Arb. P. No.6/2010 Page 1 of 30 13 * IN THE HIGH COURT OF DELHI AT NEW DELHI + Date of Decision : 21.09.2010 % ARB. A. 6/2010 NATIONAL HIGHWAYS AUTHORITY OF INDIA ..... Appellant Through: Mr. Ramji Srinivasan, Senior Advocate with Mr. Sumit Gehlot, Advocate versus M/S YOU ONE MAHARIA J.V. & ORS. ..... Respondents Through: Mr. Prashant Bhushan, Advocate CORAM: HON’BLE MR. JUSTICE VIPIN SANGHI 1. Whether the Reporters of local papers may : No be allowed to see the judgment? 2. To be referred to Reporter or not? : Yes 3. Whether the judgment should be reported : in the Digest? Yes % JUDGMENT (Oral) VIPIN SANGHI, J 1. By this appeal preferred under Section 37(2) of the Arbitration and Conciliation Act, 1996 (the Act), the appellant seeks the setting aside of the order dated 05.11.2009 passed by the arbitral tribunal whereby the arbitral tribunal allowed the application preferred by the respondent to intervene in the arbitral proceedings and also directed that the equipment and machinery detailed in para 7 of the application be released in favour of the respondent. Arb. P. No.6/2010 Page 2 of 30 2. To understand the controversy before me, it is necessary to set out some of the facts. M/s You One Maharia (JV) (hereinafter referred to as „the JV‟) entered into a contract dated 23.05.2001 with the appellant NHAI. Under this contract, the JV was awarded the work of 4/6 laning and upgrading of the existing 2 lanes road in the State of Andhra Pradesh from Km.49 (Champavati River) to Km.97 (Srikakulam) Section of NH-5 of Kolkata-Chennai Corridor. The said contract, inter alia, contained the following clauses: “54.1 All contractors equipments, temporary works and materials provided by the contractor at the site of works shall be of the capacity quality approved by the Engineer and shall be deemed to be exclusively intended for the execution of the Works. All these shall be operated/used and maintained in a manner acceptable to the Engineer. The contractor shall not remove the same or any part thereof, except for the purpose of moving it from one part of the site to another, without the consent of the Engineer. Provided that consent shall not be required for vehicles engaged in transporting any staff, labour Contractors equipments, Temporary Works, Plant and materials to or from the site. 63.1(4) The Employer may, after giving fourteen days‟ notice to the Contractor, enter upon the Site and expel the Contractor therefrom without thereby voiding the Contract, or releasing the Contractor from an of his obligations or liabilities under the Contract, or affecting the rights and powers conferred on the Employer or the Engineer by the Contract, and may himself complete the Works or may employ any other Contractor to complete the works. The employer or such other Contractor may use for such completion so much of the Contractor‟s Equipment, Plant, Temporary Works and materials which have been deemed to be reserved exclusively for the execution of the Works, under the provisions of the Arb. P. No.6/2010 Page 3 of 30 Contract, as he or they may think proper, and the Employer may, at any time, sell any of the said Contractor‟s Equipment, Temporary Works and unused Plant and materials and apply the proceeds of sale in or towards the satisfaction of any sums due or which may become due to him from the Contractor under the Contract.” 3. The general conditions of contract were contained in Part 1, which stated that “The general conditions of contract comprise ”Conditions of Contract for Works of Civil Engineering Construction – Part I, General Conditions, 4th edition, 1987 (Reprinted in 1988 with Editorial Amendments; Reprinted in 1992 with further amendments) published by the Federation Internationale Des Ingenieurs – Conseils (FIDIC), Lausanne, Switzerland.” The conditions of contract for works of civil engineering construction of FIDIC i.e. Federation Internationale Des Ingenieurs – Conseils contained the general conditions in Part I. In the definition clause contained in clause 1.1, sub clause (f)(v) the term “Contractor‟s Equipment” is defined to mean “all appliances and things of whatsoever nature (other than Temporary Works) required for the execution and completion of the Works and the remedying of any defects therein, but does not include Plant, materials or other things intended to form or forming part of the Permanent Works.” 