1. Infrastructure contract termination — Claim for damages — Application under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of arbitrator. (Para 2 , 3 , 4 , 5 )
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2022 Supreme(SC) 1761
SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, A.S. BOPANNA, JJ.
Mahanadi Coalfields Ltd & Anr. – Appellants
Versus
M/s IVRCL AMR Joint Venture – Respondent
Civil Appeal No. 4914 of 2022 (Arising out of SLP(C) No. 1098 of 2020)
Decided On : 25-07-2022
Important Points
An arbitration agreement must demonstrate a clear intention and obligation to refer disputes to arbitration, as per the essential attributes outlined in Section 7 of the Arbitration and Conciliation Act, 1996.
Subject
Arbitration Law - Validity of Arbitration Agreement
Act Referred
Headnote
Arbitration Agreement - Infrastructure Development - Arbitration and Conciliation Act, 1996 - Section 11(6)
Fact of the Case:
Mahanadi Coalfields Ltd. terminated a work order due to delay by IVRCL AMR Joint Venture. IVRCL raised a claim and initiated arbitration under the Contract Agreement. The High Court appointed a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.
Finding of the Court:
The Court found that the Contract Agreement did not constitute an arbitration agreement as it lacked the essential attributes of an arbitration agreement. The communication by CIL also did not amount to an arbitration agreement. The High Court's appointment of a sole arbitrator was held invalid, and the respondent was directed to seek other legal remedies.
Issues: Validity of the appointment of a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 based on the Contract Agreement and CIL's communication.
Ratio Decidendi: The Contract Agreement and CIL's communication did not meet the essential attributes of an arbitration agreement as per Section 7 of the Arbitration and Conciliation Act, 1996. The Court emphasized that an arbitration agreement must disclose a determination and obligation to refer disputes to arbitration, which was lacking in the present case.
Final Decision: The appeal was allowed, and the appointment of the sole arbitrator by the High Court was set aside. The respondent was granted liberty to pursue other legal remedies.
Legal Category Hierarchy
Advocates appeared:
For the Petitioner(s): Mr. K. K. Venugopal, AG Mr. Soumyajit Pani, Adv. Mr. Siddharth Jain , AOR
For the Respondent(s): Mr. S. Niranjan Reddy, Sr. Adv. Mr. Polanki Gowtham, Adv. Mr. Amitabh Sinha, Adv. Mr. Sanjay Mishra, Adv. Mr. Ajit Yadav, Adv. Ms. Divya Roy, AOR
For the Petitioner(s): Mr. K. K. Venugopal, AG Mr. Soumyajit Pani, Adv. Mr. Siddharth Jain , AOR
For the Respondent(s): Mr. S. Niranjan Reddy, Sr. Adv. Mr. Polanki Gowtham, Adv. Mr. Amitabh Sinha, Adv. Mr. Sanjay Mishra, Adv. Mr. Ajit Yadav, Adv. Ms. Divya Roy, AOR
Table of Contents
2. Whether a dispute resolution clause providing for company-level settlement and court recourse constitutes a valid arbitration agreement under the 1996 Act. (Para 7 , 14 , 15 )
3. Clause 15 provides a company-level mechanism and court recourse, lacking the essential attributes of an arbitration agreement, such as a binding obligation to refer disputes to a private tribunal. (Para 10 , 11 , 12 , 13 , 16 , 17 , 18 )
4. A clause merely contemplating the possibility of arbitration or requiring further consent does not constitute a binding arbitration agreement under Section 7 of the 1996 Act. (Para 9 , 13 , 17 )
5. Appeal allowed — High Court order set aside — Reference to arbitration vacated due to absence of a valid arbitration agreement. (Para 19 )
6. What constitutes a valid arbitration agreement under the 1996 Act?
An arbitration agreement must be in writing and disclose a determination and obligation to refer disputes to a private tribunal for adjudication, with a willingness to be bound by the decision. Mere contemplation of the possibility of arbitration is insufficient. (Para 8 , 9 )
7. Does a clause providing for settlement at a company level followed by court recourse constitute an arbitration agreement?
