REPORTABLE
* IN THE HIGH COURT OF DELHI AT NEW DELHI
CM Nos.15130, 3843, 3844/2007 in FAO No.104 of 2007
&
ARB. A. No.12 of 2009
Reserved On: 12th July, 2010
% Date of Decision: 14th July, 2010
1) CM Nos.15130, 3843, 3844/2007 in FAO No.104 of 2007
NATIONAL HIGHWAYS AUTHORITY OF INDIA . . . Appellant
through : Mr. Sandeep Sethi, Senior
Advocate with Mr. Sumit
Gehlot and Mr. Juned Akhtat,
Advocates.
VERSUS
M/s. BSC-RBM-PATI (JV) . . .Respondent
through: Mr. P.H. Parekh, Senior
Advocate with Mr. Arjun Gard
and Mr. Vishal Prasad,
Advocates.
2) ARB. A. No.12 of 2009
M/s. B. Seenaiah & Company ...Appellant
through: Mr. P.H. Parekh, Senior
Advocate with Mr. Arjun Gard
and Mr. Vishal Prasad,
Advocates.
VERSUS
NATIONAL HIGHWAYS AUTHORITY OF INDIA . . . Respondent
through : Mr. Sandeep Sethi, Senior
Advocate with Mr. Sumit
Gehlot and Mr. Juned Akhtat,
Advocates.
CORAM :-
HON'BLE MR. JUSTICE A.K. SIKRI
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
Arb. A. 12 of 2009 and FAO 104 of 2007 Page 1 of 11
Arb. A. 12 of 2009 and FAO 104 of 2007 Page 2 of 11
A.K. SIKRI, J.
1. CM No. 3844 of 2007
Exemption is allowed, subject to just exceptions.
CM stands disposed of.
2. CM Nos. 3843 & 15130 of 2007 in FAO No. 104 of 2007
and ARB. A. No. 12 of 2009
Both these matters are interconnected. For this reason, they
were heard together and are being disposed of by this
common order.
3. It may be mentioned that FAO No.104 of 2007 has already
been decided vide orders dated 29.03.2007. It would be
appropriate to take note of few facts in brief and the orders
passed in FAO on 29.03.2007 before coming to the present
proceedings.
4. M/s. B. Seenaiah & Company and Others (hereinafter referred
to as „the petitioner‟) was awarded a contract – II for four
laning including strengthening of existing two lane pavement
between Raniganj and Panagarh in West Bengal (474 Km to
515.236 Km on NH 2) by National Highways Authority of India
(hereinafter referred to as „the respondent‟). It was one of the
obligations of the petitioner to furnish the performance
security in the form of a Bank Guarantee for an amount
equaling 10% of the contract price. Four bank guarantees
amounting to Rs.16,07,90,547/- were submitted in accordance
with proforma prescribed in Clause 10.1 of the contract on
20.04.1996. Thereafter, contract-II was signed by the
authorities on 24.07.1997. The petitioner executed the
contract. The engineer, as per the contract, also issued defect
liability certificate dated 23.09.2003 stating that the works
Arb. A. 12 of 2009 and FAO 104 of 2007 Page 3 of 11
under the contract were fully completed and the defects
therein had been rectified to his satisfaction in accordance
with Clause 62.1. He also specified 18.09.2003 as the date on
which the petitioner is deemed to have completed his
obligations to execute and complete the works.
5. There was no quietus to the matter with the execution of the
contract inasmuch as certain disputes erupted between the
parties. According to the petitioner, the respondent did not
make various payments which were due to the joint
venture/petitioner. The petitioner, in these circumstances,
invoked the Arbitration Clause and submitted claims of
Rs.64.74 Crores before the Arbitral Tribunal, without
intervention of the Court. The respondent denied and
disputed those claims by filing its reply on 24.05.2005.
Thereafter, on 12.06.2006, the respondent also submitted its
contract claims for Rs.42.42 Crores.