4. During the working of the aforesaid contract between the appellant and the JV it was found that the various bank guarantees furnished by the JV were forged and fabricated. Consequently, the appellant terminated its contract with the JV and sought to exercise the rights conferred by the aforesaid clauses to seize the equipments Arb. P. No.6/2010 Page 4 of 30 brought to site by the JV. The appellant preferred OMP No.452/2005 under Section 9 of the Act, wherein it appears, that the Court passed orders of status quo on 07.12.2005 and 31.01.2006 with regard to possession of the equipment and machinery detailed in Annexure „C‟ &‟ C1‟ till the arbitration proceedings are disposed of by the arbitral tribunal. The aforesaid OMP was disposed of by the Court on 23.03.2006 with the direction that the orders dated 07.12.2005 and 31.01.2006 shall continue. However, the Court observed that it was open to the parties to seek modification of the interim order by an application before the arbitral tribunal. 5. The respondent then moved OMP No.555/2006 under Section 9 of the Act on the ground that various equipments belonging to it had been given by it to the JV on hire which had been seized by the appellant. The respondent sought to release of those equipments by filing the aforesaid OMP. The said OMP was disposed of by the Court on 04.07.2007. The Court held that in the absence of an arbitration agreement between the petitioner before it, i.e. the respondent herein and the appellant herein, the court could not come to the aid and rescue of the petitioner. The Court granted liberty to the respondent herein to approach the Court which heard OMP No.452/2005 to seek variation of the orders passed therein, as the orders had been passed in OMP No.452/2005 without hearing the respondent herein. The Court also observed that it would be open to the appellant herein i.e. NHAI to act fairly and in accordance with the law, and if they are convinced Arb. P. No.6/2010 Page 5 of 30 that the machinery claimed by the respondent had not been purchased out of mobilization fund advanced to the JV, it was hoped that the same would be returned to the respondent herein. 6. Upon passing of the aforesaid order the respondent herein moved an application in OMP No.452/2005 being I.A. No.3806/2008. Upon hearing that application the Court held that the said application being I.A. No.3806/2008 was not maintainable. The Court also observed that while disposing of OMP No.452/2005 the Court had given liberty to the parties to seek modification of the orders passed in the said OMP. However, the respondent herein was not a party in OMP No.452/2005 and there was no agreement whatsoever between the respondent/applicant and the appellant NHAI. The Court held that the respondent may approach the arbitral tribunal “for permission to be heard in the matter”. The respondent was also not precluded from taking any other steps that may have already been taken to protect its interest. The right of the appellant herein to raise its objections before the arbitral tribunal were preserved. 7. In this background, the respondent moved an application before the arbitral tribunal dated 20.07.2009, firstly to seek permission to move the application for return of equipment/machinery claimed by it and for a direction to the appellant/claimant NHAI to return the equipment/machinery and, secondly to seek damages to the tune of Rs.5 crores on account of loss of income for four years. By the impugned order the learned arbitral tribunal has, as aforesaid, allowed Arb. P. No.6/2010 Page 6 of 30 the application by permitting the respondent to move the said application and by directing the appellant to return the equipment stated to have been leased by the respondent to the JV. 8. Two issues were raised by the appellant before the arbitral tribunal which clearly find recorded in the impugned order. The first issue raised by the appellant was with regard to the right of the respondent to participate in the arbitral proceedings, and the jurisdiction of the arbitral tribunal to entertain the application of the respondent even for the purpose of seeking the release of the equipment claimed by it as its equipment and machinery. The second issue was with regard to the scope and effect of the contractual clauses in the contract between the appellant and the JV, which have been set out hereinabove on the rights of the respondent. While deciding the first issue the tribunal noted the decision of the learned Single Judge in the case of NHAI v. M/s China Coal Construction Group Corpn., AIR 2006 Delhi 134. The tribunal also noted that in the said judgment the learned Single Judge of this Court had taken the view that a stranger to a contract could not move the Court under section 9 of the Act to seek any interim measures or variation of any interim measures. The tribunal then relied upon the judgment rendered by the Division Bench in an appeal arising out of the aforesaid judgment of the learned Single Judge, delivered in L.P.A. No.372/2006 titled SREI Infrastructure Finance Ltd. v. NHAI decided on 02.03.2006. The Division Bench allowed the appeal Arb. P. No.6/2010 Page 7 of 30 without going into the issue as to whether SREI Infrastructure Finance Ltd. who was the financer in that particular case could have moved the petition under Section 9 of the Act. 9. Despite noticing that the Division Bench had not gone into the said issue of locus of the financier of the equipment to approach either the Court under section 9 of the Act, or the arbitral tribunal, the tribunal allowed the respondent to be heard in support of its application and by following the Judgment in SREI Infrastructure Finance Ltd. (supra) allowed the application preferred by the respondent. 