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IN THE HIGH COURT OF DELHI
V. Kameswar Rao, J.
L&T Hydrocarbon Engineering Limted - Appellant
Versus
Indian Oil Corporation Limited - Respondent
Arb.P. 362 of 2019
Decided On : 31-10-2022




The court determined an arbitrator's jurisdiction depends on claims being notified by the General Manager; failure to do so limits arbitration eligibility.

Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 11(5), (6) and (8) - Dispute arises concerning both the notification of claims by the parties and the procedure for appointing an arbitrator; the petitioner requests appointment of a sole arbitrator due to the respondent's refusal to engage in arbitration properly. (Paras 1, 3, 12, 19, 76)

(B) Lawful Interpretation of Arbitration Agreement - The terms of arbitration agreement under Clause 9.0.2 clearly outline the authority of the General Manager in determining notified claims and that without such determination, claims cannot proceed to arbitration. (Paras 13, 73)

(C) Waiver of Arbitration Rights - Delay by the General Manager in deciding on notified claims does not imply a waiver of authority concerning arbitration. (Paras 72, 80)

(D) Validity of Appointment Process - The contract clause allowing one party to appoint an arbitrator from a limited panel raises concerns of bias and is not legally supported by the changed provisions of the Act. (Paras 86-96)

Facts of the case:
The petitioner seeks arbitration for claims arising from a contract with the respondent, which has delayed payments and raised concerns about the authority to notify claims. (Paras 9-10)

Findings of Court:
The court finds the need for the General Manager to determine the notified claims, which is a prerequisite for proceeding to arbitration. The procedure for appointing an arbitrator from a limited panel is also deemed invalid. (Paras 76-80)

Issues: Whether claims raised are notified as per the contract and the validity of the appointment procedure for arbitrators. (Paras 71, 72)

Ratio Decidendi: The General Manager's role is emphasized as critical in deciding if claims are notified. The court reaffirms that arbitration cannot proceed without this determination and raises concerns regarding unilateral appointment from a limited panel, which may lead to bias. (Paras 73, 76-80)

Result: Petition remanded for the General Manager to decide on notified claims; invalidated restrictive appointment clause for the arbitrator.

Table of Content
1. nature of contract and claims of petitioner (Para 4 , 5 , 6 , 8 , 9 , 10)
2. validity of arbitration provisions in contract (Para 13 , 14 , 15 , 17)
3. compliance with contractual arbitration processes (Para 18 , 19 , 22)
4. jurisdiction of general manager regarding notified claims (Para 71 , 74)
5. validity of arbitration procedures and clauses (Para 73 , 76 , 96)
6. disposition of the petition and future actions (Para 98 , 99)

JUDGMENT

V. Kameswar Rao, J. The petitioner has preferred the instant petition under Section 11(5), (6) and (8) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as, `Act of 1996') with the following prayer:

    "It is, therefore, most respectfully prayed that this Hon'ble Court may be pleased to:

    a) appoint an independent and impartial person, such as a retired judge of the Hon'ble Supreme Court or any High Court, as an arbitrator for adjudication of the disputes between the parties;

    b) pass such other or further order(s) as this Hon'ble Court may deem fit and proper in the facts and circumstances of the present case."

2. It is the case where the petitioner viz. L & T Hydrocarbon Engineering Limited is a wholly owned subsidiary of Larsen & Toubro Limited (hereinafter referred to as "L&T"). It primarily caters to the Oil and Gas sector around the world under Offshore, Onshore, Construction Services, Modular Fabrication and Engineering Services verticals.

3. Whereas the Respondent viz. Indian Oil Corporation Limited (hereinafter referred to as "IOCL") is a Public Sector Undertaking, with business interests including, inter alia, refineries, pipeline transportation & marketing of petroleum products, exploration & production of crude oil & gas and marketing of natural gas and petrochemicals.

4. It is the case of the petitioner that on June 11, 2012, the respondent issued a Letter of Award for Mainline works including small HDD works, Civil works, Mechanical works, TCP & Electrical works, OFC laying works and Instrumentation works for Salaya Mathura Pipeline (SMPL) De-bottlenecking Pipeline Project ("Project") to the petitioner and a formal contract (hereinafter referred to as "Contract") was executed between the parties on July 11, 2012.

5. It has been specifically pleaded that the Contract was particularly awarded to the Hydrocarbon Division of the L&T and the Contract Price was fixed for Rs.104.5 crores and the same was later reduced to Rs.103.62 crores. Subsequently, in December 2013, a Scheme of Arrangement was approved by the Hon'ble Bombay High Court as per which the all the assets and liabilities of the Hydrocarbon Division of L&T were transferred as a going concern to the petitioner and hence, the petitioner became the successor to the Hydrocarbon Division of the L&T.

6. That the project work assigned to the petitioner included the laying of pipeline between Chainages 287 to 667 (381 km) in the State of Rajasthan and between Chainages 0 to 12 (12km) in the State of Haryana. However, the work of `Major Horizontal Directional Drilling (HDD)', at various locations on the entire length was to be done by a different contractor appointed by the respondent.

7. That the scheduled date for completion of the Contract work was September 10, 2013. However, as per the petitioner, works were delayed for reasons not attributable to L&T Hydrocarbon and could only be completed on 24 February 2016.

8. It is also the case of the petitioner that during the course of the Contract, various claims were raised by L&T Hydrocarbon under and in terms of the Contract and on April 25, 2018, L&T Hydrocarbon had submitted its (revised) final bill to the respondent against the works done by it. However, it has been averred that the respondent has failed to make payment with respect to the claims raised and the final bill submitted by L&T Hydrocarbon.

9. According to the petitioner, the claim amount, totaling to Rs.72,58,48,058/- (excluding GST) is due and payable by the respondent to

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