6. According to the petitioner, the performance guarantees given
by it were valid for a period of 28 days from the date of
issuance of defect liability certificate. However, the
respondent did not return the bank guarantees and on the
contrary, threatened to encash the same. The petitioner, thus,
filed petition (OMP No.233 of 2006) under Section 9 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to
as „the Act‟). This OMP was decided by the respondent and
was ultimately disposed of on 22.08.2006 by this Court. The
relief sought by the petitioner in the said OMP, viz., restraining
the respondent from encashing the bank guarantee was sent
to the Arbitral Tribunal directing the arbitrators to decide the
Arb. A. 12 of 2009 and FAO 104 of 2007 Page 4 of 11
same within a period of six months from the date of the
receipt of that order.
7. Armed with the said order, the petitioner moved an application
under 17 of the Act for release of bank guarantees furnished
by the joint venture/petitioner. On this application, the Arbitral
Tribunal passed orders dated 08.02.2007 directing the
respondents to release those bank guarantees.
8. At this stage, FAO No. 104 of 2007 was filed by the respondent
under Section 37(2)(b) of the Act challenging the aforesaid
orders dated 08.02.2007 passed by the Arbitral Tribunal. This
appeal, as mentioned above, was disposed of by this Court on
29.03.2007. Relevant and operative portion of the said orders
reads as under:
“Contention of learned counsel for the appellant is that such
a direction for release of PSBG should not have been given by
the Arbitral Tribunal under Section 17 of the Act. The order is
challenged on merits as well. Learned counsel for the
respondent, on the other hand, submits that after making a
statement in this Court in the application filed by the
respondent under Section 9 of the Act and agreeing for a
decision on this aspect by the Arbitral Tribunal, it does not lie
in the mouth of the appellant now to challenge the
jurisdiction of the Arbitral Tribunal. Mr. Parekh also submits
that as the contract was duly executed to the satisfaction of
the appellant and the Engineer had issued Defect Liability
Certificate (DLC), there is no question of retaining the said
PSBG by the respondent.
After hearing the arguments for sometime, suggestion was
given as to whether the respondent should continue to keep
the bank guarantee alive till the disposal of arbitration
proceedings before the Arbitral Tribunal subject to the
condition that in case the respondent succeeds before the
Arbitral Tribunal, expenses incurred by the respondent for
getting the bank guarantee renewed from time to time shall
be borne by the appellant. Mr. Parekh had accepted this
suggestion. Learned counsel for the appellant took time to
seek instructions. Mr. Sethi, learned senior counsel appearing
for the appellant states that it would not be possible for the
appellant to give any statement to this effect agreeing to this
condition.
As is clear from the aforesaid and also the detailed order
passed by the Arbitral Tribunal, the case of the respondent is
that it is not obliged to keep the bank guarantee alive. The
bank guarantee is in the sum of Rs.1,60,79,05,450/-.
Arbitration proceedings are still on and the matter is
to be heard on merits. If the respondent is asked to keep
the bank guarantee alive, insofar as the respondent is
concerned, it will have to bear the expenses for the sameArb. A. 12 of 2009 and FAO 104 of 2007 Page 5 of 11
which will have to be paid to the Bank for renewal of the
bank guarantee from time to time. Therefore, in a matter
like this, equities would demand that the PSBG is kept
alive so that interest of the appellant is secured in
case ultimately the appellant succeeds in the matter.
On the other hand, if ultimately respondent succeeds in its
claims and it is held that there was no need for keeping the
bank guarantees alive, the respondent can be compensated
by burdening the appellant with the expenses which the
respondent would have incurred in renewing the bank
guarantee.
This appeal is, accordingly, disposed of with directions to the
respondent to keep the PSBG alive during the pendency of
the proceedings before the Arbitral Tribunal. It is made
clear that in the event of the respondent succeeding before
the Arbitral Tribunal, the Arbitral Tribunal shall be competent
to award the amount incurred by the respondent in renewing
the bank guarantee. However, it is made clear that the
appellant shall also not encash the said bank guarantee.
The Arbitral Tribunal may also endeavour to conclude the
proceedings and give its award as early as possible
and preferably within four months from today.”
