Corporate Laws - Arbitration Act = (1) Whether Gangavaram Port Limited (GPL) is right in contending that Memorandum of Understanding (MoU) dated 11.08.2012 and Original Package No. 4 Tender Document and Corporate Guarantee dated 17.03.2012 executed by Duro Felguera covers all the five split-up Packages awarded to Duro Felguera and FGI and whether there has to be a composite reference/single arbitral tribunal for "International Commercial Arbitration" covering all the five different Packages and also the Corporate Guarantee executed by Duro Felguera? (2) Whether there have to be 'multiple arbitral tribunals' for each of the five different Packages of Work awarded to the foreign company-Duro Felguera and Indian Subsidiary-FGI (one International Commercial Arbitral Tribunal plus four Domestic Arbitral Tribunals) and another one arbitral tribunal for 'international commercial arbitration' under Corporate Guarantee (17.03.2012) executed by the foreign company-Duro Felguera? = 13.The scope of the power under Section 11 (6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. (supra) and Boghara Polyfab (supra). This position continued till the amendment brought about in 2015. After the amendment, all that the Courts need to see is whether an arbitration agreement exists - nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court’s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11 (6A) ought to be respected. 14 In the case at hand, there are six arbitrable agreements (five agreements for works and one Corporate Guarantee) and each agreement contains a provision for arbitration. Hence, there has to be an Arbitral Tribunal for the disputes pertaining to each agreement. While the arbitrators can be the same, there has to be six Tribunals - two for international commercial arbitration involving the Spanish Company-M/s Duro Felguera, S.A. and four 44 for the domestic.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION PETITION NO.30 OF 2016
M/S. DURO FELGUERA, S.A. ........Petitioner
VERSUS
M/S. GANGAVARAM PORT LIMITED ........Respondent
WITH
ARBITRATION PETITION NO.31 OF 2016
T.C.(C) NOS.25/2017, 26/2017, 27/2017 AND 28/2017
J U D G M E N T
BANUMATHI, J.
Arbitration Petition No.30 of 2016 has been filed by M/s Duro Felguera,
S.A. under Section 11(6)(a) read with Sectiion 11(12)(a) of the Arbitration and
Conciliation Act, 1996 (for short, 'the Act') to appoint the nominee arbitrator on
behalf of the respondent (second arbitrator) in terms of sub-clause 20.6 of the
Special Conditions of the Contract with respect to the arbitration arising under
the Contract dated 10.05.2012. T.C. No.25 of 2017, T.C. No.26 of 2017, T.C.
No.27 of 2017 and T.C. No.28 of 2017 have been filed by M/s. Felguera Gruas
India Private Limited (hereinafter referred to as 'the FGI') for appointment of
Domestic Arbitral Tribunal for resolving the dispute pertaining to the contract
1
awarded to FGI. Arbitration Petition No.31 of 2016 has been filed by M/s.
Gangavaram Port Limited (hereinafter referred to as 'the GPL') to appoint an
arbitrator under the Memorandum of Understanding (MoU) dated 11.08.2012
and to constitute a single Arbitral Tribunal by a composite reference for
adjudication of all the disputes between the parties in connection with the
"Works" covered under all the five Package Contracts and the Corporate
Guarantee dated 17.03.2012 executed by Duro Felguera.
2. As the parties and issues in both the arbitration petitions and the
transferred cases are one and the same, both arbitration petitions and the
transferred cases shall stand disposed of by this common order. For
convenience, parties are referred to as per their array in Arbitration Petition
No.30 of 2016.
3. Brief Facts: The Respondent-Gangavaram Port Limited (GPL) developed
a green-field, ultra-modern, all-weather sea-port near Gangavaram Village in
Visakhapatnam District in the State of Andhra Pradesh. This sea-port
commenced operations in the year 2009. The Respondent intended to expand
its facilities in the Port with respect to Bulk Material Handling Systems. This
included Engineering, Design, Procurement of Materials, Manufacturing,
Supply, Erection, Testing and Commissioning of Bulk Material Handling
Systems, as well as all other associated works and integration of the same
with the existing coal handling systems etc. For this purpose, on 08.08.2011,
Gangavaram Port Limited invited a tender/bid. In response to the
2
aforementioned tender dated 08.08.2011, the Spanish Company-Duro
Felguera Plantas Industrials S.A. (since merged with the petitioner) along with
its Indian subsidiary-M/s. Felguera Gruas India Private Limited (FGI) submitted
a Single Bid/Tender-Original Package No.4 Tender Document on 15.11.2011.
This included the Commercial Bid and the Technical Bid. After post-bid
negotiations, the petitioner Duro Felguera and its subsidiary (FGI) were
considered by GPL and Duro Felguera and FGI were selected as "the
Contractors" for the work.
4. After discussion between the parties, Original Package No. 4 TD was
divided into five different and separate Packages, namely, New Package No.
4-F.O.B. Supply of Bulk Material Handling Equipments (awarded to foreign
company-M/s Duro Felguera), Package No. 6-design, manufacture, supply,
installation, erection, testing, commissioning of Bulk Material Handling
Equipments and all other activities related therewith; Package No. 7-Civil
Works and all other activities related therewith; Package No. 8-International
Transportation of Bulk Material Handling Equipments and parts through sea
including insurance and all related activities; Package No. 9-Installation,
Testing and Commissioning of Ship Unloaders and all other activities related
therewith (Packages No.6 to 9 awarded to Indian subsidiary-FGI). Separate
Letters of Award (dated 17.03.2012) for five different Packages were issued
to M/s Duro Felguera, S.A. and the Indian Subsidiary-FGI for the above said
work respectively.
3
5. Five different contracts were entered into on 10.05.2012 for five split-up
Packages with different works viz. namely New Package No. 4 with foreign
company-M/s Duro Felguera and Packages No. 6, 7, 8 and 9 with FGI. Each
of the Packages has special conditions of contract as well as general
conditions of contract. Each one of the Contract/Agreement for works under
split-up Packages contains an arbitration clause namely sub-clause 20.6.
Duro Felguera had also entered into a Corporate Guarantee dated 17.03.2012
guaranteeing due performance of all the works awarded to Duro Felguera and
FGI. The said Corporate Guarantee had its own arbitration clause namely
clause (8).
6. Duro Felguera and FGI have executed a tripartite Memorandum of
Understanding (MoU) with M/s Gangavaram Port Limited (GPL) on
11.08.2012. In the said MoU, Duro Felguera and FGI have agreed to carry out
the works as per the priority of documents listed therein. Case of GPL is that
the MoU dated 11.08.2012 being the latest covers all the five contracts namely
New Package No. 4 awarded to M/s Duro Felguera and Packages No. 6 to 9
awarded to FGI. According to GPL, since MoU refers to original Package No.
4 Tender Document (TD) which contains arbitration clause, the Original
Package No. 4 TD with its arbitration clause shall be deemed to have been
incorporated in the MoU.
7. Case of M/s. Gangavaram Port Limited is that the petitioner-M/s Duro
Felguera, S.A. and its Indian Subsidiary-FGI failed to perform their obligations,
4
including their obligation to attend and rectify faulty works and complete the
pending works etc. Further grievance of GPL is that though the works were
scheduled to be completed at the latest by 16.03.2014, the petitioner-M/s Duro
Felguera, S.A. and its Indian Subsidiary (FGI) caused inordinate delay in
execution of the work and, therefore, GPL was constrained to invoke the Bank
Guarantee on 07.01.2016 given by petitioner-M/s Duro Felguera. GPL had
also issued Notices of Termination dated 31.01.2016 to the Foreign
Company-M/s Duro Felguera and its Indian Subsidiary(FGI). M/s Duro
Felguera, S.A. and its Indian Subsidiary (FGI) issued notice of dissatisfaction
on 04.02.2016 and 07.02.2016 to GPL. Subsequently M/s. Duro Felguera
issued an arbitration notice dated 05.04.2016 for New Package No. 4 Contract
and FGI issued four arbitration notices dated 07.04.2016 for Packages No. 6
to 9 Contracts. Both M/s. Duro Felguera and FGI have separately nominated
Mr. Justice D.R. Deshmukh (Former Judge, Chhattisgarh High Court) as their
nominee arbitrator for each of the five contracts.
8. GPL issued a comprehensive arbitration notice on 13.04.2016 appointing
Mr. Justice M.N. Rao (Former Chief Justice, Himachal Pradesh High Court) as
its nominee arbitrator under sub-clause 20.6 of the conditions of contract
which form part of the "Original Package No. 4 Tender Document". Contention
of GPL is that "Original Package No. 4 (TD) and the Corporate Guarantee by
M/s. Duro Felguera" and the MoU dated 11.08.2012 cover all the five
contracts, namely, New Package No. 4, Package No. 6, Package No. 7,
5
Package No. 8 and Package No. 9 as well as the Corporate Guarantee.
