M/s Virgo Softech Limited. vs Department Of Food

This application has been filed by the petitioner under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (for short "Act, 1996") seeking appointment of an arbitrator to settle the dispute between the parties having arisen out of the agreement dated 28.7.2011.

In brief, the facts of the case are that the petitioner M/s Virgo Softech Ltd. was one of the participating companies in the group of companies comprising of the HCL Infosystem Ltd. and Edenred India Private Ltd as well and they are collectively known as Consortium. The petitioner was also one of the signatories amongst the consortium companies, of the agreement entered into on 28.7.2011 with the respondent Department of Food, Civil Supplies and Consumer Protection, Government of Madhya Pradesh (referred to as 'FCS') through its Commissioner pertaining to development/ implementation/execution of the Public Distribution System in the State of Madhya Pradesh.

The case of the petitioner is that initially a tender was invited by the respondent for providing the services relating to design, development, implementation and maintenance of the Public Distribution System in the State of Madhya Pradesh involving the development of Application Software, supply of Hardware and maintenance solution, data digitization and operation related to coupons. In the said tender, the consortium submitted its technical and commercial bid which was accepted and finally the tender was awarded to the consortium on 29.7.2010. Pursuant to which, the consortium started the work of digitization in Bhopal.

The further case of the petitioner is that based on the equipment needs of the project, a loan-cum-hypothecation agreement was also entered into between the petitioner Virgo Softech Ltd. and one SREI Equipment Finance Ltd. on 21.2.2011 whereunder the petitioner Virgo Softech Ltd. had taken a loan from SREI to purchase laptops, bio metric scanners, printer etc. to be used for providing services to the respondent. Subsequently, pursuant to the acceptance of the tender of the consortium as stated above, an agreement was also entered into between the consortium and the respondent on 28.7.2011 and it was agreed between the parties that the obligations to provide the services and receiving the payments under this agreement are the joint and several responsibilities and rights of the consortium members and Clause 11.1 of the aforesaid agreement also provided that the consortium including the petitioner may obtain financing for the project in the form of debt from domestic or foreign sources, private placements or direct borrowings or investment from banks, lending institutions, mutual funds, insurance companies, pension funds, provident funds, companies etc. as per its requirement. It was also observed that the respondent shall have no objections to such agreement. The further case of the petitioner is that Clause 18 of the aforesaid agreement dated 28.7.2011 refers to Dispute Resolution Clause provided that the disputes arising out of the agreement have to be adjudicated under the AC Act, the place of arbitration being Bhopal.

The grievance of the petitioner is that the respondent, who was in a dominant position, forced the consortium to change the Enrollment methodology in the districts starting with Hoshangabad where 600 kits across the districts were deployed at Gram Panchayat level which led huge additional financial burden on the consortium. Similarly the respondent again directed the consortium to do certain acts namely to deploy 2000 UID kits along with other IT infrastructure etc. and the consortium was forced to completely digitize around 1.2 crore ration cards for all 50 districts in the State of Madhya Pradesh. Similarly other works were also directed to be perform by the respondent herein. However, on 15.9.2011 a notice was issued by the respondent to the consortium as to why their agreement dated 28.7.2011 be not terminated on account of unwillingness of the consortium to perform the same. A show cause notice dated 4.10.2011 was also issued by the respondent for termination of the agreement on the ground that the consortium had failed to submit the Project Implementation Plan (PIP) AND Crisis Management Plan (CMP). A reply to the aforesaid show cause notice was submitted by the consortium led by HCL on 13.10.2011 refuting the allegations. However, vide letter dated 19.10.2011 the respondent informed the consortium that the National Population Register (NPR) is being prepared by the Registrar General of India (RGI) and in future Aadhar Numbers will only be issued on the basis of data collected for NPR by vendors appointed by the RGI which has rendered the project unviable hence the new developments have put the project under the Force Majeure Clause (Clause 20 of the Agreement). To this letter the consortium also sent a letter dated 20.10.2011 denying the contents of the letter and stated that the Force Majeure Clause is inapplicable in the current factual scenario, but the respondent, without responding to the aforesaid letter of the consortium, stopped the work on the project by not assigning further districts to the consortium despite there being many requests in this behalf. The consortium also wrote to the respondent that they already have the work force of 3000 employees who have been deployed in the infrastructure, which is also lying idle on account of stoppage of work. On the consortium's plea a high level committee of the respondent released the payment to the tune of Rs.25 crores to the consortium in the month of March 2012 but the respondent, with mala-fide intention released a sum of Rs.3.95 crores only to the consortium in the month of March, 2012. The remaining amount which was due to the petitioner and other members of the consortium was not remitted by the respondent in exercise of flagrant use of the power.

The consortium also sent a letter dated 26.9.2012 but no order was passed by the respondent. The attention of the respondent was also brought to the loss which was being suffered by the petitioner and other members of the consortium. Vide notice dated 5.11.2012 the consortium also demanded the release of payment and resumption of work but the aforesaid letter also went unresponded. Subsequently, the respondent, vide their letter dated 12. 9.2013 informed the consortium that due to enactment of the National Food Security Act, 2013, in terms of Clause 8.2 of the RFP read with Clause 20 of the agreement dated

7.2011, the agreement dated 28.11.2011 has been rendered as a dead letter, thus, again a notice of occurrence of the Force Majeure Clause was served upon the consortium. Again, on 23.10.2013 the respondent informed the consortium that the agreement between the parties has come to an end on account of coming into force National Food Security Act, 2013. The further case of the petitioner is that the consortium, through HCL Infosystems Ltd sent a letter dated 7.11.2013 to the respondent without admitting the contention of the respondent or applicability of the Force Majeure Clause and requested them to process the un-paid bills of the consortium and that the consortium is willing to discuss the issue at hand with the respondent.

