0

Delhi High Court Sets Aside Arbitrator’s Rs. 20 Lakh Award for Loss of Profit Due to Lack of Evidence

CASE TITLE – M/S DIVYAM REAL ESTATE PVT LTD v. M/S M2K ENTERTAINMENT PVT LTD

CASE NUMBER – O.M.P. (COMM) 162/2020 & I.A. 14331/2012, I.A. 10655/2022

DATED ON – 22.05.2024

QUORUM – Justice Anup Jairam Bhambhani

 

FACTS OF THE CASE

Disputes had arisen between the parties from a Memorandum of Understanding dated 20.02.2006 (“MoU‟), under which the petitioner was to construct a mall in the name and style of “R-3 Mall‟ in Ahmedabad, Gujarat (“Mall‟) in which the respondent was to be provided space for running a multiplex on a lease basis. The bone of contention between the parties was, that the respondent alleged that the petitioner had committed a breach of the terms of the MoU by entering into a contract with a third party on 09.03.2006, thereby terminating the respondent’s contract. The respondent claimed that the termination was invalid and illegal, which compelled them to file a claim in arbitration. By way of the Arbitral Award, the petitioner has been directed to pay to the respondent the sum of Rs. 24,54,458.33 along with interest at the rate of 12% per annum. The said sum comprises two primary components: (i) the sum of Rs. 4,54,458.33 towards expenses held to have been incurred by the respondent towards advertisement and exhibition charges etc. as detailed in the award; and (ii) the sum of Rs.20,00,000.00 towards „loss of profit‟ suffered by the respondent, as also detailed in the award.

 

ISSUES

Whether the Learned Arbitrator was justified in issuing an award of Rs. 20,00,000.00 by way of loss of profit?

 

CONTENTIONS BY THE PETITIONER

The Learned Counsel appearing for the petitioner submitted that in the petition they have raised two principal contentions impugning the Arbitral Award. The first is that the MoU signed between the parties was merely an “agreement to agree‟ and was therefore not a concluded or enforceable contract, and second, that the award of Rs. 20,00,000.00 in favour of the respondent by way of loss of profit, is untenable since it was based entirely on conjectures and surmises. The petitioner’s main contention is that the learned Arbitrator has awarded loss of profit to the respondent based on no evidence tendered on record, and the Arbitral Award is in fact self-contradictory in its reasoning

 

CONTENTIONS BY THE RESPONDENT

The Learned counsel for the respondent has argued that the learned Arbitrator has returned a finding that the petitioner was guilty of breach of the MoU, thereby also dismissing the petitioner‟s counterclaims. It was argued that by way of the present petition, the petitioner is therefore asking the court to re-appreciate evidence adduced before the learned Arbitrator, which is impermissible under section 34 of the A&C Act. It was submitted that the award is neither contrary to law nor against the public policy of India. He had drawn the attention of the Hon’ble High Court to an affidavit dated 01.02.2010 tendered by Mr. Sunil Gupta, Deputy Manager of the respondent by way of evidence in the arbitral proceedings, in which, it was argued, the witness has furnished details of the expenses incurred by the respondent towards performing its obligations under the MoU. It was pointed out that the said witness has deposed that the respondent spent a sum of Rs. 20,08,343.00 towards payment made to various parties for performing its part under the MoU. The Learned Counsel also stated that in addition to such expenses, the respondent has also suffered loss of goodwill and loss of profit, resulting from termination of the MoU by the petitioner.

 

