1. The applicant in both these applications i.e. M/s.PPS Enviro Power Private Limited (PPSE), represented by its Director filed arbitration applications under Section 11 (5) & (6) of the Arbitration and Conciliation Act, 1996 (for short, ‘the Act’) to appoint an Arbitrator, to adjudicate the claims & disputes between viz., M/s.Pantime Finance Company Private Limited, represented by its Company Secretary/Managing Director (respondent in Arb.Appl.No.142 of 2013) and M/s.Shri Mahavir Ferro Alloys Private Limited, represented by its Company Secretary/Managing Director (respondent in Arb.Appl.No.143 of 2013).
2. The subject matter in both cases pertain to setting up of a Solar Photo Voltaic Plant on turnkey basis i.e., design, engineering, procurement, supply, construction, fabrication, erection, installation, testing and commissioning of 1MWp crystalline silicon based solar photo voltaic power plant at Benta (NH-5), PO-Champagarh, via Tangi, Chandpur, Nayagarh District, Odisha and at Tankajoda village block, Lahunipada, Sundergarh District, Odisha, respectively. Since the nature of work and the agreements in question are also executed on the same dates with the respondents in both the cases by the applicant, they are taken up for hearing together and suffice it to advert to the facts in Arbitration Application No.142 of 2013.
3. The facts stated are:-the applicant-company is engaged in the business of renewable energy space with focus on creating and sustaining a balance portfolio of product, services and assets across wind and energy space since 2002. The respondent-company is a company incorporated under the Companies Act, 1956, engaged in business of renewable energy. In the month of September 2011, the respondent-company represented by its chief operating officer Mr. Sudhanshu Pati, and Mr. Vicky Jain were introduced to the applicant by Delta Energy Systems India Pvt. Ltd. (hereinafter referred to as “Delta”). Pursuant thereto, the respondent proposed setting up of a Solar Photo Voltaic Plant on turnkey basis. i.e., design, engineering, procurement, supply, construction, fabrication, erection, installation, testing and commissioning of 1MW Crystalline Silicon based Solar Photo Voltaic power plant at Benta (NH- 5), PO-Champagarh, Chandpur, Nayagarh District, Odisha. Subsequently, the parties entered into an Engineering, Procurement and Construction Agreement (“EPC Agreement”) on 08-11-2011. The applicant submits that it gave the quote on 27-09-2011 and in pursuance of the quote, the respondent issued 2 work orders (PTFCPL/11-12/Slr/8, dated 05-11-2011 and PTFCPL/11-12/6, dated 05-11-2011) and 1 purchase order (PTFCPL/11-12/7, dated 05-11-2011); executed on 22-11-2011. The applicant submits that Advance Bank Guarantees (ABG) for three months period for payment of mobilization advance of Rs.2.12 crores was furnished to the respondent. The respondent had paid only a sum of Rs.1.7 crore against the advance amount in parts during the contract period, and the balance amount was still not been paid to the applicant leaving a substantial balance towards mobilization advance. The applicant proceeded to mobilize materials, resources by ordering out material paying advances, opening letters of credit (LC), carrying on civil works at site, etc., the letter of credit of the applicant with its vendor Delta was encashed by Delta. That the respondent cited financial incapability and had requested the applicant to complete the project on time else this might cause irreparable loss to it and would result in loss of the generation based incentive announced by the Government of India through their Rooftop PV & Small Solar Power Generation Programme (RPSSGP). That the applicant completed the project and synchronized the same with the State utility grid facility though the respondent could not release the advance amounts, payments against Inland Letters of Credit despite several reminders by the applicant.