Further case of GPL is that five individual arbitration notices issued by M/s.
Duro Felguera and FGI are untenable and since Duro Felguera-the foreign
company has guaranteed the due performance of the works covered under all
the five packages and there has to be only one single Arbitral Tribunal for
resolving the disputes of "International Commercial Arbitration" arising
between the parties.
9. Mr. Mukul Rohtagi and Mr. Raju Ramachandran, learned Senior Counsel
for M/s Gangavaram Port Limited (GPL) submitted that the split up of the
"Works" into five separate contracts was made only on the basis of the
requests made by the Duro Felguera for convenience of the contractors. It
was contended that all the works are inter-connected and inter-linked and if
there are separate arbitrations for each of the packages, and separate
arbitration for New Package No. 4 and the Corporate Guarantee take place,
then in each arbitration, the respondent party will blame the lapse on the part
of GPL in another Package and thereby attempt to escape liability. It was
urged that the appointment of a single arbitral tribunal, under the MoU and the
Corporate Guarantee will avoid conflicting awards between the parties, huge
wastage of time, resources and expenses; and would be consistent with law
and public policy. The learned Senior Counsel further submitted that MoU was
executed by Duro Felguera and FGI on 11.08.2012 and the contents of MoU
including the priority of the documents referred therein prevail over the
6
contents of the Letters of Award and the Contracts. It was, therefore,
submitted that the arbitration clause covered under sub-clause 20.6 of the
conditions of contract, which forms part of the "Original Package No. 4 Tender
Document" which is incorporated in the MoU shall prevail over the arbitration
clause covered under sub-clause 20.6 of the contract for five packages. It
was further submitted that having regard to the nature of disputes which
extend over each of the Packages and collectively covered the Corporate
Guarantee executed by Duro Felguera under MoU, it would be just and proper
to make a 'composite reference' and have a single arbitral tribunal of
'international commercial arbitration' for settling the dispute arising between
the parties and the same would be consistent with the intention of the parties
and public policy. It was urged that the contract for the "Works" has always
been envisaged by the parties as one composite contract even though the
contracts were split into various Packages and there cannot be multiple
arbitral tribunals for adjudication of disputes between the parties as it would
lead only to complications in settling the disputes and execution of the awards.
10. Mr. Sunil Gupta learned Senior Counsel appearing for Duro
Felguera-Spanish Company submitted that by conscious agreement of the
parties, the Original Package No.4 Tender Document was superseded by five
new Contracts with different works namely New Package No. 4, Packages
No.6, 7, 8 and 9, each of which have special conditions as well as general
conditions of contract. It was further submitted that the Corporate Guarantee
7
dated 17.03.2012 executed by Duro Felguera guaranteeing due performance
of the works awarded to Duro Felguera and FGI has its own separate and
distinct arbitration clause and the same has no connection with the arbitration
clauses (sub-clause 20.6) of the five different contracts for New Package No. 4
and Packages No. 6, 7, 8 and 9. The learned Senior Counsel further
submitted that the MoU dated 11.08.2012 which enlists priority of the
documents to be considered is only to have clarity in carrying out the works
and the MoU cannot override the terms of the contracts for five different
packages including the arbitration clauses contained therein. It was submitted
that the five new split-up Packages followed by five different Letters of Award
and five different contracts were substantially different, independent and
separate in their content and subject matter and there cannot be a 'composite
reference' for efficacious settlement of disputes, it would be just and proper to
have multiple arbitral tribunals and may be by the same arbitrators. The
learned Senior Counsel submitted that so far as New Package No.4 and the
issues pertaining to the Corporate Guarantee executed on 17.03.2012 by Duro
Felguera-the foreign Company, the arbitral tribunal has to be for International
Commercial Arbitration.
11. Reiterating the above submissions, Mr. Singhvi, the learned Senior
Counsel appearing for Indian subsidiary-FGI contended that by conscious
decision and agreement of the parties, Original Package No. 4 (TD) was
superseded and five new TDs with different works namely TD for New
8
Package No. 4 and Packages No. 6, 7, 8 and 9 were brought into existence
and there were separate Letters of Award and five separate contracts for each
one of those split-up packages. It was submitted that each of the contracts
contain special conditions as well as general conditions of contract apart from
the arbitration clause, (sub-clause 20.6), which is relevant for governing the
contractual and arbitral relations between the parties and in case of dispute
arising between the parties under any of the respective contracts or the
Corporate Guarantee, the aggrieved party would have to invoke the respective
arbitration clauses in the respective contracts in question and cannot invoke
the MoU dated 11.08.2012. It was further submitted that the Corporate
Guarantee dated 17.03.2012 was executed by Duro Felguera under which it
had guaranteed the due performance of all the works awarded to Duro
Felguera and FGI and FGI is not a party under the said Corporate Guarantee.
It was further submitted that the MoU dated 11.08.2012 came into existence
long after the Contracts and it does not contain any arbitration clause and MoU
does not intend to alter the nature of the rights, responsibilities and obligations
of the parties arising from the respective contracts and, therefore, for settling
the disputes arising under the Packages No. 6, 7, 8 and 9 awarded to FGI,
there have to be four domestic arbitral tribunals and there cannot be a
'composite reference' by invoking MoU.
12. Considering the facts and circumstances and rival contentions of the
parties, the following points arise for determination:
9
(1) Whether Gangavaram Port Limited (GPL) is right in contending
that Memorandum of Understanding (MoU) dated 11.08.2012
and Original Package No. 4 Tender Document and Corporate
Guarantee dated 17.03.2012 executed by Duro Felguera covers
all the five split-up Packages awarded to Duro Felguera and FGI
and whether there has to be a composite reference/single
arbitral tribunal for "International Commercial Arbitration"
covering all the five different Packages and also the Corporate
Guarantee executed by Duro Felguera?
(2) Whether there have to be 'multiple arbitral tribunals' for each of
the five different Packages of Work awarded to the foreign
company-Duro Felguera and Indian Subsidiary-FGI (one
International Commercial Arbitral Tribunal plus four Domestic
Arbitral Tribunals) and another one arbitral tribunal for
'international commercial arbitration' under Corporate Guarantee
(17.03.2012) executed by the foreign company-Duro Felguera?
13. The Arbitration and Conciliation (Amendment) Act, 2015 (w.e.f.
23.10.2015) has brought in substantial changes in the provisions of the Arbitration
and Conciliation Act, 1996. After the Amendment Act 3 of 2016, as per the
amended provision of sub-section (6A) of Section 11, the power of the court is
confined only to examine the existence of the arbitration agreement. It further
clarifies that the decision of appointment of an arbitrator will be made by the
Supreme Court or the High Court (instead of Chief Justice) and under Section
11(7), no appeal shall lie against such an appointment.
Position prior to Amendment Act 3 of 2016
10
14. Under Section 11(6) of the Arbitration and Conciliation Act, 1996, as it
stood prior to Amendment Act 3 of 2016, on an application made by any of the
parties, the Chief Justice of the High Court appoints an arbitrator for
adjudication. Initially, the line of decisions ruled that the appointment of
arbitrator is an administrative order passed by the Chief Justice. In Konkan
Railway Corporation Limited and Others v. Mehul Construction
Company, (2000) 7 SCC 201, it was held that the powers of the Chief Justice
under Section 11(6) of the Arbitration and Conciliation Act, 1996 are of
administrative nature and that the Chief Justice or his designate does not act
as a judicial authority while appointing an arbitrator. The same view was
reiterated in the subsequent judgment of this Court in Konkan Railway
Corporation Limited and Another v. Rani Construction Private Limited,
(2002) 2 SCC 388.
15. However, in the year 2005, a Constitution Bench of Seven Judges in
SBP and Co. v. Patel Engineering Limited and Another, (2005) 8 SCC 618,
made a departure from the previous judgments and held that the order passed
by the Chief Justice is not administrative but judicial in nature and hence the
same is subject to appeal under Article 136 of the Constitution of India. The
Court further held that in deciding the appointment of an arbitrator, the Chief
Justice could first by way of a preliminary decision decide the court's own
jurisdiction of that matter to entertain the arbitration petition, the existence of a
valid arbitration agreement, the subsistence of a "live claim i.e. the claim that
11
is not barred by limitation".
