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CASE NO.: Arbitration Petition  18 of 2007

PETITIONER: Shristi Infrastructure Development Corporation Ltd

RESPONDENT: Sunway Construction SDN BHD

DATE OF JUDGMENT: 12/03/2007

BENCH: Lokeshwar Singh Panta

JUDGMENT: JUDGMENT

O R D E R ARBITRATION APPLICATION [C] NO. 18 OF 2007

1.      This is an application under Section 11(6) read with  Section 11(12) of the Arbitration and Conciliation Act 1996  (hereinafter referred to as ’the Act’) and relates to a dispute  under an agreement between a foreign company and an Indian  company.  The application is filed by an Indian company  against the foreign company seeking reference of the disputes  to an arbitrator.  The claim of the petitioner is that the  respondent-company is liable to pay the petitioner a sum of  Rs.98,72,68,531.00 as per Annexure P/1 with interest at the  rate of 21% per annum; the petitioner is entitled to interest  pendente lite and future interest on the amount claimed from  the date of the petitioner invoking arbitration till the date of  decree by a Competent Forum at 21% per annum and cost of  arbitration from the respondent-company. 2.      The relevant facts set out in the petition by the petitioner  are as follows:- The petitioner is a public limited company incorporated  under the Indian Companies Act, 1956 having its registered  office at New Delhi.  The respondent-company is registered  and incorporated in Malaysia as per Malaysian Laws and it  has its principal place of business at Level 8, Mentara  Sunway, Jalan Lagoon Timur, Bandor Sunway, 46150 Petaling  Jaya, Selangor Darul Ehsan, Malaysia.  It has its office at New  Delhi and it is carrying contract work for constructing,  rehabilitation and up-gradation of NH-25 to Four Lane  configuration in the State of Uttar Pradesh, being a part of  East West Corridor Project (EWC Project) on the terms and  conditions contained in the Letter of Acceptance dated 30th  June, 2005 issued by the National Highway Authority of India  (NHAI).  The said Project is funded by International Lending  Agency and is being executed with funds from Asian  Development Bank.   3.      On 19.11.2005, the petitioner entered into a contract  with the respondent-company for construction of one-third  portion of the above-mentioned stretch of the NH from 143.6  Kms to 170 Kms.  The total value of this sub-contract is to the  tune of Rs.134,37,91,938/-.  Three separate agreements were  entered into between the parties herein on 22.12.2005.  On  29.11.2005, the petitioner furnished Performance Bank  Guarantee to the respondent-company in the sum of  Rs.6,71,89,597/- which was valid till 30.04.2009.  The  petitioner also furnished mobilization advance Bank

