Sri V.G. Constructions vs Maytas Infra Ltd.

N.V. Ramana, J.—By this application, filed u/s 11 of the Arbitration and Conciliation Act, 1996, the applicant prays this Court to appoint a sole Arbitrator and refer the dispute/difference that has arisen between them and the respondent, namely M/s. Maytas Infra Ltd., out of the contract entered into by and between them, to the Arbitrator for adjudication.

The applicant is a construction company. The respondent, a public limited company is also into construction and development business. The applicant states that the respondent retained them as sub-contractor vide sub-contract agreement dated 28.08.2008 in respect of civil works relating to construction of Warehouses Compex at Malkapur on Hyderabad - Vijayawada, which work was awarded to the respondent by M/s. Maytas Hill County Developers Pvt. Ltd, vide work order dated 18.03.2008.

The applicant states that as per the sub-contract agreement, they are required to complete the entire work within seven months from the date of its execution. Pursuant to the sub-contract agreement, the applicant states that they mobilized machinery, men and power for the work and commenced the work as per schedule, however, there were laches on the part of the respondent in even reimbursing money for the works certified. The applicant states that out of total work executed to the tune of Rs. 2,67,07,694/-, the respondent released an amount of Rs. 85,00,000/-, and thereafter, by letter dated 28.01.2009, permitted them to take away TMT bars from the project site towards piecemeal payment.

While the matters stood thus, the applicant states that the respondent served termination notice on 14.02.2009 with a request for amicable closure on or before 16.02.2009. In response thereto, the applicant claims to have submitted final bill on 17.02.2009 for Rs. 2,82,89,986/-. Thereafter, the respondent had sent an undated letter, to which the applicant addressed clarification letter dated 19.03.2009.

The applicant states that the respondent called them for a meeting on 06.04.2009. In the said meeting, as against their final claim for Rs. 2,82,89,986/-, the respondent informed the applicant in no uncertain terms that there offer was on the basis of "Take it or leave it", as otherwise, he will not receive even Rs. 9.00 lakhs by way scrap steel also. Thereafter, the applicant states that he addressed letter dated 17.04.2009 raising dispute, and issued notice dated 24.07.2009 to the respondent appoint a sole Arbitrator instead of CEO. However, as the applicant did not appoint Arbitrator, he filed the present application u/s 11 of the Arbitration and Conciliation Act, 1996 praying to appoint an Arbitrator.

The learned Counsel for the applicant submits that the so called Full and Final Settlement, alleged to have been arrived at by the applicant and the respondent under the Memorandum of the Meeting dated 06.04.2009, was not at all arrived at by consensus ad Idem of the parties. He submits that the applicant and respondent do not stand on equal footing, and as the respondent is backed with greater leverage of bargaining power, the applicant had no alternative, but to succumb to the pressures of the respondent and sign the Full and Final Settlement; for had he refused to do so, the respondent would have denied even the admitted amount of Rs. 9.00 lakhs.

He submits that as the applicant was compelled to sign the Memorandum of the Meeting, immediately upon signing the Memorandum of the Meeting and after taking delivery of the scrap steel, issued notice dated 13.04.2009 disputing the so called Full and Final Settlement arrived at under the Memorandum of Meeting dated 06.04.2009. He submits that the acts of the applicant in taking delivery of steel scrap in lieu of payment of Rs. 9.00 lakhs and addressing letter dated 27.04.2009 withdrawing the letter dated 13.04.2009, are based on the principle necessissatis non-habef lagem (necessity knows no law), and as such, the said acts of the applicant, cannot come in his way in seeking recourse to settlement of disputes through arbitration as per the arbitration clause in the sub contract agreement. In support of this argument, he placed reliance on the judgments of the apex Court in Chairman and M.D., N.T.P.C. Ltd. Vs. Reshmi Constructions, Builders and Contractors, and National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd.,

He submits that in case of disputes arising out of the sub contract agreement, as per the provisions of the arbitration clause contained therein in Clause 15.2, the matter shall be referred to the CEO of the respondent for adjudication, whose decision shall be final and binding on the parties, and inasmuch as the respondent failed to appoint Arbitrator despite receiving notice, and since the post of CEO in the respondent is vacant, he submits that the arbitration clause contained in the sub contract agreement cannot be worked out, for except, the CEO, the matter cannot be referred to any other person.