16. The judgment in SBP and Co. (supra) was further clarified in National
Insurance Company Limited v. Boghara Polyfab Private Limited, (2009) 1
SCC 267, wherein this Court held that while appointing an arbitrator, the
following could be considered:-
"22. Where the intervention of the court is sought for appointment of an Arbitral
Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in
SBP & Co. (2005) 8 SCC 618. This Court identified and segregated the preliminary
issues that may arise for consideration in an application under Section 11 of the Act
into three categories, that is, (i) issues which the Chief Justice or his designate is
bound to decide; (ii) issues which he can also decide, that is, issued which he may
choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to
decide."
The judgments in Shree Ram Mills Ltd. v. Utility Premises (P) Ltd, (2007) 4
SCC 599 and Arasmeta Captive Power Company Private Limited and
Another v. Lafarge India Private Limited, (2013) 15 SCC 414, are on the
same line pertaining to the issues which have to be dealt with by the Chief
Justice or his designate.
Changes brought about by the Arbitration and Conciliation (Amendment) Act,
2015 (Amendment Act 3 of 2016)
17. The language in Section 11(6) of the Act "the Chief Justice or any person
or institution designated by him" has been substituted by "Supreme Court or
as the case may be the High Court or any person or institution designated by
such Court". Now, as per sub-section (6A) of Section 11, the power of the
Court has now been restricted only to see whether there exists an arbitration
agreement. The amended provision in sub-section (7) of Section 11 provides
that the order passed under Section 11(6) shall not be appealable and thus
12
finality is attached to the order passed under this Section. The amended
Section 11 reads as under:-
"11. Appointment of arbitrators.- (1) A person of any nationality may be an
arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for
appointing the arbitrator or arbitrators.
(3) Failing any agreement referred to in sub-section (2), in an arbitration with three
arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall
appoint the third arbitrator who shall act as the presiding arbitrator.
(4) If the appointment procedure in sub-section (3) applies and-
(a) a party fails to appoint an arbitrator within thirty days from the
receipt of a request to do so from the other party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator
within thirty days from the date of their appointment,
the appointment shall be made, upon request of a party, by *
[the Supreme Court or, as the
case may be, the High Court or any person or institution designated by such Court].
(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole
arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a
request by one party from the other party to so agree the appointment shall be made, upon
request of a party, by *[the Supreme Court or, as the case may be, the High Court or
any person or institution designated by such Court].
(6) Where, under an appointment procedure agreed upon by the parties,-
(a) a party fails to act as required under the procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an
agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function
entrusted to him or it under that procedure,
a party may request*[the Supreme Court or, as the case may be, the High Court or any
person or institution designated by such Court] to take the necessary measure, unless
the agreement on the appointment procedure provides other means for securing the
appointment.
*[(6A) The Supreme court or, as the case may be, the High Court, while
considering any application under sub-section (4) or sub-section (5) or sub-section
(6), shall, notwithstanding any judgment, decree or order of any Court, confine to the
examination of the existence of an arbitration agreement.]
*[(6B) The designation of any person or institution by the Supreme Court or,
as the case may be, the High Court, for the purposes of this section shall not be
regarded as a delegation of judicial power by the Supreme Court or the High Court.]
(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or
sub-section (6) to *[the Supreme Court or, as the case may be, the High Court or the
person or institution designated by such Court is final and no appeal including
Letters Patent Appeal shall lie against such decision].
*[(8) The Supreme Court or, as the case may be, the High Court or the person
or institution designated by such Court, before appointing an arbitrator, shall seek a
disclosure in writing from the prospective arbitrator in terms of sub-section (1) of
section 12, and have due regard to-
(a) any qualifications required of the arbitrator by the agreement
of the parties; and
(b) the contents of the disclosure and other considerations as are
likely to secure the appointment of an independent and
impartial arbitrator.]
(9) In the case of appointment of sole or third arbitrator in an international
commercial arbitration, *[the Supreme Court or the person or institution designated by
that Court] may appoint an arbitrator of a nationality other than the nationalities of the
parties where the parties belong to different nationalities.
*[(10) The Supreme Court or, as the case may be, the High Court, may make
such scheme as the said Court may deem appropriate for dealing with matters
entrusted by sub-section (4) or sub-section (5) or sub-section (6), to it.]
13
(11) Where more than one request has been made under sub-section (4) or
sub-section (5) or sub-section (6) to *[different High Courts or their designates, the High
Court or its designate to whom the request has been first made] under the relevant
sub-section shall alone be competent to decide on the request.
*[(12)(a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and
sub-section (10) arise in an international commercial arbitration, the reference to the
"Supreme Court or, as the case may be, the High Court" in those sub-sections shall
be construed as a reference to the "Supreme Court"; and
(b) where the matters referred to in sub-sections (4), (5), (6), (7), (8) and
sub-section (10) arise in any other arbitration, the reference to "the Supreme Court
or, as the case may be, the High Court" in those sub-sections shall be construed as a
reference to the "High Court" within whose local limits the principal Civil Court
referred to in clause (e) of sub-section (1) of section 2 is situate, and where the High
Court itself is the Court referred to in that clause, to that High Court.]
*[(13) An application made under this section for appointment of an arbitrator
or arbitrators shall be disposed of by the Supreme Court or the High Court or the
person or institution designated by such Court, as the case may be, as expeditiously
as possible and an endeavour shall be made to dispose of the matter within a period
of sixty days from the date of service of notice on the opposite party.
(14) For the purpose of determination of the fees of the arbitral tribunal and
the manner of its payment to the arbitral tribunal, the High Court may frame such
rules as may be necessary, after taking into consideration the rates specified in the
Fourth Schedule.
Explanation.-For the removal of doubts, it is hereby clarified that this
sub-section shall not apply to international commercial arbitration and in arbitrations
(other than international commercial arbitration) in case where parties have agreed
for determination of fees as per the rules of an arbitral institution.]"
*Substituted by Act 3 of 2016 (w.e.f. 23.10.2015)
18. The effect of the Arbitration and Conciliation (Amendment) Act, 2015 in
Section 11 of the Act has been succinctly elucidated in the text book "Law
Relating to Arbitration and Conciliation by Dr. P.C. Markanda", which
reads as under:-
"The changes made by the Amending Act are as follows:
1. The words 'Chief Justice or any person or institution designated by him' shall be
substituted by the words 'the Supreme Court or, as the case may be, the High Court or any
person or institution designated by such Court'. Thus, now it is not only the Chief Justice
who can hear applications under Section 11, the power can be delegated to any judge as
well.
2. As per sub-section (6-A), the power of the Court has now been restricted only to
examination of the existence of an arbitration agreement. Earlier, the Chief Justice had
been given the power to examine other aspects as well, i.e. limitation, whether the claims
were referable for arbitration etc. in terms of the judgments of the Supreme Court in SBP
and Co. v. Patel Engineering Ltd., (2005) 8 SCC 618; and National Insurance Co. Ltd. V.
Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267. Now all preliminary issues have been left for
the arbitral tribunal to decide in terms of Section 16 of the Act.
3. The Amending Act has categorically provided in sub-section (6-B) that designation
of any person or institution by the Supreme Court or High Court would not be construed as
delegation of judicial power. The order passed by a designated person or institution would
continue to be regarded as a judicial order.
4. It has been provided is sub-section (7) that the order passed under this section shall
not appealable. This change means that finality is attached to the order passed under this
section and it would not be subject to further examination by an appellate court.
5. Sub-section (8) has been amended to bring it in conformity with amended section
12 with regard to ensuring independence and impartiality of the arbitrator. Before appointing
14
any arbitrator, a disclosure in writing has to be obtained in terms of section 12(1) of the Act.
This is to ensure that the appointed arbitrator shall be independent and impartial and also
harmonizes the provisions of sections 11 and 12 of the Act.
6. The Amending Act has introduced sub-section (13) which provides that the disposal
of the application under this section has to be expeditious and endeavour shall be made to
dispose of the application within a period of 60 days from the date of service of notice on
the opposite party. This sub-section would ensure speedy disposal of applications under this
section and all contentious issues have been left to be decided by the arbitral tribunal.
7. For determining the fee structure of the arbitral tribunal, it has been recommended
that the High Courts may frame the necessary rules and for that purpose, a model fee
structure has been provided in the Fourth Schedule of the Amending Act. However, this
sub-section would not be applicable for the fee structure in case of international commercial
arbitrations and domestic arbitrations where the parties have agreed for determination of
fee as per rules of an arbitral institution. This sub-section has been inserted to ensure a
reasonable fee structure since the cost of arbitration has increased manifold due to high
charges being levied on the parties by the arbitral tribunal and other incidental expenses.