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Guarantee to the respondent-company in the sum of  Rs.6,71,89,597/- on 16.12.2005, which was valid till  30.04.2009.  In December 2005, the petitioner mobilized its  resources to commence the work at site.  It is stated that on  04.03.2006, the respondent-company belatedly released  Rs.6,09,72,130/- as mobilization advance to the petitioner.   Apart from the financial crunch, the petitioner faced several  difficulties and hindrances in the execution of the contract  which was duly intimated to the respondent-company, but to  no avail. 4.      On 03.01.2007, the petitioner filed a petition under  Section 9 of the Act in the High Court of Calcutta seeking  direction to restrain the respondent-company from encashing  the bank guarantee tendered by the petitioner and further not  to supplement the petitioner with any other contractor which  was later on dismissed as withdrawn.  The petitioner stated  that on 20.03.2007, a meeting was held between the  respondent-company and NHAI where the respondent- company has acknowledged such difficulties being faced by  the petitioner at the site.  On 12.04.2007, second meeting was  convened between the respondent-company and NHAI where  again the NHAI was informed by the respondent-company  about the lack of funds and other problems being faced at site.   On 28.04.2007, the respondent-company threatened to  terminate the Work Order allegedly as per Clause 14 of the  Agreement dated 19.11.2005.  On 03.05.2007, the petitioner  sent reply to the letter refuting the allegations levelled by the  respondent-company and apprising it of the ground realities  as admitted by respondent-company before NHAI in meetings  held on 20.03.2007 and 12.04.2007 respectively.  The  petitioner filed another petition on 25.05.2007 under Section 9  of the Act in the High Court of Calcutta praying inter alia that  the respondent-company be restrained from terminating the  contract without paying the outstanding dues of the petitioner  and further restraining the respondent-company from  encashing the bank guarantees.  On 30.05.2007, an  agreement was signed between the parties pursuant to the  meetings dated 08.05.2007, 19.05.2007, 22.05.2007 and  28.05.2007 in a meeting held at Malaysia and in India for  resolving the disputes wherein the respondent-company  agreed to make payment for the work done by the petitioner,  i.e. both certified and uncertified as well as to take over site  establishment and material of petitioner at actual cost and the  parties jointly agreed to pursue the claims with NHAI.  It is  stated that this was not honoured by the respondent-company  resulting in failure of amicable settlement process.  On  16.06.2007, the respondent-company arbitrarily terminated  the contract without paying the withheld outstanding dues to  the petitioner.  The respondent-company further threatened to  enter upon the work site within 14 days.  On 20.06.2007, the  High Court of Calcutta dismissed the Arbitration Petition  No.186 of 2007 of the petitioner and declined any relief to the  petitioner on the ground that bank guarantee is irrevocable.   5.      In June 2007, the petitioner filed an application under  Section 9 of the Act in the High Court of Delhi for restraining  the respondent-company from acting in pursuance or giving  effect to letter of termination dated 16th June, 2007 and from  utilizing any proceeds and/or monies received from invocation  of bank guarantees.  However, this petition was subsequently  withdrawn as the High Court was of the view that since the  petitioner invoked the adjudication of High Court of Calcutta,  any subsequent petition would lie before the same High Court.   It is further stated that on 02.07.2007, the respondent- company invoked the bank guarantees of Rs.6.71 crore each,  furnished by the petitioner and encashed Rs.11.72 crores

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although in none of the previous meetings held between the  parties there was even a whisper of any claim of the  respondent-company against the petitioner.   6.      On 03.07.2007, the petitioner requested the respondent-  company to refer the disputes between the parties to the sole  arbitrator named by the petitioner, but on 11.07.2007, the  respondent-company declined to accede to the above-said  request of the petitioner terming the invocation of arbitration  clause by the petitioner as pre-mature without assigning any  reason.  The petitioner again attended several rounds of  meetings with the respondent-company but the talks of  amicable settlement failed.   7.      In these circumstances, the petitioner is seeking  appointment of a sole Arbitrator.  These are the broad  contentions of the petition.  The respondent-company filed a  counter affidavit through Subba Rao, Senior Project Manager.   In para 2 thereof, it is stated as under:- "Whilst the respondent is not opposing the aforesaid  application for the appointment of an Arbitrator to  arbitrate on the disputes that have arisen between  the parties hereto, I say and submit that the various  allegations made by the petitioner against the  respondent on merits are wholly irrelevant for the  purposes of the disposal of the present application  and are therefore unwarranted.  The petitioner has  unduly burdened the section 11 Application with all  sorts of allegations pertaining to respondent’s  alleged breaches etc. though these are not relevant  or germane for the disposal of the present  application.  As such, all allegations in the  applications pertaining to any alleged breach or  non-fulfillment of obligations by the respondent are  denied and the respondent reserves its right to deal  with the said allegations if and when they are made  by the petitioner in the arbitration proceedings."

