TMI Blog2017 (10) TMI 1304X X X X Extracts X X X X X X X X Extracts X X X X ..... tice M. N. Rao, Former Chief Justice of Himachal Pradesh High Court, shall separately constitute Domestic Arbitral Tribunals for resolving each of the disputes pertaining to Packages No.6, 7, 8 and 9. Arbitration petition allowed. - Arbitration Petition No.30 OF 2016, 31 OF 2016, T.C.(C) NOS.25/2017, 26/2017, 27/2017 AND 28/2017 - - - Dated:- 10-10-2017 - Kurian Joseph and R. Banumathi , JJ. For Appearing Parties: Mukul Rohatgi, Raju Ramachandran, Sunil Gupta, Abhishek Manu Singhvi, Sr. Advs., Anitha Shenoy, Rashmi Nandakumar, Srishti Agnihotri, Hamsini Shankar, Ishwar Mohanty, Tarun Dua, Geetanjali Sethi, Faisal Sherwani, A. Paul and Sumati Sharma, Advs. JUDGEMENT: Kurian Joseph, J. 1. While agreeing with the conclusions in the illuminating judgment of my esteemed sister Banumathi, J., I feel that a few more lines would add greater lustre to the judgment. 2. What is the effect of the change introduced by the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as the 2015 Amendment ) with particular reference to Section 11(6) and the newly added Section 11(6A) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby agree that the works shall be carried out as per the following priority of documents: 1. Annexure I to the Letter of Award issued for Package 4 Contract. 2. Annexure III to the Letter of Award issued for Package 4, 6, 7, 8 and 9 contracts. 3. Clarifications/Addendum No. 1 to 4 (in the descending order) issued by the Employer to the Original Package 4 Tender Document. 4. The Original Package 4 Tender Document issued by the employer. 5. Financial Technical Bid submitted by the contractors in response to the Original Package 4 Tender Document. 6. It is clear that there is no novation by substitution of all the five agreements nor is there a merger of all into one. The reference to Original Package No. 4 Tender Document is only for better clarity on technical and execution related matters. 7. The above finding is wholly in line with Section 7(5) of the 1996 Act. Section 7 which deals with arbitration agreement reads as follows: 7. Arbitration agreement.--(1) In this Part, arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument in a contract, and the reference shows that the document was not intended to be incorporated in entirety, then the reference will not make the arbitration Clause in the document, a part of the contract, unless there is a special reference to the arbitration Clause so as to make it applicable. XXX XXX XXX 22. A general reference to another contract will not be sufficient to incorporate the arbitration Clause from the referred contract into the contract under consideration. There should be a special reference indicating a mutual intention to incorporate the arbitration Clause from another document into the contract. The exception to the requirement of special reference is where the referred document is not another contract, but a standard form of terms and conditions of trade associations or regulatory institutions which publish or circulate such standard terms and conditions for the benefit of the members or others who want to adopt the same. XXX XXX XXX 24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus: (i) An arbitration Clause in another document, would get incorporated into a contract by reference, if the following conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7(5) in M.R. Engineers (supra) further fortifies our conclusion that the MoU does not incorporate an arbitration clause. 9. Learned Senior Counsel also contended that for convenience, it is expedient that a single Arbitral Tribunal is constituted. We are afraid that this contention also cannot be appreciated. The parties are free to agree to anything for their convenience but once such terms are reduced to an agreement, they can resile from them only in accordance with law. 10. Having said that, this being one of the first cases on Section 11(6A) of the 1996 Act before this Court, I feel it appropriate to briefly outline the scope and extent of the power of the High Court and the Supreme Court Under Sections 11(6) and 11(6A). 11. This Court in S.B.P. Co. v. Patel Engineering Ltd. and Anr. (2005) 8 SCC 618 overruled Konkan Railway Corpn. Ltd. and Ors. v. Mehul Construction Co. (2000) 7 SCC 201 and Konkan Railway Corpn. Ltd. and Anr., v. Rani Construction Pvt. Ltd. (2002) 2 SCC 388 to hold that the power to appoint an arbitrator Under Section 11 is a judicial power and not a mere administrative function. The conclusion in the decision as summarized by Balasubramanyan, J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6) of the Act. (ix) In a case where an Arbitral Tribunal has been constituted by the parties without having recourse to Section 11(6) of the Act, the Arbitral Tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Act. (x) Since all were guided by the decision of this