COURT ANALYSIS AND JUDGEMENT

The Hon’ble High Court of Delhi, after looking through the evidence before them and the Arbitrator’s reasoning for issuing the award was of the opinion that on the limited challenge pressed on behalf of the petitioner, viz. a challenge only to the award of Rs. 20 lacs to the respondent towards loss of profit, the discussion and reasoning contained in the Arbitral Award was sparse and cryptic. They noticed that the learned Arbitrator first makes a passing observation that the respondent had incurred loss of profit, which he says has been calculated for the period from 20.06.2006 to 20.12.2008 based on the estimated loss of and then proceeds to observe that calculating loss of profit must involve a certain amount of conjecture and that there cannot be straight-jacket formula for that purpose. However, the learned Arbitrator thereafter proceeds to observe “it is speculative if any profit would be made or not. However, it cannot be ignored that it is the respondent who had committed the breach.” Therefore, the Hon’ble High Court noticed that the learned Arbitrator was of the view that even the foundational fact as to whether the respondent would have made a profit at all was in doubt. IIt the opinion of the Hon’ble High Court, that there is a clear discordance, whereby on the one hand, the learned Arbitrator holds that whether or not the respondent would have made any profit is itself a matter of speculation, but on the other hand, he proceeds to award loss of profit of Rs. 20 lacs, drawing that figure literally from thin air. Hence, they stated that, the learned Arbitrator did not proceed even on the basis of the evidence on record, that was available inter alia by way of the evidence tendered before him. The Hon’ble High Court then held that it was persuaded to allow the present petition, holding that the award of Rs. 20 lacs to the respondent towards loss of profit was based on no evidence on record, and in fact, the learned Arbitrator has failed to even decide whether the respondent had incurred, or would have incurred, any loss of profit at all, and stated that the Arbitral Award dated 07.03.2012 is to be set aside.

 

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Judgement Reviewed by – Gnaneswarran Beemarao

Click here to view full Judgement

 

0

Delhi HC declines settlement agreement stating lack of intent to avoid Arbitration; Sends dispute to Arbitration.

CASE TITLE – M/S DHAWAN BOX SHEET CONTAINERS PVT. LTD v. M/S SHREYANSH HEALTHCARE PVT. LTD.

CASE NUMBER – ARB.P. 1196/2023

DATED ON – 20.05.2024

QUORUM – Justice Dinesh Kumar Sharma

FACTS OF THE CASE

The petitioner is engaged in the business of manufacturing corrugated boxes and cartons. The respondent placed various orders upon the petitioner for the supply of corrugated boxes. The petitioner having been supplied the same issued various invoices from time to time. The petitioner’s plea is that there was outstanding due of Rs. 36,40,006/- for which the petitioner issued a legal demand notice dated 01.06.2023. The petitioner has filed the present petition stating therein that there is an outstanding of Rs. 36,40,006/-. The petitioner also stated that the respondent issued an email dated 22.05.2023 and requested the petitioner to settle the matter at the lesser rate on the coercive ground that the management and control of the company would soon be taken over by the Insolvency Resolution Professional as appointed by the Hon’ble National Company Law Tribunal. The petitioner also claimed to have sent legal demand notice dated 01.06.2023. The petitioner stated that the respondent had informed that the insolvency proceedings had been initiated against him by M/s Synergy Group and further shared a screenshot of the filing details. Therefore, to bring a quietus to the matter, the petitioner accepted the offer of the respondent vide consent letter dated 12.06.2023. However, later on it was revealed that no insolvency petition had been filed. The respondent submitted that the petitioner had been supplying bad quality of the goods and the respondent was forced to return the good to the tune of Rs. 10,23,117/-. It has been submitted that thereafter the parties entered into a settlement agreement dated 12.06.2023 thereby deciding the terms of the payments to be to the petitioner after mutual discussion between the parties.

 

ISSUES

Whether the letter dated 12.06.2023 can be taken as a novation of agreement or settlement of dispute between the parties?

Whether the arbitration clause in the invoices is still enforceable given the settlement agreement?

 

LEGAL PROVISIONS

Section 8 of the Arbitration and Conciliation Act, 1996, prescribes the power of a judicial authority to refer parties to arbitration.

Section 11 of the Arbitration and Conciliation Act, 1996, prescribes the appointment of arbitrators in an arbitration proceeding.

CONTENTIONS BY THE PETITIONER

The Learned counsel for the petitioner submitted that the respondent coerced the petitioner into settling the matter by accepting part consideration and agreeing to receive the balance consideration proportionately on recovery of dues against whom the respondent has stated to have initiated recovery proceedings. Learned counsel for the petitioner also stated that the respondent falsely informed the petitioner that proceedings under IBC had been initiated against him which was found to be false. The petitioner in these circumstances accepted the offer of the respondent vide consent letter dated 12.06.2023. The Learned counsel for the petitioner submitted that there is an arbitration clause in the invoices within the jurisdiction of the Delhi Courts. He also submitted that it is a settled proposition that an arbitration clause on the invoices can be taken into account for appointing an Arbitrator. It had further been stated that the plea taken by the respondent that the arbitration clause as contained in the invoices of the petitioner stood novated under the settlement as recorded in the document dated 12.06.2023 is liable to be rejected. It had been submitted that the document dated 12.06.2023 cannot obviate the arbitration clause in the invoice. The Learned counsel further submitted that it is a settled proposition that if an original contract remains in existence, for disputes in connection with issues of repudiation, frustration, breach, etc., the Arbitration Clause therein continues to operate for these purposes.

