2022 (7) TMI 974 - SC - Indian Laws

Appointment of Arbitrator in applications - notified claims or not - Section 11(6) of the Arbitration Act - HELD THAT - It cannot be disputed that both the parties are governed by the General Conditions of Contract (GCC). The GCC are the part of the Agreements / Contracts between the parties. Under the GCC, the parties have agreed to resolve the dispute between them only in terms of the relevant clauses of the GCC. The parties have agreed that certain specified disputes alone will be the subject of arbitration. In the case of Narbheram Power Steel (P) Ltd. 2018 (5) TMI 327 - SUPREME COURT , it is observed and held that the parties are bound by the Clauses enumerated in the policy and the Court does not transplant any equity to the same by rewriting a clause. It is further observed and held that an arbitration clause is required to be strictly construed. Any expression in the clause must unequivocally express the intent of arbitration. It can also lay the postulate in which situations the arbitration clause cannot be given effect to. It is further observed that if a clause stipulates that under certain circumstances there can be no arbitration and they are demonstrably clear then the controversy pertaining to appointment of Arbitrator has to be put to rest. In the recent decision of this Court in the case of DLF Home Developers Limited v. Rajapura Homes Private Limited and Another 2021 (9) TMI 1053 - SUPREME COURT in which this Court also had an occasion to consider Section 11(6A) of the Arbitration Act and ultimately has observed, after referring to and considering the decision of three Judges Bench of this Court in the case of Vidya Drolia 2020 (12) TMI 1227 - SUPREME COURT that the jurisdiction of the Court under Section 11 of the Arbitration Act is primarily to find out whether there existed a written agreement between the parties for resolution of the dispute and whether the aggrieved party has made out a prima facie arguable case, it is further observed that limited jurisdiction, however, does not denude the Court of its judicial function to look beyond the bare existence of an arbitration clause to cut the deadwood. The issue / aspect with regard to accord and satisfaction of claims is seriously disputed and is debatable. Whether, in view of the acceptance of Rs.4,53,04,021/by the respondent NCCL which was released by IOCL on the offer / letter made by the respondent NCCL dated 02.11.2016 there is an instance of accord and satisfaction of the claims is a good and reasonably arguable case. It cannot be said to be an open and shut case. Therefore, even when it is observed and held that such an aspect with regard to accord and satisfaction of the claims may/can be considered by the Court at the stage of deciding Section 11 application, it is always advisable and appropriate that in cases of debatable and disputable facts, good reasonably arguable case, the same should be left to the Arbitral Tribunal - though the Arbitral Tribunal may have jurisdiction and authority to decide the disputes including the question of jurisdiction and nonarbitrability, the same can also be considered by the Court at the stage of deciding Section 11 application if the facts are very clear and glaring and in view of the specific clauses in the agreement binding between the parties, whether the dispute is nonarbitrable and/or it falls within the excepted clause. Even at the stage of deciding Section 11 application, the Court may prima facie consider even the aspect with regard to accord and satisfaction of the claims. The parties to the contract are free to agree on applicability of (1) proper law of contract, (2) proper law of arbitration agreement and (3) proper law of the conduct of arbitration. Parties to the contract also may agree for matters excluded from the purview of arbitration. It is observed that the learned Arbitrator shall first decide the aspect with regard to accord and satisfaction of the claims and arbitrability of the disputes with regard to such claims by deciding an application under Section 16 of the Arbitration Act, which is reported to be pending. The learned Arbitrator shall first decide the jurisdiction of the Arbitral Tribunal and the arbitrability of the claims within a period of three months from the date of first sitting which shall be within a period of one month from today. All the contentions and/or defences which may be available to the respective parties are kept open to be considered by the learned Arbitrator in accordance with law and on its own merits and considering the relevant clauses of the contract and the material on record - The impugned judgment and order passed by the High Court in Arbitration Petition No.407/2018 is hereby modified to the extent and it is directed that only one claim of the respondent which is declared by the General Manager as a Notified Claim shall have to be referred to arbitration and the learned Arbitrator shall adjudicate only that claim which is declared by the General Manager as a Notified Claim and the learned Arbitral Tribunal shall not have any jurisdiction to adjudicate on any other claims which as such are not declared as Notified Claims. Application disposed off.