[Reference: Law Relating to Arbitration and Conciliation by Dr. P.C. Markanda; Lexis
Nexis, Ninth Edition, Page 460]
19. There is no dispute between the parties that the issue at hand is
governed by the amended provision of sub-section (6A) of Section 11. Even
though Letters of Award are dated 17.03.2012 and five separate contracts
were entered into between the parties on 10.05.2012, the dispute arose
between the parties in 2016 as pointed out earlier, Gangavaram Port Limited
invoked the Bank Guarantee on 07.01.2016 and M/s. Duro Felguera and its
Indian Subsidiary-FGI issued notice of dissatisfaction on 04.02.2016 and
07.02.2016 respectively to Gangavaram Port Limited. M/s. Duro Felguera
issued arbitration notice on 05.04.2016 for contract relating to Package No. 4
and FGI issued four arbitration notices dated 07.04.2016 for contracts relating
to Packages No. 6 to 9. Gangavaram Port Limited also issued an arbitration
notice on 13.04.2016. Since the dispute between the parties arose in 2016, the
amended provision of sub-section (6A) of Section 11 shall govern the issue, as
per which the power of the Court is confined only to examine the existence of
the arbitration agreement.
15
Whether there has to be a Single Arbitral Tribunal for 'International
Commercial Arbitration' or 'Multiple Arbitral Tribunals'?
20. Original Package No.4 Tender Document for Gangavaram Port Limited
Expansion-2011 consisted of "Bulk Material Handling Systems including
Engineering, Design, Procurement of Materials, Manufacturing, Supply
erection, testing and commissioning of bulk material handling systems
including all other associated works and integration of the same with the
existing coal handling systems (Package 4-"Works"). By mutual consent and
agreement of the parties, Original Package No.4 TD was split into five different
Packages-New Package No. 4 [awarded to Duro Felguera (Spanish
Company)] and Packages No. 6, 7, 8 and 9 awarded to its Indian
subsidiary-FGI. Letters of Award dated 17.03.2012 was awarded to Duro
Felguera and FGI for various Packages. Pursuant to Letters of Award, parties
have entered into contract agreement on 10.05.2012. These split-up contracts
have Volume I-Conditions of Contract; Volume II-Employer's Requirement,
Scope of Work, Specifications and Drawings; and Volume III-Schedule of
Prices. Five different Packages, the Letters of Award and the contract awarded
to Duro Felguera and FGI and the Scope of Work and the value thereof, read
as under:
16
THE
CORPORATE GUARANTEE CONTRACT
GPL-DF (Spain) 17.03.2012
Corporate Guarantee
..... .... Arbitration Clause - Cl.8
21. On behalf of GPL, it was repeatedly urged that the works are intrinsically
connected, inseparable, integrated, interlinked and that they are one
composite contract and that they were split up only on the request and
representations given by Duro Felguera and FGI. As discussed earlier, as per
amended provision Section 11 (6A), the power of the Supreme Court or the
High Court is only to examine the existence of an arbitration agreement.
From the record, all that we could see are five separate Letters of Award; five
separate Contracts; separate subject matters; separate and distinct work;
each containing separate arbitration clause signed by the respective parties to
the contract.
17
Package & Parties
(1)
L.O.A.
(2)
Date of Contract & the Scope of Work
(3)
Value/Price
(4)
No.4
GPL-DF (Spain)
17.03.2012
10.5.12
F.O.B. SUPPLY OF BULK MATERIAL HANDLING EQUIPMENTS
USD 26,666,932
No.6
GPL-FGI (India)
17.03.2012
10.5.12
Design, manufacture, supply, installation, erection, testing, commissioning of Bulk
Material Handling Equipments and all other activities related therewith
Rs.208,66,53,657
No.7
GPL-FGI (India)
17.03.2012
10.5.12
22. All the above five contracts awarded to Duro Felguera and FGI have
independent arbitration clauses. Mr. Sunil Gupta and Mr. A.M. Singhvi,
learned Senior Counsel have taken us through the contract agreements in
New Package No. 4 awarded to M/s Duro Felguera and Package No.6 (for
sample) awarded to FGI and submitted that all the five different contracts have
independent arbitration clauses (in sub-clause 20.6). In the contract New
Package No.4 there is a header "Supply of Bulk Material Handling Equipments
and Parts on FOB Basis". Likewise, contract agreement for Package No.6
contains the header "Design, manufacture, supply, installation, erection,
testing commissioning of Bulk Material Handling Equipments and all other
activities related therewith". Various clauses in the Original TD Package No.4
were suitably modified and incorporated in the split-up contract agreements.
Sub-clause 20.6 dealing with arbitration in the original Package No.4 TD has
been reproduced in New Package No.4 and other Packages No. 6 to 9. The
contract for New Package No. 4 which was entered into between M/s. Duro
Felguera and GPL, also contains an arbitration clause, which reads as under:
"Sub-Clause 20.6 - Arbitration
Any dispute in respect of which amicable settlement has not been reached within
the period stated in Sub-Clause 20.5, shall be finally and conclusively settled by
Arbitration under the Arbitration and Conciliation Act, 1996 by appointing two
arbitrators one by each party and a presiding arbitrator to be appointed by the said
arbitrators. Any such arbitration proceeding shall be within the exclusive jurisdiction
of court of law at Hyderabad, India. The place of Arbitration shall be Hyderabad
and the Language of Arbitration shall be English. The Contractor shall continue to
attend to discharge all his obligations under the Contract during pendency of the
Arbitration proceedings."
23. Likewise, the four different contract Packages No. 6, 7, 8 and 9 which
were awarded to FGI for different works also contain an arbitration clause.
18
Sub-clause 20.6 of Package No.6-Design, manufacture, supply, installation,
erection testing, commissioning of Bulk Material Handling Equipments etc.,
reads as under:-
"Sub-Clause 20.6 - Arbitration
Any dispute in respect of which amicable settlement has not been reached within
the period stated in Sub-Clause 20.5, shall be finally and conclusively settled by
Arbitration under the Arbitration and Conciliation Act, 1996 by appointing two
arbitrators one by each party and a presiding arbitrator to be appointed by the said
arbitrators. Any such arbitration proceeding shall be within the exclusive jurisdiction
of court of law at Hyderabad, India. The place of Arbitration shall be Hyderabad
and the Language of Arbitration shall be English. The Contractor shall continue to
attend to discharge all his obligations under the Contract during pendency of the
Arbitration proceedings."
Like Package No. 6, Contract/Agreement pertaining to other packages
awarded to FGI, namely, Packages No.7, 8 and 9 also contain similar
arbitration clause in sub-clause 20.6. The Original Package No. 4 TD split
into five different Packages, each having different works prima facie indicates
the intention of the parties to split-up original Package No. 4 TD into five
different packages, as was discussed above.
24. In the contract agreement, the parties have agreed that the documents
mentioned in clause (2) of the agreement will have priority. Clause (2) of the
agreement in New Package No. 4 awarded to Duro Felguera, reads as under:-
"2.The following documents shall form and be read and construed as part of this
Agreement and shall have the priority one over the other in the following sequence:
(a) this Agreement;
(b) the Letter of Award;
(c) Special Conditions of Contract (Conditions of Particular Applications)
(d) General Conditions of Contract;
(e) the Employer's Requirements, Scope of Work, Specifications and
Drawings;
(f) the Schedule of Prices;
(g) the Tender to the extent annexed herewith."
Similar clauses as to the priority of the documents was incorporated in all other
contract agreements-Packages No. 6, 7, 8 and 9 awarded to Indian subsidiary
19
FGI. In the sequence of documents of clause (2) of the contract agreement
quoted above, the Tender Document is mentioned in the sequence only as (g)
and all other documents or the other documents like Letters of Award, Special
conditions of contract etc. have priority over the same. While so, the terms
contained in Original Package No. 4 TD including the arbitration clause cannot
have priority over the Special Conditions of contract of the split-up contracts.
When the Original Package No. 4 TD has been split-up into five different
Packages, GPL is not right in contending that inspite of split-up of the work, the
Original Package No.4 TD collectively covered all the five Packages. After the
Original Package No. 4 was split into five different contracts, the parties cannot
go back to the Original Package No.4 nor can they merge them into one. We
do not find merit in the submissions of GPL that sub-clause 20.6 of the Original
Package No. 4 TD will still collectively cover all the five Packages to justify
constitution of single Arbitral Tribunal.
