1. This Arbitration Application is filed under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (for short, ‘the Act’) seeking appointment of an Arbitrator to adjudicate disputes between the applicant and the respondents (2nd respondent-M/s.Simhapuri Energy Limited and 1st respondent being its managing director, for short, “the respondent”) in connection with the works executed by the applicant in pursuance of the contract agreement dated 15-09- 2014 between the parties.
2. Facts stated briefly are:-the applicant in pursuance of the contract agreement dated 15-09-2014 agreed to maintain the operations and maintenance of the Power Plant (BTG) and Balance of Plant (BOP) and need based breakdown maintenance as per annexure-3 of the 4 x 150 MW (Phase-I & II) coal based Thermal Power plant site in Tamminipatnam village, Chillakur mandal, SPSR Nellore district, Andhra Pradesh. The agreed value of the said contract work was Rs.1,45,00,050/- for a total manpower requirement of 375 nos. However, nine months after the execution of the contract agreement, on mutual consent of the parties, the value of the contract work was reduced to Rs.1,39,08,180/- for a total manpower requirement of 329 nos. by way of an amended agreement dated 09–06–2015. That thereafter, the applicant has successfully accomplished the work to the satisfaction of the respondent. The applicant has completed the work in terms of the agreements to the satisfaction of respondent, but the respondent failed to fulfill their part of the contractual obligation in paying the amounts of Rs.5,11,77,301/- which now with interest aggregated to Rs.6,75,54,037/-. Several requests made by the applicant for payment of amounts did not yield any result, the applicant got issued legal notice dated 06–09–2018 requiring the respondent to pay the amounts within a week. The respondent got issued reply notice dated 20–09–2018 and advised the applicant to reconcile the claims comprehensively by submitting relevant documents in order to settle the claim once for all. The applicant got issued re-joinder dated 08- 10-2018, wherein it was stated that the respondent having issued certificate of satisfactory completion of work, cannot withhold the amounts and the amounts as mentioned in the legal notice dated 06-09-2018 be paid to him. Thereafter, as nothing happened in the matter, the applicant filed the present arbitration application.
3. After filing the arbitration application by the applicant, the respondent addressed a letter dated 07–08-2019 to the applicant highlighting that the applicant has not followed the procedure enshrined in the contract agreement which is a condition precedent before resorting to arbitration proceedings and the applicant was once again requested to come and reconcile all the claims comprehensively. The applicant also addressed reply letter to the respondent vide letter dated 04-09-2019 informing him that amounts due payable to it are not paid and the respondent has not shown any interest in its true sense in resolving the disputes amicably.
4. Heard Sri Tangeda Dayananda Rao, learned counsel for the applicant and Sri Challa Gunaranjan, learned counsel for the respondent.
5. The contention of the learned counsel for the applicant is two fold. Firstly, it is submitted that in spite of issuance of certificate of satisfactory completion of work, there was no reason for the respondent to withhold the amounts due and payable to the applicant. Secondly, it is contended that issuance of legal notice dated 06-09-2018 itself is deemed to be the notice of intimation of initiation of arbitration proceedings as in the said notice it was specifically stated that in case the amounts remain unpaid for a week, the applicant will be left with no option except to seek legal redressal in a Court of law and that is sufficient invocation of arbitration clause mentioned under Clause 26 of the contract agreement, dated 15–09–2014 and compliance of Section 21 of the Act. Decisions in RIICO LTD. vs. MANOJ AJMERA (RLW 2008 (1) Raj 473) & BADRI SINGH VINIMAY PVT. LTD. vs. MMTC LTD (In OMP No.225 of 2015 Delhi High) are relied on in support of his contentions.
6. Per contra, learned counsel for the respondent contended that the applicant has not expressed his intention to invoke the arbitration clause to resolve the dispute by way of arbitration in the legal notice dated 06–09–2018 and it is not sufficient compliance of Section 21 of the Act, which is mandatory and; even otherwise the procedure of in-house mechanism to resolve the dispute with the managing director of the Company has not been resorted to by the applicant, this arbitration application is pre-mature and, therefore, the relief sought in this application cannot be granted. Decision in ALUPRO BUILDINGS SYSTEMS PVT. LTD. vs. OZONE OVERSEAS PVT. LTD (2017 SCC OnLine Del. 7228)is relied on.
7. The parties are not disputing the presence of an arbitration clause in the contract agreement dated 15– 09–2014 under Clause 26, which is as follows:-
Both the parties to this agreement agree that in the event of any disputes and/or differences of claims between the parties arising out of or in connection with or incidental to this agreement or construction or interpretation of any of the clauses hereof or anything done pursuant hereto or any matter or thing of whatsoever nature arising under this Agreement, then such disputes or differences shall be referred in the first instance to the Managing Director of the COMPANY and even then such disputes or differences are not resolved then the same shall be referred for adjudication by a sole arbitrator, to be appointed as agreed to mutually by both the parties to this agreement within the meaning of the Indian Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force. The award of the sole arbitrator shall be final and binding on both the parties. The language of the arbitration proceedings shall be in English and the venue of arbitration shall be at Hyderabad. Pending resolution of the disputed matter, the parties will continue performance of the respective obligations pursuant to this Agreement.”