CONTENTIONS BY THE RESPONDENT

The Learned counsel for the respondent submitted that the petitioner had been supplying bad quality of the goods and the respondent was forced to return the goods to the tune of Rs. 10,23,117/-. It had been submitted that thereafter the parties entered into a settlement agreement dated 12.06.2023 thereby deciding the terms of the payments to be to the petitioner after mutual discussion between the parties. He also submitted that the petitioner upon realizing the defects and quality issues in the goods sold by the Petitioner to the Respondent of its own volition agreed to settle the accounts amicably after discussions and deliberations with the Respondent. The Learned counsel for the respondent submitted that after the settlement as recorded in the letter dated 12.06.2023, there was no live lis between the parties and therefore in the absence of any dispute, the matter cannot be referred to the arbitration. He further submitted that once the parties to any arbitration agreement enter into a settlement thereby discharging the original agreement, the jurisdiction under Section 11 of the Arbitration and Conciliation Act cannot be invoked. After placing reliance on multiple precedents, The Learned Counsel came up with the arguments that a) an arbitration clause contained in an agreement which is void ab initio cannot be enforced as the contract itself never legally came into existence. b) A validly executed contract can also be extinguished by a subsequent agreement between the parties. c) If the original contract remains in existence, for the purposes of disputes in connection with issues of repudiation, frustration, breach, etc., the arbitration clause contained therein continues to operate for those purposes. d)Where the new contract constitutes a wholesale novation of the original contract, the arbitration clause would also stand extinguished by virtue of the new agreement. The Learned counsel argued that though the scope of judicial intervention at the stage of exercising jurisdiction under Sections 8 and 11 of the Arbitration and Conciliation Act is limited, yet, the matter can be referred only if there is a dispute between the parties. He further submitted that the petitioner having settled the dispute with the respondent, the matter cannot be referred to the learned Arbitrator.

COURT ANALYSIS AND JUDGEMENT

The Hon’ble High Court of Delhi was of the firm view that by no stretch of imagination the letter dated 12.06.2023 can be taken as the novation of an agreement or the settlement of the dispute between the parties as the document does not reveal at all that vide this document the dispute between the parties have been settled and there is no Live Lis between the parties. They further stated that while deciding such issues, the court has only to look at the prima facie view and the intention of the parties. In order to deny the arbitration, if the same is the preferred mode of resolution of dispute, there has to be clear intent of the parties, and stated that they do not consider that there is clear intent of the parties as reflected in the document dated 12.06.2023. The Hon’ble High Court disposed of the petition, with a few directions, stating that the disputes between the parties under the said agreement were now referred to the arbitral tribunal, and had also appointed an Arbitrator. It was also made clear that all the rights and contentions of the parties, including as to the arbitrability of any of the claim, any other preliminary objection, as well as claims on merits of the dispute of either of the parties, are left open for adjudication by the learned arbitrator.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Judgement Reviewed by – Gnaneswarran Beemarao

Click here to view full Judgement

0

Failure to Request Hearing Date does not Automatically Terminate Arbitration Proceedings: Supreme Court

Case Name: Dani Wooltex Corporation & Ors v. Sheil Properties Pvt Ltd. & Anr 

Case No.: Civil Appeal No.6462 of 2024 

Dated: May 16, 2024 

Quorum: Justice Abhay S Oka and Justice Pankaj Mithal 

FACTS OF THE CASE: 

T The first appellant is a partnership company called Dani Wooltex Corporation, and it possessed some land in Mumbai. Sheil Properties, a private limited company, was the initial respondent and was involved in the development of real estate. Another limited corporation in the consumer goods industry is the second respondent, Marico Industries, or simply “Marico.”  