4. On 21-02-2012, when the Advance Bank Guarantees (ABG) expired, the respondent promptly wrote to the applicant’s bank asking for extension or invocation of the ABG in case extension was not provided. The applicant submits that the respondent besides having failed to pay the advance amount of Rs.2.12 crore also failed to pay the amounts i.e. 70% of the contract value, which were required to be released in favour of the applicant on pro-rata basis on delivery of equipments and progress of civil jobs. Under Clause 5.2 of the EPC Agreement an amount of Rs.7 crore was to be paid through Foreign Letter of Credit (FLC) by the respondent to the applicant within 15 days of notice to proceed and in case of delay beyond 15 days, the respondent had to issue inland letter of credit for the same value for smooth progress of the applicant’s obligations. Applicant though at the very beginning had expressed its apprehension as to the time required to process the Foreign Letter of Credit (FLC) and manage shipment of goods to India and instead suggested Inland LC with an USANCE period of 180 days be established, but the respondent did not respond. The applicant submits that the FLC never got issued by the respondent and that after much delay on 17- 01-2012, an Inland LC was established by the respondent for Rs.3 crores. However this was not accepted by any bank for discounting since the USANCE period mentioned therein was 1096 days. That the LC was amended on 31-01-2012 from 1096 days to 240 days and despite requests from the applicant to amend the Inland LC USANCE period to 180 days, the ILC was not amended. That respondent’s bank, Bank of Baroda, Parliament Street Branch, New Delhi on 02- 03-2012, returned LC with a note: i) non-IBA approved transport operator lorry receipt submitted; ii) lorry receipt not drawn on Bank of Baroda; & iii) applicant name differ in invoice and LC. The applicant submits that on 17-03-2012, the respondent sent a scanned cheque of Rs.62 lakhs dated 19-03-2013 through Delta to the applicant and thereafter the project was commissioned. Later, the respondent sought renewal/invocation of the ABGs on 21-02-2012, 22-03-2012, 03-04-2012, 02-05-2012, 02-06-2012, 02-07-2012, 30-07- 2012, 31-08-2012, 29-10-2012, 28-12-2012, 28-02-2013, 30- 04-2013, 29-06-2013, and stated that the bank guarantee was sought to be invoked on the ground “failure of the petitioner to perform the terms and conditions of the work order in spite of a lapse of more than one and half year”. However, when the applicant initiated the legal proceedings it was found out that Mr.Vicky Jain had ceased to be the director of the respondent company, but signed the cheque bearing No.656582 in the capacity of a director. The respondent without paying the amounts due to applicant, had encashed the Bank Guarantees for paying some statutory dues as if the funds under the ABGs are funds of the respondent. Hence, the arbitration clause in the purchase/work orders was invoked by the applicant. Applicant claims that as the project is functional, generating electricity and earning revenue for the respondent, the respondent has commenced commercial operation of the power plant on 16-03-2012 and is generating electricity. The respondent has started sale of the electricity to third party, but still withholding the payments of applicant. The applicant claims that the total outstanding amount to be paid to him by the respondent is Rs.16,49,57,441/- apart from statutory claims. On the respondent’s failure to pay the outstanding amount, the applicant got issued legal notice dated 19-09-2013 informing that he seeks to invoke Clause 9 of the purchase/work orders which provides for resolution of the disputes by way of Arbitration, and as there was no response from the respondent, hence, the applications are filed.
5. Counter affidavit is filed by the respondent denying the averments in the affidavit filed in support of the application stating that the EPC agreement dated 08-11- 2011, entered into between the parties signed at Bhubaneshwar, Odisha, does not contain any arbitration clause. It is stated that as no part of cause of action arose at Hyderabad, the Bhubaneshwar Courts have exclusive jurisdiction. The respondent states that the agreement dated 08-11-2011, was an independent one and the performance of mutual obligations was in pursuance of the agreement and not the work orders and the purchase order dated 05- 11-2011. That the manufacturer’s declaration by Delta, opening of Letter of Credit, bank guarantees furnished, invoices raised by the applicant, basis of disbursal of funds was solely based on EPC agreement dated 08-11-2011 and not the purchase/work orders. The respondent states that the applicant could not complete the project and failed to perform his part of the contract. The respondent contends that initially the suit was filed in Bhubaneshwar Court, but it was returned for filing in the proper Court having the pecuniary jurisdiction and despite a caveat having been filed by respondent at City Civil Court, Hyderabad, the petitioner filed the O.P. before the Court of Chief Judge, City Civil Court, and obtained ex-parte order. The respondent has preferred an appeal against the ex-parte order and this Court pleased to dispose of the appeal with a direction to the II Additional Chief Judge, City Civil Court to dispose of the O.P., within six weeks from the date of receipt of order. That this Court does not have the jurisdiction as there is no arbitration clause to be invoked in the EPC agreement dated 08-11-2011.
6. Reply affidavit to the counter is filed by the applicant refuting the averments made by the respondent. The applicant states that the work/purchase orders dated 05-11- 2011 are to be considered as those which were agreed to by both the parties consensus ad idem, on a later date. That the purchase/work orders dated 05-11-2011 are final orders as supplies and bank guarantees were made and furnished to the respondent in pursuance thereof.
