Can Supreme Court look beyond the Arbitration agreement to decide whether there was intention to arbitrate between two parties?

CASE – M/S. DURO FELGUERA, S.A. VERSUS M/S. GANGAVARAM PORT LIMITED

IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION ARBITRATION PETITION NO.30 OF 2016

BENCH – BANUMATHI, J.

 

FACTS OF THE CASE – 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 CompanyDuro 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/TenderOriginal 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.

ISSUE INVOLVED –

The case mainly include two issue:

  • 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?

 

  • 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?

 

CONTENTIONS – 

PETITIONER – (Mr. Sunil Gupta learned Senior Counsel appearing for petitioner)

  • It was 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

RESPONDENT – (Mr. Mukul Rohtagi and Mr. Raju Ramachandran, learned Senior Counsel appearing for Respondent)

  • 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 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.

 

 

 

 

JUDGEMENT/CONCLUSION –

It was held that there were different agreements, each having its own arbitration clause, and hence there had to be arbitral tribunals. Also, the dispute with respect to DF was an international arbitration, whereas the disputes with respect to FGI were a domestic arbitration. GPL placed reliance on Chloro Controls India Pvt.Ltd. v.Severn Trent Water Purification Inc and others (2013) 1 SCC 641 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 agreement. However, it was distinguished by pointing out that therein the arbitration clause was widely couched to bring within its ambit all disputes under and in connection with the principal agreement. Such a clause was absent in the instant case. Further, it was held that after the 2015 amendment, the power of the Court to appoint the arbitrator under Section 11 has been narrowed down to expressly state that the Court need only examine the existence of arbitration agreement. Regarding the scope of Section 11(6A), it was observed as hereunder:- 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.

It was also observed that 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. There is no dispute that there are five distinct contracts pertaining to five different works. The argument that the MoU substituted all the earlier five agreements was rejected. The matters were disposed of with the following conclusions:- 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.

 

(This is submitted by Sajal Singhai, a Law Student)

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