In response to the aforesaid letter by the consortium, a reply dated 18.11.2013 was sent by the respondent to the consortium stating that the consortium had not unequivocally accepted that the agreement stands discharged by frustration and/or the occurrence of a force majeure event. It was also stated that if the consortium had expressed its willingness to close the matter, the consortium was required to submit its total claim to the State Government at the earliest so that the matter may be expedited. It was also stated that the consortium should only submit those claims which fall within the ambit of the agreement. Subsequently, on 25/26.11.2013, the consortium through its Project Director submitted a claim along with the consent letters of other consortium members including the petitioner. Vide letter dated 16.1.2014, the consortium again submitted their claims to the respondent in respect of revised claims and also informed the financial difficulties being faced by them. It was also stated that although the claims so made are not sufficient to cover their losses, but in order to mitigate the same and to avoid incurring further cost they have accepted the proposal of the department.

On 05.04.2014, a letter was also issued to the respondent on behalf of the petitioner for early remittance of the amount claimed and it was also informed that statutory tax liabilities of the petitioner to the tune of Rs.5 crores are unpaid. It was also stated that the term loan for infrastructure deployed in the project was also outstanding and also that the petitioner's account has been declared as NPA by the Bank of Baroda and ICICI and recovery proceeding has been initiated by the Bank of Baroda as per the RBI's provisions. The aforesaid letter dated 05.04.2014 is also placed on record and marked as Annexure-O.

On 3.5.2014, the respondent again wrote a letter to the consortium that its claim cannot be accepted as most of them are not only outside the scope of the contract but any payment which may be found to be due can only be in full and final settlement of the claims of the consortium. The HCL led consortium vide letter dated 8.5.2014 requested the respondent to convene a meeting at the earliest to discuss the claims/bills submitted by the consortium for an amicable resolution. However, on 2.7.2014 the respondent again wrote a letter to the consortium that the claim of the consortium is worked out to Rs.24,91,43,096/- inclusive of all taxes, however the members of the consortium including the petitioner were specifically directed by the respondent that the aforesaid amount shall not be released unless and until a formal settlement is recorded, which was accepted by the consortium on 18.7.2014 and the proposal of payment of Rs.24,91,43,096/- was accepted, but the respondent refused to accept the contents of the said letter dated 18.7.2014 on its face value stating therein that unless a fresh letter stating that the proposal of payment of Rs.24,91,43,096/- inclusive of all taxes as full and final settlement is not sent, no payment shall be released. The consortium was also directed that in addition, unless and until the consortium issued an undated receipt acknowledging receipt of Rs.24,91,43,096/- in full and final settlement, no amount would be released towards the claim. Accordingly, vide another letter dated 30.8.2014 sent by the consortium to the respondent the consortium accepted the proposal of payment of Rs.24,91,43,096/- as full and final settlement, which according to the petitioner was induced by coercion. Pursuant to the aforesaid, the respondent,19.9.2014 sent a letter along with a draft receipt which was to be signed by the consortium in toto. In the said receipt it was stated that it has been decided to close the matter by settling the claim of the consortium under the contract for the aforesaid amount of money.

Shri Akhil Sachchar, learned counsel for the petitioner has submitted that the aforesaid amount was further deducted and a sum of Rs.20,16,40,923/- has been awarded to the consortium without assigning any reason as to how this amount has been arrived at. Shri Sachchar has further submitted that the petitioner was coerced into accepting the amount offered by the respondent and to substantiate his argument, Shri Sachchar has drawn the attention of this Court to the draft receipt annexed along with the letter dated 23.9.2014 to submit that had the amount being not accepted by the petitioner in the aforesaid format, the respondent would not have processed the claim of the petitioner. It is further submitted that in the meantime, the party, namely SREI Equipment Finance Ltd. from whom the petitioner had obtained loan filed an application under Section 9 of the AC Act, 1996 before the Calcutta High Court (ordinary original civil jurisdiction) being AP No.1539/2013 for appointment of the receiver on the properties owned by the petitioner for preparing inventory of the equipments at the office of the petitioner and for taking physical possession of the equipments. The learned Single Judge of the Calcutta High Court vide its order dated 11.2.2014 appointed a receiver to make an inventory of the assets in question. The learned Single Judge vide its order dated 1.4.2014 also recorded that a sum of Rs.60 lakhs was only paid during the pendency of the petition, although SREI claimed a sum in excess of Rs.2.25 crores was due on account of defaulted installments. It is further submitted that the Bank of Baroda, vide letter dated 28.5.2014 reminded the petitioner that the credit facilities availed by the petitioner have been classified as NPA. On 12.6.2014, the learned Single Judge of the Calcutta High Court vide letter dated 12.6.2014 restrained the petitioner Virgo Softech from receiving any payment from any third party without making over payment of like amount prior thereto to SREI and the receiver appointed was also directed to take immediate possession of the assets without undue delay. Thus, Shri Sachchar has submitted that on account of the aforesaid financial crisis the petitioner had no option but to accept all the terms and conditions of the respondent while giving consent to the amount offered by the respondent.

Learned counsel for the petitioner has also drawn the attention of this Court to the notice dated 13.8.2014 issued by the Bank of Baroda under Section 13(2) of the SARFAESI Act, 2002. Subsequently, the ICICI Bank also, vide letters dated 2.9.2014 to 23.9.2014 directed the petitioner company to pay the overdues to the extent of Rs.39,09,000/- for settlement of the loan facility. It is further submitted that the petitioner had no option but to accept the amount offered by the respondent, which, otherwise was not at all acceptable to the petitioner. Thus it is submitted that the dispute has arisen between the parties regarding the claim of the amount which has been invested by the petitioner in raising infrastructure for the aforesaid project, which has been cancelled by the respondent resorting to Force Majeure Clause. Learned counsel for the petitioner has also drawn the attention of this Court to the clause 20.5 of the agreement which provided that the amount invested by a party in infrastructure, shall be liable to be reimbursed to the said party. It is further submitted that after raising a claim of approx. Rs.69 crores, there was otherwise no occasion for the petitioner to accept and settle for an amount of Rs.20,16,40,923/- which is significantly lower as compared to the original claim.

On the aforementioned submissions, it is submitted that an arbitrator be appointed for settlement of the dispute between the parties as despite the notice dated 21.10.2014 under clause 18 of the agreement having issued to the respondent. In support of his contention Shri Sachchar has relied upon the judgments of the Hon'ble Apex Court in the case of Automation Technologies (I) P. Ltd. Vs. Unitech Ltd. & others, reported in 154 (2008) Delhi Law Times 362, National Insurance Co. Ltd. Vs. M/s Boghara Polyfab Pvt. Ltd., reported in AIR 2009 SC 170 and in the case of Union of India Vs. Parmar Construction Company (Civil Appeal No.3303/2019).