10. Before me two submissions have been raised by learned senior counsel for the appellant. He firstly argues that it is well-settled that a party, who is not a party to an arbitration agreement cannot be heard by an arbitral tribunal. He submits that an arbitral tribunal is a forum which derives its authority from the arbitration agreement executed between the parties, and the said private forum cannot invest itself with the jurisdiction to entertain the claims and submissions of any third party. In this behalf he places reliance on the decision of the Supreme Court in Firm Ashok Traders & Anr. v. Gurumukh Das Saluja & Ors. (2004) 3 SCC 155 wherein the Supreme Court has held “The qualification which the person invoking jurisdiction of the Court under Section 9 must possess is of being a “party” to an arbitration agreement. A person not party to an arbitration agreement cannot enter the Court for protection under Arb. P. No.6/2010 Page 8 of 30 Section 9.”. He also relies upon the decision of this Court in Indusind Bank Ltd. v. NHAI 166 (2010) DLT 354 which in turn notices various decisions on the subject. He submits that the same principal on which a petition under Section 9 of the Act has been held to be not maintainable by a stranger to an arbitration agreement, would be applicable even in respect of relief sought by a stranger to an arbitration agreement before the arbitral tribunal. He submits that the tribunal has, in fact, skirted the issue of the locus of the respondent to move the application before it, even though it took notice of the fact that the Division Bench in SREI Infrastructure Finance Ltd. (supra) did not deal with the said aspect, inspite of the fact that the learned Single Judge had specifically held that a stranger could not maintain a petition under Section 9 of the Act. 11. The second submission of Mr. Ramji Srinivasan, Sr. Advocate is that even on merits the order passed by the tribunal cannot be sustained. He submits that the expression “all contractor’s equipment” takes within its scope all equipments brought by the contractor to site of work and by virtue of clause 54.1 they are deemed to be exclusively intended for the execution of the work. He submits that the contract does not draw any distinction between the equipment brought by the contractor to site, on the basis of it being in the ownership of the contractor, or it having been taken on hire or under any other arrangement by the contractor. He submits that the contracts which are being got executed by the NHAI all over the country for Arb. P. No.6/2010 Page 9 of 30 development of the national highways cannot be allowed to suffer in the event of the contracts being rescinded due to defaults of the contractors. It is, therefore, envisaged under the contracts executed by the appellant with the contractors, that upon termination of the contracts, the equipments brought to site by the contractor shall be available for being used for the completion of the contractual work. In this regard he relies on clause 63.1(4) which has been extracted hereinabove. Mr. Srinivasan further submits that the right of the appellant extends to even the sale of the contractor‟s equipment, temporary works and unused plant and materials and to apply the proceeds of sale in or towards the satisfaction of any sums due or which may become due from the contractor under the contract. 12. Mr. Srinivasan places strong reliance on the decision of the Supreme Court in K.P.M Builders Pvt. Ltd. v. NHAI & Anr. in Civil Appeal Nos.3300-3301 of 2008 decided on 25.02.2010. In this case, the Supreme Court was confronted with a similar dispute. The relevant contractual term was contained in clause 61.1, which provided “All materials on the Site, Plant, Equipment, Temporary Works and Works are deemed to be the property of the Employer, if the Contract is terminated because of a Contractor’s default.” 