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IN THE HIGH COURT OF CALCUTTA
I.P. Mukerji, J.
Consulting Engineering Services [I] Pvt. Ltd. - Petitioner
Versus
Government Of West Bengal - Respondent
GA No. 3753, 3483 of 2013 and CS No. 403 of 2013
Decided on : 30-4-2014
ARBITRATION - STAY OF SUIT - SECTION 8 ARBITRATION AND CONCILIATION ACT, 1996 - VALID ARBITRATION AGREEMENT - INTERPRETATION OF CLAUSE 10 OF THE AGREEMENT - RESOLUTION OF DISPUTES - AMICABLE SETTLEMENT - DISPUTE RESOLUTION BOARD - FORMAL ARBITRATION - COURT'S POWER TO REFER PARTIES TO ARBITRATION - CONDITIONS PRECEDENT - BREACH OF OBLIGATIONS BY STATE - SCOPE AND INTENT OF SECTION 8 - PROCEDURE FOR RESOLUTION OF DISPUTES - BANK GUARANTEE - INVOCATION.
Fact of the Case:
The State of West Bengal, the defendant in a suit, filed an application under Section 8 of the Arbitration & Conciliation Act, 1996, seeking to refer the dispute to arbitration as per Clause 10 of the agreement between the parties. The plaintiff, PMSP, opposed the application, arguing that the State had breached the agreement by threatening to invoke the bank guarantee without providing an opportunity for amicable settlement or referring the matter to the Dispute Resolution Board (DRB) as per Clause 10.
Finding of the Court:
The court interpreted Clause 10 of the agreement and held that it provided a clear and certain mechanism for resolution of disputes, including amicable settlement, conciliation by the DRB, and formal arbitration if a party was aggrieved by the DRB's decision. The court found that the use of the word "may" in the clause did not render it an agreement to agree but rather gave the aggrieved party an option to seek arbitration.
Issues: 1. Whether the arbitration clause in Clause 10 of the agreement was valid, clear, and certain. 2. Whether the State's threat to invoke the bank guarantee without following the dispute resolution procedure in Clause 10 constituted a breach of the agreement. 3. Whether the court could refer the parties to arbitration despite the State's breach of the agreement.
Ratio Decidendi: 1. The court held that the arbitration clause in Clause 10 was valid, clear, and certain, as it provided a definite mechanism for resolution of disputes, including amicable settlement, conciliation by the DRB, and formal arbitration. 2. The court found that the State's threat to invoke the bank guarantee without following the dispute resolution procedure in Clause 10 constituted a breach of the agreement. 3. The court held that the intention of Section 8 of the Arbitration and Conciliation Act, 1996 was to refer parties to arbitration, but in this case, due to the special Clause 10, the parties could not be immediately referred to arbitration. However, the court interpreted the scope and intent of the provision to mean that the parties should be referred to the procedure of negotiation, settlement, etc. agreed upon by them, which may ultimately result in arbitration.
Final Decision: The court disposed of the application under Section 8 by giving the plaintiff an option to signify their intention to settle the disputes under Clause 10(a) by 30th May 2014. The court also directed that the State should not invoke the bank guarantee till 31st October 2014 or until further orders, whichever was earlier, provided the plaintiff kept the bank guarantee suitably renewed. The court granted liberty to the defendant to take out another Section 8 application upon its compliance with sub-clauses (a) and (b) of Clause 10.
I.P. Mukerji, J.
The Court: This is an application under Section 8 of the Arbitration & Conciliation Act, 1996. It is taken out by the State of West Bengal, the defendant in the suit.
2. Mr. Samrat Sen, learned Advocate appearing for them relies on clause 10 of the agreement between the parties regarding resolution of disputes. This clause is inserted hereunder:
"10.0 Resolution of Disputes
a. Both the GoWB and the PMSP will try to amicably settle disputes by direct negotiation.
b. If no settlement could be reached within a time frame as may be specified, either of the Parties may refer the matter to a Dispute Resolution Board (DRB) to be constituted by the GoWB comprising a panel of eminent engineers experts / retired judges, who will act as reconcilliator and communicate their decision upon hearing both the parties, within a specified time limit, which shall be binding on both the parties.
c. However, any of the parties aggrieved with such decision, may seek formal arbitration. In accordance with provisions of `Arbitration and Conciliation Act, 1996'. The arbitrator, while hearing the case, shall give due cognizance to the views expressed by the DRB."
3. He submits that there is an arbitration clause and by its operation the parties should be referred to arbitration.
4. Mr. S. N. Mitra, learned Senior Advocate for the plaintiff takes the following points:
5. He argues that the State threatened to invoke the bank guarantee for Rs. 7.5 crores, all of a sudden. No opportunity was given to his client to "amicably settle" the dispute by negotiation as provided in clause 10(a). Furthermore, no Dispute Resolution Board (DRB) was constituted by the State to go into the matter, in case of failure of settlement. Hence the question of the arbitration clause coming into force does not arise.
6. First, he cites N. Radhakrishnan v. Maestro Engineers And Others, reported in (2010) 1 SCC 2. He refers to paragraphs 21 and 22 of the judgment. He says that in this case serious allegations of fraud are involved with regard to invocation of the bank guarantee. The Hon'ble Supreme Court, in the said decision held that in cases where fraud was alleged the matter was to be adjudicated by the court.
7. He attacks the word "may" in sub-clause (c) of clause 10. He argues that by this clause the agreement could be construed to be an agreement to agree on arbitration. Either party was given an option to seek arbitration. In other words, the clause is not mandatory. He cites Jyoti Brothers v. Shree Durga Mining Co., reported in AIR 1956 Cal 280, M/s. B. Gopal Das, Bombay And Others v. M/s. Kota Straw Board (P) Ltd., Kota, reported in AIR 1971 Rajasthan 258, Gajulapalli Chenchu Reddy v. Koyyana Jaya Lakshmi, reported in 2009 4 Arbitration Law Reporter 119 (paragraphs 2, 12 and 13) and Sara International Ltd. v. Golden Agri International Pte. Ltd. And Anr., reported in 2010 3 Arbitration Law Reporter page 29.
8. I will discuss these cases later on in this judgment.
9. Mr. Sen on reply says that clause 10 has to be read as a whole. Resolution of disputes is contemplated, in stages. Any party aggrieved by the decision of the Board has to take recourse to arbitration.
10. He also argues that this is an ordinary case involving usual allegations of fraud and special equity with regard to invocation of a bank guarantee. In such matters the Court should not decline to refer the dispute to arbitration. He points out that in the 2010 decision of the Supreme Court reference is made to an older decision of that Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, reported in AIR 1962 SC 406 wherein it was said that allegations of fraud had to be very serious and the party charged with it could approach the Court to try the dispute itself.
11. To this Mr. Mitra retorts that the later decision of the Supreme Court does not make any exception with regard to the party who could resist arbitration.
12. Let me first interpret clause 10 of the agreement between the par
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