8. It is the case of the applicant that on completion of the work under the contract agreement, a certificate has been issued by the Company of the respondent admitting the satisfactory completion of the works, and such a certificate was given on the day when the appellant had withdrawn its men and machinery from the site of the respondent Company, which is not denied by the respondent.
9. Clause 10 (i) of the contract agreement stipulates that the Company of the respondent shall after verification of the invoice amounts make payment of the same within 30 days to the applicant and under sub-clause (b) of Clause 10, such payment shall be 100% along with amounts towards applicable taxes and duties. It has come on record that the applicant has made several requests to the respondent and having failed to get any response, issued legal notice dated 06–09–2018 wherein the applicant though not specifically expressed his intention to initiate arbitration proceedings by mentioning the relevant arbitration clause (Clause 26), in the event the respondent failed to pay the amounts as specified therein, it was clarified to the respondent that if the amount was not received within a week thereafter, he would be left with no other option except to seek legal redressal from the Court of law.
10. It is seen that before resorting to the mode of arbitration, as mentioned in arbitration Clause 26 of the contract agreement itself, at first instance, the disputes and differences shall be referred to the managing director of the Company. The managing director of the Company is the respondent himself. The claim for payment of amounts for the satisfactory work done by the applicant, raised by way issuance of a legal notice dated 06-09-2018 itself is a dispute raised by the applicant in connection with the contract agreement. There is no material placed on record to show that any endeavour made by the respondent in the capacity of a managing director to settle the claim in-spite of legal notice dated 06-09-2018, rejoinder to the reply notice dated 08-10-2018 which is evident from the letter dated 04-09-2019 which is addressed by the applicant post institution of the arbitration application, except issuing reply letters to the applicant to come for an amicable settlement. To show its bona-fides, the respondent in the capacity of a managing director did not make it clear from its end to what amounts the applicant is entitled after completion of work and after issuance of certificate to that effect. Therefore, the in-house mechanism as provided in the arbitration clause failed and could not work out on the violation on the part of the respondent, more so in the light of Clause 10 of the contract agreement, which required to make 100% payment of the invoice amount subject to verification. It is not the case of the respondent that claim made by the applicant has been examined and either accepted or rejected for the reasons stated by it. In this fact situations, the said requirement of referring the matter to the managing director is deemed to be complied with by applicant which is evident from the various letters addressed by him, copies thereof are filed as additional material papers along with this arbitration application.
11.In RIICO LTD. case (1 supra), relied on by the learned counsel for the applicant, at para 9 of the order, it was recorded as under:-
“…In the concluding part of the notice as extracted above, it was clearly stated that the Contractor demand justice from RIICO and request for totally reviewing the contract in its final determination, by paying them all their claim amount so as to end up without any contractual disputes and differences in it. It was further stated that in the event of their non discharge of the contractor's legitimate claim in 30 days of receipt of the notice, they shall be compelled to knock the doors of justice in obtaining it, for which the first available legal remedy to the Contractor would be to seek Arbitration to which contractor was contractually entitled under Clause 23 of the agreement. Even if the notice did not directly ask for making a reference to the Arbitration, none-the-less it did make the intention of the Contractor full well known that he specifically demanded the payment of the claimed amount and failing which, he expressed his intention to seek Arbitration for which, it was stated, that he was contractually entitled for in terms of Clause 23 of the agreement. In my considered opinion, the intention expressed therein fulfilled the requirement of proviso to Clause 23.”
12. Strictly speaking this decision relied on by the learned counsel is not applicable to the facts of the present case as in the above case as specific plea was taken in the legal notice that Contractor would take the first available legal remedy to seek Arbitration to which he was contractually entitled under Clause 23 of the agreement, there is a clear intention expressed to opt for Arbitration under Clause 23 for resolution of the dispute.
13. In BADRI SINGH VINIMAY PVT. LTD. case (2 supra), the Delhi High Court relying on the decisions in RIICO LTD. (1 supra) and ALUPRO BUILDIGNS SYSTEMS PVT. LTD. (3 supra) at para 13 observed as follows:-
“13. On the merits of the petitioner's submissions, having regard to the aforesaid correspondence, I am of the view that the petitioner's contention on the basis of Section 21 of the Act is wholly unmerited. The provision requires a party to send a request to the counter-party for the dispute to be referred to arbitration. The respondent's communication dated 14.12.2012 meets that requirement. The facts leading to the dispute, and the nature of the respondent's claim were made sufficiently clear in that letter. The respondent also stated that legal recourse would be taken by the respondent if its claim was not satisfied. The initiation of arbitration proceedings in such a situation was expressly contemplated. The petitioner's response of 11.01.2013 extracted above deals with the respondent's claim on merits and, in fact, raises a claim on behalf of the petitioner itself, along with a threat of legal action.”