7. Heard Sri Kishore Rai, learned counsel for the applicant and Sri J. Prabhakar, learned counsel for the respondent.
8. Learned counsel for the applicant submits that since the purchase/work orders dated 05-11-2011, contain arbitration clause, the present arbitration applications are liable to be allowed. He also submits that there is no novation of contract as alleged by the respondent. It is further contended that the EPC agreement dated 08-11-2011 does not contain any clause overriding the terms of the purchase/work orders. Learned counsel relied on the decisions in EMKAY GLOBAL FINANCIAL SERVICES LTD. vs. GIRDHAR SONDHI (AIR 2018 SC 3894)& INDUS MOBILE DISTRIBUTION PRIVATE LTD. vs. DATAWIND INNOVATIONS PRIVATE LTD. (2017 (7) SCC 678).
9. On the other hand, learned counsel for the respondent contends that the EPC agreement dated 08-11-2011 did not speak about any arbitration clause, the applicant cannot be permitted to exercise the arbitration option. It is further contended that cause of action had taken place in Bhubaneshwar, the Courts at Odisha would have the exclusive jurisdiction, therefore, the applications are liable to be dismissed. Learned counsel relied on the decisions in UNION OF INDIA vs. KISHORILAL GUPTA AND BROS (AIR 1959 SC 1362), M/s DADRI CEMENT COMPANY vs. M/s BIRD AND CO. PVT. LTD. (AIR 1974 DELHI 223), YOUNG ACHIEVERS vs. IMS LEARNING RESOURCES PRIVATE LTD. (2013 (10) SCC 535), PATEL ROADWAYS LIMITED, BOMBAY vs. TROPICAL AGRO SYSTEMS PVT. LTD. (1991 (4) SCC 270) & BRAHMANI RIVER PELLETS LIMITED vs. KAMACHI INDUSTRIES LIMITED (2019 SCC Online SC 929).
10. In this case, it is to be seen that in the EPC agreement dated 08-11-2011 there is no mention of arbitration clause or resolution of disputes by way of arbitration, but it was agreed to by the parties to submit themselves in case of any disputes to exclusive jurisdiction of Bhubaneswar Courts only. Clause 25 of the EPC agreement dated 08-11-2011, reads as follows:-
“This Order will be subject exclusively to the jurisdiction of Bhubaneswar Courts only”.
Unlike the EPC agreement dated 08-11-2011, the purchase/work orders dated 05-11-2011, state that exclusive jurisdiction lies with the Courts at Hyderabad. The purchase/work orders dated 05-11-2011, contain arbitration and the place of jurisdiction clauses, which reads as follows:-
“This work order is subject to exclusive jurisdiction of Hyderabad Courts. This purchase order is subject to Arbitration under the Indian Arbitration & Conciliation Act, 1996………Any claim for damages or unpaid payments that is available to you under law arising pursuant to this work order shall survive even in case of the termination of work order.”
11. As per Section 9 of the Code of Civil Procedure, 1908, all Courts have jurisdiction to try all suits of civil nature unless the jurisdiction is either expressly or impliedly barred. Section 20 of the CPC further lays down that a suit may be instituted either at the place where the defendant ordinarily resides or carries on business or where any part of the cause of action arises. Section 20 makes it clear that more than one Court can have the jurisdiction to try a suit. There may also be situations where the cause of action arises in multiple places over which different courts have jurisdiction. But, that difficulty does not arise here in this case. The clause in the purchase/work orders dated 05-11- 2011, clearly states that any claim for damages or unpaid payments arising out of the purchase/work orders, are to be referred for arbitration and the parties subject themselves to the exclusive jurisdiction at Hyderabad Courts only.
12. Both the EPC agreement dated 08-11-2011 and the purchase/work orders dated 05-11-2011 are operative and being acted upon by the parties. When two agreements entered into by the parties suggest different places of jurisdiction as the place of dispute resolution, the question as to which Court has the jurisdiction to decide the dispute between the parties can be determined with the help of Doctrine of harmonious construction. The jurisdiction clause, both in the agreement and the purchase/work orders are suggesting two different places one at Bhubaneswar Courts and another at Hyderabad Courts, and both are in existence and acted upon. While the EPC agreement dated 08-11- 2011 is referred for the issuance of bank guarantees, invoices, letter of credit, etc., the purchase/work orders are relied on to denote the period of completion of the main project. The purchase orders also contain the scope and value of the work, payment terms, etc. This clearly goes to show that both contracts were very much in existence and were acted upon by the parties and none of the parties deny their execution. It is the emphatic case of the applicant that the project in question has been completed in terms of the purchase/work orders dated 05-11-2011.