At any rate, to remove apprehension of bias, impartiality and independence of the agreed or named Arbitrator, namely CEO of the respondent, who has interest in the matter, he prayed that this Court should appoint an Arbitrator, for adjudication of the disputes raised by the applicant, which have arisen out of the sub contract agreement entered into by and between the applicant and the respondent. In support of this argument, he placed reliance on the judgment of the apex Court in Indian Oil Corporation Ltd. and Others Vs. Raja Transport (P) Ltd., Hence, he prayed that the arbitration application be allowed.

The respondent tiled counter. The learned Counsel for the respondent reiterating the counter averments submitted that the applicant in full and final settlement of his claim in terms of the Memorandum of the Meeting dated 06.04.2009 received Rs. 9.00 lakhs in the form of taking delivery of 52.94 MT of steel scrap by affixing his signature, without any demur. Though after taking delivery of the steel scrap, the applicant addressed letter dated 13.04.2009 raising claim for damages, the fact remains, on 27.04.2009, the applicant addressed another letter withdrawing the letter dated 13.04.2009 whereunder he claimed damages stating that the said letter was addressed by oversight and to treat the said letter as null and void. He submitted that the applicant having received the amount of Rs. 9.00 lakhs in full and final settlement of his claim, now cannot contend that he had received because of the superior bargaining power of the respondent, out of necessity and under compulsion, for if he failed to agree, the respondent would have denied him even the admitted amount of Rs. 9.00 lakhs.

He submitted that Clause 15.2 of the sub contract agreement provides for resolution of disputes by the CEO, and the applicant having agreed for such a clause, now cannot contend that he is agreeable for settlement of disputes by arbitration and not the named Arbitrator, and in supports of this argument, he placed reliance on the judgment of the apex Court in Indian Oil Corporation Ltd. and Ors. v. Raja Transport (P) Ltd. He further submitted that CEO is a position in the respondent, and that in the changed circumstances, the duties of CEO are being discharged by its President Mr. C.S. Bansal, and that though the respondent advised the applicant to meet their President after preliminary discussions with their B & S Department, the applicant failed to meet him, and filed the present application, which is not maintainable.

He submitted that unless there exists a live arbitrable dispute, no Arbitrator can be appointed, and since there is no live arbitrable dispute to be adjudicated upon, which can be referred to arbitration, the present application for appointment of Arbitrator is not maintainable, and in support of this argument, he placed reliance on the judgment of the apex Court in Union of India (UOI) and Others Vs. Onkar Nath Bhalla and Sons, and VISA International Ltd. Vs. Continental Resources (USA) Ltd., Hence, he prayed that the arbitration application be dismissed.

Heard the counsel for the applicant and the learned Counsel for the respondent.

There can be no dispute on the proposition of law as laid down by the apex Court in Chairman and M.D., N.T.P.C. Ltd. v. Reshmi Constructions, Builders and Contractors and National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. on which the counsel for the applicant placed heavy reliance, that if a settlement has been reached, which is disputed by one of the parties to the settlement stating that the same has been reached on account of fraud/coercion/undue influence having been practiced by the other party, then the disputes raised should be referred to arbitration. However, reference of disputes to arbitration, in such cases, the apex Court, held would be subject to the party complaining fraud/coercion/undue influence by the other party, proving the same.

Considering the law laid down by the apex Court, as noted above, it may be noticed whether the applicant had signed the Memorandum of Meeting dated. 06.04.2009 under undue influence and coercion and because had he not done so, he would not have been paid even the miniscule amount because of bargaining position in which the respondent is placed.