On the other hand Shri Shekhar Bhargava, learned senior counsel for the respondent has vehemently opposed the prayer of the petitioner and has submitted that no case for appointment of an arbitrator is made out. It is further submitted that the present application in itself is liable to be dismissed on account of non-joinder of necessary parties, as the petitioner has only arrayed the respondent Department of Food, Civil Supplies as party respondent whereas the agreement dated 28.7.2011 was entered into between consortium consisting as many as three parties viz. HCL Infosystems Ltd., petitioner company M/s Virgo Softech Limited and Edenred India Pvt. Ltd. Thus, it is submitted by Shri Bhargava that the petitioner has no individual rights against the Department of Food and Civil Supplies under the contract. It is further submitted that the agreement dated 28.7.2011 was entered into between two parties i.e. the State Government as party of the 'First Part' and the three companies collectively referred to as party of the 'Second Part', thus on this count also the application in incompetent and is liable to be dismissed.

It is further submitted that there is no arbitrable dispute between the parties, as the dispute between the parties have already come to an end after full and final settlement of the claims of the consortium on 23.9.2014 and no surviving dispute remains. It is further submitted that other two companies namely HCL Infosystems Ltd. and Edenred India Pvt. Ltd. were happy with the amount which they received as full and final and has never raised any objection to the settlement and once the settlement having been accepted by the consortium in full and final, one of the parties to the consortium cannot challenge the same crying foul play.

Shri Bhargava has further submitted that since the dispute itself is not arbitrable, the petitioner cannot invoke arbitration clause and at the most they have a remedy of filing civil suit and no application under Section 11 of the AC Act, 1996 would be maintainable. It is further submitted that a bare perusal of Clause 18 of the agreement which provides for dispute resolution reveals that it refers to the parties to the agreement and in the absence of two parties, namely, HCL Infosystems Ltd. and Edenred India Pvt. Ltd. who are also the consortium members, the petitioner herein cannot invoke the dispute resolution clause 18 of the agreement on his own without joining other partners of the consortium as petitioners. It is further submitted that in the agreement, it is nowhere provided that the dispute can also be raised by one of the members of the consortium and in view of the same, the petitioner is also restrained from raising such dispute.

So far as the allegations regarding coercion, duress, unjust, enrichment and mala-fides etc. against the respondent are concerned, the same are also vague as there is no pleadings in this regard in the entire petition conforming to the provisions of Order 6 rule 3 and 4 of C.P.C., to buttress his arguments, Shri Bhargava has also relied upon a decision of the Apex Court in the case of Bishundeo vs. Seogeni Rai reported as AIR 1951 SC 280 . It is submitted that in the present case the respondent is an agency of State and as such the allegations of coercion, duress, unjust, enrichment and mala-fides etc. cannot be levelled against the respondent without any tangible proof. It is further submitted that the issues relating to coercion, duress, etc. are not arbitrable and the same cannot be sustained in an application under Section 11(6) of the AC Act, 1996. Under these circumstances it is prayed the present application filed by the petitioner be dismissed. In support of his contention, Shri Bhargava has also relied upon the judgments of the Hon'ble Apex Court in the case of Union of India and others Vs. Master Construction Company, reported in (2011) 12 SCC 439, Afsar Shaikh and another Vs. Soleman Bibi and others, reported in AIR 1976 SC 163, Subhas Chandra Das Mushib Vs. Ganga Prosad Das Mushib and others, reported in AIR 1967 SC 878 and in the case of ONGC Mangalore Petro Chemicals Ltd. Vs. ANS Construction Ltd., reported in (2018) 3 SCC 373.

Heard the learned counsel for the parties and perused the record.

Before reflecting upon the merits of the case it would be apt to first refer to the relevant excerpts of the agreement, which read as under:-

"AGREEMENT

THIS AGREEMENT entered on the 28th day of July, 2011 by and between

Department of Food, Civil Supplies and Consumer Protection, Government of Madhya Pradesh, acting through Commissioner, Food, Civil Supplies and Consumer Protection (hereinafter referred to as the "FCS"/"Government, which expression shall unless repugnant to the context or meaning thereof include its successors and permitted assigns) of the FIRST PART.

AND

HCL INFOSYSTEM LIMITED, a company incorporated under the Companies Act, 1956 and having its registered office at 806, Siddhardh, 96, Nehru Place, New Delhi 110019 (hereinafter referred to as the "HCL" which expression shall, unless repugnant to the context or meaning thereof, include its successors and permitted assigns)

AND

VIGRO SOFTECH LIMITED, a company incorporated under the Companies Act, 1956 and having its registered office at A24/5, Mohan Cooperative Industrial Estate, Mathura Road, New Delhi- 110044 (hereinafter referred to as the "VIRGO", which expression shall, unless repugnant to the context or meaning thereof, include its successors and permitted assigns)

AND

EDENRED INDIA PRIVATE LIMITED (formerly known as ACCOR SERVICES PRIVATE LIMITED), a company incorporated under the Companies Act, 1956 and having its registered office at Camara House, Majiwade Village Road, Thane, Maharashtra 400601 (hereinafter referred to as the "EDENRED", which expression shall, unless repugnant to the context or meaning thereof, include its successors and permitted assigns).

The above three companies, viz. HCL, Virgo and Edenred shall collectively be referred to as party of the SECOND PART.