13. Mr. Srinivasan submits that the contractual terms in the present contract in spirit and intent are the same as that contained in clause 61.1 of the general conditions of the contract in the case of K.P.M Builders (supra). The Supreme Court in this decision dismissed Arb. P. No.6/2010 Page 10 of 30 the appeal preferred by K.P.M Builders (supra), who had given on hire/finance the equipment to the contractor which incidentally, was M/s. You One Maharia (JV). While dismissing the appeal the Supreme Court held that there was no privity of contract between the NHAI and the hirer K.P.M Builders Pvt. Ltd. Before allegedly hiring the machineries/equipments to the contractor, the appellant did not inform NHAI that its machineries/equipments were being hired to the contractor for use by the contractor and that it was the owner of any particular machinery. The Court also noticed that the hirer was aware of the contract between the NHAI and the contractor and also its terms, in particular clause 61 of the general conditions. In spite of that being the position, it did not require the NHAI to exclude its machinery from clause 61 before termination of the contract. The Court also noticed that the hirer had not produced the alleged contract entered into by it with the contractor. The Court observed that the NHAI had not entered into any contract or arrangement with the hirer, nor given any assurance to it in regard to the machineries, nor owed any duty or obligation towards the hirer. The Supreme Court further held that if the hirer had entered into any contract with the contractor, and if it has any enforceable rights in that behalf, it is open to the hirer to enforce such rights against the contractor. So far as the NHAI is concerned, it was held that it owed no duty or obligation towards the hirer. The appellant hirer could not come in the way of NHAI enforcing its right as against the contractor. While dismissing the hirer‟s appeals, the Supreme Court held that the dismissal of the appeal Arb. P. No.6/2010 Page 11 of 30 would not come in the way of the appellant hirer from taking action against the contractor, which may be available to it in law. 14. Mr. Srinivasan points out that, admittedly, the respondent had already initiated arbitration proceedings against the JV in terms of the arbitration agreement contained in its hiring agreement with the JV, which is also pending before Mr. Justice Jaspal Singh (Retd.), who is also the author of the impugned order. 15. Mr. Srinivasan submits that a perusal of the application preferred by the respondent before the arbitral tribunal shows that the respondent was aware of the factum that the JV had entered into a contract with the appellant for the work in question. This is evident from paragraphs 5 & 6 of the said application. It is recorded that the JV had been awarded the work of widening of 4/6 laning and upgrading of the existing 2 lane road in the State of Andhra Pradesh from Km.49 (Champavati River) to Km.97 (Srikakulam) Section of NH-5 of Kolkata- Chennai Corridor in the year 2001, and that the respondent had entered into two separate agreements dated 07.02.2004 and 20.06.2004 with the JV/contractor for taking certain constructions machinery/equipment with manpower on rent for use at the work site in relation to the aforesaid contract between the NHAI and JV. It is, therefore, argued that the respondent was aware of not only the scope of the work, but also the site at which the work was to be carried out. Mr. Srinivasan submits that the respondent should have acquainted itself with the contractual terms and conditions under which the JV was Arb. P. No.6/2010 Page 12 of 30 awarded the contract by the NHAI. The respondent ought to have been aware of the rights of the NHAI under its contract with the JV. He, therefore, submits that the impugned order cannot be sustained. 16. On the other hand, Mr. Prashant Bhushan, learned counsel for the respondent, has defended the impugned order by submitting that this Court had repeatedly directed that the respondent may approach the arbitral tribunal to seek the release of its equipment and machinery. He submits that when the respondent had initially moved OMP No.555/2006, this Court vide order dated 04.07.2007 granted liberty to the respondent to approach the Court which passed the order in OMP No.452/2005, or the arbitrator for variation of the order passed in OMP No.452/2005. Accordingly, the respondent had moved an application in OMP No.452/2005. He submits that the application moved by the respondent being I.A. No.3806/2008 was also similarly disposed of on 01.07.2009 and the respondent herein was permitted to approach the arbitral tribunal for permission to be heard in matter. Mr. Bhushan submits that the Court after passing interim orders in OMP No.452/2005 had divested itself of the