Court in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd. and orders Under Section 11(6) of the Act have been made based on the position adopted in that decision, we clarify that appointments of arbitrators or Arbitral Tribunals thus far made, are to be treated as valid, all objections being left to be decided Under Section 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications Under Section 11(6) of the Act. (xi) Where District Judges had been designated by the Chief Justice of the High Court Under Section 11(6) of the Act, the appointment orders thus far made by them will be treated as valid; but applications if any pending before them as on this date will stand transferred, to be dealt with by the Chief Justice of the High Court concerned or a Judge of that Court designated by the Chief Justice. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6A) ought to be respected. 14. In the case at hand, there are six arbitrable agreements (five agreements for works and one Corporate Guarantee) and each agreement contains a provision for arbitration. Hence, there has to be an Arbitral Tribunal for the disputes pertaining to each agreement. While the arbitrators can be the same, there has to be six Tribunals-two for international commercial arbitration involving the Spanish Company-M/s. Duro Felguera, S.A. and four for the domestic. Banumathi, J. Arbitration Petition No.30 of 2016 has been filed by M/s Duro Felguera, S.A. under Section 11(6)(a) read with Sectiion 11(12)(a) of the Arbitration and Conciliation Act, 1996 (for short, 'the Act') to appoint the nominee arbitrator on behalf of the respondent (second arbitrator) in terms of sub-clause 20.6 of the Special Conditions of the Contract with respect to the arbitration arising under the Contract dated 10.05.2012. T.C. No.25 of 2017, T.C. No.26 of 2017, T.C. No.27 of 2017 and T.C. No.28 of 2017 have been filed by M/s. Felguera Gruas India Private Limited (hereinaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was divided into five different and separate Packages, namely, New Package No. 4-F.O.B. Supply of Bulk Material Handling Equipments (awarded to foreign company-M/s Duro Felguera), Package No. 6-design, manufacture, supply, installation, erection, testing, commissioning of Bulk Material Handling Equipments and all other activities related therewith; Package No. 7-Civil Works and all other activities related therewith; Package No. 8-International Transportation of Bulk Material Handling Equipments and parts through sea including insurance and all related activities; Package No. 9-Installation, Testing and Commissioning of Ship Unloaders and all other activities related therewith (Packages No.6 to 9 awarded to Indian subsidiary-FGI). Separate Letters of Award (dated 17.03.2012) for five different Packages were issued to M/s Duro Felguera, S.A. and the Indian Subsidiary-FGI for the above said work respectively. 5. Five different contracts were entered into on 10.05.2012 for five split-up Packages with different works viz. namely New Package No. 4 with foreign company-M/s Duro Felguera and Packages No. 6, 7, 8 and 9 with FGI. Each of the Packages has special conditions of contract a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting Mr. Justice M.N. Rao (Former Chief Justice, Himachal Pradesh High Court) as its nominee arbitrator under sub-clause 20.6 of the conditions of contract which form part of the Original Package No. 4 Tender Document . Contention of GPL is that Original Package No. 4 (TD) and the Corporate Guarantee by M/s. Duro Felguera and the MoU dated 11.08.2012 cover all the five contracts, namely, New Package No. 4, Package No. 6, Package No. 7, Package No. 8 and Package No. 9 as well as the Corporate Guarantee. Further case of GPL is that five individual arbitration notices issued by M/s. Duro Felguera and FGI are untenable and since Duro Felguera-the foreign company has guaranteed the due performance of the works covered under all the five packages and there has to be only one single Arbitral Tribunal for resolving the disputes of International Commercial Arbitration arising between the parties. 9. Mr. Mukul Rohtagi and Mr. Raju Ramachandran, learned Senior Counsel for M/s Gangavaram Port Limited (GPL) submitted that the split up of the Works into five separate contracts was made only on the basis of the requests made by the Duro Felguera for convenience of the contractors. