IN THE HIGH COURT OF JUDICATURE AT BOMBAY
G.S.Kulkarni, J.
Bsi-jdn Joint Venture – Appellant
Versus
Board Of Trustees Of Jawaharlal Nehru Port Trust – Respondent
Commercial Arbitration Application No. 140 of 2020 with Commercial Arbitration Application No. 1 of 2021 with Commercial Arbitration Application No. 2 of 2021 with Commercial Arbitration Application No. 3 of 2021
Decided On : 09-06-2022
ARBITRATION - APPOINTMENT OF ARBITRAL TRIBUNAL - FRAUD - NON-ARBITRABILITY - INVESTIGATION BY CVC AND CBI - CONTRACTUAL DISPUTE - ARBITRATION AGREEMENT - JURISDICTION OF COURT UNDER SECTION 11 OF THE ARBITRATION AND CONCILIATION ACT, 1996.
Fact of the Case:
The applicants, who were awarded a contract by the respondent for the deepening and widening of Mumbai Harbour Channel and JN Port Channel (Phase-II), filed four applications under Section 11 of the Arbitration and Conciliation Act, 1996 (the Act) seeking the appointment of an arbitral tribunal to adjudicate disputes and differences arising between the parties under the contract. The respondent opposed the applications on the ground that the disputes were non-arbitrable as they involved fraud, which was being investigated by the Central Vigilance Commission (CVC) and the Central Bureau of Investigation (CBI).
Finding of the Court:
The Court held that the mere allegation of fraud, based on the investigation being conducted by the CVC and the CBI, did not make the present case non-arbitrable. The Court observed that the nature of the fraud alleged by the respondent did not involve the contractual dispute between the parties, which was purely a civil dispute. The Court further held that the respondent, being a party to the contract, could not deny reference of the disputes to arbitration merely on the ground of the ongoing investigation. The Court also noted that the respondent had not raised any objection to the arbitration agreement or the invocation of the arbitration clause.
Issues: 1. Whether the disputes between the parties were non-arbitrable due to the alleged fraud being investigated by the CVC and the CBI? 2. Whether the respondent could deny reference of the disputes to arbitration based on the ongoing investigation?
Ratio Decidendi: 1. The Court held that the mere allegation of fraud, based on an ongoing investigation, did not make the present case non-arbitrable. The Court observed that the nature of the fraud alleged by the respondent did not involve the contractual dispute between the parties, which was purely a civil dispute. The Court further held that the respondent, being a party to the contract, could not deny reference of the disputes to arbitration merely on the ground of the ongoing investigation. 2. The Court held that the respondent, being a party to the contract, could not deny reference of the disputes to arbitration based on the ongoing investigation. The Court noted that the respondent had not raised any objection to the arbitration agreement or the invocation of the arbitration clause.
Final Decision: The Court allowed the applications and appointed an arbitral tribunal to adjudicate the disputes and differences between the parties.
JUDGMENT
1. These are four applications filed under Sec. 11 of the Arbitration and Conciliation Act, 1996 (for short 'the Act') whereby the applicants have prayed for appointment of an arbitral tribunal to adjudicate the disputes and differences which have arisen between the parties under the contract dtd. 28/4/2017 titled as "Deepening and Widening of Mumbai Harbour Channel and JN Port Channel (Phase-II)".
2. The contract in question in each of these petitions was awarded by the respondent to the applicant following the usual tender procedure a public body would follow. The applicants had mobilized and thereafter have performed and fully executed the contractual work which came to be completed in the month of February-March, 2019. Such completion is stated to be much before the prescribed time limit as set out and agreed between the parties. Under Clause 48.1 of the General Conditions of Contract, the contractor (petitioner no. 1) was required to issue a notice of completion and by following the procedure as agreed. A 'Taking Over Certificate (TOC)' was to be issued by the designated Engineer with the approval of the Respondent within 21 days from the notice of completion. It is the case of the applicants that accordingly a completion notice under such clause was issued by the applicant when the Engineer had recorded and certified the invoices of the applicant. It is however the case of the applicant that in respect of certain invoices, the respondent has withheld the approval of the Engineer, and a TOC to be issued. According to the applicants, the respondent was in breach of its contractual obligations.
3. The applicants contend that consequently the applicants requested the respondent to issue a TOC. The respondent by its letter dtd. 15/3/2019 addressed to the applicant recorded that issuance of TOC is under its examination, for ascertaining compliances in accordance with the contract. There was correspondence between the parties on such issues and ultimately on 25/3/2019 the Engineer issued Interim Payment Certificate (IPC) for payments amounting to Rs.100.72 crores by the respondent to the applicant. Such payment, as per the contractual terms, was required to be made within 21 days of the such certificate being issued by the Engineer. However, the same was not issued. The applicants contend that correspondence ensued between the parties on the amounts due and payable to the applicants. The applicants contend that the disputes between the parties have arisen in relation to non-payment of Interim Payment Certificate Nos.12, 13, 14; for failure to accord approval to the Engineer for issuance of Taking Over Certificate (TOC); for direct losses and the Claims JNPT01 to JNPT08.
4. The case of the applicants is that a pre-arbitral mechanism namely that the applicants being required to approach the engineer, was duly satisfied. The applicants state that the engineer has already undertaken certification of the amounts payable as noted above. Thus, according to the applicants, disputes and differences have arisen between the parties under the said agreement dtd. 28/4/2017. The applicants contend that despite a request being made by the applicants for referring the disputes for adjudication by appointing an arbitral tribunal, such request was not accepted by the respondent. In such context, the Court's attention is drawn to the letter dtd. 20/11/2019 in regard to the certification of the claim of the applicants by the engineer and the invocation notice dtd. 5/12/2019. The applicants have set out details of 26 letters as addressed by the applicants to the respondent pointing out the entitlement of the applicant to receive the amounts due and payable by the respondents. The applicants contend that despite such correspondence on the issue, the requests as made by the applicants for reference of the disputes to arbitration was not accepted by the respondent.
5. It is contended by the applicant that the respondent in reply to the applica
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The court affirmed that allegations of fraud do not negate an arbitration agreement unless they are serious and complex, allowing the tribunal to rule on its own jurisdiction.
The court affirmed that objections regarding non-arbitrability of disputes are not to be considered at the pre-referral stage under Section 11(6) of the Arbitration and Conciliation Act, 1996.
The main legal point established in the judgment is that the existence of an arbitration agreement can be inferred through a series of correspondence or on the demur of one of the parties to an arbit....
The scope of enquiry under Section 11 of the Arbitration and Conciliation Act, 1996, is restricted to the examination of the existence of the arbitration agreement. The burden lies on the party resis....
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