Posted On by &filed under Gauhati High Court, High Court.


Gauhati High Court
Bharat Hydro Power Corporation … vs Assam State Electricity Board, … on 18 May, 1999
Equivalent citations: AIR 1999 Gau 151
Bench: B Kumar


ORDER

1. This a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996, with a prayer that a sole arbitrator may be appointed to decide the disputes pending between the petitioners, namely, M/s. Bharat Hydro Power Corporation Ltd. (for short, BHPCL) and M/s. Subhash Projects and Marketing Ltd. (for short SPML), of the one part, and the Assam State Electricity Board (for short, ASEB), of the other part. The disputes between the parties, as indicated by the petitioners are those as referred to in the letter of demand dated 17-8-96, by which it was informed to the respondents that the petitioners had appointed their arbitrator and the respondents were called upon to appoint their arbitrator within 30 days of receipt of the said letter. Since the respondents failed to appoint their arbitrator, therefore, the present petition has been preferred by the petitioners.

2. A Memorandum of Understanding (hereinafter to be called ‘MOU’) was entered into and signed on 25th March, 1993 by SPML and the ASEB under which 100 MW capacity Karbi Langpi (Lower Borpani) Hydro Electric Power Generation Project was to be transferred by the ASEB to a Registered Public Company to be formed by the parties to the said MOU. This is how M/s. Bharat Hydro Power Corporation Ltd. (BHPCL) came into being, having been registered on 2nd April, 1993. A Deed of Assignment was executed between the ASEB and BHPCL on 8th April, 1993 and the MOU formed part of the Deed of Assignment. According to the claim of the petitioners, all the assets which were liable to be handed over by the ASEB to BHPCL in pursuance of the MOU were not transferred. The worth of such assets as not transferred is said to be about Rs. 39.94 crores. This shortage in handing over the assets is said to be checked and verified by the Chartered Accountants, whose reports have also been placed on the record. A perusal of the letter dated 17-8-96 indicating the disputes between the parties shows that it was claimed that the petitioners suffered losses and damages due to various types of lapses on the part of the ASEB. According to the case of the petitioners as given out in the letter dated 17-8-96, losses suffered by them was to the tune of Rs. 100.27 crores, apart from damages on account of loss of good will.

3. In regard to the claim on account of short delivery of the assets by the ASEB to the BHPCL, our attention is drawn to Clause 34 of the MOU, which reads as follows :–

“34. Notwithstanding anything to the contrary herein contained, in case at the time of taking physical possession of the said Project, if it is found that any item in the inventory of the said properties are not available in the site of the said Project, then and in that event the cost of such assets and properties, plants and/or machineries, fittings and/or fixtures as shown in the accounts of the said Electric Power Generation Project shall be deducted out of the total consideration payable to ASEB under these presents.”

4. It is submitted that since all that was required to be done by the respondents was not being accomplished and the petitioners had been suffering losses including on account of short handing over of the assets, the petitioners invoked the arbitration clause, as contained in Clause 18 of the MOU, which reads as follows :–

“18. If any dispute or difference shall at any time arise between the parties to this MOU on any clause or matter herein contained or in respect of their respective rights, claims or liabilities hereunder, however, in relation to or arising out of this MOU, such disputes or differences shall be referred to arbitration of two arbitrators comprising of one nominee each of ASEB and SPML and to the umpire to be appointed by the said two arbitrators before entering upon the references. The procedure and proceedings for such arbitration shall be governed by Indian Arbitration Act. The venue of Arbitration shall be Guwahati only, unless otherwise agreed to between the parties. It is agreed between the parties that the award/awards of the arbitrations/ umpires in all the matters of arbitration shall be speaking awards.”

5. On failure to comply with the notice for appointment of arbitrator and for reference of disputes for arbitration, the petitioners were left with no option but to approach this Court.