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral conditions of contract. It was further submitted that the Corporate Guarantee dated 17.03.2012 executed by Duro Felguera guaranteeing due performance of the works awarded to Duro Felguera and FGI has its own separate and distinct arbitration clause and the same has no connection with the arbitration clauses (sub-clause 20.6) of the five different contracts for New Package No. 4 and Packages No. 6, 7, 8 and 9. The learned Senior Counsel further submitted that the MoU dated 11.08.2012 which enlists priority of the documents to be considered is only to have clarity in carrying out the works and the MoU cannot override the terms of the contracts for five different packages including the arbitration clauses contained therein. It was submitted that the five new split-up Packages followed by five different Letters of Award and five different contracts were substantially different, independent and separate in their content and subject matter and there cannot be a 'composite reference' for efficacious settlement of disputes, it would be just and proper to have multiple arbitral tribunals and may be by the same arbitrators. The learned Senior Counsel submitted that so far as N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guera and FGI and whether there has to be a composite reference/single arbitral tribunal for International Commercial Arbitration covering all the five different Packages and also the Corporate Guarantee executed by Duro Felguera? (2) Whether there have to be 'multiple arbitral tribunals' for each of the five different Packages of Work awarded to the foreign company-Duro Felguera and Indian Subsidiary-FGI (one International Commercial Arbitral Tribunal plus four Domestic Arbitral Tribunals) and another one arbitral tribunal for 'international commercial arbitration' under Corporate Guarantee (17.03.2012) executed by the foreign company-Duro Felguera? 13. The Arbitration and Conciliation (Amendment) Act, 2015 (w.e.f. 23.10.2015) has brought in substantial changes in the provisions of the Arbitra- tion and Conciliation Act, 1996. After the Amendment Act 3 of 2016, as per the amended provision of sub-section (6A) of Section 11, the power of the court is confined only to examine the existence of the arbitration agreement. It further clarifies that the decision of appointment of an arbitrator will be made by the Supreme Court or the High Court (instead of Chief J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issued which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide. The judgments in Shree Ram Mills Ltd. v. Utility Premises (P) Ltd, (2007) 4 SCC 599 and Arasmeta Captive Power Company Private Limited and Another v. Lafarge India Private Limited, (2013) 15 SCC 414, are on the same line pertaining to the issues which have to be dealt with by the Chief Justice or his designate. Changes brought about by the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act 3 of 2016) 17. The language in Section 11(6) of the Act the Chief Justice or any person or institution designated by him has been substituted by Supreme Court or as the case may be the High Court or any person or institution designated by such Court . Now, as per sub-section (6A) of Section 11, the power of the Court has now been restricted only to see whether there exists an arbitration agreement. The amended provision in sub-section (7) of Section 11 provides that the order passed under Section 11(6) shall not be appealable and thus finality is att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the examination of the existence of an arbitration agreement.] *[(6B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.] (7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to *[the Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court is final and no appeal including Letters Patent Appeal shall lie against such decision]. *[(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to- (a) any qualifications required of the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.] (9) In the case of appointment of sole or third arbitrator in an int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution.] *Substituted by Act 3 of 2016 (w.e.f. 23.10.2015) 18. The effect of the Arbitration and Conciliation (Amendment) Act, 2015 in Section 11 of the Act has been succinctly elucidated in the text book Law Relating to Arbitration and Conciliation by Dr. P.C. Markanda , which reads as under:- The changes made by the Amending Act are as follows: 1. The words 'Chief Justice or any person or institution designated by him' shall be substituted by the words 'the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court'. Thus, now it is not only the Chief Justice who can hear applications under Section 11, the power can be delegated to any judge as well. 2. As per sub-section (6-A), the power of the Court has now been restricted only to examination of the existence of an arbitration agreement. Earlier, the Chief Justice had been given the power to examine other aspects as well, i.e. limitation, whether the claims were refera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nifold due to high charges being levied on the parties by the arbitral tribunal and other incidental expenses. [Reference: Law Relating to Arbitration and Conciliation by Dr. P.C. Markanda; Lexis Nexis, Ninth Edition, Page 460] 19. There is no dispute between the parties that the issue