Under the terms of the Development Agreement, dated August 11, 1993 (referred to as “the Agreement”), Sheil was allowed to develop a portion of the first appellant’s property. The first appellant consented to sell Marico another piece of its property through the execution of a Memorandum of Understanding (MOU) between the two parties. Marico was granted a specific amount of FSI/TDR as per the terms of the MOU. 

Marico published a notice informing the public that objections were welcome. Sheil responded with one, stating that the Agreement would govern any business dealings between Marico and the first appellant.  

Due to the disagreement between Sheil and the first appellant, Sheil filed a lawsuit (Suit No. 2541 of 2006) demanding the particular performance of the MOU as amended by the purported consent provisions. In the aforementioned lawsuit, Marico and the first appellant were parties. Additionally, Sheil was named as a party defendant in a lawsuit that Marico filed (Suit No. 2116 of 2011) against the first appellant in this case.  

The learned Single Judge overturned the Arbitral Tribunal’s order to terminate the proceedings and instructed the arbitral tribunal to carry on with the proceedings by means of the contested judgement and order. It is noteworthy to mention that I.A. no. 180843 of 2023 indicates that on July 26, 2023, the experienced lone arbitrator notified the parties of his unwillingness to continue serving as the sole arbitrator. 

 LEGAL PROVISIONS:  

  • Section 32(2)(c) of the Arbitration Act- conferred a residual authority on the Arbitral Tribunal to end the proceedings in the event that it determines that their continuance is no longer necessary or feasible for any other reason. 

 CONTENTIONS OF THE APPELLANTS: 

The learned counsel for the appellants fiercely and strongly argued that In the case of Kothari Developers v. Madhukant S. Patel, the learned Single Judge of the High Court of Judicature at Bombay held that the Arbitral Tribunal was entitled to invoke its power under Section 32(2)(c) of the Arbitration Act if it is proven that the proceedings have become unnecessary due to the claimant’s inaction.  

This was brought up by the learned senior counsel appearing on behalf of the first appellant. He argued that the Arbitration Act’s Section 14 does not give the Court the authority to review the Arbitral Tribunal’s ruling, particularly when that ruling is supported by the evidence and a reasonable argument.  

The experienced senior attorney went on to say that the Arbitral Tribunal made an effort to guarantee Sheil’s attendance at Marico’s arbitration. Following the Marico case ruling, Sheil opted not to attend the Arbitral Tribunal sitting on March 11, 2020.  

It is argued that no information is in the record indicating that Sheil’s claim arbitration was scheduled to take place following Marico’s arbitration, nor is there any evidence supporting that allegation. In his submission, he stated that the Arbitral Tribunal’s factual findings on Sheil’s position could not be overturned by the Court. 

 CONTENTIONS OF THE RESPONDENTS: 

The arguments put forward by the learned counsel for the appellants were sharply and passionately rejected by the learned counsel for the respondents that the authority granted by Section 32(2)(c) of the Arbitration Act cannot be used unless a clear determination is made that it is either impractical or impossible to carry on with the procedures.  

The learned senior counsel argued that the Court must consider the legality of the Arbitral Tribunal’s termination of its mandate in order to exercise its authority under Section 14(2) of the Arbitration Act. The Court’s decision in the case of Lalitkumar V. Sanghavi & Anr. v. Dharamdas V. Sanghavi & Ors served as support for this claim. He argued that it is not possible to infer desertion.  

He argued that because the lawsuits Marico and Sheil brought were distinct from one another, the arbitral processes were also distinct. Sheil and Marico have not filed a claim for relief from one another. 

But because the two referrals had similar questions about whether the agreement requirements could be enforced, the parties decided to move forward with Sheil’s reference after Marico’s reference was resolved. The sole arbitrator in the Sheil reference did not offer any more instructions following the preliminary directives that were given on November 8, 2011, concerning the submission of pleadings, he further submitted. 

 COURT’S ANALYSIS AND JUDGMENT: 

The court said that the Arbitration Act’s chapter V covers provisions pertaining to the conduct of arbitral procedures, as noted by the court. Under subsection (1) of Section 23, the Arbitral Tribunal has the authority to set the deadlines for filing pleadings in the event that the parties cannot agree on the dates for filing statements of claim and defence.  

It was further observed that Section 23, subsection (4), which became effective on October 23, 2015, stipulates that the filing of pleadings, or statements of claim and defence, must be finished within six months of the date on which the learned arbitrator—or all of the learned arbitrators, as the case may be—receive written notice of their appointment. 