WHEREAS

A. To enable the design, development, implementation & maintenance of PDS Project (as defined below), involving the development of Application Software (as defined below), supply of Hardware (as defined below) & maintenance of solution, data digitization and operations related to coupons (the "PDS Project"), the FCS issued a request for proposal no: G-19835/09 (the "REP"), inviting tenders from interested service providers for selecting a suitable service provider to carry out the abovementioned tasks in relation to the PDS Project;

B. Pursuant to the RFP, HCL, VIRGO and EDENRED together (hereinafter collectively referred to as the "HCL" Consortium" or "Consortium", which expression shall include their successors and permitted assigns) through a consortium agreement between the Consortium Partners, submitted technical and commercial proposal in accordance with the terms of the RFP, proposed to undertake the implementation/ execution of the PDS Project for the Customer. Further, HCL is the "Lead Member" of the Consortium and Virgo & Edenred are the "Other Consortium Members" . This Consortium is valid for the Project only and is not extendable for any other assignment or project, unless specifically agreed to by the Consortium Members;

C. After receiving the proposals from Consortium and other service providers, the FCS evaluated and selected the Consortium to provide the Services (as defined below) relating to the delivery / execution of the PDS Project. FCS also issued a notification of award of work no:6064/CR/ 10 dated 29th July 2010 to the Consortium.

D. Consortium has therefore entered into this Agreement and hereby undertaking to render its Services in relation to the PDS Project. Consortium has made and will continue to make necessary investments in accordance with this Agreement for the due execution of the Project and it shall recover the same from FCS through bi-monthly invoicing to FCS, based on the coupons distributed to BPL & AAY ration card holders at the beginning of the annual cycle as explained under Clause 7.12.5 of this Agreement. HCL, the lead consortium member, will raise bi-monthly invoices on FCS on behalf of the Consortium and FCS shall make payments for such invoices to the respective Consortium Escrow Account Heads, as per the payment terms mentioned under this Agreement under Clause 6 for onward agreed sharing of the same amongst the Consortium members. It is further agreed between the Parties that the obligations to provide the Services and receiving the payments under this Agreement are the joint and several responsibilities and rights of the Consortium Members respectively.

E. The Parties (as defined below) have agreed on the below mentioned terms and conditions for the engagement of the Consortium for providing the Services relating to the PDS Project.

.................................................................."

In definition clause 1, clause 1.1.40 which defines 'Party' is relevant and reads as under:-

1.1.40 "Party" means the FCS or Consortium individually and "Parties"mean the FCS and Consortium and includes Consortium member(s);"

Clause 9 of the agreement reads as under:-

"9. HCL CONSORTIUM'S RIGHTS

HCL Consortium's Rights under the Agreement shall include the following:

9.1 Consortium has the right to collect and appropriate the fees directly from Beneficiaries and issue receipts.

9.2 Consortium has the right to cure, within a period of 12 weeks any action for which any penalty (ies) is sought to be imposed upon the Consortium by the FCS under Service Level Agreement (SLA). Consortium shall be provided an opportunity to cure each such instance, a period of 12 weeks by the FCS.

9.3 Consortium has the right to subcontract the work in relation to three activities viz; a) help desk management, b) supply installation and commissioning of hardware and c) courier services. In all other activities subcontracting may be undertaken with the permission of the FCS.

9.4 However, for any work or part of the work subcontracted by the consortium as per the clause 9.3 above, all the obligations as per the contract would rest solely on the lead member of the consortium or the member of the consortium on whose scope of work as per the agreement the particular work is attributed.

9.5 Prime bidder and the respective consortium partner would be solely and severally responsible for any default of services committed by such appointed sub contractor not limited to but to the extent of fulfilling the work as per the SLA. The penalties as per the SLA would be impossible to the lead member/ respective consortium member under such cases of default.

9.6 .............................."

Clause 18 of the agreement reads as under:-

"18. DISPUTE RESOLUTION

18.1 If any dispute arises between the Parties hereto during the subsistence or thereafter, in connection with the validity, interpretation, implementation or alleged material breach of any provision of this Agreement or regarding a question, including the questions as to whether the termination of this Agreement by one Party hereto has been legitimate, both Parties hereto shall endeavour to settle such dispute amicably.

The attempt to bring about an amicable settlement is considered to have failed as soon as one of the Parties hereto, after reasonable attempts [which attempt shall continue for not less than 30 (thirty) days] give 15 days' notice thereof to the other Party in writing.

2 In the case of such failure the dispute shall be referred to a sole arbitrator or in case of disagreement as to the appointment of the sole arbitrator to three arbitrators, two of whom will be appointed by each Party and the third appointed by the two arbitrators.

18.3 The place of arbitration shall be Bhopal, M.P.

18.4 The Arbitration proceeding shall be governed by the Arbitration & Conciliation Act, 1996.

18.5 The proceedings of arbitration shall be in English language.

18.6 The arbitrator's award shall be substantiated in writing. The court of arbitration shall also decide on the costs of the arbitration procedure.

18.7The Parties hereto shall submit to the arbitrator's award and the award shall be enforceable in any competent court of law."

Relevant excerpts of Clause 20 of the agreement reads as under:-

"20. FORCE MAJEURE

.........................................................................

20.5If the Force Majeure Event continues for a period exceeding one year the Party (ies) shall be released of their obligations under this Agreement and this Agreement shall stand terminated with no liability to either Party (except payment of sum owed, and value of infrastructure and services deployed up to the date of termination under this clause), after giving 30 days notice to the other Party."

Clause 24 of the agreement reads as under:-

"24. MISCELLANEOUS PROVISIONS

..................................................................

24.6 Each of the rights of the Parties hereto are independent, cumulative and without prejudice to all other rights available to them, and the exercise or non-exercise of any such rights shall not prejudice or constitute a waiver of any other right of the Parties, whether under this Agreement or otherwise."

Signed portion of the agreement is reproduced as under:-

"IN  WITNESS  WHEREOF  THE  PARTIES  HEREIN HAVE HEREUNTO SUBSCRIBED THEIR RESPECTIVE SIGNATURES ON THE DAY/ MONTH/YEAR HEREIN ABOVE WRITTEN.

SIGNED AND DELIVERED

BY THE WITHINNAMED "FCS"

(Department of Food & Civil Supplies, State of MP)

BY THE HAND OF________________

(AHTHORIZED SIGNATORY)

ON THE 28th DAY OF July, 2011

IN THE PRESENCE OF:

WITNESS:

NAME AND ADDRESS:

SIGNED AND DELIVERED BY THE WITHINNAMED "HCL"

(HCL INFORSYSTEM LIMITED)

BY THE HAND OF

________________

(AUTHORIZED SIGNATORY)

ON THE 28th DAY OF JULY 2011

N THE PRESENT OF WITNESS: NAME AND ADDRESS

SANJEET SINGH, 37, 1 st Floor, MP Nagar, Zone-I, Press Complex, Bhopal.