at hand is governed by the amended provision of sub-section (6A) of Section 11. Even though Letters of Award are dated 17.03.2012 and five separate contracts were entered into between the parties on 10.05.2012, the dispute arose between the parties in 2016 as pointed out earlier, Gangavaram Port Limited invoked the Bank Guarantee on 07.01.2016 and M/s. Duro Felguera and its Indian Subsidiary-FGI issued notice of dissatisfaction on 04.02.2016 and 07.02.2016 respectively to Gangavaram Port Limited. M/s. Duro Felguera issued arbitration notice on 05.04.2016 for contract relating to Package No. 4 and FGI issued four arbitration notices dated 07.04.2016 for contracts relating to Packages No. 6 to 9. Gangavaram Port Limited also issued an arbitration notice on 13.04.2016. Since the dispute between the parties arose in 2016, the amended provision of sub-section (6A) of Section 11 shall govern the issue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.6 (for sample) awarded to FGI and submitted that all the five different contracts have independent arbitration clauses (in sub-clause 20.6). In the contract New Package No.4 there is a header Supply of Bulk Material Handling Equipments and Parts on FOB Basis . Likewise, contract agreement for Package No.6 contains the header Design, manufacture, supply, installation, erection, testing commissioning of Bulk Material Handling Equipments and all other activities related therewith . Various clauses in the Original TD Package No.4 were suitably modified and incorporated in the split-up contract agreements. Sub-clause 20.6 dealing with arbitration in the original Package No.4 TD has been reproduced in New Package No.4 and other Packages No. 6 to 9. The contract for New Package No. 4 which was entered into between M/s. Duro Felguera and GPL, also contains an arbitration clause, which reads as under: Sub-Clause 20.6 - Arbitration Any dispute in respect of which amicable settlement has not been reached within the period stated in Sub-Clause 20.5, shall be finally and conclusively settled by Arbitration under the Arbitration and Conciliation Act, 1996 by appointing two arbitrators ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar Applications) (d)General Conditions of Contract; (e) the Employer's Requirements, Scope of Work, Specifications and Drawings; (f)the Schedule of Prices; (g) the Tender to the extent annexed herewith. Similar clauses as to the priority of the documents was incorporated in all other contract agreements-Packages No. 6, 7, 8 and 9 awarded to Indian subsidiary FGI. In the sequence of documents of clause (2) of the contract agreement quoted above, the Tender Document is mentioned in the sequence only as (g) and all other documents or the other documents like Letters of Award, Special conditions of contract etc. have priority over the same. While so, the terms contained in Original Package No. 4 TD including the arbitration clause cannot have priority over the Special Conditions of contract of the split-up contracts. When the Original Package No. 4 TD has been split-up into five different Packages, GPL is not right in contending that inspite of split-up of the work, the Original Package No.4 TD collectively covered all the five Packages. After the Original Package No. 4 was split into five different contracts, the parties cannot go back to the Original Package N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to the employer continuing to meet its own obligations under package 6 to package 9 with respect to payments, approvals for drawings and other related matters to the corporate company as if the corporate company were the principal contractor in place of FGI. 2. In the event of any delay in completion of the works as per the time for completion of the contracts for the reasons attributable to FGI and/or the corporate company, such that these delays in turn results in causing overall delay in completion of all or any one of the contracts, then the corporate company hereby undertakes to compensate for the delay damages to the employer, which shall be based on the overall contract price collectively of all the contracts and any other contract that may be entered into by and between the employer and the corporate company or FGI.......... 27. Contention of GPL is that as per the Corporate Guarantee, the Spanish Company has inter alia undertaken to compensate GPL for delay damages, based on the overall contract price collectively of all the Contracts awarded to both Duro Felguera and FGI, arising on account of delay in completion of the works in any one or all of the five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Contract.) Whereas the parties have entered into different package contracts for execution of Bulk Material Handling System under Original Package 4 Tender Document covering ship unloaders, stackers, reclaimers, in-motion wagon loading system, conveyors, transfer towers, electrical and control works, civil works, etc. and in order to have more clarity on technical and execution related matters, the parties hereby agree that the works shall be carried out as per the following priority of documents. 