6. An affidavit-in-opposition to the petition has been filed by the Executive Engineer (Civil), ASEB, describing himself as one of the Principal Officer of the Board. It is indicated in the reply that by Ordinance No. VII of 1996, namely, the Bharat Hydro Power Corporation Limited (Acquisition and Transfer of Undertaking) Ordinance, 1996, notified by Notification No. LGL. 15-96/36, dated 30-11-96, the right, title and interest of the Bharat Hydro Power Corporation Limited had been taken over by the State Government with a view to efficiently supervise and manage the affairs of the Project. The Ordinance was later on passed into an Act, namely, the Bharat Hydro Power Corporation Limited (Acquisition and Transfer of Undertaking) Act, 1996 (Assam Act No. 1 of 1997). As a consequence of acquisition of petitioner No. 1 by the State Government, all the contracts, express or implied, or any other arrangement relating to the affairs of the Company would stand terminated and such agreements or contracts will not be enforceable. Therefore, the arbitration clause under the MOU would no more be available to the petitioners for the purposes of appointment of arbitrator and a reference of the alleged disputes to him. It is further indicated that no award, decree or order of the Court or tribunal in relation to the undertaking of the Company passed on or after the appointed day shall be enforceable against the State Government or the ASEB. Therefore, the matter is not referable to the arbitration. It is further the case of the respondents that a Commission under Sub-section (1) of Section 14 of the Bharat Hydro Power Corporation Limited (Acquisition and Transfer of Undertaking) Act, 1996 (hereinafter to be called the Act) has been constituted by Notification dated 6th February, 1997 to look into all such matters. Therefore, the petition is liable to be rejected.

7. Shri N.N. Saikia, learned counsel appearing for the respondents, has placed before the Court relevant provisions of the Act. He has firstly drawn our attention to the relevant part of Section 4 of the Act, which reads as follows :–

“General effect of vesting.– 4. (1) On the appointed day the property, rights, liabilities and obligations specified hereinbelow in respect of the company shall vest in the State Government ;–

(i) all the fixed assets of the company and all the documents relating to the company;

(ii) all the rights, liabilities and obligations of the company under hire purchase agreement, if any, for supply of materials or equipments made before the appointed day;

(iii) all the rights, liabilities and obligations of the company entered into bona fide before the appointed day not being a contract relating to borrowing or lending of money or to the employment of staff.

(2) All the assets specified in Clause (i) of Sub-sec. (1) shall vest in the State Government free from all debts, mortgages, or similar obligations of the company or attaching to the company ;

Provided that debts, mortgages or obligations shall attach to the amount payable under this Act for the assets.

(3) The rights and liabilities granted to the company under the relevant Electricity Act shall be deemed to have been terminated on the appointed day and all rights, liabilities and obligations which were granted in favour of the company under any agreement to supply electricity shall be deemed to have devolved on the State Government:

Provided that when any such agreement is not in conformity with the rates and terms and conditions of supply approved by the State Government and in force on the appointed day, the agreement shall be voidable at the option of the State Government.

(4) Any contract, whether express or implied, or other arrangement, in so far it relates to the management of the affairs of the company in relation to its undertaking and in force immediately before the appointed day, shall be deemed to have terminated on the appointed day

…..

…..

8. Stress has vehemently been made on subsection (4) of Section 4 of the Act, according to which, it is submitted that any contract or other arrangement relating to the management of the affairs of the company in relation to its undertaking shall be deemed to have been terminated on the appointed day. Under Clause (a) of Section 2(1) of the Act, “appointed day” means the day on which the Act comes into force. Under Subsection (3) of Section 1 of the Act, the Act is deemed to have come into force on November 30, 1996. Therefore, the submission is that on November 30, 1996, all contracts or other arrangements relating to management of the affairs of the company stood terminated. The Memorandum of Understanding (MOU) thus also stands terminated. As the agreements come to an end by operation of law, hence the petitioners cannot rely upon the Memorandum of Understanding, which no more exists.

9. Learned counsel for the respondents further submits that so far the claims of the company are concerned regarding the assets or the amount which may be payable, they have to be settled under the provisions of the Act. Section 7 of the Act reads as under :–

“Payment of amount.– 7. The State Government, for the right, title and interest of the company which shall stand transferred to and vested in the State Government under Section 3 or the Board under Section 6, as the case may be, shall pay an amount to the company that may be fixed by the Commission considering the value of the assets of the company after observing proper financial formalities.”

10. Thus, according to the abovenoted provision, the State Government or the ASEB has to pay an amount to the company as may be fixed by the Commission considering the value of the assets of the company. It implies that the amount payable to the company, namely, to the petitioners, will have to be fixed by the Commission taking into account the value of the assets of the company. The manner in which the gross amount payable to the company is to be arrived at, is provided under Section 8 of the Act in some detail. It is submitted by the learned counsel for the respondents that while such an amount is being fixed by the Commission, it would always be open to the petitioners to put its claim before the Commission that at the time of handing over the assets to the company, the ASEB had made certain short delivery of the assets. The Commission thus may go into that question and consider the claim of the petitioners which is sought to be referred to the arbitrator.