9. CM 15130 of 2007 is filed in this FAO by the petitioner
(respondent in the said FAO). It is, inter alia, averred that
after the aforesaid order was passed and the matter went back
to the Arbitration Tribunal, the additional application was filed
before the Arbitration Tribunal on 10.07.2007, inter alia,
submitting that the Tribunal should pass two distinct and
separate award for each of the reference before the Arbitration
Tribunal, viz.:
a) Reference before the Arbitration Tribunal filed before
the parties; and
b) Reference before the Arbitration Tribunal by this
Court vide orders dated 22.08.2006 as to whether
Bank Guarantee kept should be released or be
decided in OMP filed.
10. The Tribunal has, however, passed vide orders dated
12.09.2007 directing that the bank guarantee should be kept
in force till all the disputes between the parties raised before
Arb. A. 12 of 2009 and FAO 104 of 2007 Page 6 of 11
the Arbitration Tribunal are finally resolved. Submission of the
petitioner is that while passing this order, the Arbitral Tribunal
has not appreciated the true nature of the orders passed on
29.03.2007 in FAO No.104 of 2007 inasmuch as the intention
behind that order was to give the award in respect of bank
guarantee, separately.
11. Arbitration Application No.12 of 2009 is filed under Section
37(2)(b) of the Act challenging the same order dated
12.09.2007 of the Tribunal. It is stated by way of this petition,
the petitioner, by way of abundant caution, laying independent
challenge to the said order. Insofar as this application is
concerned, Mr. P.H. Pareksh, learned Senior counsel was
candid in conceding that the orders dated 12.09.2007 of the
Arbitral Tribunal are not appealable orders and no such appeal
is maintainable. Even otherwise, the contention based on the
purported reference “is misconceived that there is no
provision of making „reference‟ under the Arbitration and
Conciliation Act, unlike the position which existed in Arbitration
Act, 1940. He, therefore, did not press this petition and
submitted that since same prayer was made in CM No.15130
of 2007 in FAO No.104 of 2007 as well. This Arbitration
Application is dismissed as not maintainable.
12. Coming back to CM No.15130 of 2007, prayers made by the
petitioner are as under:
(i) To direct the Arbitral Tribunal to dispose the BG
main claim statement filed by the respondent on
02.09.2006 passed by this Court in OMP No.233 of
2006 for release of the Bank Guarantees for
Arb. A. 12 of 2009 and FAO 104 of 2007 Page 7 of 11
Performance Security forthwith without linking it toother claims referred under the Contract.
(ii) Direct the appellant to discharge, release and
return to the respondent the said BGs numbers
30/97, BSC-04, 316020008535-HP, 316020008492-
HP in terms of the order of AT dated 08.2.2007.
(iii) To pass any further orders that this Court deems
fit and proper.
13. Submission of Mr. Parekh was that the earlier orders passed by
the Tribunal on 08.02.2007 was challenged by the
respondent/NHAI primarily on the ground that such an order
under Section 17 was not in the nature of award and direction
to release bank guarantee could not have been given by the
Arbitral Tribunal under Section 17 of the Act. His submission
that because of this reason, the order was set aside and when
the directions were given to dispose of the matter within four
months, it was but natural that the question of bank
guarantee, which was referred to by any proceedings under
Section 9 of the Act could be adjudicated separately and the
Arbitral Tribunal could pass the award thereon independently
and other disputes, which were referred to by the parties.