The authority granted by clause (c) of subsection (2) of Section 32 of the Arbitration Act may only be used in the event that it is no longer necessary or feasible to continue the proceedings for whatever reason.  

The authority granted by clause (c) of subsection (2) of Section 32 cannot be used unless the Arbitral Tribunal certifies, on the basis of the evidence on file, that the proceedings are no longer required or feasible. The fundamental purpose of passing the Arbitration Act will be defeated if the aforementioned power is used carelessly. 

The court has also examined that even if the parties to the proceedings do not desire a hearing, it is the Arbitral Tribunal’s responsibility to schedule one. The Arbitral Tribunal’s responsibility is to make a decision regarding the dispute that has been referred to it. In the event that parties fail to show up for a scheduled conference or hearing without a valid reason, the Arbitral Tribunal retains the right to invoke pertinent provisions of the Arbitration Act, including Section 25.  

It is difficult to deduce the abandonment. When stated or proven facts are so clear-cut that the only conclusion that can be made is that there has been an abandonment, there is an implied abandonment. An inference of abandonment can only be made if a claimant’s documented behaviour is such that it points exclusively to the conclusion that the claimant has given up on the matter. Even in cases where it is to be inferred, there must be solid facts on file that support the conclusion that the person was abandoned.  

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.” 

Judgment reviewed by Riddhi S Bhora. 

Click to view judgment.

0

The Delhi High Court Orders Detailed Oversight of Share Transfers in Corporate Dispute: Share Allotment Nullified, Directed Proceeds to Court Registry

Case Title – Morgan Securities & Credits Pvt. Ltd. Vs. BPL Limited & Ors.

Case Number – FAO (OS)(COMM) 174/2023 & CM APPL. 43309/2023

Dated on – 15th May, 2024

Quorum – Justice Rajiv Shakdher & Justice Amit Bansal

FACTS OF THE CASE
In the case of Morgan Securities & Credits Pvt. Ltd. Vs. BPL Limited & Ors., whirls around a dispute between Morgan Securities & Credits Pvt. Ltd. (the Appellant herein) and BPL Limited & Ors. (the Respondents herein) concerning the transfer of shares in a subsidiary company (Defendant No. 2 herein). The Appellant is a company engaged in lending monies and providing the bill discounting services whereas the Respondent No.1 is a company engaged in various businesses, inclusive of healthcare. The Appellant initiated arbitration proceedings against the Respondent No.1 due to its default in discharging its liabilities under certain agreements. Orders permitting the Respondent No.1 to transfer its healthcare business to the Respondent No.2, subject to provision of certain securities, were passed by the Arbitral Tribunal. The Appellant challenged these orders in the court of law, alleging that the subsequent actions by the Respondent No.1, inclusive of the share allotments, were violative of the orders of the court. The court found the Respondent No.1 and its directors guilty of the offense of contempt for intentionally violating the orders of the court concerning the shareholding in the Respondent No.2. Despite of which, the transfers and share allotments continued, leading to the Appellant instituting a suit seeking for a declaration that the allotments made by the Respondents in favour of certain parties be declared null and void.

ISSUES
The main issue of the case whirled around whether the allotments of share made by the Respondent No.1 to the other parties were violative of the orders of the court?

Whether the Respondent No.7 and the Respondent No.8 could transfer their shareholding in Respondent No.2?
Whether the declaration of the share allotment to be declared null and void, appropriate and justified given the situation of the case and the alleged violations of the orders of the court?

LEGAL PROVISIONS
Section 34 of the Arbitration and Conciliation Act, 1996 prescribes the provision of Application for setting aside the arbitral awards

Section 37 of the Arbitration and Conciliation Act, 1996 prescribes the provision of Appealable orders
Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 prescribes Granting or refusing to grant an interim measure under Section 17
Order XXXIX Rule 4 of the Code of Civil Procedure, 1908 states that the Order for injunction may be discharged, varied or set aside

CONTENTIONS OF THE APPELLANT
The Appellant, through their counsel, in the said case contented that the allotments made by the Respondent No.1 were violative of the orders of the court restraining the Respondent No.1 from diluting its shareholding in Respondent No.2.