11. Section 14 of the Act provides that the State Government, for the purposes of Sections 7, 8, 9, 10, 12, 15 and 26, constitute a Commission headed by a sitting or retired High Court Judge. The Commission has been vested with the powers to effectively determine the questions raised before it in relation to determining the amount payable to the company. Powers as vested in a Civil Court under the Code of Civil Procedure, 1908 are exercisable by the Commission for the purposes of summoning and enforcing the attendance of any witness, for discovery and production of any document, for reception of evidence on affidavit, or for the purposes of issuance of commission for examination of witnesses. Investigation before the Commission shall be deemed to be judicial proceedings within the meaning of Sections 193 and 228 of the Indian Penal Code, 1860, and the Commission shall be deemed to be a Civil Court for the purposes of Section 195 of the Code of Criminal Procedure, 1973. Sub-section (7) of Section 14 provides that in case a claimant is dissatisfied with the decision of the Commission, it would be open to it to prefer an appeal before the Gauhati High Court. It is, therefore, submitted that a very effective forum has been provided under the Act itself to settle any claim of the company. A copy of the Notification by which the Commission has been appointed, has also been annexed along with the affidavit-in-opposition. It is Annexure-A to the affidavit. It is a Notification dated February 6, 1997, notifying that in exercise of the powers under Section 14 of the Act, Mr. Justice Dhirendra Nath Barua, a Judge of the High Court, was appointed as Commission for the purposes of Sections 7, 8, 9, 10, 12, 15 and 26 of the Act.

12. Our attention has also been drawn to Section 26 of the Act which provides that where any dispute arises in respect of any matter specified in the said provision, the same would be decided by the Commission in its capacity as an arbitrator. One of such disputes in respect whereof may be gone into by the Commission as an arbitrator, is indicated in Clause (b) of Section 26(1), which reads as under :–

“(b) whether any assets forms part of the fixed asset of the company;”

13. On the basis of the provisions indicated above, as pressed into service on behalf of the respondents, it is submitted that all the assets, they vest in the State Government and all the agreements as may be operating on the appointed day, they stood terminated by operation of law. Hence the provisions contained in the MOU, which are being relied upon by the petitioners, shall not be available to them, nor the dispute would be referable to an arbitration.

14. The learned counsel appearing for the petitioners, however, submits that though true that the Act has come into force and the company has been acquired by the State with all assets, but so far the arbitration clause as contained in the agreement, namely, the MOU, continues to be operative in respect of the disputes which had arisen between the parties prior to the appointed day. It is submitted that the dispute of the nature as indicated by the petitioners that certain assets supposed to be handed over by the ASEB having not been handed over, that is to say, there has been short handing over of the assets, and therefore the value of those assets could not be claimed from the petitioners, would not be referable under any of the provisions relied upon by the learned counsel for the respondents.

15. The question that arises for consideration is as to whether, while terminating all the contracts by operation of law, the provisions of the Act supplies any machinery for settlement of disputes between the parties, or the parties are left without any remedy.

16. At this juncture it may be worthwhile to mention that the validity of the Bharat Hydro Power Corporation Limited (Acquisition and Transfer of Undertaking) Act, 1996, was challenged in this Court by filing Civil Rule No. 283/97, in which the Act was held to be invalid; but the Division Bench in Writ Appeal No. 460/97, by judgment dated 21-3-98 upheld the validity of the Act. Therefore, the provisions of the Act would obviously be effective as provided thereunder. By virtue of Section 4(1) of the Act, all properties, rights, liabilities and obligations as specified shall vest in the State Government including all fixed assets of the company and documents etc., along with many other obligations and liabilities as specified in the said section. By virtue of Sub-section (4) of Section 4 of the Act, any contract, whether express or implied, or arrangement relating to management of the affairs of the company regarding the under-taking as may be in force before the appointed day, would be deemed to have been terminated. In view of this provision, the MOU which was undoubtedly in relation to management of the affairs of the company regarding its undertaking, stood terminated. The MOU also contained the provision for referring the disputes to the arbitration, as provided under Clause 18 of the MOU. Once the contract, agreement or arrangement is deemed to be terminated, it would obviously go as a whole including the arbitration clause. The learned counsel for the petitioners has tried to submit that where on account of arising of any dispute the parties to the contract themselves terminates the contract, the arbitration clause so far it relates to the disputes between the parties remains operative, may be that for the purposes of carrying out of the work for which the contract was entered, it remains no more operative; but the disputes are settled according to the arbitration clause. So far this proposition is concerned, it admits of no doubt, because the contract though is terminated, but the disputes remain unsettled. Once the parties agree for settlement of disputes through arbitration, they have to be decided accordingly and by no act of any party that forum can be taken away unilaterally. The effect in such a situation that further work in pursuance of the work is not carried out; but the disputes which remain there and do not come to an end, are settled as agreed. But, in the case at hand, it is entirely a different position. The agreement has not come to an end by act of any party to the contract. The contract or agreement is deemed to be terminated by operation of law as enacted by the Legislature. Hence, in the facts of the present case the position cannot be equated with other matters where the contract is brought about to an end by act of parties to the contract. It is more often than not that in such cases arbitration proceedings normally start when the contract comes to an end and it is not possible for the parties to work according to the terms of the contract and the work stops. But it is not the case here. The disputes have to be settled otherwise except as provided by arbitration under the agreement. In the present case, as indicated above, the facts are different. In the above circumstances, as observed earlier, it is to be seen whether any alternative provision under the law has been provided for settlement of disputes between the parties or not.