1. Annexure I to the Letter of Award issued for Package 4 Contract. 2. Annexure III to the Letter of Award issued for Package 4, 6, 7, 8, and 9 contracts. 3. Clarifications/Addendum No.1 to 4 (in the descending order) issued by the Employer to the Original Package 4 Tender Document. 4. The Original Package 4 Tender Document issued by the Employer. 5. Final Technical Bid submitted by the Contractors in response to the Original Package 4 Tender Document. The parties undertake to keep this MoU as strictly confidential. 30. Contention of GPL is that Memorandum of Understanding (dated 11.08.2012) collectively covers all the five Packages and MoU shall prevail ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as to make the arbitration clause in such document, a part of the contract. Section 7(5) requires a conscious acceptance of the arbitration clause from another document, as a part of their contract, before such arbitration clause could be read as a part of the contract between the parties. The question whether or not the arbitration clause contained in another document, is incorporated in the contract, is always a question of construction of document in reference to intention of the parties. The terms of a contract may have to be ascertained by reference to more than one document. 34. In M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited (2009) 7 SCC 696, the Supreme Court held that even though the contract between the parties does not contain a provision for arbitration, an arbitration clause contained in an independent document will be incorporated into the contract between the parties, by reference, if the reference is such as to make the arbitration clause in such document, a part of the contract. In M. R. Engineers and Contractors Private Limited (supra), this Court held as under:- 13. .......Having regard to Section 7(5) of the Act, even th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also. (iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions. (v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where the Government is a party), the arbitration clause forming part of such general conditions of contract will apply to the contract between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al tribunal for International Commercial Arbitration . 37. It was submitted that if the request of GPL is accepted and all Packages are considered under the same reference, they shall be treated as international commercial arbitrations, then FGI may lose the opportunity of challenging the award under Section 34(2A) of the Act. In response to the above submission, GPL offered to concede and submitted that Section 34 (2A) of the Act may be invoked by Indian subsidiary-FGI, though Section 34(2A) is not applicable to international commercial arbitration. Such a concession is against the provisions and specific mandate of legislature and cannot be accepted. 38. The Corporate Guarantee dated 17.03.2012 was executed by the foreign company-Duro Felguera undertaking to compensate for the delay, damages to the GPL. Since the Corporate Guarantee was by the foreign company-Duro Felguera which contains separate arbitration clause, there has to be a separate arbitral tribunal for resolving the disputes arising out of the said Corporate Guarantee. 39. New Package No. 4 TD- F.O.B. Supply of Bulk Material Handling Equipments USD 26,666,932 has been awarded to the foreign company-Duro Felg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Himachal Pradesh High Court). Alongwith the above two arbitrators Mr. Justice R.M. Lodha, Former Chief Justice of India is appointed as the Presiding Arbitrator of the International Commercial Arbitral Tribunal. 42. Package No.6 (Rs.208,66,53,657/-); Package No.7 (Rs.59,14,65,706/-); Package No.8 (Rs.9,94,38,635/-); and Package No.9 (Rs.29,52,85, 558/-) have been awarded to the Indian company-FGI. Since the issues arising between the parties are inter-related, the same arbitral tribunal, Justice R.M. Lodha, Former Chief Justice of India, Justice D.R. Deshmukh, Former Judge of Chhattisgarh High Court and Justice M. N. Rao, Former Chief Justice of Himachal Pradesh High Court, shall separately constitute Domestic Arbitral Tribunals for resolving each of the disputes pertaining to Packages No.6, 7, 8 and 9. 43. Arbitration Petition No. 30 of 2016 filed by Duro Felguera shall stand allowed and Arbitration Petition No.31 of 2016 filed by GPL shall stand disposed of in the same line. Transfer Case No. 25/2017, Transfer Case No. 26/2017, Transfer Case No. 27/2017 and Transfer Case No. 28/2017 filed by FGI shall also stand disposed of in the above lines. Parties shall bear their res ..... 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