task of passing any further orders and had left the aspect of passing further interim orders, or variation of the orders passed by the Court, to the arbitral tribunal. He submits that a party against whose interest orders have been passed can always approach the forum which has passed the orders to seek a recall of the orders. He submits that it is a basic requirement of the principles of natural justice, that no party can be condemned unheard. Arb. P. No.6/2010 Page 13 of 30 He submits that a third party who is affected by an interim measure/order cannot be left remediless by denying him the right to seek variation/vacation of the orders adversely affecting his rights. He, therefore, submits that the approach of the respondent to the arbitral tribunal by moving the aforesaid application cannot be faulted and it cannot be said that the tribunal did not have the jurisdiction to entertain the said application. 17. On the second aspect the submission of Mr. Bhushan is that the decision of the Division Bench in SREI Infrastructure (supra) sets out the rationale for not permitting the NHAI to seize the equipment and machinery which does not belong to the contractor and belongs to a third party. He submits that in the case of SREI Infrastructure (supra), the contractor China Coal had taken the equipment from SREI Infrastructure (supra) on hire purchase basis. However, the equipment did not vest with the contractor China Coal as the hire charges had not been paid in their entirety. The Division Bench did not agree with the view of the learned Single Judge that the NHAI was entitled to take possession of the equipment brought in by China Coal for utilization in its work. The Division Bench held that NHAI could take possession of the property belonging to China Coal, but surely not the property of a third party. Reliance placed by the learned Single Judge on clause 63.1 of the agreement, which is also relied upon by the appellant in this case, was negatived by the Division Bench. Mr. Bhushan further submits that the decision in SREI Infrastructure Arb. P. No.6/2010 Page 14 of 30 (supra) was challenged before the Supreme Court in Special Leave Petition No.5181/2006. The said petition was disposed of by the Supreme Court on 10.03.2006 and the judgment of the Division Bench was not interfered with, except that the receiver appointed by the Division Bench was replaced by the receiver appointed by the Calcutta High Court. 18. Mr. Bhushan also places reliance on another Single Judge decision of this Court in NHAI v. M/s You One Maharia (JV) & Ors. in OMP No.342/2004 decided on 04.04.2005. The contractual clauses considered by the Court in this decision were the same as the one with which we are concerned in the present case. This Court interpreted the contractual terms to mean that only equipments and machineries which were purchased by the contractor from out of the mobilization advance provided by the NHAI could be taken possession of and used by the NHAI in the eventuality of the contract being terminated. Mr. Bhushan submits that it is not even the appellant‟s case that the equipment in question was purchased from out of the mobilization advance that may have been provided by the appellant to the JV. 19. So far as the decision in the case of K.P.M Builders (supra) is concerned, the submission of Mr. Bhushan is that in that case the hirer had earlier (in the proceedings before the High Court), sought relief only in respect of those equipments which were beyond the work site. However, after obtaining relief in respect of equipments which were beyond the work site from the Division Bench of the High Court, Arb. P. No.6/2010 Page 15 of 30 the hirer K.P.M Builders had approached the Supreme Court to contend that even those equipments which were brought to the work site, and which did not belong to the contractor and were taken on hire by it, could not be possessed or used by the NHAI. He submits that it was in that light that the Supreme Court held that the public law remedy would not be maintainable. 20. He submits that in K.P.M Builders (supra) the Court had, as a matter of fact, held that the hirer was aware of the contract between the NHAI and the contractor, whereas in the present case the respondent was not aware of the contractual terms on the basis of which the appellant sought to take possession of the machinery and equipment belonging to the respondent. Mr. Bhushan has also stressed on the difference in the language used in the contractual terms in the contract between the appellant and the JV on the one hand and clause 61.1 considered by the Supreme Court in the case of K.P.M Builders (supra) on the other hand. He submits that whereas under clause 61.1