17. The learned counsel for the respondents has placed reliance upon a case reported in AIR 1976 SC 237, New India Insurance Co. Ltd. v. Smt. Shanti Misra. The Court was considering the question of decision of motor accident claims by the Tribunal under Section 110A of the Motor Vehicles Act, 1939. The Hon’ble Supreme Court held that it was only a case of change of forum, but so far settlement of dispute is concerned, the forum is provided under the new Act; hence, no grievance against the same can be made.

18. It is true that the said decision is in a different context. But, in the present case as well it may have some bearing, though not very direct, only to the extent that if by terminating the agreement by virtue of a provision under the law any alternative forum for settlement of dispute has been provided or not. It is submitted that in case it is provided, it will not be open for the petitioners to insist that despite the termination of the contract by operation of law, the dispute is still to be decided by arbitration under Clause 18 of the MOU.

19. Written reply to the affidavit-in-opposition filed by the respondents, has been filed. Paragraphs 5 and 6 of the said reply would be relevant, which are quoted below :–

“5. That with regard to the statements made in paragraph 7 of the affidavit, I say that all subsequent claims or disputes are taken care of, but the dispute for which the present petition for appointment of arbitrator is pending has nothing to do and there is no provision in the Act in that regard inasmuch as at the initial stage the respondents failed to deliver the entire articles of the project and, in fact, in the present Act, there is provision that if anything is lost, the same will be deducted from the compensation fixed and as such the present petition for appointment of the Arbitrator is maintainable.

6. That with regard to the statements made in paragraph 8 of the affidavit, I say that the Commission has nothing to do with the dispute which is the subject matter of the present petition and, in any case, the Notification is also not legal inasmuch as Hon’ble Mr. Justice D.N. Baruah, who is holding the post of Vice Chairman of the Central Administrative Tribunal, Guwahati Bench, Guwahati cannot be appointed to head the Commission.”

20. According to the said reply as quoted above, since at the initial stage the respondents failed to deliver the entire articles of the project and the amount of anything lost is to be deducted from the compensation found to be payable under the Act, the present application would be maintainable. It is difficult to make out any case from what has been indicated in the objection submitted on behalf of the petitioners. According to the averments made in paragraph 5 of the affidavit-in-reply, if anything has been lost by the petitioners, that amount has to be deducted from the amount fixed for compensation. The case of the petitioners is that at the initial stage all the articles of the project as required, were not handed over to the petitioners. If that is so, it is quite clear that when the assets are assessed, the petitioners can very well indicate that the articles which had not been supplied at the time of handing over, they cannot be included in the assets. Again when the value of such assets is sought to be deducted from the compensation payable, that can very well be questioned by the petitioners indicating the above fact. Therefore, to say that it is only the arbitrator who can decide this dispute as to whether all the articles were handed over or not, does not seem to be correct. If those articles have actually not been handed over as alleged by the petitioners, its value would obviously not be included in the total assets of the company. Whether the articles were handed over or not, would be a question of fact which can be gone into at the time when the assets are being assessed, or deduction is sought to be made.

21. In so far as the objection raised in paragraph 6 of the affidavit-in-reply in a general way and, more particularly, about the appointment of an Hon’ble Judge as Commission, no submissions have been made; but, in any case, it may be observed that the Commission may be constituted by one or the other persons, which is wholly immaterial, so long as the provision for Commission is there and disputes can be settled by the Commission.