14. The facts of the case in BADRI SINGH VINIMAY PVT. LTD. are not similar to the facts of the instant case. The legal notice dated 06- 09-2018 got issued by the applicant, at relevant portion it was said as under:-
“Hence, we hereby inform you to pay Rs.5,11,77301/- as specified in the annexure attached to this legal notice with interest @ 12% p.a. from the dates of their due to our client with in a week from the date of receipt of this legal notice, else out client is left with no other option except to seek the legal redressal in Court of law at your costs including the cost of this legal notice Rs.10,000/-“
15.In the legal notice got issued on behalf of the applicant, it was stated that if the payment is not made within a week, the applicant would be constrained to take recourse to legal proceedings. Nonmention of expression of intention to invoke arbitration clause in the contract agreement and pointing out to the relevant clause in the legal notice issued for settlement of the entire claim, the words used in the said notice, i.e. “recourse to legal proceedings” cannot be construed to be the notice of intention of the applicant to initiate arbitration proceedings under Section 21 of the Act.
16.The ratio in ALUPRO BUILDINGS SYSTEMS PVT. LTD. (3 supra) rendered by the Delhi High Court, relied upon by the respondent’s counsel, is consonance with the language of Section 21 of the Act. Issuance of notice under Section 21 of the Act is mandatory in nature and cannot be dispensed with as it forms the preceding act in commencement and reference of disputes between the parties. There is no dispute with the proposition that purpose of notice under Section 21 apart from other purposes, determines the limitation and a party cannot straight away file a claim before the arbitrator without issuing the notice under the said provision. The decision in ALUPRO BUILDINGS SYSTEMS PVT. LTD. (3 supra) is distinguishable on facts as in that case there was no legal notice issued to the respondent and the claim was filed before an arbitrator without issue of notice. Here in this case, the respondent in his reply notice dated 20-09-2018 while advising the applicant to reconcile the claims expressed its intention to initiate the arbitration proceedings. The particular portion of the said reply notice reads as under:-
“Hence, it is requested to advise your client to come and reconcile all the claims comprehensively by submitting relevant information and documents, in order to settle the same once (one) for all.
In the event, your clients wants to proceed with the notice, the present reply of SEL shall be treated as notice of initiation of dispute resolution process under Clauses of the Agreement/s i.e. Arbitration proceedings under the Indian Arbitration and Conciliation Act, 1996 and in such an even your client is liable and responsible for all the costs and consequences thereon.”
17.Section 21 of the Act reads as under:-
“21. Commencement of arbitral proceedings—Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
18.Either of the parties to the agreement can invoke the arbitration proceedings by issuance of notice under Section 21 of the Act who have a claim one against the other or against each other. The respondent in his reply notice stated that if the applicant wants to proceed with the notice, his reply be treated as notice of initiation of dispute
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resolution process under the relevant clauses of the Agreements which goes to show that the respondent has accepted the notice and expressed his consent to proceed with further to take on the arbitration proceedings. 19.In M/S.MAYAVATI TRADING PVT. LTD. vs. PRADYUAT DEB BARMAN (2019 (8) SCC 714) a 3-Judge bench of the Hon’ble Supreme Court held that Court’s power in an Application under Section 11 is confined only to the examination of the existence of a valid arbitration agreement and the Court cannot decide on the arbitrability of a dispute which ingredient is present in the case. In ORIENTAL INSURANCE COMPNAY LIMITED vs. DICITEX FURNISHING LIMTED, (2019(16) SCALE 242) the Supreme Court observed that when once the Court is satisfied with the existence of arbitrable dispute, in respect to other contentious pleas, it cannot be too particular about the nature of the plea, which necessarily has to be made and established in the substantive proceeding. It was further held that if the Court were to take a contrary approach and minutely examine the plea and judge the credibility or reasonableness of the pleas, there would be a danger of its denying a forum to the applicant, as rejection of the application would render the finding final, thus, precluding the applicant of its right to approach a civil Court. 20. In the light of the above facts and circumstances of the case there exits an arbitral dispute which is to be resolved as per the terms of the contract agreement by way of arbitration. 21. In view of the same, the arbitration application is allowed nominating Sri Justice R. Kantha Rao, former Judge of the High Court, as sole Arbitrator for resolution of disputes between the parties. Miscellaneous petitions, if any, pending shall stand closed.