The Appellant cited a previous order by a Single Bench holding Respondent No.1 and its director guilty of contempt for intentionally violating the orders of the court and further sought a restoration of the status quo prevailing before the allotments were made.

CONTENTIONS OF THE RESPONDENT
The Respondents, through their counsel, in the said case contented that they should be allowed to transfer their shareholding in Respondent No.2, subjective of certain conditions, as they were not responsible for any illegality in subscribing to the rights issue of the Respondent No.2.

Further the Respondents asserted that the interim order restraining the Respondent No.1 from diluting its shareholding would not apply after the arbitration award had been passed.

COURT ANALYSIS AND JUDGMENT
The court in the case of Morgan Securities & Credits Pvt. Ltd. Vs. BPL Limited & Ors., observed that the Respondent No. 7 and the Respondent No.8 were directed to deposit the entire sale consideration of their shareholding in the Respondent No.2 before transferring the shares. The court also directed Respondent No.7 and the Respondent No.8 to undertake not to seek deletion of their names as defendants, allowing the court to pass the appropriate orders against them, if required. The court further directed that the details of the transferees and the price agreed upon for the shares be furnished to the court, with the Appellant having the liberty to challenge the proposed sale consideration if deemed below the market price and that upon sale of the shares, the consideration received was to be deposited with the court, pending the outcome of the appeal under Section 37 of the Arbitration Act. The court clarified that its observation in the judgment would not influence the outcome of the other related proceedings. The Appeal and the pending applications were disposed of accordingly.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Judgement Reviewed by – Sruti Sikha Maharana

Click Here to View Judgment

0

Delhi High Court Rejects Frivolous Petition in Construction Dispute, Pointing to Availability of alternative Remedies

Case Name:  UP State Bridge Corporation ltd. & Anr v. National Highways and Infrastructure 

Case No.: W.P.(C) 3256/2024 & CM APPL. 13420/2024 

Dated: May 08, 2024 

Quorum: Justice Subramonium Prasad 

 

FACTS OF THE CASE: 

The Petitioner has come before this court to contest the Respondent’s communication from February 9, 2024, which declared the Petitioner to be a “Non-Performer” and stated that the Petitioner would not be permitted to bid on any project with the Ministry of Road, Transport, and Highways or any of its executing agencies until their name was taken off the list of Non-Performers.  

Furthermore, the aforementioned communication makes it clear that the Petitioner will also include its joint venture partners and promoters whose qualifications were taken into account when they were approved for the project of “Building of Two Lanes with Paved Shoulders of New Greenfield Alignment from Chochenpheri at Km. 52.000 to Helipad Near Menla at Km. 82.000 of Rhenoc-Menla spur (NH-717 B) Package-III on EPC basis under SARDPNE Phase ‘A’ in the State of Sikkim.” 

The Respondent put out a bid for the project of “Construction of 2 laning with paved shoulder of new Greenfield alignment from Chochenpheri at Km. 52.000 to Helipad near Menla at Km. 82.000 of Rhenoc-Menla spur (NH-717 B) Package-III on EPC basis under SARDP-NE Phase ‘A’ in the State of Sikkim”. 

Having placed the highest bid, the petitioner was given the opportunity to complete the job. Petitioner submitted a bid of Rs. 532,52,00,000/-for the contract, which was accepted by Respondent on October 28, 2020, via letter. The petitioner provided the performance security of Rs. 26,62,60,000 and an extra performance security of Rs. 3,16,82,000 in accordance with clause 2.21 of the RFP, in accordance with the conditions of the bid document. The project was set to end on December 10, 2020, and work had to be finished within 36 months of that date. 

First to work was the petitioner. Whether or not the Petitioner was granted the Right of Way (ROW) to complete the construction has been the subject of several disagreements between the Petitioner and the Respondent. The Respondent is not happy with the Petitioner’s performance in numerous other areas as well. Records reveal that the Petitioner was given the opportunity to have personal hearings in order to provide an explanation for the reasons behind the contract’s delay in performance. Documentation in the file also reveals that the Petitioner received two cure notices, dated 24.11.2022 and 11.10. 2023. 

Since the petitioner was designated as a “Non-Performer,” their name has been added to a list of non-performers, and they are not allowed to participate in any bids with the Ministry of Road, Transport, and Highways or any of its executing agencies until they are taken off the list. 

