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IN THE HIGH COURT OF DELHI AT NEW DELHI
Vibhu Bakhru, J.
M/s T.K.Engineering Consortium Pvt Ltd - Appellant
Versus
Director (projects) Rites Ltd & Anr - Respondent
Arb.P. No. 553 of 2020
Decided On : 08-03-2021
Arbitration - Road Construction - Companies Act, 1956 - Arbitration and Conciliation Act, 1996 - Clause 25 of the General Conditions of Contract - Summary of Acts and Sections: Companies Act, 1956; Arbitration and Conciliation Act, 1996 - The court discussed the interpretation of Clause 25 of the General Conditions of Contract, which embodies an arbitration agreement, and the impact of the Arbitration and Conciliation Act, 1996 on the appointment of arbitrators. The court held that the arbitration clause cannot be frustrated due to the inability of the Appointing Authority to appoint an arbitrator, and that the clause must be construed to sustain the arbitration agreement. The court also highlighted the legislative intent to encourage arbitration and the power of the court to appoint an independent arbitrator in certain circumstances.
Fact of the Case:
The petitioner, T.K. Engineering Consortium Pvt. Ltd. (TKE), filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the constitution of an arbitral tribunal to adjudicate disputes arising from a Contract Agreement for the 'Development of Integrated Check Post at Dawki (Meghalaya) along Indo-Bangladesh Border'. The disputes arose due to delays, objections from Border Guards of Bangladesh, and non-provision of necessary drawings and fronts by RITES Ltd. The High Court dismissed TKE's petition, and the Supreme Court advised TKE to avail alternative remedies by filing an arbitration petition or civil suit.
Finding of the Court:
The court found that TKE had invoked the arbitration clause, and RITES had not taken steps to constitute an arbitral tribunal. The court held that the arbitration clause cannot be frustrated due to the inability of the Appointing Authority to appoint an arbitrator, and that the clause must be construed to sustain the arbitration agreement. The court also noted the legislative intent to encourage arbitration and the power of the court to appoint an independent arbitrator in certain circumstances.
Issues: The issues involved the interpretation of Clause 25 of the General Conditions of Contract, the impact of the Arbitration and Conciliation Act, 1996 on the appointment of arbitrators, and the ability of the court to appoint an independent arbitrator in certain circumstances.
Ratio Decidendi: The court held that the arbitration clause cannot be frustrated due to the inability of the Appointing Authority to appoint an arbitrator, and that the clause must be construed to sustain the arbitration agreement. The court also noted the legislative intent to encourage arbitration and the power of the court to appoint an independent arbitrator in certain circumstances.
Final Decision: The court allowed the petition and proposed the appointment of Justice (Retd.) Pradeep Nandrajog as a Sole Arbitrator to adjudicate the disputes between the parties.
JUDGMENT
Vibhu Bakhru, J. - The petitioner, T.K. Engineering Consortium Pvt. Ltd. (hereafter 'TKE'), is a company incorporated under the Companies Act, 1956 and is engaged in providing Road Construction and other Engineering services.
2. Tke has filed the present petition under Section 11 of the Arbitration and Conciliation Act, 1996 (hereafter the 'A&C Act'), inter alia, praying that an arbitral tribunal be constituted to adjudicate disputes that have arisen between the parties in relation to the Contract Agreement dated 27.02.2017 for "Development of Integrated Check Post at Dawki (Meghalaya) along Indo-Bangladesh Border".
3. Rites Ltd. (hereafter 'RITES') had issued a Notice Inviting Tender (NIT) on 01.08.2016 for "Development of Integrated Check Post at Dawki (Meghalaya) along Indo-Bangladesh Border". TKE submitted its bid pursuant to the aforesaid tender. The same was accepted and, RITES issued a Letter of Award (LoA) dated 30.09.2016, on behalf of respondent no.3 (Land Ports Authority of India), awarding the contract to TKE. Thereafter, RITES also entered into the Contract Agreement dated 27.02.2017 (hereafter 'the Agreement').
4. Tke claims that the site in question was handed over on 18.11.2016. It immediately mobilized resources (men and machinery) and commenced excavation work. TKE claims that the execution of the works was hampered by RITES and/or for reasons attributable to it, resulting in TKE suffering losses to the extent of Rs.2,37,23,39,473/-. It also claims that the work was stopped by the Border Guards of Bangladesh (BGB) as it objected to any activity within forty metres of the International Border. In addition, the forest department also objected to setting up of the camp sites. There were also substantial delays on the part of RITES as it did not provide the necessary drawings and fronts within the stipulated time for carrying out the work.
5. On 07.01.2019, RITES issued a notice under Clause 3(ii) of the General Clauses of the Contract (GCC) of the Agreement, calling upon TKE to expedite the work failing which it would terminate the Agreement. TKE responded to the said notice by its letter dated 09.01.2019 pointing out the reasons for the delay in execution of the works.
6. Notwithstanding the above, RITES terminated the Agreement by a letter dated 17.01.2019. TKE challenged the termination letter dated 17.01.2019 before the High Court of Meghalaya by filing a petition under Article 226 of the Constitution of India, being W.P. (C) 10/2019: M/s T.K. Engineering Consortium Pvt. Ltd. v. The Union of India & Six Others. The said petition was dismissed by an order dated 09.09.2019. Aggrieved by the same, TKE filed a Special Leave Petition - SLP (Civil) No. 26816 of 2019 - in the Supreme Court of India. The Supreme Court, disposed of the said Special Leave Petition, by an order dated 22.11.2019 observing that "it would be appropriate for the petitioner to avail of the alternative remedy by filing arbitration petition or civil suit, as it may be advised". The Supreme Court also made it clear that the observations made by the High Court, while disposing of the Writ Petition, would not be taken into consideration by the arbitrator or the Civil Court, wherever the claims are filed.
7. On 07.12.2019, TKE requested the Engineer-In-Charge (EIC) to review the decision of terminating the Agreement and permit it to finish the work or in the alternative, compensate TKE for the damages incurred by it. The EIC rejected the said application by a letter dated 31.12.2019.
8. Tke sent a letter dated 08.01.2020, in terms of Clause 25(1) of the Agreement, appealing against the decision of the EIC. However, the Appellate Authority (that is, the Executive Director (B&A), RITES Ltd.) did not render a decision within a period of thirty days as contemplated under the Agreement.
9. Thereafter, by a notice dated 06.03.2020, TKE invoked the arbitration clause under the Agreement. It suggested names of three persons and, requested the Director (P
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