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IN THE HIGH COURT OF DELHI
RAJIV SHAKDHER, J.
Indeen Bio Power Limited - Appellant
Versus
M/s. EFS Facilities Service (India) Pvt. Ltd. - Respondent
ARB.A. (COMM.) No. 39 of 2016 & I.A. No. 14153 of 2016
Decided On : 24-07-2019
Whether an arbitration agreement existed between the parties was the central issue in this appeal against an arbitral tribunal's order holding it lacked jurisdiction to adjudicate a dispute. The court found that the parties had agreed to fundamental terms in their contract, giving rise to an enforceable obligation, despite the absence of a formal execution of the contract agreements. The court held that the issuance of a notice to proceed was not a condition precedent to the effectiveness of the contract agreements and that the arbitration clause in the duly executed synchronization and coordination agreement survived despite the non-issuance of the notice to proceed. The court allowed the appeal, set aside the impugned order, and directed the parties to approach the arbitral tribunal for an early date to proceed with the matter.
Fact of the Case:
The appellant, Indeen Bio Power Ltd. (Indeen), entered into a project development agreement (PDA) with Dalkia India Pvt. Ltd. (DIPL) to set up an 8MW mustard residue biomass plant. DIPL was a member of the Veolia Environment Group and a wholly-owned subsidiary of Dalkia International S.A. (DIS). The PDA envisaged the preparation of an EPC agreement, O&M agreement, and a final business plan. Indeen agreed to procure and DIPL agreed to provide services for the project. DIPL executed a confidential annexure to be appended to the supply contract, detailing the terms and conditions for supplying equipment. DIPL wrote to Indeen, communicating that since they were in the process of finalizing negotiations for the EPC agreement, they would shortly be filling out the synchronization and coordination agreement (SCA), which would entail the execution of three separate agreements covering DIPL's activities vis-à-vis the project. Indeen accepted the terms and conditions contained in the letter. Subsequently, DIPL and Indeen executed the SCA, which made provision for the fact that Indeen and DIPL would be entering into Contract Agreements comprising three separate agreements for supply of equipment, provision of services, and execution of civil works. The SCA also incorporated an arbitration agreement. DIS sold its equity stake in DIPL to EFS Facilities Services Mauritius Ltd. (EFS), without Indeen's prior consent. Indeen construed this action as an act of renunciation and triggered the arbitration agreement. DIPL replied, asserting that the PDA had expired and that the SCA had not become effective as the Contract Agreements had not been executed. The arbitral tribunal held that it lacked jurisdiction to adjudicate the dispute, as the NTP under the Contract Agreements had not been issued. Indeen appealed the order.
Finding of the Court:
The court found that the parties had agreed to fundamental terms in their contract, giving rise to an enforceable obligation, despite the absence of a formal execution of the contract agreements. The court held that the issuance of a notice to proceed was not a condition precedent to the effectiveness of the contract agreements and that the arbitration clause in the duly executed synchronization and coordination agreement survived despite the non-issuance of the notice to proceed.
Issues: 1. Whether an arbitration agreement existed between the parties. 2. Whether the issuance of a notice to proceed was a condition precedent to the effectiveness of the contract agreements. 3. Whether the arbitration clause in the synchronization and coordination agreement survived despite the non-issuance of the notice to proceed.
Ratio Decidendi: 1. The court applied the principle that the execution of a further contract is not a condition or term of the bargain if it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. The court found that the parties had agreed to fundamental terms in their contract, giving rise to an enforceable obligation, despite the absence of a formal execution of the contract agreements. 2. The court interpreted the relevant clauses in the contract agreements and found that the issuance of a notice to proceed was not a condition precedent to the effectiveness of the contract agreements. 3. The court held that the arbitration clause in the duly executed synchronization and coordination agreement survived despite the non-issuance of the notice to proceed, as the SCA was not a document obtained by fraud, duress, undue influence, or illegally, and the arbitration clause was an integral part of the SCA.
Final Decision: The court allowed the appeal, set aside the impugned order, and directed the parties to approach the arbitral tribunal for an early date to proceed with the matter.
JUDGMENT :
Preface
1. This appeal preferred under section 37 the Arbitration and Conciliation Act, 1996 (in short 1996 Act') is directed against the order dated 15.09.2016, passed by the arbitral tribunal. The arbitral tribunal via the impugned order has held for the reasons given therein that it has no jurisdiction to adjudicate the disputes obtaining between the parties.
2. It would be relevant to note that the constitution of the arbitral tribunal was brought about by a petition moved under Section 11 of the 1996 Act by the appellant i.e. Indeen Bio Power Ltd. (hereafter referred to as 'Indeen').
2.1. This petition was numbered as Arb.P. No.184/2012 and disposed of by this Court on 21.01.2013. The Court, however, appointed a sole arbitrator as against an arbitral tribunal consisting of three (3) arbitrators as provided in the arbitration agreement, which stood incorporated in Clause 13.2 of the Synchronization and Co-ordination Agreement (in short ‘SCA’). The learned judge was persuaded to appoint a sole arbitrator for the following reasons. First, there was no procedure prescribed for the constitution of the arbitral tribunal. Second, the appointment of a sole arbitrator would result in saving costs and time.
2.2. A direction was issued that the arbitral tribunal so constituted would adjudicate upon the claims and counterclaims of parties and also consider objections of the then avatar of the respondent i.e. Dalkia India Pvt. Ltd. (hereafter referred to as 'DIPL'), with regard to the existence of arbitration agreement as and when they are raised.
3. Importantly, even prior to this court passing the order dated 21.01.2013, via a Share Purchase Agreement dated 29.03.2012 (in short 'SPA'), the holding company of DIPL i.e. Dalkia International S.A. (in short ‘DIS’) (which held nearly 100 percent shares in DIPL) sold its equity to EFS Facilities Services Mauritius Ltd. EFS Facilities Services Mauritius Ltd. had the name of DIPL changed to EFS Facilities Services (India) Pvt. Ltd. (hereafter referred to as 'EFS'). EFS, as is seen from the cause title, is arrayed as the respondent before this Court.
4. Pertinently, in consonance with the observations made in the order dated 21.01.2013, EFS applied under Section 16 of the 1996 Act, on 05.04.2013. The arbitral tribunal after allowing Indeen to file a reply, which it did on 10.05.2013, disposed of the Section 16 application based on an agreed order dated 09.07.2013.
4.1. The learned arbitrator in his order of 09.07.2013 indicated that the issue raised in the Section 16 application would be disposed of as the "first issue", albeit, as part of the final award. Via the very same order, a time schedule was fixed for completion of the pleadings.
4.2. It is after pleadings were complete and oral evidence had been led by parties that the arbitral tribunal, as indicated in the order dated 09.07.2013, ruled on the preliminary issue framed, which is, whether an arbitration agreement existed between the parties?
5. Since the arbitral tribunal has ruled that an arbitration agreement does not exist between the parties, for the reasons given in the impugned order and, therefore, it does not have jurisdiction to decide the disputes obtaining between the parties on merits, Indeen has chosen to prefer this appeal, as indicated above, under Section 37 of the 1996 Act.
6. I may also indicate that before this court EFS had taken a preliminary objection as regards the maintainability of the instant appeal. It was the stand of EFS that the impugned order was an award and, hence, could be challenged only by way of a petition under Section 34 of the 1996 Act. The order on the preliminary objection raised by EFS was reserved by the coordinate bench on 17.08.2017. The coordinate bench via an order dated 26.04.2018 rejected the objection raised by EFS. This order, it appears, has not been assailed by EFS.
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