14. I do not agree with the aforesaid contention of Mr. Parekh.
The order passed on 29.03.2007 has already been reproduced
above. It is clear that earlier order dated 08.02.2007 passed
by the Arbitral Tribunal directing the respondent to release the
bank guarantee was not only challenged on the ground that
such an order was not permissible under Section 17 of the Act,
but was challenged on merits as well. During the arguments,
suggestion was given as to whether the petitioner would
Arb. A. 12 of 2009 and FAO 104 of 2007 Page 8 of 11
continue to keep bank guarantees alive “till the disposal of the
arbitral proceedings before the Arbitral Tribunal”. Even the
condition was put that in case the petitioner herein succeeds,
the expenses incurred in renewal of the bank guarantee shall
be borne by the NHAI. The petitioner had accepted this
suggestion. However, NHAI was not agreeable to the
suggestion of bearing the cost. Still this stipulation was added
in the order that in case the petitioner succeeds, NHAI shall
bear the expenses incurred for keeping bank guarantee alive
during the pendency of the arbitral proceedings. It was
categorically recorded:
“Arbitration proceedings are still on and the matter is
to be heard on merits. If the respondent is asked to keep
the bank guarantee alive, insofar as the respondent is
concerned, it will have to bear the expenses for the same
which will have to be paid to the Bank for renewal of the
bank guarantee from time to time. Therefore, in a matter
like this, equities would demand that the PSBG is kept
alive so that interest of the appellant is secured in
case ultimately the appellant succeeds in the matter.
On the other hand, if ultimately respondent succeeds in its
claims and it is held that there was no need for keeping the
bank guarantees alive, the respondent can be compensated
by burdening the appellant with the expenses which the
respondent would have incurred in renewing the bank
guarantee.
This appeal is, accordingly, disposed of with directions to the
respondent to keep the PSBG alive during the pendency
of the proceedings before the Arbitral Tribunal.
15. Reference was clearly to the entire arbitration proceedings
and not limited to the issue relating to bank guarantee. The
counsel for the petitioner had even agreed to keep the bank
guarantee alive. In view of the fact that the orders was passed
and suggestion given by the petitioner in prayers made in this
application cannot be allowed.
16. This application is accordingly dismissed.
17. One aspect, however, still remains to be adverted to. In the
order dated 29.03.2007, it was observed that endeavour shall
be made by the Arbitral Tribunal to conclude the proceedings
Arb. A. 12 of 2009 and FAO 104 of 2007 Page 9 of 11
and giving the awards as early as possible and preferably
within four months from the date of receipts of the order.
More than three years have passed. During the course of
hearing, it was informed that proceedings are still half way
through. No doubt, Arbitral Tribunal has specifically observed
in its order dated 12th September, 2007 that the case involves
lengthy nature of disputes and large number of claims and
counter claims and, therefore, it would not be possible to
comply with the direction/orders dated 29.03.2007. However,
that would not be a ground to continue and prolong the
arbitration proceedings infinitive or endlessly. As pointed out
above, even from 29.03.2007 more than three years have
passed. Mr. Parekh informed that more than Rs.1 crore
expenses have already been incurred in getting the bank
guarantees renewed.
18. The very purpose of arbitration is defeated if these
proceedings are protracted abnormally. These proceedings
have already taken number of years. Efforts should be made
to conclude the same expeditiously. The very fact that
lengthy nature of disputes are involved as observed by the
Arbitral Tribunal, itself provides justification for regular
hearings, preferably on day to day basis. However, the
Arbitral Tribunal, it was informed by the counsel for the
parties, is fixing dates after every two months or so and
hearing does not last for more than two hours or so. If the
proceedings in future continue in this fashion, it will take many
years before the award is rendered. This cannot be
countenanced.
Arb. A. 12 of 2009 and FAO 104 of 2007 Page 10 of 11
19. In these circumstances, I am of the opinion that Arbitral
Tribunal should fix hearings at a stretch for one week. It can
be from Monday to Friday and for each day hearing should be
in pre-lunch and post lunch session with each session of two
and half hours. If the arguments are not concluded in that
week, hearings can be fixed again for one week in a similar
manner, after a short gap. Learned counsel for the parties
informed that if hearings are fixed for two weeks in the
aforesaid manner, they would be able to complete their entire
submissions.
20. Accordingly, the Tribunal is directed to fix the hearings in the
aforesaid manner and finish the matter within four months.
21. All the applications as well as Arbitration Petition are
dismissed.
(A.K. SIKRI)
JUDGE
JULY 14, 2010.
pmc
Arb. A. 12 of 2009 and FAO 104 of 2007 Page 11 of 11