Managing Partner

2.Mr.Sri Harsha, Partner

1 SHC will complete Surajbari bridge execution work by 31-03-09.

All materials like concrete mix, steel expansion joints, bearings, HT wires shall be provided free to SHC by NCCL. NCCL shall also provide four sets of deck slab, shuttering & crash barrier shuttering as required by SHC on hire basis.

SHC will execute the work as per the labour rates enclosed as per Annexure A enclosed which will be required for concreting, launching of I girders, well sinking, all foundation, substructures & super structures including deck slab & miscellaneous items. The rates indicated are including of shuttering materials, labour, various tools & tackles like generators, welding sets, cutting sets all arrangements required for launching & casting of I girders deck slab, approach slabs, dewatering, electrical connections & lights etc. The rates shall be effective from 01-09-08.

CPCC & VSL payments shall be paid directly by NCCL to the respective parties

For steel, supply shall be made by NCCL free up to maximum of 15% as wastage over and above theoretical requirement. The scraps shall be returned by SHC to NCCL.

SHC will mobilize the total launching team (labour force) latest by 04-10-08.

As requested by SHC, as per Annexure B enclosed, NCCL shall pay Rs

lakhs on 16-09-08 & Rs 20 lakhs on 23-09-08; further Rs.29 lakhs shall be paid by NCCL on 15-10-08.

The bills shall be raised by SHC on weekly basis and payment shall be made by NCCL within 3 days after submission of bills.

SHC should plan and request NCCL for procurement for all necessary materials for completion of project well in advance. SHC to project immediate requirement for deck shuttering, bearings, expansion joints etc by 23-09-08.

"Time" being essence, SHC should work with NCC site staff in tandem for smooth execution of the project; to complete as mentioned above by 31-03-09.

11.Completion programme along with monthly budget to be submitted by SHC to NCCL Project in-charge Package IV with a copy to the Project director, RO, Ahmedabad.

Enclosed Annexure A-Labour rate including shuttering Enclosed Annexure B -Payments list requested by SHC."

A reading of the above minutes dated 15-09-2008, which the respondents term it as a novation agreement, nowhere it would appear that it is the intention of the parties to rescind the earlier sub-contract agreement dated 15-02-2005. The subsequent agreement between the parties relates to the same work which was the subject of the sub-contract agreement. Minutes of the meeting held between the parties cannot supersede the validly entered agreement dated 15-02-2008 and same is not indicated in the minutes of meeting dated 15-09-2008. Hence, there is no novation of the agreement in suppression of the sub-contract agreement as contended by the respondents. In a recent ruling in MAYAVATI TRADING PRIVATE LIMITED vs. PRADYUAT DEB BURMAN (2019) 8 SCC 714 on the subject matter, the Hon'ble Supreme Court has held that in adjudication of an arbitration application filed under Section 11 (4) to 11 (6), the Court is to confine itself to examination of existence of arbitration agreement, nothing more, nothing less, leaving all the preliminary issues to be decided by the Arbitrator. The decision of the Supreme Court relied on by the applicant's counsel in UNION OF INDIA vs. KISHORILAL GUPTA AIR 1959 SC 1362 is a case where there was substitution of contract and under those circumstances, it was held that the arbitration clause in the old contract goes with the substituted terms of the novation agreement, such is not the situation in this case.

Though it is stated notice invoking arbitration clause is not served on the respondent, it is to be seen that notice dated 22-10-2013 sent by petitioner invoking arbitration clause is returned with postal endorsement "not claimed" which is deemed service. (see C.C.ALAVI HAJI vs. PALAPETTY MUHAMMED (2007) 6 SCC 555) In this background, it is to be seen whether there exists an arbitration clause in the agreement, the dispute is alive and such a dispute is in relation to the subject matter of the agreement, and a reading of the pleadings of the parties, all these ingredients are present in this case. In the circumstances, the arbitration application is allowed. Sri Justice L. Narasimha Reddy, former Chief Justice of Patna High Court, is constituted as sole Arbitrator to decide the dispute between the parties. Miscellaneous applications if any pending shall also stand disposed of. No order as to costs.