Indian Oil Corporation Limited vs Ncc Limited

16 – High Court in exercise of powers u/s.11(6) appointed the Arbitrators to adjudicate and resolve the disputes between the parties arising out of the respective contracts – Correctness of – Held: The issue w.r.t ‘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 which was released by petitioner on the offer/letter made by the respondent 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 s.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 – Therefore, High Court committed no error in observing that aspects with regard to ‘accord and satisfaction’ of the claims or where there is a serious dispute will have to be left to the Arbitral Tribunal – However, at the same time, the conclusion arrived at by the High Court that after the insertion of Sub-Section (6-A) in s.11 scope of inquiry by the Court in petition is confined only to ascertain as to whether or not a binding arbitration agreement exists qua the parties before it, which is relatable to the disputes at hand is not agreed with – Though, the Arbitral Tribunal may have jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability, the same can also be considered by the Court at the stage of deciding s.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 non--arbitrable and/or it falls within the excepted clause – Even at the stage of deciding s.11 application, the Court may prima facie consider even the aspect with regard to ‘accord and satisfaction’ of the claims – In Civil Appeal No.341/2022, the 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 u/s.16 which is reportedly pending – Arbitrator shall first decide the jurisdiction of the Arbitral Tribunal and the arbitrability of the claims – In Civil Appeal No.342/2022, impugned judgment and order passed by the High Court referring the dispute between the parties to arbitration and appointing the Arbitrator is set aside – Similarly, in Civil Appeal No.343/2022, , the impugned judgments and orders are set aside – Further, in Civil Appeal No.344/2022, impugned judgment and order passed by the High Court is modified – 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 Arbitrator shall adjudicate only that claim which is declared by the General Manager as a Notified Claim and the Arbitral Tribunal shall not have any jurisdiction to adjudicate on any other claims which as such are not declared as Notified Claims.

Disposing of the appeals, the Court

HELD: 1.1 It is the case on behalf of the petitioner IOCL that the IOCL had settled the claim of respondent – NCCL accepting NCCL’s offer to grant extension of time; not to give price adjustment of over 4% of the total contract value and consequently IOCL condoned the delay of 1493 days and granted extension of time without applying any price discount. Further for the delay of 65 days, IOCL applied the price discount of Rs.6,44,40,021/- i.e. 4% of the total value of contract and thereafter IOCL released the payment of Rs.4,53,04,021/- against NCCL’s final bill (adjusting price discount of Rs.6.4 Crores as against Rs.14.8 Crores) and also returned NCCL’s Bank Guarantee which came to be fully accepted by the respondent NCCL. It is the case of IOCL that thereafter, it was not open for the respondent to raise any further claim. Therefore, it is the case on behalf of the petitioner that, there being ‘accord and satisfaction’ for the claim, being an ‘excepted claim’, it was not open for the respondent to invoke the arbitration agreement and request for appointment of an Arbitrator. It is also the case on behalf of the petitioner IOCL that in view of the specific decisions by the General Manager, on “Notified Claims”, in view of Clause 9.0.2.0, for the same claims which are not held to be ‘Notified Claims’ by the General Manager, the matter cannot be referred to the Arbitrator in view of the clause pertaining to excluded matters. On the other hand, it is the case on behalf of the respondent that acceptance of the amount of Rs.4,53,04,021/was under duress and coercion. It is also the case on behalf of the respondent that earlier offer dated 02.11.2016 was a conditional one and was in the nature of an offer and subsequently when the offer was partially allowed, the respondent without any delay communicated that the decision to partially allow its application for EOT is unacceptable as the same is not in accordance with the conditional offer given by the respondent. [Para 12][703-E-H; 704-A-C]