SIGNED AND DELIVERED BY THE WITHINNAMED "VIRGO"

(VIRGO SOFTECH LIMITED)

BY THE HAND OF

________________

(AUTHORIZED SIGNATORY)

ON THE 28th DAY OF JULY 2011

IN THE PRESENT OF WITNESS: NAME AND ADDRESS

Najmul Ahasan, 3rd Floor, The Infinite, 249, MP Nagar Zone-2, Bhopal, MP

SIGNED AND DELIVERED BY THE WITHINNAMED "EDENRED"

(EDENRED INDIA PRIVATE LIMITED)

BY THE HAND OF

____________

(AUTHORIZED SIGNATORY)

ON THE 28th DAY OF JULY 2011

IN THE PRESENT OF WITNESS: NAME AND ADDRESS

SAMEER KUMAR E-5/1, Ajay Towers, Opp. Habibganj Police Station, Bhopal, M.P.

Now, considering the objections raised by the respondent, it would be apt to categories them as under:-

Non-joinder of parties

A bare perusal of the relevant clauses of the agreement reveals that the agreement in question has been signed by each of the individual member of the consortium severally. It is not a case where only the lead member has signed the agreement on behalf of the consortium. In the agreement, the above three companies have been referred to collectively as the party of the second part. As defined, the "Party" means the FCS or Consortium individually and "Parties" mean the FCS and Consortium and includes Consortium member(s). In other words, when there is a reference to the word 'party', it would include either the entire consortium which includes all the three parties or it may also include only one or only two such parties as well which would be dependent upon the given circumstances.

For the sake of understanding the relationship between the parties inter se, it would also be germane to refer to the relevant excerpts of the following clauses already reproduced above, the same read as under:-

9.3............all the obligations as per the contract would rest solely on the lead member of the consortium or the member of the consortium on whose scope of work as per the agreement the particular work is attributed.

9.5 Prime bidder and the respective consortium partner would be solely and severally responsible for any default of services committed by such appointed sub contractor.

18.1 ................The attempt to bring about an amicable settlement is considered to have failed as soon as one of the Parties hereto, after reasonable attempts [which attempt shall continue for not less than 30 (thirty) days] give 15 days' notice thereof to the other Party in writing.

24.6 Each of the rights of the Parties hereto are independent, cumulative and without prejudice to all other rights available to them, and the exercise or non-exercise of any such rights shall not prejudice or constitute a waiver of any other right of the Parties, whether under this Agreement or otherwise.

The aforesaid excerpts of the clauses as aforesaid also make it abundantly clear that each party in the consortium was responsible for its own acts or omissions. In other words, if the default is committed by one or two of the parties to the consortium, the SFC was entitled to take the remedial measures as provided under the agreement against that particular party(ies). In view of the same, the question of non-joinder of necessary parties does not arise in the present case. This court is of the considered opinion that the petitioner was not obliged to array the other two partners of the consortium as the co-petitioner or for that matter the respondent, as they may not have any grievance against the respondent and may also not be interested in incurring further litigation expenses. The decision relied upon by the counsel for the respondent in the case of Faisal Mohammad Khan and another Vs. Harisingh Saini, reported in 2016(2) RN 79 is clearly distinguishable as in the said case the appointment of an arbitrator was sought in an agreement wherein sale of a land was entered into by one Hari Singh as party of the one part and other four persons as the party of the second part. Nowhere in the said case is there a reference of the rights and liabilities of the each of the parties as has been specifically delineated in the agreement in the case at hand. Apart from that, in that case the arbitration clause itself was vague and was discarded by the learned single judge.

Doctrine of undue influence/coercion:

Before embarking upon the said issue, it would be apt to refer to some of the decisions of the Apex court, as have been cited by counsel from both the side. The relevant excerpts of the same read as under:-

In a recent unreported judgment as cited by the counsel for the petitioner, in the case of M/s. Parmar construction(supra), the Apex Court has held as under:-

"2. The question that arises for consideration in the batch of appeals by special leave is as to whether (1) the High Court was justified in invoking amended provision which has been introduced by Arbitration and Conciliation(Amendment Act), 2015 with effect from 23 rd October, 2015 (hereinafter being referred to as "Amendment Act, 2015"); (2) whether the arbitration agreement stands discharged on acceptance of the amount and signing no claim/discharge certificate and (3) whether it was permissible for the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (prior to the Amendment Act, 2015) to appoint third party or an independent Arbitrator when the parties have mutually agreed for the procedure vis-à-vis the authority to appoint the designated arbitrator. The High Court has passed separate orders in exercise of its powers under Section 11(6) of the Act, 1996 in appointing an independent arbitrator without adhering to the mutually agreed procedure under the agreement executed between the parties. Since the batch of appeals involve common questions of law and facts with the consent of parties, are disposed off by the present judgment.

...................................................

The thrust of the learned counsel for the appellants that submission of a no claim certificate furnished by each of the respondent/contractor takes away the right for settlement of dispute/difference arising in terms of the agreement to be examined by the arbitrator invoking Clause 64(3) of the conditions of the contract. The controversy presented before us is that whether after furnishing of no claim certificate and the receipt of payment of final bills as submitted by the contractor, still any arbitral dispute subsists between the parties or the contract stands discharged.

Before we take note of the factual aspect of the present matters, it will be appropriate to carefully consider the plenitude of decisions of this Court referred to by learned counsel for the parties and to summarise (first category) Union of India v. Kishorilal Gupta & Bros. AIR 1959 SC 1362; P.K. Ramaiah & Co. v. Chairman and Managing Director, National Thermal Power Corpn. 1994 Supp (3) SCC 126; State of Maharashtra v. Nav Bharat Builders 1994 Supp (3) SCC 83; Nathani Steels Limited v. Associated Constructions 1995 Supp (3) SCC 324......(second category) Damodar Valley Corporation v. KK Kar 1974 (1) SCC 141; Bharat Heavy Electricals Limited Ranipur v. Amarnath Bhan Prakash 1982 (1) SCC 625; Union of India v. L.K. Ahuja and Co. 1988 (3) SCC 76; Jayesh Engineering Works v. New India Assurance Co. Ltd. 2000 (10) SCC 178; Chairman and MD, NTPC Ltd. v. Reshmi Constructions Builders & Contractors 2004 (2) SCC 663.