  

LEGAL PROVISION: 

  • Section 5 of the Arbitration and Conciliation Act- Extent of judicial intervention. Regardless of the provisions of any other currently enacted legislation, no judicial authority may get involved in topics covered by this Part unless specifically authorised by this Part. 
  • Section 34 of the Arbitration Act- The sole way to challenge an arbitral award in court is to file an application to have the award set aside in line with subsections (2) and (3). (ii) There is a disagreement between the arbitral ruling and Indian public policy. (iii) It goes against even rudimentary moral or just conceptions. 

 

CONTENTIONS OF THE PETITIONER: 

The learned counsel representing the petitioner argues that the contested communication, dated 09.02.2024, was approved based on a circular dated 06.10.2021, even though the letter of award was sent on October 28, 2020. As a result, the respondent was unable to punish the petitioner because the contract agreement was signed before the date the circular, dated 06.10.2021, was issued, and the petitioner is not covered by it.  

Furthermore, it is stated that the natural justice standards were not followed in the passing of the contested communication. The petitioner claims that in addition to being ordered to stick with the current contract, they have also been forbidden from placing any bids with the Ministry of Road, Transport, and Highways.  

It is also argued the respondent cannot be allowed to hold opposing views at the same time. It further states that the Petitioner cannot be required to fulfil its portion of the contract within a set amount of time as the Respondent has not fulfilled its share of the obligations and has failed to fulfil its share of the reciprocal obligations. 

 

CONTENTIONS OF THE RESPONDENTS: 

The respondent’s attorney brings up the maintainability of the writ petition, pointing out that the contract has an arbitration clause. Furthermore, under paragraph 7 of the Circular dated 06.10.2021, it is specified that the Impugned Communication may be appealed before the Appellate Authority, which is the Secretary, Road Transport and Highway Development. 

It is claimsed that this Court should not hear the current writ petition since the Petitioner has access to an other effective remedy. In addition to addressing the question of the writ petition’s sustainability, the learned attorney representing the respondent also called attention to a number of shortcomings on the part of the petitioner, including the fact that the design and drawings for 3.340 km of the 4.470 km of viaducts have not been provided.  

Furthermore, it is mentioned that project milestone II is not yet completed and that as of November 19, 2023, there has been just 24.04% financial development, although 30% should have been the result. The Petitioner is said to have had multiple opportunities, a personal hearing, and cure notices issued to them, but they have not taken any action. As a result, this Court should not use its discretion under Article 226 of the Indian Constitution because it has been declared that the decision-making process has been equitable. 

 

COURT’S ANALYSIS AND JUDGMENT: 

The court determined that extracting the arbitration clause was pertinent. The dispute resolution procedure is covered in Article 26 of the contract agreement.  

Article 26 states that, in the first instance, any disagreement, argument, or dispute between the Parties regarding any aspect of this Agreement (including its interpretation) shall be tried to be settled amicably through the conciliation process; if that fails, the matter will be referred to arbitration. 

The court, after a reading of the aforementioned paragraph reveals that the High Court may hear a writ petition even in cases where there is a viable alternative remedy, where the writ petition aims to enforce a fundamental right, where natural justice principles are violated, where the contested orders or proceedings are completely without jurisdiction, or where the validity of an Act is being contested. It is well established that when there is a different, effective remedy available and when the parties have mutually agreed to arbitrate their dispute, courts acting under Article 226 of the Indian Constitution generally do not intervene. 

The Court believed that there were contested factual issues in the current case. The only way to establish the contested facts is for both parties to present oral and written evidence; an affidavit cannot be used as the sole means of establishing the facts. 

It was of the view of this Court that the Petitioner has failed to establish a prima facie case supporting its position. In any case, it is improper for this Court to grant a stay on the operation of the contested communication when it is not inclined to entertain the writ petition based on the facts of the case. Section 9 of the Arbitration and Conciliation Act gives the Court of Competent Jurisdiction the authority to decide the matter based on the merits of the case.  

Due to the aforementioned, the Court was hesitant to grant the writ petition, citing the petitioner’s access to an alternative effective remedy. 

 

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.” 

 

Judgment reviewed by Riddhi S Bhora. 

Click to view judgment.

1 2 3 5