1.2 Having heard learned Counsel appearing for the respective parties and in the facts and circumstances of the case, 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. Similar view is expressed by this Court in the case of Vidya Drolia (supra). Therefore, in the facts and circumstances of the case, though it is specifically observed and held that aspects with regard to ‘accord and satisfaction’ of the claims can be considered by the Court at the stage of deciding Section 11(6) application, in the facts and circumstances of the case, the High Court has not committed any error in observing that aspects with regard to ‘accord and satisfaction’ of the claims or where there is a serious dispute will have to be left to the Arbitral Tribunal. However, at the same time, we do not agree with the conclusion arrived at by the High Court that after the insertion of Sub-Section (6-A) in Section 11 of the Arbitration Act, scope of inquiry by the Court in Section 11 petition is confined only to ascertain as to whether or not a binding arbitration agreement exists qua the parties before it, which is relatable to the disputes at hand. We are of the opinion that though the Arbitral Tribunal may have jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability, 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 non-arbitrable 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. [Para 13][705-C-H; 706-A-C]

1.3 Now, so far as the submission on behalf of the respective parties on the decision of the General Manager on Notified Claims in Civil Appeal No.341/2022 arising out of SLP (C) No.13161/2019 is concerned, the General Manager has decided / declared that the claims are not arbitrable since they had been settled and the arbitration agreement has been discharged under Clause

6.7.2.0 of the GCC and no longer existed / subsisted. As observed hereinabove, the claims had been settled or not is a debatable and disputable question, which is to be left to be decided by the Arbitral Tribunal. Therefore, matters related to the Notified Claims in the facts and circumstances of the case also shall have to be left to be decided by the Arbitral Tribunal as in the fact situation the aspect of ‘accord and satisfaction’ and ‘Notified Claims’ both are interconnected and interlinked. Now, so far as the Civil Appeal No.342/2022 arising out of SLP (C) No.13816/2019 is concerned, the General Manager in exercise of powers under Clause 9.0.2.0 had declared that none of the claims of the respondent is a Notified Claim. From the communication dated 22.06.2018, it appears that the General Manager, after elaborately dealing with all the alleged Notified Claims of the respondent has thereafter found that none of the claims made by the respondent is a Notified Claim. On a conjoint reading of the relevant clauses of the GCC viz. Clauses 9.0.1.0 and 9.0.2.0, the dispute arising out of Notified Claims only, which is included in the Final Bill of the contractor can be referred to arbitration. However, as per Clause 9.0.2.0, any dispute or difference on whether or not a claim sought to be referred to arbitration by the contractor is a Notified Claim falls within the excluded matters and the Arbitrator or Arbitral Tribunal shall have no jurisdiction and/or authority with respect thereto. The dispute or difference whether or not a claim sought to be referred to arbitration by the contractor is a Notified Claim shall not and cannot form the subject matter of any reference or submission to arbitration. Therefore, on a fair and conjoint reading of Clause 9.0.1.0 and 9.0.2.0, it can safely be concluded that (i) only the Notified Claims of the contractor included in the Final Bill of the contractor in accordance with the provisions of Clause 6.6.3.0 shall have to be referred to arbitration; (ii) whether or not a claim sought to be referred to arbitration by the contractor is a Notified Claim or not, the Arbitrator or Arbitral Tribunal shall have no jurisdiction at all; (iii) whether or not a claim is a Notified Claim or not shall have to be decided by the General Manager and that too, prior to arbitration proceeding with or proceeding further with the reference. Therefore, once the General Manager, on the basis of the material on record takes a conscious decision that a particular claim sought to be referred to arbitration is not a Notified Claim, such a claim thereafter cannot be referred to arbitration. The language used in Clauses 9.0.1.0 and 9.0.2.0 is very clear and unambiguous. As observed hereinabove, 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. As observed by this Court in a catena of decisions, unless the effect of agreement results in performance of an unlawful act, an agreement, which is otherwise legal, cannot be held to be void and is binding between the parties. At this stage, the decision of this Court in the case of Sreekanth Transport (supra) is required to be referred to. In the case before this Court, the contract provided for exclusion of some matters from the purview of arbitration. A senior officer of the department was given the authority and power to adjudicate the same. One of the clauses provided that the decision of the Senior Officer, being the Adjudicator, shall be final and binding between the parties. This Court considered the same as ‘excepted matters’. [Para 13.113.3][706-C-H; 707-A-G]