The aforesaid cases fall under two categories, the one category where the Court after considering the facts found that there was full and final settlement resulting in accord and satisfaction and there was no substance in the allegations of coercion/undue influence. In the second category of cases, the Court found some substance in the contention of the claimants that "no-dues/no claims certificate or discharge vouchers" were insisted and taken (either on a printed format or otherwise) as a condition precedent for release of the admitted dues and consequently this Court held that the disputes are arbitrable. It took note of the principles earlier examined and summarised in National Insurance Company Limited v. Boghara Polyfab Private Limited case (supra) as under:-

"44. None of the three cases relied on by the appellant lay down a proposition that mere execution of a full and final settlement receipt or a discharge voucher is a bar to arbitration, even when the validity thereof is challenged by the claimant on the ground of fraud, coercion or undue influence. Nor do they lay down a proposition that even if the discharge of contract is not genuine or legal, the claims cannot be referred to arbitration. In all the three cases, the Court examined the facts and satisfied itself that there was accord and satisfaction or complete discharge of the contract and that there was no evidence to support the allegation of coercion/undue influence."

Further, taking note of the jurisdiction of the Chief Justice/his Designate in the proceedings under Section 11(6) of Act 1996, this Court culled out the legal proposition in paragraph 51 as follows:-

"51. The Chief Justice/his designate exercising jurisdiction under Section 11 of the Act will consider whether there was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the Chief Justice/his designate comes to the conclusion that the full and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration. Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the Arbitral Tribunal with a specific direction that the said question should be decided in the first instance."

It further laid down the illustrations as to when claims are arbitrable and when they are not. This may be illustrative (not exhaustive) but beneficial for the authorities in taking a decision as to whether in a given situation where no claim/discharge voucher has been furnished what will be its legal effect and still there is any arbitral dispute subsists to be examined by the arbitrator in the given facts and circumstances and held in para 52 of National Insurance Company Limited v. Boghara Polyfab Private Limited (supra) as follows:-

"52. Some illustrations (not exhaustive) as to when claims are arbitrable and when they are not, when discharge of contract by accord and satisfaction are disputed, to round up the discussion on this subject are:

(i) A claim is referred to a conciliation or a pre-litigation Lok Adalat. The parties negotiate and arrive at a settlement. The terms of settlement are drawn up and signed by both the parties and attested by the conciliator or the members of the Lok Adalat. After settlement by way of accord and satisfaction, there can be no reference to arbitration.

(ii) A claimant makes several claims. The admitted or undisputed claims are paid. Thereafter negotiations are held for settlement of the disputed claims resulting in an agreement in writing settling all the pending claims and disputes. On such settlement, the amount agreed is paid and the contractor also issues a discharge voucher/no-claim certificate/full and final receipt. After the contract is discharged by such accord and satisfaction, neither the contract nor any dispute survives for consideration. There cannot be any reference of any dispute to arbitration thereafter.

(iii) A contractor executes the work and claims payment of say rupees ten lakhs as due in terms of the contract. The employer admits the claim only for rupees six lakhs and informs the contractor either in writing or orally that unless the contractor gives a discharge voucher in the prescribed format acknowledging receipt of rupees six lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released. The contractor who is hard-pressed for funds and keen to get the admitted amount released, signs on the dotted line either in a printed form or otherwise, stating that the amount is received in full and final settlement. In such a case, the discharge is under economic duress on account of coercion employed by the employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration.

(iv) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the insured is informed during discussions that unless the claimant gives a full and final voucher for a specified amount (far lesser than the amount claimed by the insured), the entire claim will be rejected. Being in financial difficulties, the claimant agrees to the demand and issues an undated discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but under duress, compulsion and coercion. The coercion is subtle, but very much real. The "accord" is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration.

(v) A claimant makes a claim for a huge sum, by way of damages. The respondent disputes the claim. The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and requests for settlement. The respondent agrees and settles the claim and obtains a full and final discharge voucher. Here even if the claimant might have agreed for settlement due to financial compulsions and commercial pressure or economic duress, the decision was his free choice. There was no threat, coercion or compulsion by the respondent. Therefore, the accord and satisfaction is binding and valid and there cannot be any subsequent claim or reference to arbitration."

It is true that there cannot be a rule of absolute kind and each case has to be looked into on its own facts and circumstances. At the same time, we cannot be oblivious of the ground realities that where a petty/small contractor has made investments from his available resources in executing the works contract and bills have been raised for the escalation cost incurred by him and the railway establishments/appellants without any justification reduces the claim unilaterally and take a defence of the no claim certificate being furnished which as alleged by the respondents to be furnished at the time of furnishing the final bills in the prescribed format.

.....................................................

The respondents are the contractors and attached with the railway establishment in the instant batch of appeals are claiming either refund of security deposits/bank guarantee, which has been forfeited or the escalation cost has been reduced from final invoices unilaterally without tendering any justification. It is manifest from the pleadings on record that the respondent contractors who entered into contract for construction works with the railway establishment cannot afford to take any displeasure from the employer, the amount under the bills for various reasons which may include discharge of his liability towards the bank, financial institutions and other persons, indeed the railway establishment has a upper hand. A rebutable presumption could be drawn that when a no claim has been furnished in the prescribed format at the time of final bills being raised with unilateral deductions made even that acceptable amount will not be released, unless no claim certificate is being attached to the final bills. On the stated facts, para 52(iii) referred to by this Court in National Insurance Company Limited v. Boghara Polyfab Private Limited (supra) indeed covers the cases of the present contractors with whom no option has been left and being in financial duress to accept the amount tendered in reference to the final bills furnished and from the discharge voucher which has been taken to be a defence by the appellants prima facie cannot be said to be voluntary and has resulted in the discharge of the contract by accord and satisfaction as claimed by the appellants. In our considered view, the arbitral dispute subsists and the contract has not been discharged as being claimed by the appellants employer(s) and all the contentions in this regard are open to be examined in the arbitral proceedings."