22. Section 7 of the Act has already been quoted in the earlier part of the judgment. According to the said provision, the State Government to whom all the rights, title and interest of the company stood transferred or, it is passed on to the Board under Section 6, compensation has to be paid to the company on that account, the amount of which may be fixed by the Commission considering the value of the assets. While such determination is being made, there seems to be hardly any reason as to why the petitioners would not be able to say that certain assets or articles as required to be handed over were not handed over to the petitioners and that the value of such articles could not be deducted from the amount payable as compensation, as lost articles.

23. Clause (e) of Section 8 of the act also deals with one of the factors to be taken into account while arriving at an amount of compensation, namely, the book value of all the fixed assets in use on the appointed day, excluding those existing on the date of handing over to the company less the depreciated value. Under this clause too, it is rightly pointed out by the learned counsel for the respondents that it would be open to the petitioners to bring to the notice of the Commission that book value of certain articles not handed over to the company at all, is not to be considered.

24. As indicated earlier, the Commission is to be headed by a sitting or retired High Court Judge. The Commission has been given wide powers as enumerated in Section 14 of the Act itself to investigate the facts while assessing the amount of compensation. Evidence can be taken and witnesses can even be examined on commission. Any investigation made before the Commission would be deemed to be judicial proceedings. An appeal is also provided against the decision of the Commission. It is therefore submitted that Section 14 provides a full and effective machinery for settlement of disputes, which ultimately affect the gross amount of assets of the company and the net amount of compensation to be paid. The scope of enquiry while determining the question of the value of the assets and while finding out the net amount of compensation, is very wide. The proceedings before the Commission have the status of judicial proceedings, which is subject to an appeal as provided under Subsection (7) of Section 14 of the Act.

25. In this view of the matter it has been rightly submitted on behalf of the respondents that for all practical purposes it is only a change of forum for settlement of disputes from arbitration under the agreement to a statutory commission under the Act and mere change of forum cannot be complained of by the petitioners. It appears that the alternative forum which has been provided under the statute has more powers to investigate with the status of the proceedings as judicial proceedings. Hence, it cannot be successfully canvassed by the petitioners that in respect of what has not been provided under the Act, the agreement will survive. As a matter of fact, Clause 18 of the MOU is clearly covered by the provisions of the statute, namely, the Act. Therefore, it cannot be said that the provisions of the statute are to be ignored and arbitration clause of MOU may be resorted to for settlement of such disputes which are to be decided by the statutory Commission under the Act. The whole contract, agreement or arrangement could be deemed to have been terminated by virtue of Sub-section (4) of Section 4 of the Act, including Clause 18 of the MOU.

26. The learned counsel appearing for the respondents has also referred to Section 26 of the Act to emphasize that the settlement of all kinds of disputes have been taken care of under the Act itself. Section 26 of the Act provides that in relation to certain disputes, Commission would act in its capacity as arbitrator to determine whether any property belonging to the company vests in the State Government or not, or any such right, liability or obligation attaching to the company vests in the State Government or the Board, as the case may be. Clause (b) of Section 26(1) of the Act provides that the Commission in its capacity as an arbitrator shall determine whether any assets forms part of the fixed asset of the company. It is submitted that while considering this matter, the petitioners can very well show to the Commission that certain articles which were not handed over to it as complained, do not form part of the fixed assets of the company, having not been delivered as required by the ASEB. Hence, any amount on that count could be deducted while determining the amount of compensation under Section 7 of the Act, or while considering the matter under Section 11 of the Act, which says that the State Government shall be entitled to deduct certain amount from the gross amount payable to the company, and particularly, Clause (e) of Section 11, which provides that the amount equivalent to the loss sustained by the State Government by reason of any property or rights belonging to the company not having been handed over to the State Government. If the State Government claims any such deduction, it can very well be said that such articles were never handed over to the company by the ASEB.

27. In view of the discussion held above, it is clear that all rights, title and interest of the company relating to the undertaking vested in the State Government by virtue of Section 3 of the Act and all contracts and arrangements as existing immediately before the appointed day, were deemed to have been terminated on the appointed day. In the above situation, the parties would be governed by the provisions of the statute, namely, the Act and Sections 7, 11, 14 and 26 provides alternative forum for settlement of the disputes by the Commission invested with effective procedure to investigate into the facts in dispute.

28. In the result, the petition for appointment of an arbitrator has no merit and it is accordingly dismissed. Costs easy.


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