8.      On merits, the respondent-company stated that the  petitioner continuously failed, refused and neglected to carry  out the works with due diligence and delayed execution of the  work, as a result of which the work of rehabilitation and up- gradation of the National Highway was way behind schedule.   The respondent-company has furnished the details of the  defaults allegedly committed by the petitioner in the counter  affidavit in these proceedings which I think are not necessarily  to be dealt with.  Besides other averments made in the  counter, the respondent-company submitted that it has  grievances against the petitioner and therefore the respondent- company also seeks to join in with the request for an  appointment of an Arbitrator. 9.      A rejoinder was filed by the petitioner refuting the various  allegations made in the counter. 10.     It is not in dispute that the parties are governed by the  terms of the Umbrella Agreement, copy whereof is placed on  record.  Clause 18.4 of the agreement reads as under:-

"In the event we fail to arrive at any amicable  solution as referred to hereinbefore, the said claim,  dispute or difference arising thereof between us  shall be referred to arbitration to a sole arbitrator in  accordance with the subject to the provisions of the   Arbitration and Conciliation Act, 1996 or any  statutory modification or re-enactment thereof."

11.     In view of the fact that the respondent-company has

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admitted the existence of disputes and differences arising  between the parties which are the subject-matters to be  referred to a sole arbitrator and in the circumstances of the  case and in as much as the respondent-company has no  objection for appointment of an arbitrator, I appoint Shri  Justice H. L. Agrawal (Former Chief Justice of Orissa High  Court) as the sole arbitrator in the case.  The remuneration  payable for the case and other costs payable may be fixed by  the arbitrator after hearing the parties on both sides.   

I.A. No.1 of 2007 12.     This application has been filed by the petitioner seeking  the following interim reliefs and direction against the  respondent-company:- (a)     to restrain the respondent from undertaking any  further work at site, forming subject matter of the  petitioner’s agreement dated 19.11.2005 with the  respondent, through any other person, agency or  company whomsoever, or by itself, till such time the  entire process of recording of measurements of the  work done at site by the petitioner is finalized and  completed; (b)     to restrain the respondent from sub-contracting the  work, in question, forming subject matter of the  petitioner’s agreement dated 19.11.2005 with the  respondent, through any other person, agency or  company whomsoever or by itself in violation of the  terms of its main Contract dated 30.06.2005 with  NHAI; (c)     to direct the respondent\026Sunway Construction Sdn  Bhd  to secure the petitioner for the amount in dispute  by depositing in this Hon’ble Court the amount  towards the petitioner’s claims against the respondent; (d)     pass ex-parte ad-interim orders in terms of prayers (a),  (b) & (c) above, and confirm the same after notice to  the respondent; (e)     pass such other measures of interim measures of  protection as may appear and deemed by this Hon’ble  Court to be just and convenient. 13.       In reply to the said application, the respondent- company contended that the petitioner is not entitled for any  interim relief as this application for such measures is not  maintainable in these proceedings.  It is stated that the only  provision under which interim measure is sought for is under  Section 9 of the Act and for that the relevant "Court", as  defined vide Section 2(1) (e) of the Act, has to be approached.   It is further stated that the petitioner continuously has failed,  refused and neglected to carry out its obligations under the  Work Order and failed to carry out the work with due diligence  in terms of Clause 3.1 of the General Conditions of the Work  Order dated 19.11.2005.  Further, the site management  provided by the petitioner was extremely poor, thus, resulting  in the petitioner defaulting in its obligations provided under  Clause 5.9 of the General Conditions of the Work Order.   The  respondent-company has given many instances of defaults  allegedly committed by the petitioner and also undue delay in  execution of the contract work by the petitioner and it is also  stated that the petitioner failed and neglected to take any  proper action to protect the plants, equipments and material  on the site.  It is stated that the petitioner was in default of its  obligations under the Work Order and the project which is of  national importance and in public interest was very behind the  schedule as a result of the act or omissions of the petitioner.   It is stated that second application filed by the petitioner  under Section 9 of the Act was dismissed by the High Court of