No. Such a clause is a dispute resolution mechanism at the company level. If it does not refer to arbitration as the mode of settlement or provide for a binding decision by an arbitrator, it lacks the essential attributes of an arbitration agreement. (Para 13 )
8. Does a policy letter suggesting the possibility of consensual arbitration for existing contracts create a binding arbitration agreement?
No. A communication indicating a desire to settle disputes through arbitration that requires parties to arrive at a further agreement when a dispute arises is an agreement to enter into an arbitration agreement in the future, not a binding arbitration agreement. (Para 16 , 17 )
JUDGMENT :
Dhananjaya Y. Chandrachud, J.
1. Leave granted.
2. The appellant, Mahanadi Coalfields Ltd., is a subsidiary of Coal India Limited,1[“CIL”]. The respondent, IVRCL AMR Joint Venture, is a joint venture of engineering contractors engaged in the business of infrastructure development. On 11 October 2010, the appellant floated an e-tender for the work of strengthening and widening of a coal transportation road at the Talcher Coalfields in the State of Orissa. The respondent was the successful bidder and was awarded a work order on 14 December 2011. A ‘Contract Agreement’ was entered into between the parties on 30 January 2012, in terms of which the work order was to be executed between 16 January 2012 and 14 January 2015.
3. In a meeting held on 28 June 2012, the appellant advised the respondent to expedite the mobilization of resources to start the work immediately. Later, the appellant sent a series of letters to the respondent requesting it to expedite the work as per the work schedule. In 2013 and 2014, the appellant served several notices to the respondent when the latter failed to adhere to the work schedule. Ultimately, the appellant terminated the work order on 15 May 2014 allegedly on account of delay in completing the work and the inability of the respondent to meet the work schedule.
4. Thereafter, on 12 October 2017 the respondent raised a claim of Rs. 128,65,12,688 enumerating the latches and delays on the part of the appellant. The claim was rejected by the appellant on 18 December 2017. Subsequently, the respondent issued a notice of arbitration to the appellant by a letter dated 9 April 2018 in terms of clause 15 of the Contract Agreement. Through the said arbitration notice, the respondent called upon the appellant to give its consent to the appointment of Justice Asok Kumar Ganguly as the sole arbitrator. Having received no response from the appellant to the arbitration notice within 15 days, the respondent filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996,2[“1996 Act”] before the High Court of Orissa.
5. On 29 November 2019, a Single Judge of the High Court of Orissa allowed the application under Section 11 of the 1996 Act by appointing a sole arbitrator. The relevant extracts of the High Court’s decision read as follows :
“3. Learned counsel for both the sides do not dispute the fact that Clause 15 of the contract agreement provides for “Settlement of dispute/Arbitration” in case there is any dispute or difference between the parties.
4. Mr. R Sharma, learned counsel for the opposite party has taken different contentions on merit. He has also brought to the notice of this Court clause 19 of the letter dated 14.12.2011 (Annexure-3), which reads as under:
“19. That matters relating to any dispute or difference arising out of the tender, work order and subsequent contract agreement entered into, based on this tender and work order shall be subject to the jurisdiction of District Court, Angul only.”
5. However, in view of the decisions of the Hon’ble Supreme Court in the case of Mayavati Trading Private Limited vs. Pradyuat Deb Burman, reported in (2019) 8 SCC 714, the Court has to look into the arbitration clause. In that view of the matter, the matter is required to be referred to the arbitrator.”
6. Mr. K.K. Venugopal, learned Attorney General for India, appears on behalf of the appellants, while Mr. S. Niranjan Reddy, learned Senior Counsel, appears on behalf of the respondent.
7. The submission which has been urged on behalf of the appellants by the learned Attorney General is that clause 15 of the Contract Agreement dated 30 January 2012 does not constitute an arbitration agreement. Hence, it has been urged that in the absence of an arbitration agreement within the meaning of Sections 2(b) and 7 of the 1996 Act, the very invocation of the jurisdiction under Section 11(6) was not valid. In order to appreciate the submission, it would be necessary to extract clause 15 of the C