25. The foreign company-Duro Felguera had executed a Corporate
Guarantee dated 17.03.2012 guaranteeing the due performance of all the
works awarded to Duro Felguera and FGI. The Corporate Guarantee itself has
its own separate and distinct arbitration clause. The arbitration clause of the
Corporate Guarantee i.e. clause (8) reads as under:
"8. This Corporate Guarantee shall be governed by the Indian Laws. In case of any
disputes, the Parties shall endeavor to settle the same amicably. In case of failure to
settle the disputes amicably, the same shall be finally settled under the Arbitration and
Conciliation Act 1996 of India by appointing two Arbitrators, one by each party and a
Presiding Arbitrator to be appointed by the said Arbitrators. The award of the Arbitrators
shall be final and binding on the Corporate Company and the Employer. Any such
Arbitration proceeding shall be at Hyderabad and within the Jurisdiction of the Court of
Law at Hyderabad, Andhra Pradesh, India.The Arbitration shall be conducted in English
language."
20
26. In the Corporate Guarantee, Duro Felguera has undertaken to ensure
performance of all the works both by Duro Felguera and also the contracts
pertaining to Packages No. 6 to 9 awarded to FGI. Duro Felguera has also
undertaken that in the event of any delay in completion of the works as per the
time stipulated for completion of the contracts, Duro Felguera had undertaken
to compensate for the delay, damages to GPL which will be based on the
overall contract price collectively of all the contracts. The relevant clauses read
as under:-
"1. The Corporate Company hereby guarantees and covenants with the employer
that FGI will perform all its obligations and duties as per package 6 to package 9,
failing which the corporate company shall take over from FGI, as may be demanded
by the employer under this Guarantee, and shall perform or cause to be performed at
its own cost and risk and all the responsibilities, obligations and duties of FGI under
package 6 to Package 9 so far as and to the extent FGI was liable to perform it,
without any additional time and cost implication to the employer, subject to the
employer continuing to meet its own obligations under package 6 to package 9 with
respect to payments, approvals for drawings and other related matters to the
corporate company as if the corporate company were the principal contractor in
place of FGI.
2. In the event of any delay in completion of the works as per the time for completion
of the contracts for the reasons attributable to FGI and/or the corporate company,
such that these delays in turn results in causing overall delay in completion of all or
any one of the contracts, then the corporate company hereby undertakes to
compensate for the delay damages to the employer, which shall be based on the
overall contract price collectively of all the contracts and any other contract that may
be entered into by and between the employer and the corporate company or
FGI.........."
27. Contention of GPL is that as per the Corporate Guarantee, the Spanish
Company has inter alia undertaken to compensate GPL for delay damages,
based on the overall contract price collectively of all the Contracts awarded to
both Duro Felguera and FGI, arising on account of delay in completion of the
works in any one or all of the five Contracts. It is contended that the Spanish
Company is obligated to take over and perform the works at its own costs, risk
and responsibilities, as if it is the Principal Contractor including for the works
21
awarded to the Indian Subsidiary and therefore as per terms of Corporate
Guarantee executed by Duro Felguera, there has to be a single arbitral
tribunal for all the Packages.
28. As per the terms of Corporate Guarantee, it shall cease on issuance of
the performance certificate under all the contracts. Of course, Duro Felguera
has given the Corporate Guarantee for all the five contracts viz., New Package
No.4, Packages No. 6 to 9. Corporate Guarantee executed by Duro Felguera
dated 17.03.2012 also recognizes the split up of the original Package No. 4
Tender Document. As per the terms of the Corporate Guarantee, it is to be
invoked only if breach is established in one of the five contracts. Since the
Corporate Guarantee by itself has a separate arbitration clause, it cannot be
contended that by virtue of the Corporate Guarantee executed by Duro
Felguera, there has to be a 'composite reference' of 'International Commercial
Arbitration' which would cover all the five Packages. The Corporate Guarantee
by Duro Felguera cannot supersede the five split-up contracts and the special
conditions of contract thereon.
29. Duro Felguera and FGI have executed a tripartite Memorandum of
Understanding (MoU) on 11.08.2012 which, according to GPL, covers all the
five contracts namely New Package No. 4, Package No. 6, Package No. 7,
Package No. 8 and Package No. 9. In the said MoU both Duro Felguera and
FGI have agreed to carry out the works as per the priority of the documents
listed therein which includes the Original Package No.4 Tender Document
22
issued and final bid submitted by Duro Felguera and FGI. The relevant portion
of Memorandum of Understanding reads as under:-
"This Memorandum of Understanding (MoU) has been executed at Hyderabad on 11th
August 2012 by and between:
M/s Gangavaram Port Limited.....
And
M/s Duro Felguera Plantas Industries, S.A........,
M/s Felguera Gruas India Private Limited........
(Both DFPI and FGI shall jointly be referred to as the Contractors. The Employer and
the contractors shall collectively be referred to as the Parties. All the captive terms
used if any herein shall have the same meaning ascribed to it in the Contract.)
Whereas the parties have entered into different package contracts for execution of
Bulk Material Handling System under "Original Package 4 Tender Document"
covering ship unloaders, stackers, reclaimers, in-motion wagon loading system,
conveyors, transfer towers, electrical and control works, civil works, etc. and in order
to have more clarity on technical and execution related matters, the parties hereby
agree that the works shall be carried out as per the following priority of documents.
1. Annexure I to the Letter of Award issued for Package 4 Contract.
2. Annexure III to the Letter of Award issued for Package 4, 6, 7, 8, and 9
contracts.
3. Clarifications/Addendum No.1 to 4 (in the descending order) issued by the
Employer to the Original Package 4 Tender Document.
4. The Original Package 4 Tender Document issued by the Employer.
5. Final Technical Bid submitted by the Contractors in response to the Original
Package 4 Tender Document.
The parties undertake to keep this MoU as strictly confidential."
30. Contention of GPL is that Memorandum of Understanding (dated
11.08.2012) collectively covers all the five Packages and MoU shall prevail
over the arbitration clauses contained in five different Packages. In this
regard, reliance was placed upon sub-section (5) of Section 7 of the Act to
contend that since reference is made to Original Package No.4 TD in MoU,
arbitration clause 20.6 must be deemed to have become part of MoU. In
support of their contention, learned Senior Counsel Mr. Mukul Rohatgi and Mr.
Raju Ramchandran appearing for GPL, placed reliance upon Chloro Controls
India Private Ltd. v. Severn Trent Water Purification Inc. and Others
(2013) 1 SCC 641.
23
31. Per contra, the learned Senior Counsel for Duro Felguera and FGI
submitted that merely because MoU refers to Original Package No.4 Tender
Document, such mere reference cannot lead to an inference of arbitration
clause being incorporated as it only depends upon the intention of the Parties.
It was further submitted that the Memorandum of Understanding (MoU) is
merely a supplementary document which was meant to lay down the priority of
documents only to clarify the priority in execution of the work under different
Packages. It was further submitted that MoU was neither intended to alter the
nature of the rights, responsibilities and obligations of the parties involved in
the respective contracts nor does it override the terms of the main contract
including the arbitration clauses in the five different packages.
32. In light of the above contentions, the point falling for consideration is by
virtue of sub-section (5) of Section 7, whether the MoU is to be taken as the
basis for arbitration, justifying the constitution of single arbitral tribunal because
a reference is made to Original Package No.4 TD in Memorandum of
Understanding (MoU).
33. Section 7 (5) of the Arbitration and Conciliation (Amendment) Act, 2015
reads as under:-
“7. Arbitration agreement.—(1) .....
(5) The reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement if the contract is in writing and
the reference is such as to make that arbitration clause part of the contract.”
As per Section 7(5) of the Act, even though the contract between the parties
does not contain a provision for arbitration, an arbitration clause contained in
24
an independent document will be imported and engrafted in the contract between
the parties, by reference to such independent document in the contract,
if the reference is such as to make the arbitration clause in such document, a
part of the contract. Section 7(5) requires a conscious acceptance of the arbitration
clause from another document, as a part of their contract, before such
arbitration clause could be read as a part of the contract between the parties.
The question whether or not the arbitration clause contained in another document,
is incorporated in the contract, is always a question of construction of
document in reference to intention of the parties. The terms of a contract may
have to be ascertained by reference to more than one document.
34. In M.R. Engineers and Contractors Private Limited v. Som Datt
Builders Limited (2009) 7 SCC 696, the Supreme Court held that even
though the contract between the parties does not contain a provision for
arbitration, an arbitration clause contained in an independent document will
be incorporated into the contract between the parties, by reference, if the
reference is such as to make the arbitration clause in such document, a part
of the contract. In M. R. Engineers and Contractors Private Limited
(supra), this Court held as under:-
13. .......Having regard to Section 7(5) of the Act, even though the contract between the parties
does not contain a provision for arbitration, an arbitration clause contained in an independent
document will be imported and engrafted in the contract between the parties, by reference
to such independent document in the contract, if the reference is such as to make the
arbitration clause in such document, a part of the contract.
.....