13. It is settled proposition of law that the rule of harmonious construction is to be adopted when there is apparent conflict between two provisions of a statute, nevertheless they should not be interpreted or construed in isolation but to be read as a whole, so as to remove any inconsistency or repugnancy, unless the contrary appears. This principle can as well be applied to interpretation of agreements also. The EPC agreement and the purchase/work orders are prevailing and are acted upon by the parties and as no overriding clause is present in the EPC agreement dated 08-11-2011, both can be read together. In agreement dated 08-11-2011, which is a subsequent agreement after the purchase/work orders are signed, no non-obstante clause is there i.e. to have an overriding effect on the other purchase/work orders dated 05-11-2011 nor is there a mention that the EPC agreement dated 08-11-2011 is a substitution of the purchase/work orders. Hence, applying the above doctrine, a harmonies reading of both the clauses in the agreement and the purchase/work orders, it can be concluded that both the Courts at Bhubaneshwar and Hyderabad have the jurisdiction to decide the subject matter of dispute, as the parties themselves agreed to for resolution of dispute, by way of arbitration, same is to be allowed to be invoked.
14. Now that the applicant approached this Court, this Court can decide whether the arbitration clause can be invoked as exists in the purchase/work orders. The arbitration clause in the purchase/work orders constituted agreement in terms of Section 7 of the Act, needs to be examined. Section 7 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 relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”
15. On reading of the above provision, it is understood that 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. Sub- Sections (2), (3) and (4) of Section 7 of the Act are relevant to the case. Sub-section (2) states that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement; and subsection (3) are self explanatory. Section 7 (4), clauses (a), (b) & (c) prescribes how a written agreement should be. A reading of clauses (a) to (c) it is clear that a document signed by the parties, an agreement by exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement have been held to be an agreement in writing. Under sub-Section (5) there is no prescription of form of agreement, but what is required is reference in a contract to a document of arbitration clause and the reference is such as to make that arbitration clause part of the contract. The most important ingredient to be present to constitute a valid arbitration agreement is consensus ad idem i.e. meeting of minds to the same thing in the same sense by the parties. The Arbitration and Conciliation Act does not specifically exclude any category of disputes as being not arbitrable. (see BOOZ ALLEN & HAMILITON INC vs. SBI HOME FINANCE LTD., (2011) 5 16 SCC 532). The Supreme Court in ENEROCON (INDIA) LTD. vs. ENERCON GMBH (2014 (5) SCC 1) held that the arbitration clause forming part of a contract shall be treated as an agreement independent of such a contract. The concept of separability of the arbitration clause/agreement from the underlying contract is a necessity to ensure that the intention of the parties to resolve the disputes by arbitration does not evaporate into thin air with every challenge to the legality, validity, finality or breach of the underlying contract.
16. The arbitration clause mentioned in the purchase/work orders is to be considered as valid for the reasons, firstly it was agreed upon by the parties for such a mode of resolution and secondly it was acted upon and works were executed on the basis thereof. The question whether the arbitration clause can be invoked by the applicant or not, can be answered on two counts viz., (i) as per Section 7 (2), an arbitration agreement is in the form of arbitration clause in the purchase/work order; and (ii) the dispute arose due to non-payment of the outstanding amounts, under the purchase orders, to the applicant by the respondent.
17. In the present case, the purchase/work orders fall under Section 7(2) and it is in writing as required under 7 (3) and complied the requirements 7 (4) of the Act. The purchase orders and the EPC agreement are inter-connected and the purpose is setting up of 1 MWp Solar Photo Voltaic Plant at Benta, Odisha, together by the parties. Hence, the arbitration clause in either one of the agreements/purchase orders can govern the remaining as well.