1.4 In that view of the matter, the High Court has misread and misinterpreted the clauses 9.0.1.0 and 9.0.2.0 and has seriously erred in holding that where there is contestation or the decision rendered by the General Manager leaves scope for argument as to whether the claims alleged by the contractor can be categorized as Notified Claim is best left to the Arbitral Tribunal. The dispute whether the claim is a Notified Claim or not is specifically excluded from the scope, purview and ambit of the arbitration agreement. Therefore, once such a dispute falls within the ‘excepted matters’, any decision by the General Manager on the issue of Notified Claims cannot be the subject matter of arbitration proceeding. Therefore, the High Court has erred in referring the dispute to arbitration and appointing a sole Arbitrator to adjudicate on the dispute with respect to the claims which as such are held to be not Notified Claims by the General Manager. Therefore, the Civil Appeal No.342/2022 arising out of SLP (C) No.13408/2019 as well as Civil Appeal Nos.343/2022 and 345/2022 arising out of SLP (C) Nos.13813/2019 and 13816/2019 respectively deserve to be allowed and the impugned judgment and orders passed by the High Court in respective arbitration petitions deserve to be quashed and set aside. [Paras 13.4, 13.5][708-C-G]

1.5 In view of the above and for the reasons stated above, following order is passed.

(1) Civil Appeal No.341/2022 arising out of the impugned judgment and order passed by the High Court in Arbitration Petition No.115/2018 is hereby dismissed. However, 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.

(2) Civil Appeal No.342/2022 arising out of the impugned judgment and order passed by the High Court in Arbitration Petition No.356/2018 is hereby allowed. Impugned judgment and order passed by the High Court in Arbitration Petition No.356/2018 referring the dispute between the parties to arbitration and appointing the Arbitrator is hereby quashed and set aside.

(3) Similarly, Civil Appeal No.343/2022 arising out of the impugned judgment and order passed by the High Court in Arbitration Petition No.116/2018 and Civil Appeal No.345/2022 arising out of the impugned judgment and order passed by the High Court in Arbitration Petition No.406/2018 are allowed and consequently, the impugned judgments and orders passed by the High Court in Arbitration Petition Nos.116/2018 & 406/2018 are hereby quashed and set aside.

(4) So far as Civil Appeal No.344/2022 arising out of the impugned judgment and order passed by the High Court in Arbitration Petition No.407/2018 is concerned, the same is partly allowed. 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. [Para 14][709B-H; 710-A-D]

Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. (2017) 2 SCC 228 : [2016] 9 SCR 83; United India Insurance Co. Ltd. v. Hyundai Engg. &

Construction Co. Ltd. (2018) 17 SCC 607 : [2018] 12 SCR 1085; Duro Felguera S.A. v. Gangavaram Port Limited (2017) 9 SCC 729 : [2017] 10 SCR 285; United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd. (2019) 5 SCC 362 : [2019] 5 SCR 521; Mayavati

Trading Private Limited v. Pradyuat Deb Burman (2019)

8 SCC 714 : [2019] 12 SCR 123; Vidya Drolia vs Durga Trading Corporation (2021) 2 SCC 1; Swiss Timing Limited v. Commonwealth Games 2010 Organizing

Committee (2014) 6 SCC 677 : [2014] 6 SCR 514; Ambica Construction v. Union of India (2006) 13 SCC

475 : [2006] 9 Suppl. SCR 188; R.L. Kalathia & Co. v. State of Gujarat (2011) 2 SCC 400 : [2011] 1 SCR 391; BSNL v. Motorola India (P) Ltd. (2009) 2 SCC 337 : [2008] 13 SCR 445; National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. (2009) 1 SCC 267 :[2008]

13 SCR 638; Zostel Hospitality (P) Ltd. v. Oravel Stays (P) Ltd. (2021) 9 SCC 765; Datar Switchgears Ltd. v. Tata Finance Ltd. (2000) 8 SCC 151; DLF Universal Ltd. & Anr. v. Director, Town and Country Planning Department, Haryana & Ors. (2010) 14 SCC 1 : [2010]

15 SCR 85; Rajasthan State Industrial Development and Investment Corporation & Anr. v. Diamond and Gem Development Corporation Ltd. & Anr. (2013) 5 SCC

470 : [2013] 4 SCR 331 ; Booz Allen & Hamiltan Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532 : [2011] 7 SCR 310; DLF Home Developers Limited v. Rajapura Homes Private Limited and Another 2021 SCC Online SC 781 – referred to.