Admittedly, the applicant and the respondent, have on 06.04.2009 mutually agreed and entered into full and final settlement under the Memorandum of Meeting, which reads as follows:

Sub: Full and Final Settlement against contract no nil Dated 28th Aug 08

A. The full and final settlement for the work done (final bill) additional work done. Miscellaneous claims has been finalized and mutually agreed between the parties during the meeting. The net amount payable is arrived at Rs. 9 lacs.

B. The supporting documents towards the full and final settlement amount is at Annexure-B.

C. This amount is full and final settlement payable to VG Constructions and there is no further claim of VG Constructions on Maytas Infra, Maytas Properties against the contract No. Nil dated 28th August 08.

D. Maytas Properties & Maytas Infra have agreed to settle the full and final claim of VG Constructions as mentioned in Para A, by issuing scrap steel of 52.94 MT (@ Rs. 17,000 Per MT)

E. M/s. V.G. Constructions has accepted to take the delivery of the scrap steel against the full and final settlement.

Under the above full and final settlement, the net amount payable by the respondent to the applicant was arrived at Rs. 9.00 lakhs, the applicant having agreed for the same, stated that there is no further claim, while the respondent agreed to settle the full and final claim of the applicant by giving delivery of scrap steel in lieu of Rs. 9.00 lakhs, which the applicant agreed to take delivery.

Giving effect to the full and final settlement, the respondent issued letter dated 06.04.2009 to the applicant permitting him to take delivery of steel scrap in lieu of Rs. 9.00 lakhs. In pursuance of the said letter, the applicant took delivery of the steel scrap in lieu of Rs. 9.00 lakhs, which the respondent was liable to pay. However, the applicant after taking delivery of the steel scrap, on 13.04.2009 addressed letter dated 13.04.2009 to the respondent inter alia stating that he was forced to attend the meeting on 06.04.2009 and that he had signed the minutes under undue influence, coercion and confusion, and while raising a claim for damages of Rs. 2,82,89,986/-, stated that the alleged resolutions held at the office of the respondent are null and void and do not bind either of them and requested the respondent to settle the issue.

Though the applicant in his letter dated 13.04.2009 has taken a stand that he had signed the Memorandum of Meeting dated 06.04.2009 under undue influence, coercion and confusion and raised a claim for Rs. 2,82,89,986/- against the respondent, the fact remains, the applicant vide letter dated 27.04.2009, addressed to the respondent, withdrew the letter dated 13.04.2009, stating as follows:

Subsequent to our discussion and clarification on above matter, we would like to withdraw our letter and claim dated 13 Apr 09. That letter has been sent due to over sight. To be treated as null and void.

Settlement is already reached as per MoM dated 6th April 07.

(emphasis supplied)

The applicant except stating that he had signed the Memorandum of Meeting dated 06.04.2009 under undue influence, coercion and confusion, and out of necessity, and that necessity knows know law, and that had he not done so, he would have been denied even the miniscule admitted amount of Rs. 9.00 lakhs by the respondent, has not placed any material to prove the same. In fact, the applicant signed the Memorandum of Meeting without any protest. If really, the applicant was forced to accept Rs. 9.00 lakhs towards full and final settlement of their claim, nothing prevented them from receiving the same under protest, but he did not do so. This apart, if the applicant really had any claim against the respondent, as raised by him in his letter dated 13.04.2009, he ought to have stood by the same, but surprisingly, contrary to the stand taken by him in the said letter dated 13.04.2009, he has addressed, another letter dated 27.04.2009 stating that he is withdrawing the letter dated 13.04.2009 as the same was sent by oversight and sought to treat the same as null and void, because settlement was already reached as per the Memorandum of Meeting dated 06.04.2009. What prompted the applicant to address another letter dated 27.04.2009 to the respondent withdrawing the claim letter dated 13.04.2009, is not explained by the applicant properly, except stating that he had done so under influence and coercion of the respondent, who is backed with the greater leverage of bargaining.