(emphasis supplied)

On the other hand, as cited by Shri Bhargava, senior counsel for the respondent, in the case of ANS Constructions (supra), the Apex Court has held as under:-

"25. When we refer to discharge of a contract by an agreement signed by both the parties or by execution of a full and final discharge voucher/receipt by one of the parties, we refer to an agreement or discharge voucher which is validly and voluntarily executed. If the party which has executed the discharge agreement or discharge voucher, alleges that the execution of such discharge agreement or voucher was on account of fraud/coercion/undue influence practised by the other party and is able to establish the same, then obviously the discharge of the contract by such agreement/voucher is rendered void and cannot be acted upon. Consequently, any dispute raised by such party would be arbitrable. But in case the party is not able to establish such a claim or appears to be lacking in credibility, then it is not open to the courts to refer the dispute to arbitration at all.

In support of the claim of duress and coercion while issuing the said certificate, the learned counsel for the contractee company has taken us through a decision of this Court in National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd.4 wherein it was held as under: (SCC pp. 284 & 294-96, paras 24 & 50-52)

The learned counsel further relied upon a decision of this Court in R.L. Kalathia & Co. v. State of Gujarat wherein it was held as under: (SCC pp. 404-05, para 10)

"10. Before going into the factual matrix on this aspect, it is useful to refer the decisions of this Court relied on by Mr Altaf Ahmed. In NTPC Ltd. v. Reshmi Constructions, Builders & Contractors which relates to termination of a contract, one of the questions that arose for consideration was: (SCC p. 672, para 13)

'(i) Whether after the contract comes to an end by completion of the contract work and acceptance of the final bill in full and final satisfaction and after issuing a "no-demand certificate" by the contractor, can any party to the contract raise any dispute for reference to arbitration?'

While answering the said issue this Court held: (SCC p. 676, paras 27-28)

'27. Even when rights and obligations of the parties are worked out, the contract does not come to an end inter alia for the purpose of determination of the disputes arising thereunder, and, thus, the arbitration agreement can be invoked. Although it may not be strictly in place but we cannot shut our eyes to the ground reality that in a case where a contractor has made huge investment, he cannot afford  not to take from the employer the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a "no-demand certificate" is signed. Each case, therefore, is required to be considered on its own facts.

Further, necessitas non habet legem is an age -old maxim which means necessity knows no law. A person may sometimes have to succumb to the pressure of the other party to the bargain who is in a stronger position.' "

In the case at hand, the High Court allowed the appeal filed by the contractee on the assertion that the no-dues certificate was given on account of coercion/undue influence practiced by the appellant contractor. The contractee, while basing its claim, relied upon the letters issued to the appellant contractor for releasing the payment of RA bills. Whether there has been duress and coercion exerted against the contractee company by the appellant contractor has to be examined keeping in mind the background in which the said letters have been exchanged between the parties. The learned counsel for the contractee company categorically submitted the relevant dates for our

(emphasis supplied)

perusal to show that RA bills were raised on various dates for making payments to suppliers and others but were advertently delayed causing grave financial crisis to the contractee company to carry out the works and losses on account of delay in settling the claims of the contractee company periodically. However, it is contended from the side of the appellant contractor that the High Court was not right in considering it a genuine and serious dispute regarding the claim made and the conduct of the parties as reflected in the correspondence exchanged between the parties disclosing that the contractee company encountered several financial constraints."

(emphasis supplied)

Similarly, in an another recent decision of the Apex Court, in the case of United India Insurance Company Ltd. Vs. Antique Art Exports Pvt. Ltd.,2019(3) Arb.LR 51 (SC), the Apex Court, in para 15 has held as under:-

"15. From the proposition which has been laid down by this Court, what reveals is that a mere plea of fraud, coercion or undue influence in itself is not enough and the party who alleged is under obligation to prima facie establish the same by placing satisfactory material on record before the Chief Justice or his designate to exercise power under Section 11(6) of the Act, which has been considered by this court in New India Assurance Company Ltd. case as follows (para 8, page 427 of Arb.LR)

"9. It is, therefore, clear that a bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up a plea, must prima facie establish the same by placing material before the Chief Justice/his designate....."

Testing the facts of the case at hand, on the anvil of the aforementioned legal enunciations, this Court finds that the balance is in favour of the petitioner only. This can be exhibited by the documents filed by the petitioner which include the Court orders passed by the Calcutta High Court dated 11.2.2014 wherein not only the receiver has been appointed but it is also directed that any money received by the petitioner shall be directly credited into the account of SREI, the financier of the petitioner. The details of loans taken by the petitioner from the ICICI Bank and Bank of Baroda have also been given in detail at page no.26 to 28 of the memo of petition which also includes the communication dated 28.05.2014 issued by the Bank of Baroda informing the petitioner that its accounts have been declared as NPA as also a notice dated 13.08.2014 under Section 13(2) of the SARFAESI Act, 2002.

The following letters issued by the respondent are also relevant :-

(a) The letter dated 3.5.2014 issued by the Respondent FCS, the same read as under:-

"Directorate Of Food, Civil Supplies And Consumer Protection, 'D' Wing, First Floor, Vindhyachal Bhawan, Bhopal.

No.556/Food Coupon/2014 Bhopal, dated 03-05-2014

To,

1-  Amit Kumar Mishra, Project Director,

HCL Virgo Edenred Consortium,

HCL Inforsystems Ltd.,

SF-3, 4, IInd floor, "B" Block,

Mansarovar Complex,

Near 7 No. Bus Stop, Bhopal- 462016.

2-  HCL Infosystems Limited,

806, Siddharth, 96 Nehru Place,

New Delhi-110019.

3-  Virgo Softech Limited,

A24/5, Mohan Co-operative Industrial Estate,

Mathura Road, New Delhi-110044.

4-  Edenred India Private Limited,

(formerly, known as Accor Services Private

Limited) Camera House, Majiwade Village

Road, Thane, Maharashtra-400601.

