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2023 Supreme(Telangana) 470
IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
SUREPALLI NANDA, J.
M/s TEJA-GEW (JV) Engineering Contractors - Petitioner
Versus
The Union of India and Others - Respondents
W.P. No. 20964 Of 2023
Decided On : 30-10-2023
For the Petitioner: Mr K.Sai Krishna Mohan Rao.
For Respondents: Mr. G. Praveen Kumar.
An arbitral tribunal's jurisdiction is limited by the terms of the arbitration agreement between the parties. If the claims exceed the threshold specified in the agreement, arbitration is not the appropriate remedy, and the parties must seek redress through other means, such as filing a civil suit for damages and losses.
Headnote:
ARBITRATION - JURISDICTION - ARBITRAL TRIBUNAL - CLAIMS BEYOND 20% OF CONTRACT VALUE - ARBITRATION NOT REMEDY - CIVIL SUIT FOR DAMAGES AND LOSSES - ARTICLES 14 AND 21 OF THE CONSTITUTION OF INDIA - ARBITRATION AND CONCILIATION ACT, 1996 - SECTIONS 10, 16.
Fact of the Case:
Petitioner, a construction firm, entered into an agreement with South Central Railways for a project valued at Rs. 39,14,20,386.93. Disputes arose during execution, and an arbitration clause in the agreement provided for arbitration. The petitioner submitted a claim statement but raised a preliminary objection to the arbitral tribunal's jurisdiction, arguing that the claims exceeded 20% of the contract value and were thus not arbitrable. The tribunal rejected the objection and proceeded with the proceedings, leading to the petitioner filing a writ petition challenging the tribunal's jurisdiction and the subsequent order passed by the tribunal.
Finding of the Court:
The court held that the arbitral tribunal erred in rejecting the petitioner's objection to its jurisdiction. The court noted that Clause 10 of the contract agreement between the parties specifically provided that arbitration was not the remedy for claims exceeding 20% of the contract value. The court also observed that the petitioner had raised the objection in a timely manner, as required under Section 16(2) of the Arbitration and Conciliation Act, 1996.
Issues: 1. Whether the arbitral tribunal had jurisdiction to adjudicate the disputes, given that the claims exceeded 20% of the contract value. 2. Whether the petitioner had raised the objection to the tribunal's jurisdiction in a timely manner.
Ratio Decidendi: 1. The court relied on Section 10 of the contract agreement between the parties, which explicitly stated that arbitration was not the remedy for claims exceeding 20% of the contract value. The court held that the arbitral tribunal had acted beyond its jurisdiction by rejecting the petitioner's objection and proceeding with the proceedings. 2. The court referred to Section 16(2) of the Arbitration and Conciliation Act, 1996, which provides that a plea challenging the arbitral tribunal's jurisdiction must be raised not later than the submission of the statement of defense. The court found that the petitioner had raised the objection in a timely manner, as evidenced by the Memorandum of Application dated 17.06.2023.
Final Decision: The court allowed the writ petition, set aside the impugned order passed by the arbitral tribunal, and directed the tribunal to reconsider the petitioner's objection to its jurisdiction.
ORDER :
Heard the Learned Counsel appearing on behalf of the Petitioner Mr. K. Sai Krishna Mohan Rao and Learned Deputy Solicitor General of India Mr. Gadi Praveen Kumar appearing on behalf of the Respondents 1 to 4.
2. This writ petition is filed to issue an appropriate writ, order or direction more particularly one in the nature of Writ of Mandamus declaring the constitution of Arbitration Tribunal under Lr.No.W.148/GNT/TEJA-GEW(JV)/Agt.No.03, dated 07.12.2022 as illegal, arbitrary and against the Articles 14 and 21 of the Constitution of India and consequently set aside the order passed by the impugned Arbitral Tribunal Lr.No.PAN/ARB/TEJA, dated 22.07.2023.
3. The case of the petitioner, in brief, is as follows:
a) The Arbitral Tribunal was constituted by the 1st respondent without jurisdiction and in violation of Clause 10 of the conditions of the contract agreement.
b) The petitioner firm established a very good reputation in its filed of activities. The petitioner entered into an agreement vide its lr No.03/Dy.CE/Br.Lines/HQ/SC/2017 dated 27.11.2017 in pursuance of the letter of acceptance vide its No.W.71/BR/tenders/RUB’s/GNT, dated 27.07.2017 for a value of Rs.39,14,20,386.93ps with a completion period of 12 months from the date of LOA.
c) During execution there were certain disputes arose and there exists an Arbitration clause in the agreement. The 1st respondent who is the competent authority to constitute an Arbitral Tribunal without verifying whether the claims of the petitioner are arbitrable or non-arbitrable constituted Arbitral Tribunal consisting of respondents 4 to 6.
d) The petitioner submitted claim statement as per the terms of the reference , but raised preliminary objection as to arbitrability of the claims and the jurisdiction of the Arbitral Tribunal as the claim of the petitioner was Rs.28,73, 15,8340/-, which was beyond 20% of the contract value.
e) Clause 10 of the contract agreement specifically provides that Clause 63 and 64 of GCC will be applicable only for settlement of claims, disputes for value less than or equal to 20% of the original value of the contract or 20% of the actual value of the contract or 20% of the actual value of the work done under the contract whichever is less. The value of the original agreement is admittedly, Rs.39,14,20,386.93ps. 20% of the original agreement value shall be Rs.7,82,84,077/-. The claims referred to arbitration is admittedly more than Rs.33,99,00,101/-, which is more than 20% of the agreement value. Or executed value whichever was less.
f) The claims of the petitioner are not arbitrable and the arbitration is not the remedy for resolution of the disputes. Therefore, the petitioner or the respondent is to file civil suit for recovery of damages and losses before the competent civil court. Hence, this writ petition.
PERUSED THE RECORD
4. The impugned proceedings No.PAN/ARB/TEJA dated 22.07.2023 of the presiding Arbitrator for Arbitral Tribunal, reads as under :
“Respondent was asked to submit remarks against Claimant application dated 17.06.2023 and reminded further to submit on or before 20.07.2023, but nothing is received. Arbitral Tribunal has examined the content of the Memorandum dated 17.6.2023 cited vide reference ii) above, submitted by the claimant and is discussed item wise as follows:
1. Regarding the objection raised by the claimant that Tribunal has no jurisdiction as the claims are beyond 20% of agreement value, it is noted –
i) that Claimant, having full knowledge of this provision, sought Arbitration vide letter dated 15.06.2022 addressed to GM/SC Railway with copy to DRM,ADRM/GNT and have not raised this issue therein. Further Tribunal also observes that this issue has not been challenged by Claimant before any appropriate court /the Hon. High Court of Telangana.
ii) that Respondent Railway have accepted the request for Arbitration and appointed this Tribunal which Claimant had also accepted and submitted the Statement of Claims (SOC). Respo