18. CHLORO CONTROLS INDIA (P) LTD. vs. SEVERN TRENT WATER PURIFICATION INC (2013 (1) SCC 641) is a case of invocation of Section 45 of the Act by a non-signatory/ third-party to arbitration agreement seeking reference to arbitration of disputes between signatory and non-signatories/third parties to arbitration agreement. The Supreme Court has discussed extensively the permissibility, principles and laid down in detail, the doctrines of “composite reference”, “composite performance” and “group of companies” and elucidated the exceptional conditions when composite reference can be made without prior consent of non-signatories/third parties and held that Court can refer disputes to arbitration existing between signatory or non-signatory parties if : (1) all ancillary agreements between them are relatable to principal agreement; and (2) performance of one agreement is so intrinsically interlinked with other agreements that they are incapable of being beneficially performed without performance of others or severed from the rest i.e. it is possible to invoke principle of “composite performance”.
19. AMEET LALCHAND SHAH vs. RISHABH ENTERPRISES (2018 (15) SCC 678) is a case where several agreements in regard to a connected project were executed. Some agreements had an arbitration clause; others did not. Some of the parties seeking for arbitration were not parties to any of the agreements. The Supreme Court having found that the agreements in question were interconnected, inasmuch as they were executed for the same project i.e. the commissioning of the Photovoltaic Solar Plant project, after perusing the clauses of different agreements, held that the equipment lease agreement was the principal/main agreement and the remaining three agreements were ancillary agreements. Even though the sale and purchase agreement between Rishabh Enterprises and M/s.Astonfield did not contain an arbitration clause, it was integrally connected with the commissioning of the solar plant. Further, all the agreements contained clauses referring to the main agreement. The Court having referred to the "facts and intentions of the parties" held that though there were different agreements, they were all for a single commercial project and any dispute arising therefrom could only be settled by referring all agreements together to arbitration.
20. The decision in KISHORILAL GUPTA (3 supra) is a case where there was substitution of the agreement and under those circumstances it was held that substituted agreement gave a new cause of action and obliterated, the earlier one and held there is novation as per Section 62 of 19 the Indian Contract Act. In the instant case there is no novation of the agreement though the EPC agreement is subsequent to the purchase/work orders. To attract the theory of novation, as per Section 62 of the Indian Contract Act, which reads as under:-
“Section 62. If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.”
there should total substitution of the earlier contract and its terms and all the terms of the earlier contract should perish with it. Hence, the decision in KISHORILAL GUPTA (3 supra) is distinguishable. The Division Bench decision of the Delhi High Court in DADRI CEMENT COMPANY (4 supra) is also not applicable to the facts of the case as that was a case which arose out of a contract of sale which consists of deed of guarantee, the deed of pledge and the irrevocable power of attorney and on account of substitution of the original c
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ontract, the arbitration clause in the original contract also held to have perished with it. To the same effect is the decision in YOUNG ACHIEVERS (5 supra). 21. In EMKAY GLOBAL FINANCIAL SERVICES LTD. (1 supra) the Hon’ble Supreme Court having referred to the ratio laid down in INDUS MOBILE DISTRIBUTION PRIVATE LTD. (2 supra) & BHARAT ALUMINIUM COMPANY vs. KAISER ALUMINIUM TECHNICAL SERVICES INC (2012 (9) SCC 552), at para 19 held as under:- “19……..Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to "seat" is a concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have jurisdiction----that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Sections 16 to 21 of CPC be attracted. In arbitration law however, as has been held above, the moment "seat" is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties…..” 22. Similar aspect was considered and referred to in BRAHMANI RIVER PELLETS LIMITED (7 supra). In the circumstances, the argument of the respondent’s counsel that no part of cause of action arose within the territorial jurisdiction of this Court for entertaining the application cannot be a ground for rejecting the instant applications. The decision in PATEL ROADWAYS LIMITED’s case (6 supra) has no application to the facts of the case as the lis in that case pertains to interpretation of provisions of C.P.C. without reference to the Arbitration Act, 1996. 23. In view of the above facts and circumstances, this Court is of the view that territorial jurisdiction conferred on this Court as per the purchase/work orders dated 05-11- 2011 does not stand excluded by EPC agreement dated 08- 11-2011 as such, this Court has territorial jurisdiction to entertain this application. In the circumstances, the Arbitration Application no.142 of 2013 is allowed, as a necessary corollary Arbitration Application No.143 of 2013 is also allowed since the subject matter of dispute and the facts being same, in terms and for the reasons stated therein. Sri Justice Dilip Babasaheb Bhosale, former Chief Justice, is nominated as Arbitrator to resolve the dispute between the parties, and to pass two awards separately in these two matters by taking them up simultaneously, in accordance with law. Miscellaneous applications if any pending in these arbitration applications shall stand disposed of. No order as to costs.