5-  HCL Infosystems Limited,

Corporate office: E-5, 6, 33 Sector XI,

Noida- 201301.

Kind Attn: Senior Vice-President, E-Governance Initiatives.

Subject- Food Coupon Scheme under the PDS project.

Ref:- Letter no.SO-EG/10/005/MpePDS/Nov-13/ 002 dated 26.11.2013 and Letter no.SO-EG/10/ 005/MPPDS/JAIN.14/001 dated 16.1.2014 from Shri Amit Kumar Mishra, Project Director, HCL Virgo Edenred Consortium In response to our letter no.7724/Food Coupon/2013 dated 18.11.2013, you had initially submitted your consolidated claim vide your letter No.SO-EG/10/005/MpePDS/Nov-13/002 dated 26.11.2013. Since your claim was not in accordance with the contract and you also kept alive your option to make further claims, the Government obviously had no option but to not entertain your said claim. However, since you pursued the matter with the department, a meeting was held on 27.12.2013 between the consortium members and the concerned officials of the department, including the present Principal Secretary who was the then Secretary of the Department. In the said meeting, after discussing the issues arising your matter, you were advised to scale down your claim and make it in accordance with the agreement. Unfortunately, you appear to have treated above suggestion as an invitation to increase your claim. Therefore, instead of scaling down your claim and making it to conform to the agreement, you submitted even a larger claim vide your letter No.SO-EG/10/005/MpePDS/Jan- 14/001 dated 16.01.2014. You also did not clarify your position whether you would accept payment in full and final settlement of the claim, treating the agreement as frustrated.

Thus, from the above position, it is apparent that your claims cannot be accepted as most of the same are not only outside the scope of the contract but any payment which may be found to be due can be made only in full and final settlement of your claims so to bring the matter to a close.

Therefore, for early closure of the matter, we request you once again to come forward to make a full and final settlement of your claims in accordance with the agreement.

Commissioner,

Food, Civil Supplies and Consumer Protection Bhopal,

Madhya Pradesh

En.No.557/Food Coupon/2014 Bhopal, dated 03-05-2014

Copy to:-

Executive Vice President-Commercial, HCL Infosystems Limited, Corporate office E-5, 6, 33 Sectors XI, NOIDA-201301.

Commissioner,

Food, Civil Supplies and Consumer Protection

Bhopal, Madhya Pradesh"

(b) The relevant excerpts of the letter dated 19.9.2014 issued by the respondent FCS is reproduced as under:-

"........................................................................

However, as regards your request to pay you the agreed sum in the amount/proportion indicated in your letters under rely, we wish to point out that as per clause 8.15 of the Contract, the above payment is required to be made into the ESCROW account no.003105027931 in the name of HCL Infosystems Ltd. with the ICICI Bank, Noida (IFSC Code: ICIC0000031).

We are also enclosing herewith for your approval and execution by the respective authorized signatories, the receipt which we would need from you at the time of payment of the balance amount as aforesaid. Please note that in order to meet the legal requirements the authorisation in favour of your authorized signatories should be backed by the necessary legal documents like the certified copies of the respective board resolution/letters from the concerned company.

As regards your request for releasing the assets deployed by HCL at NIC , Bhopal it may be stated that we have never prevented you from removing or taking back your said assets which have been lying unutilized at the above site. You may, therefore, remove/take back the same on a mutually convenient date and time.

Enclosure: as above

Thanking you,

Commissioner,

Directorate of Food, Civil Supplies

and Consumer Protection,

Vindhyachal Bhawan, Bhopal.

Copy to-

Executive Vice President-Commercial, HCL Infosystems Limited, E-5, 6, 33 Sector XI, Noida-201301.

Commissioner,

Directorate of Food, Civil Supplies

and Consumer Protection,

Vindhyachal Bhawan, Bhopal.

Receipt

We i.e. HCL Infosystems Ltd., Virgo Softech Limited, Edenred India Pvt. Ltd. (members of the HCL Consortium) have received with thanks from the Government of Madhya Pradesh (through the Food Commissioner, M.P., Government of M.P., Bhopal) a sum of Rs.20,16,40,923/- (Rupees Twenty crores sisten lakhs forty thousand nine hundred and twenty three only), by E-payment___________dated__________ drawn on the State Bank of India, Vindhyanchal Bhawan, Bhopal in favour of HCL Infosystems Ltd. (in ESCROW account no.003105027931 with the ICICI Bank, Noida), in full and final payment of the work done by us under contract dated 28.7.2011 relating to the State Government's Food Coupon Scheme under the PDS project. On payment of the aforesaid amount by the State Government, no amount remains due under or in respect of the above contract.

Members of the HCL Consortium:

1._____________________ 2._____________________

(Authorized signatory) (Authorized signatory)

Name and Seal Name and Seal

3.____________________

(Authorized signatory)

Name and Seal

Bhopal

Dated______________" (emphasis supplied)

The aforesaid documents/communications which have been issued by the respondent, together with the financial burden faced by the petitioner as pleaded in the petition and discussed above, in the considered opinion of this Court, are more than sufficient to hold that the discharge voucher was executed by the petitioner company while it was reeling under the financial pressure from all the sides. The decision in the case of Bishundeo (supra), thus is of no avail to the respondent. Thus, the aforesaid discussion leaves no manner of doubt that the petitioner has prima facie made out a case of undue influence/coercion exercised by the respondent by its dominant position.

In the circumstances, it is held that a dispute exists between the parties which have to be adjudicated upon by the arbitrators as has been provided under Clause

2 of the agreement, which reads as under:-

"18.2 In the case of such failure the dispute shall be referred to a sole arbitrator or in case of disagreement as to the appointment of the sole arbitrator to three arbitrators, two of whom will be appointed by each Party and the third appointed by the two arbitrators."

Accordingly, since the dispute is pending before this Court since last 5 years and was raised in the year 2014, the parties are directed to appoint their respective arbitrators within a further period of one month from today and the arbitrators so appointed by them are also requested to appoint the third arbitrator within a further period of one month so as that the matter may be decided expeditiously.

In the result, present arbitration case stands allowed. No costs.