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Calcutta by Judgment dated June 20, 2007 with cost of  Rs.50,000/- imposed on the petitioner and no appeal was filed  by the petitioner against the said order and thus the order has  now become final.  The respondent-company stated that the  petitioner having failed to get the interim order from the High  Court of Calcutta filed third application under Section 9 of the  Act in the Delhi High Court.  The said petition came to be  dismissed as withdrawn in June 2007.  On these premises, it  is submitted that the balance of convenience is entirely in  favour of the respondent-company and no irreparable loss  would be caused to the petitioner, if interim relief as prayed  for, is not granted to the petitioner.   It is contended that in  fact the respondent-company would suffer irreparable loss and  would be liable to liquidated damages if timely completion of  the EWC Project is not done in obedience of the commitment  made with NHAI. 14.     I have heard learned counsel for the parties.  Dr. A.M.  Singhvi, learned senior counsel appearing on behalf of the  petitioner, submitted that the mobilization advance was  delayed by the respondent-company by a period of as long as  79 days after furnishing bank guarantee by the petitioner and  mobilization advance of Rs.6.09 crores only was released by  the respondent-company as against the bank guarantee of  Rs.6.71 crores; the respondent-company also defaulted in  paying the amounts due to the petitioner against various R.A.  bills submitted by it from time to time and an amount to the  tune of Rs.4.47crore was withheld against the petitioner’s bills  for no justifiable reasons and on flimsy pretext.  He submitted  that the respondent had promised and assured for immediate  release of the outstanding amount for the works done, site  establishment and material costs and it was agreed that the  exercise of joint management shall immediately be carried out  for recording the measurements of the work done by the  petitioner as also to quantify the material available at site  which would be taken over by the respondent on actual basis,  but the respondent-company has failed to carry out its  obligations.  He also contended that the respondent-company  fraudulently invoked the two bank guarantees furnished by  the petitioner towards mobilization advance and towards  Performance Bank Guarantee which shall be secured in these  proceedings before the Arbitrator would pass the final award.   According to the learned counsel, the Chief Justice or a person  designated by him under Section 11 of the Act is competent  and empowered to grant interim relief in these proceedings. 15.     Per contra, learned counsel for the respondent-company  submitted that no interim relief can be granted in the  proceedings filed under Section 11(6) read with Section 11(12)  of the Act, in view of the fact that the petitioner could not  succeed in getting similar interim relief in A.P. No.1 of 2007  filed by it under Section 9 of the Act in the High Court of  Calcutta on 03.01.2007 which came to be dismissed on  11.06.2007 and second attempt to obtain interim relief under  Section 9 in A.P. No. 186 of 2007 filed in the High Court of  Calcutta on 25.05.2007 which was also dismissed on  20.06.2007 with cost of Rs.50,000/- imposed on the petitioner  and the interim order was vacated.  The petitioner even could  not get interim relief third time in O.M.P. No. 337 of 2007 filed  by it under Section 9 of the Act in Delhi High Court which was  dismissed as withdrawn in June 2007.  In view of the conduct  of the petitioner who has been dragging the proceedings for  the last many years in different courts, the learned counsel  submitted that the petitioner is not entitled to the interim  relief and this application deserves dismissal.   16.       Having considered the rival contentions of the parties  and having taken into consideration the facts narrated

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hereinbefore, taking into consideration the fact that the  disputes and differences between the parties emanating from  the contract are required to be resolved through an arbitration  of sole arbitrator and further keeping in view the urgency of  the Project to be completed by the respondent-company, and  also the time-gap of about 3 years from the date of contract  entered into between the petitioner and the respondent- company, I am of the view that at this stage granting of  interim relief sought for by the petitioner in these proceedings  will not be in the larger interest of both the parties and in  completion of the time-bound Project of public importance.   The question whether the Chief Justice or his designate  person is a ’Court’ within the meaning of Section 2(e) of the  Act, is left open for consideration and decision in some  appropriate proceedings as in this case the petitioner has  already approached High Court of Calcutta twice under  Section 9 of the Act and third time in the High Court of Delhi  for the grant of interim relief or measures.  However, the  petitioner is at liberty to approach the Arbitrator for seeking  the interim measure or protection as warranted by the facts  and circumstances in respect of subject-matter of the dispute  in terms of Section 17 of the Act.  It is made clear that any  observation made in this order shall not be construed as an  expression of opinion on the merits of the case which shall be  decided by the Arbitrator in accordance with law. 17.     The Arbitration Application is accordingly disposed of.