22. A general reference to another contract will not be sufficient to incorporate the arbitration
clause from the referred contract into the contract under consideration. There should be a
special reference indicating a mutual intention to incorporate the arbitration clause from another
document into the contract. The exception to the requirement of special reference is
where the referred document is not another contract, but a standard form of terms and condi-
25
tions of trade associations or regulatory institutions which publish or circulate such standard
terms and conditions for the benefit of the members or others who want to adopt the same.
......
24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus:
(i) An arbitration clause in another document, would get incorporated into a contract
by reference, if the following conditions are fulfilled:
(1) the contract should contain a clear reference to the documents containing arbitration
clause,
(2) the reference to the other document should clearly indicate an intention to incorporate
the arbitration clause into the contract,
(3) the arbitration clause should be appropriate, that is capable of application in respect
of disputes under the contract and should not be repugnant to any term of the
contract.
(ii) When the parties enter into a contract, making a general reference to another
contract, such general reference would not have the effect of incorporating the arbitration
clause from the referred document into the contract between the parties. The arbitration
clause from another contract can be incorporated into the contract (where such
reference is made), only by a specific reference to arbitration clause.
(iii) Where a contract between the parties provides that the execution or performance
of that contract shall be in terms of another contract (which contains the terms and conditions
relating to performance and a provision for settlement of disputes by arbitration),
then, the terms of the referred contract in regard to execution/performance alone will
apply, and not the arbitration agreement in the referred contract, unless there is special
reference to the arbitration clause also.
(iv) Where the contract provides that the standard form of terms and conditions of an
independent trade or professional institution (as for example the standard terms and
conditions of a trade association or architects association) will bind them or apply to the
contract, such standard form of terms and conditions including any provision for arbitration
in such standard terms and conditions, shall be deemed to be incorporated by reference.
Sometimes the contract may also say that the parties are familiar with those
terms and conditions or that the parties have read and understood the said terms and
conditions.
(v) Where the contract between the parties stipulates that the conditions of contract
of one of the parties to the contract shall form a part of their contract (as for example
the general conditions of contract of the Government where the Government is a party),
the arbitration clause forming part of such general conditions of contract will apply to
the contract between the parties."
35. Considering the MoU, in light of the above ratio, as pointed out earlier, in
the MoU, Original Package No.4 Tender Document is merely referred only to
have more clarity on technical and execution related matters and the parties
agreed that the works shall be carried out as per the priority of the documents
indicated thereon. Mere reference to Original Package No.4 Tender
Document in the sequence of priority of documents (as serial No.4) indicates
that the documents Original Package No. 4 TD containing arbitration clause
was not intended to be incorporated in its entirety but only to have clarity in
26
priority of the documents in execution of the work. Be it noted that Original
Package No.4 TD occurs as Serial No.4 in sequence, after three other
documents viz...,
"(i) Annexure 1 to the Letter of Award issued for Package No. 4 Contract;
and (ii) Annexure III to the Letter of Award issued for Packages No. 4, 6, 7, 8
and 9 contracts; and (iii) Clarifications/Addendums No.1 to 4 (in the
descending order) issued by the Employer to the Original Package No. 4
Tender Document."
There are a number of contract agreements between the parties - GPL, Duro
Felguera and FGI. It is pertinent to note that MoU dated 11.08.2012 itself does
not contain an arbitration clause. When reference is made to the priority of
documents to have clarity in execution of the work, such general reference to
Original Package No.4 Tender Document will not be sufficient to hold that the
arbitration clause 20.6 in the Original Package No.4 TD is incorporated in the
MoU.
36. The submission of GPL is that since reference to Original Package No.4
TD is made in MoU, the arbitration clause is incorporated in the MoU and
there has to be a 'composite reference' for settling the disputes under different
contracts by constitution of single arbitral tribunal for dealing with the
international commercial arbitration. As discussed earlier, as per the
amended provision of sub-section (6A) of Section 11, the power of the court is
only to examine the existence of arbitration agreement. When there are five
separate contracts each having independent existence with separate
arbitration clauses that is New Package No.4 (with foreign company Duro
Felguera) and Packages No. 6, 7, 8 and 9 [with Indian subsidiary (FGI)] based
27
on MoU and Corporate Guarantee, there cannot be a single arbitral tribunal
for "International Commercial Arbitration".
37. It was submitted that if the request of GPL is accepted and all Packages
are considered under the same reference, they shall be treated as
international commercial arbitrations, then FGI may lose the opportunity of
challenging the award under Section 34(2A) of the Act. In response to the
above submission, GPL offered to concede and submitted that Section 34
(2A) of the Act may be invoked by Indian subsidiary-FGI, though Section
34(2A) is not applicable to international commercial arbitration. Such a
concession is against the provisions and specific mandate of legislature and
cannot be accepted.
38. The Corporate Guarantee dated 17.03.2012 was executed by the
foreign company-Duro Felguera undertaking to compensate for the delay,
damages to the GPL. Since the Corporate Guarantee was by the foreign
company-Duro Felguera which contains separate arbitration clause, there has
to be a separate arbitral tribunal for resolving the disputes arising out of the
said Corporate Guarantee.
39. New Package No. 4 TD- F.O.B. Supply of Bulk Material Handling
28
Equipments USD 26,666,932 has been awarded to the foreign company-Duro
Felguera. Since Duro Felguera is a foreign company, in so far as the contract
awarded to Duro Felguera i.e. New Package No.4 and the dispute arising out
of the Corporate Guarantee executed by the foreign company-Duro Felguera
is concerned, the arbitral tribunal has to be for the international commercial
arbitration.
40. The learned Senior Counsel for GPL relied upon Chloro Controls India
Private Ltd. (supra), to contend that where various agreements constitute a
composite transaction, court can refer disputes to arbitration if all ancillary
agreements are relatable to principal agreement and performance of one
agreement is so intrinsically interlinked with other agreements. Even though
Chloro Controls has considered the doctrine of "composite reference",
"composite performance" etc., ratio of Chloro Controls may not be applicable
to the case in hand. In Chloro Controls, the arbitration clause in the principal
agreement i.e. clause (30) required that any dispute or difference arising
under or in connection with the principal (mother) agreement, which could not
be settled by friendly negotiation and agreement between the parties, would
be finally settled by arbitration conducted in accordance with Rules of ICC.
The words thereon "under and in connection with" in the principal agreement
was very wide to make it more comprehensive. In that background, the
performance of all other agreements by respective parties including third
29
parties/non-signatories had to fall in line with the principal agreement. In such
factual background, it was held that all agreements pertaining to the entire
disputes are to be settled by a "composite reference". The case in hand
stands entirely on different footing. As discussed earlier, all five different
Packages as well as the Corporate Guarantee have separate arbitration
clauses and they do not depend on the terms and conditions of the Original
Package No.4 TD nor on the MoU, which is intended to have clarity in
execution of the work.
41. Duro Felguera being a foreign company, for each of the disputes arising
under New Package No.4 and Corporate Guarantee, International
Commercial Arbitration Tribunal are to be constituted. M/s. Duro Felguera has
nominated Mr. Justice D.R. Deshmukh (Former Judge of Chhattisgarh
High Court) as their arbitrator. Gangavaram Port Limited (GPL) has
nominated Mr. Justice M.N. Rao (Former Chief Justice of Himachal
Pradesh High Court). Alongwith the above two arbitrators Mr. Justice R.M.
Lodha, Former Chief Justice of India is appointed as the Presiding Arbitrator of
the International Commercial Arbitral Tribunal.
42. Package No.6 (Rs.208,66,53,657/-); Package No.7 (Rs.59,14,65,706/-);
Package No.8 (Rs.9,94,38,635/-); and Package No.9 (Rs.29,52,85, 558/-)
have been awarded to the Indian company-FGI. Since the issues arising
30
between the parties are inter-related, the same arbitral tribunal, Justice R.M.
Lodha, Former Chief Justice of India, Justice D.R. Deshmukh, Former
Judge of Chhattisgarh High Court and Justice M. N. Rao, Former Chief
Justice of Himachal Pradesh High Court, shall separately constitute
Domestic Arbitral Tribunals for resolving each of the disputes pertaining to
Packages No.6, 7, 8 and 9.
43. Arbitration Petition No. 30 of 2016 filed by Duro Felguera shall stand
allowed and Arbitration Petition No.31 of 2016 filed by GPL shall stand
disposed of in the same line. Transfer Case No. 25/2017, Transfer Case No.
26/2017, Transfer Case No. 27/2017 and Transfer Case No. 28/2017 filed by
FGI shall also stand disposed of in the above lines. Parties shall bear their
respective costs.
..............................J.