The acts and conduct of the applicant in signing the Memorandum of Meeting dated 06.04.2009, taking delivery of scrap steel in lieu of Rs. 9.00 lakhs payable by the respondent, addressing letter dated 13.04.2009 to treat the Memorandum of Meeting as null and void and raising claim against the respondent for Rs. 2,82,89,986/- as damages, and subsequently addressing another letter 27.04.2009 withdrawing the letter dated 13.04.2009 stating that the same has been sent by oversight, clearly go to show that the contract worked out completely, full and final settlement was reach, and there ore no live disputes between the applicant and the respondent. The law is well settled that an application for arbitration can be made only when a dispute arises between the parties to the arbitration agreement and such dispute gives rise to a live issue. In Union of India v. Onkar Nath Bhalla, the apex Court held that while appointing an arbitrator u/s 11 of the Arbitration and Conciliation Act, 1996 two things must be kept in mind: (i) That there exists a dispute between the parties to the agreement and that the dispute is alive, (ii) Secondly, an arbitrator must be appointed as per the terms and conditions of the agreement and as per the need of the dispute. Similar view was taken by the apex Court in VISA International Ltd. v. Continental Resources (USA) Ltd., when it held that the application for arbitration can be made only when a dispute arises between the parties to the arbitration agreement and such dispute gives rise to a live issue.

Since in the instant case, there exist no dispute between the applicant and the respondent arising out of the contract containing arbitration clause, which is alive, I am of the considered opinion that the present application filed by the applicant u/s 11 of the Arbitration and Conciliation Act, 1996 is not maintainable.

Further though the applicant vide letter dated 24.07.2009 sought to invoke the arbitration Clause 15 of the agreement, which provides for reference of disputes for arbitration by CEO of the respondent, and as the position of CEO is vacant, appointed sole arbitrator and sought the consent of the respondent, the fact remains, the respondent in reply thereto, vide letter dated 20.08.2009 while denying existence of any dispute and that the claim made is an afterthought which is not legally binding, informed the applicant that as CEO is a position in the company, and in the changed circumstances, the obligations of CEO are being fulfilled by their resident Mr. C.S. Bansal, advised him to meet him after having preliminary discussion with their B & S Department. However, the applicant did not meet him, and instead filed the present application. Even though there exists no arbitrable dispute, yet the counsel for the respondent, agreed to refer the matter to arbitration to Mr. C.S. Bansal, who is performing the duties of CEO, since it is vacant. However, the counsel for the applicant did not agree, and relying on the judgment of the apex Court in Indian Oil Corporation Ltd. and Ors. v. Raja Transport (P) Ltd., contended that the arbitrator named in the agreement being a employee of the respondent, he apprehends about his impartiality and independence. This stand taken by the applicant is unjustified. The applicant being a party to the agreement, and he having signed it, cannot contend that he is bound by one part of the agreement and not the other. In fact, the apex Court in the very same judgment in Indian Oil Corporation Ltd. and Ors. v. Raja Transport (P) Ltd., held as follows:

...No party can say he will be bound by one part of the agreement and not the other part, unless such other part is impossible of performance or is void being contrary to the provisions of the Act, and such part is severable from the remaining part of the agreement. The arbitration clause is a package which may rovide for what disputes are arbitrable, at what stage the disputes are arbitrable, who should be the arbitrator, what should be the venue, what law would govern the parties etc. A party to the contract cannot claim the benefit of arbitration under the arbitration clause, but ignore the appointment procedure relating to the named Arbitrator contained in the arbitration clause.

The apex Court further while observing that arbitration agreements in government contracts providing that an employee of the Department (usually a high official unconnected with the work or the contract) will be the Arbitrator, are neither void nor unenforceable, held that once it is agreed that one of its Secretaries/Directors shall be the arbitrator, the party cannot turn around and contend that he is agreeable for settlement of disputes by arbitration and not by the name arbitrator, because he happens to be the employee of the other party.

Hence, the applicant is not justified in contending that he will not approach the CEO for settlement of the alleged disputes raised by him. At any rate, since there are no issues, much less live issues, which can be referred to arbitration, the present application filed by the applicant u/s 11 of the Arbitration and Conciliation Act, 1996 praying for appointment of Arbitrator, as observed above, is not maintainable, and is liable to be dismissed.

Accordingly, the Arbitration Application is dismissed. No costs.