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2023 Supreme(Online)(KER) 6849
HIGH COURT OF KERALA
C.S. DIAS, J
M/S.VELLAPALLY BROTHERS
– Appellant
Versus
KIRBY BUILDING SYSTEMS & STRUCTURES INDIA PRIVATE LIMITED – Respondent
AR 92 2022
AJIT JOY, ABRAHAM GEORGE JACOB, C.MURALIKRISHNAN, AKSHAY R, P.I.RAHEENA
An arbitration clause in the main contract is enforceable in the subcontract if there is a clear intention to incorporate it, with jurisdiction established under Section 11 of the Arbitration and Conciliation Act.
Headnote:
Arbitration - Arbitration and Conciliation Act, 1996 - Section 11 - The court affirmed that the arbitration clause in the main contract was enforceable under Section 7, establishing the jurisdiction of the Thiruvananthapuram courts.
Fact of the Case:
The applicant entered into a contract with a software company to construct a facility and subcontracted steel fabrication work to the respondent. Disputes arose due to breaches and penalties by the respondent, leading the applicant to invoke arbitration as per their agreement. The respondent contested the jurisdiction of the Thiruvananthapuram court and argued for arbitration in Hyderabad.
Finding of the Court:
The court ruled that the arbitration clause from the main contract was validly incorporated into the subcontract, asserting its jurisdiction to appoint an arbitrator in Thiruvananthapuram, despite the respondent's claims to the contrary.
Issues: Whether the court at Thiruvananthapuram had jurisdiction to appoint an arbitrator in light of the agreements between the parties and the validity of the arbitration clause.
Ratio Decidendi: The court concluded that the arbitration clause from the main contract was properly incorporated into the subcontract, confirming the jurisdiction of the Thiruvananthapuram court under Section 11 of the Arbitration and Conciliation Act.
Final Decision: The court allowed the application for appointment of an arbitrator and maintained jurisdiction in Thiruvananthapuram.
O R D E R
The Arbitration Request (‘A.R’) is filed under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (in short, ‘Act’), for the appointment of a sole arbitrator to adjudicate the disputes that have arisen between the applicant and the respondent.
2. The applicant’s case, relevant for the determination of the A.R, is as follows:
2.1. The applicant entered into an agreement with SunTec Infrastructure Pvt. Ltd., a software company, on 21.12.2017 to construct the latter’s multi-storied office campus and Club House at the Technocity East, Thiruvananthapuram. The agreement permitted the applicant to delegate the work to sub-contractors with the consent of SunTec.
2.2. The applicant entered into a sub-contract with the respondent as per Annexure A1 purchase order dated 25.09.2017 for the steel fabrication and erection of the proposed structure. Annexure A1 stipulates that all the terms and conditions of the work not specifically mentioned in the purchase order would be as per the conditions of the tender floated by SunTec. Annexures A3 and A4 are the General Conditions and Special Conditions of the Contract.
2.3. Right from the inception of the contract, the respondent committed breach of contract by not completing the work within the prescribed time frame. Consequently, the applicant was forced to amend the purchase order and escalate the prices.
2.4. In December, 2018, SunTec deducted Rs.2/-
Crore from the applicant towards liquidated damages due to the latches of the respondent. As on date, an amount of Rs.4.04/- Crore has been deducted by SunTec towards liquidated damages.
2.5. In Annexure A1, it was bilaterally agreed between the parties that any penalty paid by the applicant, due to the delay caused by the respondent, would be passed on to the respondent. But the applicant could not deduct the liquidated damages from the respondent’s bills, as the respondent was withholding a bank guarantee for Rs.5/- Crore.
2.6. After the final bill was settled on 30.04.2021, the respondent returned the applicant’s bank guarantee. Disputes arose at the time of settling the final bill. To recover the loss from the respondent, the applicant had no other option but to invoke the bank guarantee.
2.7. The respondent filed COP No.26/2021 before the Commercial Court, Hyderabad, under Section 9 of the Act, for interim measures, against the invocation of the bank guarantee. By Annexure A6 order, the Commercial Court dismissed the petition because it lacked territorial jurisdiction.
2.8. Aggrieved by certain observations in Annexure A6 order, the applicant filed commercial court appeal No.39/2021 and aggrieved by the dismissal of the petition, the respondent filed commercial court appeal No.38/2021 before the High Court of Telangana. By Annexure-A7 common judgment, the High Court disposed of the appeals reserving the rights of the parties to agitate the question regarding the validity of the arbitration agreement in an arbitration application to be filed under Section 11 of the Act.
2.9. It is learnt that the respondent has filed an arbitration application before the High Court of Telangana.
2.10. As per the tender conditions, all disputes between the applicant and SunTec are subject to the jurisdiction of the courts in Thiruvananthapuram. This condition is made back-to-back applicable to the respondent in the status of sub-contractor of the applicant. Clause 29 of Annexure A3 undoubtedly confers jurisdiction only in the courts in Thiruvananthapuram. As the respondent rejected the names proposed by the applicant, the applicant is compelled to file the A.R. Hence the A.R.
3. The respondent has filed a counter affidavit denying the allegations in the A.R. The respondent has, inter alia, contended as follows:
3.1. The applicant approached the respondent for the construction of a prefabricated steel structure by e-mail dated 05.05.2017.
3.2. The respondent issued their letter of offer with the Bill of Quantities and enclosed their Technical offer, Co