[R. BANUMATHI]
New Delhi;
October 10, 2017
31
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION PETITION NO. 30 OF 2016
M/S. DURO FELGUERA, S.A. … PETITIONER
VERSUS
M/S. GANGAVARAM PORT LIMITED … RESPONDENT
WITH
ARBITRATION PETITION NO. 31 OF 2016,
T.C. (C) NO. 25 OF 2017,
T.C. (C) NO. 26 OF 2017,
T.C. (C) NO. 27 OF 2017
AND
T.C. (C) NO. 28 OF 2017
J U D G M E N T
KURIAN, J.:
1. While agreeing with the conclusions in the illuminating judgment
of my esteemed sister Banumathi, J., I feel that a few more lines
would add greater lustre to the judgment.
2. What is the effect of the change introduced by the Arbitration
and Conciliation (Amendment) Act, 2015 (hereinafter referred to
as “the 2015 Amendment”) with particular reference to Section
32
11(6) and the newly added Section 11(6A) of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as “the 1996 Act”)
is the crucial question arising for consideration in this case.
3. Section 11(6A) added by the 2015 Amendment, reads as follows:
“11(6A) The Supreme Court or, as the case may
be, the High Court, while considering any
application under sub-section (4) or sub-section
(5) or sub-section (6), shall, notwithstanding any
judgment, decree or order of any Court, confine
to the examination of the existence of an
arbitration agreement.”
(Emphasis Supplied)
From a reading of Section 11(6A), the intention of the
legislature is crystal clear i.e. the Court should and need only look
into one aspect- the existence of an arbitration agreement. What are
the factors for deciding as to whether there is an arbitration
agreement is the next question. The resolution to that is simple - it
needs to be seen if the agreement contains a clause which provides
for arbitration pertaining to the disputes which have arisen between
the parties to the agreement.
4. On the facts of the instant case, there is no dispute that there
are five distinct contracts pertaining to five different works. No
doubt that all the works put together are for the expansion of
facilities at Gangavaram Port. However, the parties took a
33
conscious decision to split the works which led to five separate
contracts and consequently an arbitration clause in each split
contract was retained. The sixth one, namely the Corporate
Guarantee also contains an arbitration clause.
5. The main thrust of the arguments of Mr. Mukul Rohatgi, learned
Senior Counsel, is that the Memorandum of Understanding
(hereinafter referred to as “MoU”) has subsumed all the separate
agreements and therefore and thereafter there can only be one
agreement and, if so, only one Arbitral Tribunal for all the
disputes emanating from the five different agreements and the
Corporate Guarantee. This submission in our view is
misconceived. The whole purpose of the MoU is evident from its
text, the relevant portion of which has been extracted below :-
“Whereas the parties have entered into different
package contracts for execution of Bulk Material
Handling System under “Original Package 4 Tender
Document” covering ship unloaders, stackers,
reclaimers, in-motion wagon loading system,
conveyors, transfer towers, electrical and control
works, civil works, etc. and in order to have more
clarity on technical and execution related matters,
the parties hereby agree that the works shall be
carried out as per the following priority of
documents;
1. Annexure I to the Letter of Award issued for
Package 4 Contract.
2. Annexure III to the Letter of Award issued for
Package 4, 6, 7, 8 and 9 contracts.
34
3. Clarifications/ Addendum No. 1 to 4 (in the
descending order) issued by the Employer to the
Original Package 4 Tender Document.
4. The Original Package 4 Tender Document issued
by the employer.
5. Financial Technical Bid submitted by the
contractors in response to the Original Package 4
Tender Document.”
(Emphasis supplied)
6. It is clear that there is no novation by substitution of all the five
agreements nor is there a merger of all into one. The reference
to Original Package No. 4 Tender Document is only for better
clarity on technical and execution related matters.
7. The above finding is wholly in line with Section 7(5) of the 1996
Act. Section 7 which deals with arbitration agreement reads as
follows :-
“7. Arbitration agreement.—(1) In this Part,
“arbitration agreement” means an agreement by
the parties to submit to arbitration all or certain
disputes which have arisen or which may arise
between them in respect of a defined legal
relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of
an arbitration clause in a contract or in the form of a
separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is
contained in —
35
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other
means of telecommunication including
communication through electronic means which
provide a record of the agreement; or
(c) an exchange of statements of claim and defence
in which the existence of the agreement is alleged by
one party and not denied by the other.
(5) The reference in a contract to a document
containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing and
the reference is such as to make that arbitration
clause part of the contract.”
(Emphasis Supplied)
Section 7(5) deals with incorporation by reference. The words
“the reference is such as to make that arbitration clause part of the
contract” are of relevance. Essentially, the parties must have the
intention to incorporate the arbitration clause. In M.R. Engineers
and Contractors Pvt. Ltd. v. Som Datt Builders Ltd.1
,
Raveendran, J. has dealt with this particular requirement in a
comprehensive manner. To quote:
“14. The wording of Section 7(5) of the Act makes it
clear that a mere reference to a document would
not have the effect of making an arbitration clause
from that document, a part of the contract. The
reference to the document in the contract should be
such that shows the intention to incorporate the
arbitration clause contained in the document, into
the contract. If the legislative intent was to import
an arbitration clause from another document,
merely on reference to such document in the
1
(2009) 7 SCC 696
36
contract, sub-section (5) would not contain the
significant later part which reads: “and the reference
is such as to make that arbitration clause part of the
contract”, but would have stopped with the first part
which reads:
“7. (5) The reference in a contract to a
document containing an arbitration clause
constitutes an arbitration agreement if the
contract is in writing….”
XXX XXX XXX
19. Sub-section (5) of Section 7 merely reiterates
these well-settled principles of construction of
contracts. It makes it clear that where there is a
reference to a document in a contract, and the
reference shows that the document was not
intended to be incorporated in entirety, then the
reference will not make the arbitration clause in the
document, a part of the contract, unless there is a
special reference to the arbitration clause so as to
make it applicable.
XXX XXX XXX
22. A general reference to another contract will not
be sufficient to incorporate the arbitration clause
from the referred contract into the contract under
consideration. There should be a special reference
indicating a mutual intention to incorporate the
arbitration clause from another document into the
contract. The exception to the requirement of
special reference is where the referred document is
not another contract, but a standard form of terms
and conditions of trade associations or regulatory
institutions which publish or circulate such standard
terms and conditions for the benefit of the members
or others who want to adopt the same.
XXX XXX XXX
37
24. The scope and intent of Section 7(5) of the Act
may therefore be summarised thus:
(i) An arbitration clause in another document,
would get incorporated into a contract by
reference, if the following conditions are fulfilled:
(1) the contract should contain a clear
reference to the documents containing
arbitration clause,
(2) the reference to the other document
should clearly indicate an intention to
incorporate the arbitration clause into the
contract,
(3) the arbitration clause should be
appropriate, that is capable of application
in respect of disputes under the contract
and should not be repugnant to any term
of the contract.
(ii) When the parties enter into a contract,
making a general reference to another contract,
such general reference would not have the effect
of incorporating the arbitration clause from the
referred document into the contract between the
parties. The arbitration clause from another
contract can be incorporated into the contract
(where such reference is made), only by a
specific reference to arbitration clause.
( iii) Where a contract between the parties
provides that the execution or performance of
that contract shall be in terms of another contract
(which contains the terms and conditions relating
to performance and a provision for settlement
of disputes by arbitration), then, the
terms of the referred contract in regard to
execution/performance alone will apply,
and not the arbitration agreement in the
referred contract, unless there is special
reference to the arbitration clause also.
38
(iv) Where the contract provides that the
standard form of terms and conditions of an
independent trade or professional institution (as
for example the standard terms and conditions
of a trade association or architects association)
will bind them or apply to the contract, such
standard form of terms and conditions including
any provision for arbitration in such standard
terms and conditions, shall be deemed to be
incorporated by reference. Sometimes the
contract may also say that the parties are
familiar with those terms and conditions or that
the parties have read and understood the said
terms and conditions.
( v) Where the contract between the parties
stipulates that the conditions of contract of one
of the parties to the contract shall form a part of
their contract (as for example the general
conditions of contract of the Government where
the Government is a party), the arbitration
clause forming part of such general conditions
of contract will apply to the contract between
the parties.”
(Emphasis supplied)
8. The detailed analysis of Section 7(5) in M.R. Engineers (supra)
further fortifies our conclusion that the MoU does not incorporate
an arbitration clause.
9. Learned Senior Counsel also contended that for convenience, it
is expedient that a single Arbitral Tribunal is constituted. We are
afraid that this contention also cannot be appreciated. The
parties are free to agree to anything for their convenience but
once such terms are reduced to an agreement, they can resile
39
from them only in accordance with law.