Summary

Issues Involved:

1. Validity and applicability of arbitration clauses.
2. Definition and scope of "Notified Claims".
3. Jurisdiction of the General Manager in determining arbitrability.
4. Accord and satisfaction of claims.
5. Role of the court under Section 11(6) of the Arbitration Act, 1996.
6. Interpretation of contract clauses related to dispute resolution.

Detailed Analysis:

1. Validity and Applicability of Arbitration Clauses:

The judgment addresses the issue of whether disputes between the parties can be referred to arbitration under the existing arbitration clauses in the General Conditions of Contract (GCC). The court noted that the parties are bound by the terms of the contract, which includes specific provisions regarding arbitration. The court emphasized that party autonomy is central to arbitration and that the terms of the contract must be interpreted as intended by the parties.

2. Definition and Scope of "Notified Claims":

The judgment extensively discusses the concept of "Notified Claims" as defined in Clause 1.21.0.0 of the GCC. A claim must be notified in writing to the Engineer-in-Charge and the Site Engineer within ten days of the event giving rise to the claim. The court highlighted that only claims that follow this procedure can be considered "Notified Claims" and are eligible for arbitration. The court also noted that any claims not notified as per the stipulated procedure are deemed waived.

3. Jurisdiction of the General Manager in Determining Arbitrability:

The court examined the role of the General Manager under Clause 9.0.2.0 of the GCC, which grants the General Manager the authority to decide whether a claim is a "Notified Claim" and thus arbitrable. The court held that the General Manager's decision on whether a claim is a "Notified Claim" is final and cannot be referred to arbitration. This clause is part of the contract and binding on both parties.

4. Accord and Satisfaction of Claims:

The issue of whether the claims were settled through "accord and satisfaction" was a significant point of contention. The court observed that this issue is debatable and should be decided by the Arbitral Tribunal. The court noted that the acceptance of Rs.4,53,04,021 by the respondent under alleged duress and coercion is a matter to be examined by the Arbitral Tribunal.

5. Role of the Court Under Section 11(6) of the Arbitration Act, 1996:

The court discussed the limited scope of judicial intervention under Section 11(6) of the Arbitration Act, 1996, which is confined to examining the existence of an arbitration agreement. The court cited various precedents to emphasize that the court should refer matters to arbitration unless it is manifestly clear that the arbitration agreement does not cover the dispute. The court also noted that issues of non-arbitrability should generally be left to the Arbitral Tribunal.

6. Interpretation of Contract Clauses Related to Dispute Resolution:

The court analyzed various clauses of the GCC, including Clauses 6.6.1.0, 6.6.3.0, 6.7.1.0, 6.7.2.0, 9.0.1.0, and 9.0.2.0, to determine their impact on the arbitrability of disputes. The court held that the contract clearly stipulates that only "Notified Claims" included in the final bill can be referred to arbitration. The court also noted that the contract allows the General Manager to decide on the arbitrability of claims, and such decisions are binding.

Judgment:

1. Civil Appeal No. 341/2022: Dismissed. The Arbitral Tribunal will first decide the issue of "accord and satisfaction" and arbitrability of the claims within three months.

2. Civil Appeal No. 342/2022: Allowed. The High Court's order referring the dispute to arbitration is quashed.

3. Civil Appeal Nos. 343/2022 and 345/2022: Allowed. The High Court's orders referring the disputes to arbitration are quashed.

4. Civil Appeal No. 344/2022: Partly allowed. Only the claim declared as a "Notified Claim" by the General Manager will be referred to arbitration. The Arbitral Tribunal will not have jurisdiction over other claims.

The court concluded that the High Court erred in referring disputes that were not "Notified Claims" to arbitration and emphasized the importance of adhering to the contract terms agreed upon by the parties.