10.Having said that, this being one of the first cases on Section
11(6A) of the 1996 Act before this Court, I feel it appropriate to
briefly outline the scope and extent of the power of the High
Court and the Supreme Court under Sections 11(6) and 11(6A).
11.This Court in S.B.P & Co v. Patel Engineering Ltd and
Another2
overruled Konkan Railway Corpn. Ltd. and others
v. Mehul Construction Co.3 and Konkan Railway Corpn.
Ltd. & another. v. Rani Construction Pvt. Ltd.4
to hold that
the power to appoint an arbitrator under Section 11 is a judicial
power and not a mere administrative function. The conclusion in
the decision as summarized by Balasubramanyan, J. speaking
for the majority reads as follows:
“47. We, therefore, sum up our conclusions as follows:
(i) The power exercised by the Chief Justice of the
High Court or the Chief Justice of India under
Section 11(6) of the Act is not an administrative
power. It is a judicial power.
(ii) The power under Section 11(6) of the Act, in
its entirety, could be delegated, by the Chief
Justice of the High Court only to another Judge of
that Court and by the Chief Justice of India to
another Judge of the Supreme Court.
2
(2005) 8 SCC 618
3
(2000) 7 SCC 201
4
(2002) 2 SCC 388
40
(iii) In case of designation of a Judge of the High
Court or of the Supreme Court, the power that is
exercised by the designated Judge would be that
of the Chief Justice as conferred by the statute.
(iv) The Chief Justice or the designated Judge will
have the right to decide the preliminary aspects
as indicated in the earlier part of this judgment.
These will be his own jurisdiction to entertain the
request, the existence of a valid arbitration
agreement, the existence or otherwise of a live
claim, the existence of the condition for the
exercise of his power and on the qualifications of
the arbitrator or arbitrators. The Chief Justice or
the designated Judge would be entitled to seek
the opinion of an institution in the matter of
nominating an arbitrator qualified in terms of
Section 11(8) of the Act if the need arises but the
order appointing the arbitrator could only be that
of the Chief Justice or the designated Judge.
(v) Designation of a District Judge as the authority
under Section 11(6) of the Act by the Chief Justice
of the High Court is not warranted on the scheme
of the Act.
(vi) Once the matter reaches the Arbitral Tribunal
or the sole arbitrator, the High Court would not
interfere with the orders passed by the arbitrator
or the Arbitral Tribunal during the course of the
arbitration proceedings and the parties could
approach the Court only in terms of Section 37 of
the Act or in terms of Section 34 of the Act.
(vii) Since an order passed by the Chief Justice of
the High Court or by the designated Judge of that
Court is a judicial order, an appeal will lie against
that order only under Article 136 of the
Constitution to the Supreme Court.
(viii) There can be no appeal against an order of
the Chief Justice of India or a Judge of the
Supreme Court designated by him while
41
entertaining an application under Section 11(6) of
the Act.
(ix) In a case where an Arbitral Tribunal has been
constituted by the parties without having
recourse to Section 11(6) of the Act, the Arbitral
Tribunal will have the jurisdiction to decide all
matters as contemplated by Section 16 of the Act.
(x) Since all were guided by the decision of this
Court in Konkan Rly. Corpn. Ltd. v. Rani
Construction (P) Ltd. and orders under Section
11(6) of the Act have been made based on the
position adopted in that decision, we clarify that
appointments of arbitrators or Arbitral Tribunals
thus far made, are to be treated as valid, all
objections being left to be decided under Section
16 of the Act. As and from this date, the position
as adopted in this judgment will govern even
pending applications under Section 11(6) of the
Act.
(xi) Where District Judges had been designated by
the Chief Justice of the High Court under Section
11(6) of the Act, the appointment orders thus far
made by them will be treated as valid; but
applications if any pending before them as on this
date will stand transferred, to be dealt with by the
Chief Justice of the High Court concerned or a
Judge of that Court designated by the Chief
Justice.
(xii) The decision in Konkan Rly. Corpn. Ltd. v.
Rani Construction (P) Ltd is overruled.”
(Emphasis Supplied)
12.This position was further clarified in National Insurance
Company Limited v. Boghara Polyfab Private Limited5
To
quote:
5
(2009) 1 SCC 267
42
“22. Where the intervention of the court is sought
for appointment of an Arbitral Tribunal under
Section 11, the duty of the Chief Justice or his
designate is defined in SBP & Co. This Court
identified and segregated the preliminary issues
that may arise for consideration in an application
under Section 11 of the Act into three categories,
that is, (i) issues which the Chief Justice or his
designate is bound to decide; (ii) issues which he
can also decide, that is, issues which he may
choose to decide; and (iii) issues which should be
left to the Arbitral Tribunal to decide.
22.1. The issues (first category) which the Chief
Justice/his designate will have to decide are:
(a) Whether the party making the application has
approached the appropriate High Court.
(b) Whether there is an arbitration agreement and
whether the party who has applied under
Section 11 of the Act, is a party to such an
agreement.
22.2. The issues (second category) which the Chief
Justice/his designate may choose to decide (or
leave them to the decision of the Arbitral Tribunal)
are:
(a) Whether the claim is a dead (long-barred) claim
or a live claim.
(b) Whether the parties have concluded the
contract/transaction by recording satisfaction of
their mutual rights and obligation or by receiving
the final payment without objection.
22.3. The issues (third category) which the Chief
Justice/his designate should leave exclusively to the
Arbitral Tribunal are:
(i) Whether a claim made falls within
43
the arbitration clause (as for
example, a matter which is reserved
for final decision of a departmental
authority and excepted or excluded
from arbitration).
(ii) Merits or any claim involved in the
arbitration.”
13.The scope of the power under Section 11 (6) of the 1996 Act was
considerably wide in view of the decisions in SBP and Co.
(supra) and Boghara Polyfab (supra). This position continued
till the amendment brought about in 2015. After the
amendment, all that the Courts need to see is whether an
arbitration agreement exists - nothing more, nothing less. The
legislative policy and purpose is essentially to minimize the
Court’s intervention at the stage of appointing the arbitrator and
this intention as incorporated in Section 11 (6A) ought to be
respected.
14. In the case at hand, there are six arbitrable agreements (five
agreements for works and one Corporate Guarantee) and each
agreement contains a provision for arbitration. Hence, there has
to be an Arbitral Tribunal for the disputes pertaining to each
agreement. While the arbitrators can be the same, there has to
be six Tribunals - two for international commercial arbitration
involving the Spanish Company-M/s Duro Felguera, S.A. and four
44
for the domestic.
.…......................J.
(KURIAN JOSEPH)
New Delhi;
October 10, 2017.
45
ITEM NO.1502 COURT NO.4 SECTION XVI -A
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Petition(s) for Arbitration Petition No(s). 30/2016
M/S DURO FELGUERA S.A Petitioner(s)
VERSUS
M/S. GANGAVARAM PORT LIMITED Respondent(s)
WITH
ARBIT. Petition No. 31/2016 (XVI -A)
T.C.(C) No. 25/2017 (XVI -A)
T.C.(C) No. 26/2017 (XVI -A)
T.C.(C) No. 27/2017 (XVI -A)
T.C.(C) No. 28/2017 (XVI -A)
Date : 10-10-2017 These petitions were called on for Judgment
today.
Counsel for the
parties Ms. Anitha Shenoy, Adv.
Ms. Rashmi Nandakumar, Adv.
Ms. Sristi Agnihotri, Adv.
Mr. Tarun Dua, AOR
Mr. Faisal Sherwani , AOR
Hon'ble Mrs. Justice R. Banumathi pronounced the reportable
Judgment of the Bench comprising Hon'ble Mr. Justice Kurian Joseph
and Her Lordship.
While agreeing with the conclusions in the Judgment pronounced
by Hon'ble Smt. R. Banumathi, J, Hon'ble Mr. Justice Kurian Joseph
also pronounced the reportable Judgment with concurrent opinion.
The concluding part of the Judgment pronounced by Hon'ble Mrs.
Justice R. Banumathi is as follows :-
“Arbitration Petition No. 30 of 2016 filed by
Duro Felguera shall stand allowed and
46
Arbitration Petition No.31 of 2016 filed by GPL
shall stand disposed of in the same line.
Transfer Case No. 25/2017, Transfer Case No.
26/2017, Transfer Case No. 27/2017 and Transfer
Case No. 28/2017 filed by FGI shall also stand
disposed of in the above lines. Parties shall
bear their respective costs.”
Pending Interlocutory Applications, if any, stand disposed of.
(JAYANT KUMAR ARORA) (RENU DIWAN)
COURT MASTER ASSISTANT REGISTRAR
(Two signed reportable Judgments are placed on the file)
47